• TSX +109.61
• DOW -53.13 On the data front, demand for a wide range of U.S. manufactured goods unexpectedly fell in January, while new applications for jobless benefits rose again last week, suggesting a step back in the economic recovery.
• Dollar -.48c to 94.40cUS as market players fled to the greenback and other safe havens on worries about possible downgrades to Greece's sovereign debt and sluggish U.S. economic data
• Oil -$1.83 to $78.17US per barrel.
• Gold +$11.30 to $1,107.80 USD per ounce
David Rosenberg took your questions on housing In December, 2009, economist David Rosenberg wrote, “Is the Canadian housing market in a bubble? It sure looks that way.” (Floating high on a delicate housing bubble)
Two months later, Mr. Rosenberg reasserted his views in another column, arguing, “the hot Canadian housing market is now likely to burn even brighter in coming months... While there may be a healthy debate as to whether there is a bubble or not in the Canadian housing market, suffice it to say that residential mortgage balances relative to disposable income just hit 92 per cent which is exactly where this ratio was in the U.S. in 2005 when the mania was about to morph into a full-fledged bubble. It was barely a year later that the process of mean reversion began its course.”
Mr. Rosenberg took your questions on real estate, the economy and bubbles in a live discussion. You can view it by clicking on the Cover It Live box below.
Mr. Rosenberg received both a Bachelor of Arts and Masters of Arts degree in economics from the University of Toronto. Prior to joining Gluskin Sheff in 2009, he was chief North American economist at Bank of America-Merrill Lynch in New York and before that, he was a senior economist at BMO Nesbitt Burns and Bank of Nova Scotia.
Mr. Rosenberg has ranked first in economics in the Brendan Wood International Survey for Canada for the past seven years and was on the U.S. Institutional Investor All American All Star Team for the last four years, and was ranked second overall in the 2008 survey. Mr. Rosenberg also ranked fourth out of 104 economists in the 2009 Thompson-Extel survey of global portfolio managers.
when do we expect housing correction for the prices to come to down to reality.
10:38 Tony S.
David RosenbergDavid Rosenberg: ]
I expect the correction to begin sometime in the second half of this year
Looking on a 3-5 year horizon and with the likely chance of (significant?) interest rate hikes, is this likely to be a period where fixed rate mortgages are better than variable
David Rosenberg:
I found looking at historical data that sticking with shorter-term mortgages made more sense the vast majority of the time .... only when the Bank of Canada moves so aggressively as to invert the yield curve has this not been the case ... and I doubt Mr. Carney is going to do that in the context of a highly uncertain economic outlook.
Have you had the opportunity to study the Canadian real estate market during the last serious correction during 91-94? In light of everything that has happened to the global (& Canadian) economies and the increased amount of leverage in the system, what do you conclude about the potential severity of the peiod ahead relative to the prior correction?
10:43 George g
David Rosenberg:
The major difference is that back in the early 1990s John Crow had a perceived inflation problem on his hands and interest rates surged to double-digits .... and we had much more speculation back then (flipping). The more acute problem this time around surrounds the degree of leverage that has been applied to purchase residential real estate and the thin layer of home equity that buyers over the past two years have considering the easing in CMHC guidelines. While interest rates are not as big a problem now, one has to wonder how the excessive price today is going to crowd out potential new entrants .... as was the case south of the border around the summer of 2006.
What about smaller markets (i.e. NOT Toronto and Vancouver)? I'm in London, ON and housing prices don't seem to be much different than usual. I'm thinking of trying to buy in the next year or so. Are smaller markets just behind the trend or not affected?
10:59 sgoodwin
David Rosenberg:
I accept the premise that much of the overvaluation is in the urban areas, especially Toronto and Vancouver. But I shudder somewhat because I recall all too well in 2005 and 2006 about how the bubbles were regional and concentrated in Florida and California. Hindsight shows it was a lot more national than people were willing to acknowledge. Smaller markets are probably more stable -- that would not surprise me.
Our banks are heralded as among the best and safest in the world....will a downturn in real estate valuations change that view?
11:02 Joel M.
David Rosenberg:
Since the vast majority of the mortgages that have been issued in the last 1-2 years have been CMHC-insured, then the risk is more on the taxpayer than it is on the banks. Of course, there are second-round impacts from a housing correction (in terms of impairing consumer ability to pay off other loans) that could pose a risk but the Canadian banks are not nearly as vulnerable to a housing shock as their U.S. brethren were
Do you think it will be an actual downturn, or will we see a more balanced market as time goes on? I feel the demand will outweigh supply for quite a while, and so I just don’t see how prices will fall.
David Rosenberg:
They could move higher near-term indeed if there is a demand rush ahead of the CMHC changes, the sales tax harmonization in Ontario and BC and the broad expectation that the Bank of Canada starts to hike this summer. All these factors could "bring foward" housing demand and add more froth to prices this spring before they come down to earth. Good point.
I think that we will see a short-term boost to demand followed by a sharp slowing in the second half of the year. Meanwhile, the builders are boosting production of homes and condos ... keep a close eye on the unsold inventory data going forward.
Friday, February 26, 2010
Thursday, February 25, 2010
Financial Update For Feb. 25, 2010
• TSX -4.88 amid mixed earnings news and reassurance from the head of the U.S. central bank that key interest rates will stay low to stimulate the economy.
• DOW +91.75 In his first day testifying to the House, Bernanke told the House Financial Services Committee that while the economic recovery is moving along, the jobs market remains weak. Against this backdrop, the Fed is unlikely to lift the fed funds rate, the key overnight bank lending rate, anytime soon.
• Dollar +.24c to 94.88cUS
• Oil +$1.14 to $80.00US per barrel.
• Gold -$6.10 to $1,096.50 USD per ounce
Big banks' credit provisions may offer clues on economy
Earnings season starts Thursday
John Greenwood, Financial Post
A year after the worst financial meltdown in more than 60 years and in the wake of an equally historic recovery, analysts are closely watching the pile of cash set aside by the big banks to cover future bad loans known as provisions for credit losses.
The reason is simple: If the provisions get smaller, it's a sign that the economy is truly on the mend just as most economists predicted. If on the other hand the money pile gets bigger, that would suggest the banks are preparing for a less positive future.
We get our first peek of the year at what the industry is expecting when Canadian Imperial Bank of Commerce reports its first-quarter results this morning, kicking off earnings season for the big banks.
Analysts generally believe that the worst is over or soon will be with provisioning declining in 2010 against the backdrop of a strengthening economy.
Jim Bantis, an analyst at Credit Suisse, scaled back his forecast for 2010 credit loss provisions at the Big Six from $12-billion to $10.6-billion because of recent stability in credit card losses and the absence of large corporate loan losses.
John Aiken, an analyst at Barclays Capital, is similarly optimistic. "All signs point to improving credit quality and lower provisions," he said in a research note.
Brad Smith, an analyst at CI Capital Markets, takes a more bearish view, pointing to continued deterioration in credit conditions in the United States in the last three months of 2009. "With limited improvement evident in recent domestic employment and bankruptcy data, scope for adoption of a more optimistic view of domestic credit in our view remains limited," Mr. Smith said in a note.
Another reason for the concern around loss provisions is the sheer scale of the underlying borrowing. While Canadian banks have become global models for conservative risk management practices, the behavior of some of their customers has become a major cause for concern for some industry insiders.
Household borrowing compared with income has risen to 145%, from around 95% two decades ago and could exceed U.S. levels in the next three years, according to Moody's Canada. The concern is that if the economy suddenly deteriorates or if interest rates take a jump, many of those borrowers could find themselves unable to make the payments on their loans.
Peter Routledge, a senior vice-president at the rating agency, questions whether the banks are properly considering such a scenario. The conventional wisdom is that Canadians will try to meet their mortgage payments even if the house price falls below the value of the loan, and that idea is baked into many bank forecasts.
The trouble is that consumer behaviour is often very difficult to predict and historical performance is not always the best guide, Mr. Routledge said.
Read more: http://www.financialpost.com/news-sectors/financials/story.html?id=2608752#ixzz0gY3Cirnl
Bernanke's bittersweet rate pledge
Janet Whitman, Financial Post
NEW YORK -- Stock-market investors may have cheered Ben Bernanke's plan to keep benchmark interest rates at next to zero for at least the next several months but his pledge is also a signal the U.S. economy remains in rough shape.
Just how precarious the country's nascent economic recovery is was highlighted by a slew of data released this week: U.S. banks posted their sharpest drop in lending last year since 1942, sales of new homes plunged to their lowest level on record last month, already gloomy consumer confidence took a surprise dive this month, and hundreds of community banks could be forced to close their doors because of their exposure to souring commercial loans.
U.S. unemployment, meanwhile, is expected to remain stuck for the rest of this year at around a 26-year high of 10%.
Speaking before U.S. lawmakers at a hearing in Washington, D.C., Wednesday, Mr. Bernanke, the chairman of the U.S. Federal Reserve, said the economy still needs to be shored up by record-low interest rates.
"Notwithstanding the positive signs, the job market remains quite weak," he said as he delivered his semi-annual report to U.S. Congress. "Of particular concern, because of its long-term implications for workers' skills and wages, is the increasing incidence of long-term unemployment; indeed, more than 40% of the unemployed have been out of work six months or more, nearly double the share of a year ago."
Stocks surged on the news, relieved that borrowing to fuel leverage and company borrowing and investment would remain cheap for some time to come while rock bottom rates makes equities a more attractive bet than bonds.
The Dow Jones Industrial Average gained 91.75 points to 10,374.16, ending two days of losses. Toronto's main stock index ended virtually unchanged at 11,521.83.
Although perhaps a boon for stocks for now, the gloomy backdrop raises the question whether the U.S. economy can stand on its own two feet or faces the threat of a "double dip" recession as the hundreds of billions of dollars in government stimulus wears off.
"There's enough stimulus in the pipeline to keep the economy bumbling along for a while, but we haven't solved any of our main problems," said Joshua Shapiro, chief U.S. economist with MFR Inc. "There's still way too much leverage in this economy and how do you get out of that without further massive pain?"
Mr. Shapiro doesn't expect the economy, which emerged from its recession about seven months ago, to slip into a recession again this year or next. But he expects overall economic growth to slow in 2011 compared to this year. Beyond that, he said, the outlook is murky.
John Ryding, chief economist with RDQ Economics, said he's not anticipating another recession, but added that growth is likely to be so sluggish and employment so high that it might feel like a recession to many Americans.
"Jobs probably will start to be created in March and beyond, but the rate won't be fast enough to make significant inroads on the unemployment rate," Mr. Ryding said.
"It's going to feel like a recession in the labour market."
Tackling America's massive deficit will also be a major factor as the economy recovers.
"It would be helpful for the current situation if the Congress and the administration ... could provide a plan which shows how the deficit will fall to 2.5%-3% level, at least, over the next 10 years," Mr. Bernanke told lawmakers Wednesday. "I don't know exactly which programs, what taxes, what changes you would make. That's certainly up to Congress. But a concerted effort to do that would be, I think even a strong effort, would probably be good for confidence."
Some economists worry that lawmakers won't be able to find a solution to the debt problem.
"I think it's going to be very difficult for politicians to come to grips with this," said Mr. Shapiro of MFR. "The political cycle is two years or less. The temptation is to deny reality and go for temporary fixes."
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2608710#ixzz0gY4oXX1v
• DOW +91.75 In his first day testifying to the House, Bernanke told the House Financial Services Committee that while the economic recovery is moving along, the jobs market remains weak. Against this backdrop, the Fed is unlikely to lift the fed funds rate, the key overnight bank lending rate, anytime soon.
• Dollar +.24c to 94.88cUS
• Oil +$1.14 to $80.00US per barrel.
• Gold -$6.10 to $1,096.50 USD per ounce
Big banks' credit provisions may offer clues on economy
Earnings season starts Thursday
John Greenwood, Financial Post
A year after the worst financial meltdown in more than 60 years and in the wake of an equally historic recovery, analysts are closely watching the pile of cash set aside by the big banks to cover future bad loans known as provisions for credit losses.
The reason is simple: If the provisions get smaller, it's a sign that the economy is truly on the mend just as most economists predicted. If on the other hand the money pile gets bigger, that would suggest the banks are preparing for a less positive future.
We get our first peek of the year at what the industry is expecting when Canadian Imperial Bank of Commerce reports its first-quarter results this morning, kicking off earnings season for the big banks.
Analysts generally believe that the worst is over or soon will be with provisioning declining in 2010 against the backdrop of a strengthening economy.
Jim Bantis, an analyst at Credit Suisse, scaled back his forecast for 2010 credit loss provisions at the Big Six from $12-billion to $10.6-billion because of recent stability in credit card losses and the absence of large corporate loan losses.
John Aiken, an analyst at Barclays Capital, is similarly optimistic. "All signs point to improving credit quality and lower provisions," he said in a research note.
Brad Smith, an analyst at CI Capital Markets, takes a more bearish view, pointing to continued deterioration in credit conditions in the United States in the last three months of 2009. "With limited improvement evident in recent domestic employment and bankruptcy data, scope for adoption of a more optimistic view of domestic credit in our view remains limited," Mr. Smith said in a note.
Another reason for the concern around loss provisions is the sheer scale of the underlying borrowing. While Canadian banks have become global models for conservative risk management practices, the behavior of some of their customers has become a major cause for concern for some industry insiders.
Household borrowing compared with income has risen to 145%, from around 95% two decades ago and could exceed U.S. levels in the next three years, according to Moody's Canada. The concern is that if the economy suddenly deteriorates or if interest rates take a jump, many of those borrowers could find themselves unable to make the payments on their loans.
Peter Routledge, a senior vice-president at the rating agency, questions whether the banks are properly considering such a scenario. The conventional wisdom is that Canadians will try to meet their mortgage payments even if the house price falls below the value of the loan, and that idea is baked into many bank forecasts.
The trouble is that consumer behaviour is often very difficult to predict and historical performance is not always the best guide, Mr. Routledge said.
Read more: http://www.financialpost.com/news-sectors/financials/story.html?id=2608752#ixzz0gY3Cirnl
Bernanke's bittersweet rate pledge
Janet Whitman, Financial Post
NEW YORK -- Stock-market investors may have cheered Ben Bernanke's plan to keep benchmark interest rates at next to zero for at least the next several months but his pledge is also a signal the U.S. economy remains in rough shape.
Just how precarious the country's nascent economic recovery is was highlighted by a slew of data released this week: U.S. banks posted their sharpest drop in lending last year since 1942, sales of new homes plunged to their lowest level on record last month, already gloomy consumer confidence took a surprise dive this month, and hundreds of community banks could be forced to close their doors because of their exposure to souring commercial loans.
U.S. unemployment, meanwhile, is expected to remain stuck for the rest of this year at around a 26-year high of 10%.
Speaking before U.S. lawmakers at a hearing in Washington, D.C., Wednesday, Mr. Bernanke, the chairman of the U.S. Federal Reserve, said the economy still needs to be shored up by record-low interest rates.
"Notwithstanding the positive signs, the job market remains quite weak," he said as he delivered his semi-annual report to U.S. Congress. "Of particular concern, because of its long-term implications for workers' skills and wages, is the increasing incidence of long-term unemployment; indeed, more than 40% of the unemployed have been out of work six months or more, nearly double the share of a year ago."
Stocks surged on the news, relieved that borrowing to fuel leverage and company borrowing and investment would remain cheap for some time to come while rock bottom rates makes equities a more attractive bet than bonds.
The Dow Jones Industrial Average gained 91.75 points to 10,374.16, ending two days of losses. Toronto's main stock index ended virtually unchanged at 11,521.83.
Although perhaps a boon for stocks for now, the gloomy backdrop raises the question whether the U.S. economy can stand on its own two feet or faces the threat of a "double dip" recession as the hundreds of billions of dollars in government stimulus wears off.
"There's enough stimulus in the pipeline to keep the economy bumbling along for a while, but we haven't solved any of our main problems," said Joshua Shapiro, chief U.S. economist with MFR Inc. "There's still way too much leverage in this economy and how do you get out of that without further massive pain?"
Mr. Shapiro doesn't expect the economy, which emerged from its recession about seven months ago, to slip into a recession again this year or next. But he expects overall economic growth to slow in 2011 compared to this year. Beyond that, he said, the outlook is murky.
John Ryding, chief economist with RDQ Economics, said he's not anticipating another recession, but added that growth is likely to be so sluggish and employment so high that it might feel like a recession to many Americans.
"Jobs probably will start to be created in March and beyond, but the rate won't be fast enough to make significant inroads on the unemployment rate," Mr. Ryding said.
"It's going to feel like a recession in the labour market."
Tackling America's massive deficit will also be a major factor as the economy recovers.
"It would be helpful for the current situation if the Congress and the administration ... could provide a plan which shows how the deficit will fall to 2.5%-3% level, at least, over the next 10 years," Mr. Bernanke told lawmakers Wednesday. "I don't know exactly which programs, what taxes, what changes you would make. That's certainly up to Congress. But a concerted effort to do that would be, I think even a strong effort, would probably be good for confidence."
Some economists worry that lawmakers won't be able to find a solution to the debt problem.
"I think it's going to be very difficult for politicians to come to grips with this," said Mr. Shapiro of MFR. "The political cycle is two years or less. The temptation is to deny reality and go for temporary fixes."
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2608710#ixzz0gY4oXX1v
Tuesday, February 23, 2010
Financial Update For Feb. 23, 2010
• TSX -74.54 Weakness in resources, energy and financials stocks pulled the Canadian market into the red
• DOW -18.97 as investors weighed earnings news, President Obama's health care proposal and Schlumberger's $11-billion U.S. buyout deal for oil services rival Smith International. Stocks ended higher last week as investors digested the Federal Reserve's decision to lift the emergency bank lending rate
• Dollar -.20c to 95.91cUS
• Oil +$.25 to $80.16US per barrel.
Consumer debt could be drag on banks
John Greenwood, Financial Post
Last year Canadian banks emerged as global heroes after they made it through the financial crisis almost unscathed.
But if the financial meltdown was the defining challenge for 2009, analysts worry that ballooning debt levels may end up being the comparable trial for 2010 as consumers struggle to meet their obligations amid an uncertain economy and rising interest rates.
We'll find out what the big banks think as Canadian Imperial Bank of Commerce and National Bank of Canada kick off the bank earnings season on Thursday.
According to a recent report by Moody's Canada, Canadian household debt climbed to a record 145% of income, from around 95% 20 years ago, and could exceed U.S. levels in the next three years.
Meanwhile, a task force on financial literacy sponsored by the federal government found that more than a third of Canadians are struggling to keep track of their finances and make responsible decisions.
Analysts are watching closely because most of that debt, including nearly $446-billion of mortgages and $336-billion of credit cards and other loans, is held by the banks.
The good news for investors is that the riskiest mortgage debt is insured through the Canada Mortgage and Housing Corp.
Mario Mendonca, an analyst at Genuity Capital Markets, said he's not "overly concerned" by the high level of consumer debt, pointing out that Canadians tend to be conservative with their finances and try to meet their obligations even if they get into trouble.
With most economists predicting healthier economic growth in 2010 and 2011, unemployment should not prove a major headwind meaning that the banks' consumer loans are safe despite the high level of indebtedness, according to Mr. Mendonca.
He's calling for a provisions for credit losses to start to decline noticeably in the second half of the year as revenue from underwriting and advisory services pick up amid a strengthening economy.
"We view the next few quarters as a transition period," he said in a research note last week,
Barclays Capital analyst John Aiken is also optimistic on the debt front, pointing out in a recent note that "all signs point to improving credit quality and lower provisions."
Given recent positive signs in credit markets in Canada and the United States, Mr. Aiken said "it is quite possible" that the domestic banks will set aside less than they did last quarter to cover delinquencies.
Mr. Aiken's main area of concern is revenues from trading operations. A source of eye-popping profits last year as banks took advantage of wider spreads and the dislocation in credit markets, trading revenue at all the banks is expected to shrink in 2010 as financial markets continue to normalize.
"We believe that a significant decline in trading revenues could be the story of the quarter and reset earnings levels for 2010," he said in a note to clients.
Still, much depends on the economy which remains fragile as Ottawa looks for ways to withdraw supports put in place in the wake of the financial crisis.
"There is a fair degree of uncertainty," said Lindsay Gordon, chief executive of HSBC Bank Canada, who pointed out that while the Canadian economy appears in good shape relative to other countries, the world is increasingly connected and it was less than a year ago that storm gripping financial markets created almost "a sense of Armageddon."
"All governments including the Canadian government are in a challenging situation," he said in an interview.
Though a small player in this country HSBC has significant exposure to residential mortgages in Vancouver and other urban markets.
"There is no question that over the last year there has been an increase in delinquencies in residential mortgages at all the banks," he said, adding that the increase at HSBC has been slight.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2598833#ixzz0gJZR7Wun
• DOW -18.97 as investors weighed earnings news, President Obama's health care proposal and Schlumberger's $11-billion U.S. buyout deal for oil services rival Smith International. Stocks ended higher last week as investors digested the Federal Reserve's decision to lift the emergency bank lending rate
• Dollar -.20c to 95.91cUS
• Oil +$.25 to $80.16US per barrel.
Consumer debt could be drag on banks
John Greenwood, Financial Post
Last year Canadian banks emerged as global heroes after they made it through the financial crisis almost unscathed.
But if the financial meltdown was the defining challenge for 2009, analysts worry that ballooning debt levels may end up being the comparable trial for 2010 as consumers struggle to meet their obligations amid an uncertain economy and rising interest rates.
We'll find out what the big banks think as Canadian Imperial Bank of Commerce and National Bank of Canada kick off the bank earnings season on Thursday.
According to a recent report by Moody's Canada, Canadian household debt climbed to a record 145% of income, from around 95% 20 years ago, and could exceed U.S. levels in the next three years.
Meanwhile, a task force on financial literacy sponsored by the federal government found that more than a third of Canadians are struggling to keep track of their finances and make responsible decisions.
Analysts are watching closely because most of that debt, including nearly $446-billion of mortgages and $336-billion of credit cards and other loans, is held by the banks.
The good news for investors is that the riskiest mortgage debt is insured through the Canada Mortgage and Housing Corp.
Mario Mendonca, an analyst at Genuity Capital Markets, said he's not "overly concerned" by the high level of consumer debt, pointing out that Canadians tend to be conservative with their finances and try to meet their obligations even if they get into trouble.
With most economists predicting healthier economic growth in 2010 and 2011, unemployment should not prove a major headwind meaning that the banks' consumer loans are safe despite the high level of indebtedness, according to Mr. Mendonca.
He's calling for a provisions for credit losses to start to decline noticeably in the second half of the year as revenue from underwriting and advisory services pick up amid a strengthening economy.
"We view the next few quarters as a transition period," he said in a research note last week,
Barclays Capital analyst John Aiken is also optimistic on the debt front, pointing out in a recent note that "all signs point to improving credit quality and lower provisions."
Given recent positive signs in credit markets in Canada and the United States, Mr. Aiken said "it is quite possible" that the domestic banks will set aside less than they did last quarter to cover delinquencies.
Mr. Aiken's main area of concern is revenues from trading operations. A source of eye-popping profits last year as banks took advantage of wider spreads and the dislocation in credit markets, trading revenue at all the banks is expected to shrink in 2010 as financial markets continue to normalize.
"We believe that a significant decline in trading revenues could be the story of the quarter and reset earnings levels for 2010," he said in a note to clients.
Still, much depends on the economy which remains fragile as Ottawa looks for ways to withdraw supports put in place in the wake of the financial crisis.
"There is a fair degree of uncertainty," said Lindsay Gordon, chief executive of HSBC Bank Canada, who pointed out that while the Canadian economy appears in good shape relative to other countries, the world is increasingly connected and it was less than a year ago that storm gripping financial markets created almost "a sense of Armageddon."
"All governments including the Canadian government are in a challenging situation," he said in an interview.
Though a small player in this country HSBC has significant exposure to residential mortgages in Vancouver and other urban markets.
"There is no question that over the last year there has been an increase in delinquencies in residential mortgages at all the banks," he said, adding that the increase at HSBC has been slight.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2598833#ixzz0gJZR7Wun
Monday, February 22, 2010
Financial Update For Feb. 22, 2010
China's building bubble about to burst While you may think of China as just a country on the other side of the world, it could have enormous impact on our economy. Experts fear if air goes out of Beijing market, the world economic recovery may go flat.
“the overheated Chinese housing market is "Dubai times 1,000 — or worse."
“Luxury apartments, are priced at about 80 times the average income of the city's residents”. What do you suppose the tds is on those?
• TSX +14.45
• DOW +9.45
• Dollar +.09c to 96.11cUS
• Oil +$.75 to $79.81US per barrel.
• Gold +$3.30 to $1,121.30 USD per ounce
Women earn the freedom to opt out
Karen Mazurkewich, Financial Post
This year, American women will pass a major milestone: They will surpass men in the workplace. Canadian women passed the 50% threshold last year. The gender revolution has quietly overtaken us.
It has been 47 years since pioneering feminist Betty Friedan penned The Feminine Mystique, launching women on the road to economic empowerment. All these years later, memories of the injustices faced by grandmothers and mothers are fading. Sexism may have once been the norm but is now considered passé. Today, it takes a retro show like Mad Men, set in the 1960s, to remind us how far women have come in the workplace.
But here's the rub. Women have overtaken men in the workplace, but they still don't make as much money, and have barely made a dent in the executive ranks and boardroom.
Part of the reason is that women make up 70% of part-time workers in this country - so are paid less. But Rosenzweig & Company's fifth annual ranking of women in top jobs at Canada's largest public companies shows the numbers have slipped to 6.9% in 2009 from 7.2% in 2008.
"The number of women at the top is low because social arrangements haven't kept up with these changes," says Jay Rosenzweig, founding partner of the consulting firm. He's referring to day care and other social nets that particularly affect women.
But there is some good news: Women may be better suited than men to have and hold jobs in the future.
First, more women than men graduate from university, making the female workforce more educated. Now, a study from Harvard University suggests that in a world where job uncertainty is increasing, women can better adapt to career change.
Boris Groysberg, associate professor in the Organizational Behavior unit at the Harvard Business School, has studied star performers in the financial field. He discovered a significant gender difference: Female stars do not suffer when they jump jobs, but men do. Top male analysts who switched employers became average; women continued to be top performers.
Mr. Groysberg said the reason has to do with a predominately male corporate culture. Men build relationships with men in the company, he says. Successful women combat the institutional barriers inside their firms by building networks outside. It is those outside relationships, he says, that make women more portable.
The message to companies: "You should be hiring women [because] women may bring a lot more of their performance [to your company] than men," says Mr. Groysberg.
What's more: Women tend to do more due diligence when seeking new jobs. Whereas a man will maximize around career opportunity and salary, a woman will maximize around a job that allows her to be around her family, her values and meaningful work, says Beatrix Dart, executive director, Initiative for Women in Business at University of Toronto's Rotman School of Management.
Put simply: Women are more thoughtful at choosing their next employer. But there is a caveat. While women in knowledge-based jobs may be better suited for making lateral career moves, their strategy of developing outside networks will not help them climb the corporate ranks, says Mr. Groysberg. Women will continue to struggle for those top jobs in the corporate sector.
The answer for many is to opt out and take the entrepreneurial route.
Alison Snowball was on the corporate career path until her job on the institutional equities desk at TD Securities was restructured last year. She had prepared for this job for years. Not only did she graduate with a business of commerce degree from Dalhousie University, she had worked her way through school working at various financial institutions. Four years into a job at TD Securities, Ms. Snowball knew something wasn't quite clicking.
"From a generational perspective, the people still in power are 25 years older than myself and have a different mentality. It's like a locker room. That's just the reality," says Ms. Snowball.
So, rather than scramble for another position in the banking sector after she was laid off, Ms. Snowball decided to switch career paths. She has opened her own Toronto art gallery.
Ms. Dart of Rotman is seeing more women starting their own business because they can't maximize opportunities in a company setting. The most successful are those who have been strategic. "Women who leave careers to raise their kids during those critical years aren't as successful as those who seek jobs with more flexibility during those critical years," she says.
While the trend to start a small business is often painted as "opting out," Barbara Orser, of the University of Ottawa Telfer School of Management, argues that Canadian women "are some of the most entrepreneurial in the world." She says women are increasingly looking to export, thinking about enterprise growth and are becoming a bigger part of the Canadian economy as a result.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2588533#ixzz0gCnFSPd5
China's building bubble about to burst
By David Olive Business Columnist Toronto Star
Frenzied developers with access to cheap money are creating a glut of premium office space and luxury apartments, priced at about 80 times the average income of the city's residents. Prospective middle-class homeowners, in panic-buying mode, are snapping up two properties at once, hoping to flip the second one to finance the first. Civic officials are encouraging the building boom.
The sale of vacant lots bolster their municipal coffers.
Banks eager to reap upfront fees are granting mortgages to all comers. Even factory owners are in on the speculation, generating more profit from flipping property than from traditional manufacturing, which increasingly is moving offshore to Vietnam, Malaysia and other nations with lower labour costs.
No, this isn't Toronto in the late 1980s, or Santa Barbara or Tallahassee six years ago at the height of America’s record housing boom, which culminated in a global credit crisis and ensuing recession.
This is Beijing today, where until recently one of the most popular programs on local television was a reality show called The Romance of Housing that spotlighted the struggles of families pursuing elusive affordable shelter.
And where the papers are reporting on suicides and violent protests after developers in cahoots with local officials seize someone's land for a new office building or apartment block.
The disturbing phenomenon extends beyond Beijing, where housing prices are far higher than in Dubai's overbuilt property market before that red-hot Persian Gulf economy imploded last year. In December alone, Chinese housing prices rose almost 8 per cent in 70 major Chinese cities, while housing starts leapt by 34 per cent nationwide.
Jim Chanos, the legendary U.S. short-seller who thrives on post-bubble bargain-hunting, claims the overheated Chinese housing market is "Dubai times 1,000 — or worse."
Chanos has an obvious stake in chaos. Not so Patrick Chovanec, as associate professor at the business school at Beijing's Tsinghua University. Chovanec cites the intoxicating impact of Beijing's $586-billion (U.S.) stimulus package and an additional $1.4 trillion in lending by state-controlled banks to real estate and other industries last year alone.
With easy money in such abundance, it's no wonder developers are on a building jag.
"You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land in Beijing — not even desirable plots of land — to astronomical rates," Chovanec told Bloomberg News last week.
"At the same time, you have 30 per cent-plus vacancy rates and slumping rents in commercial property. So it's just a case of when (lenders] recognize the losses — or don't."
For the moment, there are two Chinese property markets. There's an over-served premium-priced office and luxury apartment sector, and a neglected affordable housing market so underserved for lack of profit margins that Beijing recently pledged on its own to build 15 million units of shelter for low-income people.
Limited though the boom is to the high end of the market, the stupendous sums tied up in it have the potential to impede, if not halt, China's fast-track Industrial Revolution when the boom inevitably ends.
"It's simply a matter of time before the Chinese real estate bubble bursts," insists Yi Xianrong, longtime student of Chinese property trends at the finance department of the Chinese Academy of Social Sciences. "A bubble burst in China would not only deal a fatal blow to our own economy, but would also extinguish the world's hope for recovery."
Indeed, Western economies are counting heavily on China to lead the nascent global recovery. China's projected GDP growth this year of about 9.5 per cent will account for about one-third of global economic growth this year.
China has been providing one of the bright spots in the recent global downturn.
Bankruptcy victim General Motors has lost money in North America and Europe for years, but it profits from booming Chinese sales.
And Paul Otelli, CEO of California-based Intel Corp., the world's leading computer-chip maker, recently said, "Thank God for China. It buoyed our company through the depths" of the recent global downturn.
China has just overtaken Germany as the world's largest export economy, and eclipsed the U.S. as the biggest vehicle market.
Wen Jiaboa, the Chinese premier, has acknowledged that "property values have risen too quickly," and vowed a crackdown on speculators. China's central bank has twice this month raised the amount of capital Chinese banks must hold in reserve to cover losses, reducing funds available for property loans. But government officials are in a quandary over how hard to apply the brakes. A sudden about-face in Beijing's easy-money policy of ultralow interest rates could trigger widespread property devaluations that would hit not only homeowners but also construction, finance, steel, furniture and other sectors tied to the real estate market.
Yet the longer the bubble persists, the more punishing the inevitable implosion, as Western economies learned from the collapse of the U.S. housing market in 2007-08.
So, uncertainty rules.
A soft landing can be engineered if China's recent, modest steps to cool the market send a powerful enough signal to developers and panic buyers — and provide enough time for a rise in average income levels to match exorbitant housing prices.
In the meantime, there are a few signs the mania is exhausting itself. The new "instant city" of skyscrapers and thousands of villas built in the coal city of Ordos in China's Inner Mongolia is largely vacant — a sobering sign to overzealous developers.
"Who would go there?" a downtown resident told Bloomberg Business Week recently of the sprawling metropolis taking shape in the nearby suburban desert. "It's a city of empty buildings."
The Romance of Housing show was yanked from the air in November, ostensibly because state officials were offended by a scene depicting a corrupt state official. But the show more likely got the hook over concerns that it celebrated recklessness with personal finances. And in Beijing, dirt is accumulating around the entrances to the newly built twin-tower head office complex of the Bank of Communications Co.
In a business district with a 35 per cent vacancy rate due to over-exuberant developer activity, the lobby of the BCC landmark is now used as a bicycle parking lot.
http://www.thestar.com/business/article/769105--olive-china-s-building-bubble-about-to-burst
“the overheated Chinese housing market is "Dubai times 1,000 — or worse."
“Luxury apartments, are priced at about 80 times the average income of the city's residents”. What do you suppose the tds is on those?
• TSX +14.45
• DOW +9.45
• Dollar +.09c to 96.11cUS
• Oil +$.75 to $79.81US per barrel.
• Gold +$3.30 to $1,121.30 USD per ounce
Women earn the freedom to opt out
Karen Mazurkewich, Financial Post
This year, American women will pass a major milestone: They will surpass men in the workplace. Canadian women passed the 50% threshold last year. The gender revolution has quietly overtaken us.
It has been 47 years since pioneering feminist Betty Friedan penned The Feminine Mystique, launching women on the road to economic empowerment. All these years later, memories of the injustices faced by grandmothers and mothers are fading. Sexism may have once been the norm but is now considered passé. Today, it takes a retro show like Mad Men, set in the 1960s, to remind us how far women have come in the workplace.
But here's the rub. Women have overtaken men in the workplace, but they still don't make as much money, and have barely made a dent in the executive ranks and boardroom.
Part of the reason is that women make up 70% of part-time workers in this country - so are paid less. But Rosenzweig & Company's fifth annual ranking of women in top jobs at Canada's largest public companies shows the numbers have slipped to 6.9% in 2009 from 7.2% in 2008.
"The number of women at the top is low because social arrangements haven't kept up with these changes," says Jay Rosenzweig, founding partner of the consulting firm. He's referring to day care and other social nets that particularly affect women.
But there is some good news: Women may be better suited than men to have and hold jobs in the future.
First, more women than men graduate from university, making the female workforce more educated. Now, a study from Harvard University suggests that in a world where job uncertainty is increasing, women can better adapt to career change.
Boris Groysberg, associate professor in the Organizational Behavior unit at the Harvard Business School, has studied star performers in the financial field. He discovered a significant gender difference: Female stars do not suffer when they jump jobs, but men do. Top male analysts who switched employers became average; women continued to be top performers.
Mr. Groysberg said the reason has to do with a predominately male corporate culture. Men build relationships with men in the company, he says. Successful women combat the institutional barriers inside their firms by building networks outside. It is those outside relationships, he says, that make women more portable.
The message to companies: "You should be hiring women [because] women may bring a lot more of their performance [to your company] than men," says Mr. Groysberg.
What's more: Women tend to do more due diligence when seeking new jobs. Whereas a man will maximize around career opportunity and salary, a woman will maximize around a job that allows her to be around her family, her values and meaningful work, says Beatrix Dart, executive director, Initiative for Women in Business at University of Toronto's Rotman School of Management.
Put simply: Women are more thoughtful at choosing their next employer. But there is a caveat. While women in knowledge-based jobs may be better suited for making lateral career moves, their strategy of developing outside networks will not help them climb the corporate ranks, says Mr. Groysberg. Women will continue to struggle for those top jobs in the corporate sector.
The answer for many is to opt out and take the entrepreneurial route.
Alison Snowball was on the corporate career path until her job on the institutional equities desk at TD Securities was restructured last year. She had prepared for this job for years. Not only did she graduate with a business of commerce degree from Dalhousie University, she had worked her way through school working at various financial institutions. Four years into a job at TD Securities, Ms. Snowball knew something wasn't quite clicking.
"From a generational perspective, the people still in power are 25 years older than myself and have a different mentality. It's like a locker room. That's just the reality," says Ms. Snowball.
So, rather than scramble for another position in the banking sector after she was laid off, Ms. Snowball decided to switch career paths. She has opened her own Toronto art gallery.
Ms. Dart of Rotman is seeing more women starting their own business because they can't maximize opportunities in a company setting. The most successful are those who have been strategic. "Women who leave careers to raise their kids during those critical years aren't as successful as those who seek jobs with more flexibility during those critical years," she says.
While the trend to start a small business is often painted as "opting out," Barbara Orser, of the University of Ottawa Telfer School of Management, argues that Canadian women "are some of the most entrepreneurial in the world." She says women are increasingly looking to export, thinking about enterprise growth and are becoming a bigger part of the Canadian economy as a result.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2588533#ixzz0gCnFSPd5
China's building bubble about to burst
By David Olive Business Columnist Toronto Star
Frenzied developers with access to cheap money are creating a glut of premium office space and luxury apartments, priced at about 80 times the average income of the city's residents. Prospective middle-class homeowners, in panic-buying mode, are snapping up two properties at once, hoping to flip the second one to finance the first. Civic officials are encouraging the building boom.
The sale of vacant lots bolster their municipal coffers.
Banks eager to reap upfront fees are granting mortgages to all comers. Even factory owners are in on the speculation, generating more profit from flipping property than from traditional manufacturing, which increasingly is moving offshore to Vietnam, Malaysia and other nations with lower labour costs.
No, this isn't Toronto in the late 1980s, or Santa Barbara or Tallahassee six years ago at the height of America’s record housing boom, which culminated in a global credit crisis and ensuing recession.
This is Beijing today, where until recently one of the most popular programs on local television was a reality show called The Romance of Housing that spotlighted the struggles of families pursuing elusive affordable shelter.
And where the papers are reporting on suicides and violent protests after developers in cahoots with local officials seize someone's land for a new office building or apartment block.
The disturbing phenomenon extends beyond Beijing, where housing prices are far higher than in Dubai's overbuilt property market before that red-hot Persian Gulf economy imploded last year. In December alone, Chinese housing prices rose almost 8 per cent in 70 major Chinese cities, while housing starts leapt by 34 per cent nationwide.
Jim Chanos, the legendary U.S. short-seller who thrives on post-bubble bargain-hunting, claims the overheated Chinese housing market is "Dubai times 1,000 — or worse."
Chanos has an obvious stake in chaos. Not so Patrick Chovanec, as associate professor at the business school at Beijing's Tsinghua University. Chovanec cites the intoxicating impact of Beijing's $586-billion (U.S.) stimulus package and an additional $1.4 trillion in lending by state-controlled banks to real estate and other industries last year alone.
With easy money in such abundance, it's no wonder developers are on a building jag.
"You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land in Beijing — not even desirable plots of land — to astronomical rates," Chovanec told Bloomberg News last week.
"At the same time, you have 30 per cent-plus vacancy rates and slumping rents in commercial property. So it's just a case of when (lenders] recognize the losses — or don't."
For the moment, there are two Chinese property markets. There's an over-served premium-priced office and luxury apartment sector, and a neglected affordable housing market so underserved for lack of profit margins that Beijing recently pledged on its own to build 15 million units of shelter for low-income people.
Limited though the boom is to the high end of the market, the stupendous sums tied up in it have the potential to impede, if not halt, China's fast-track Industrial Revolution when the boom inevitably ends.
"It's simply a matter of time before the Chinese real estate bubble bursts," insists Yi Xianrong, longtime student of Chinese property trends at the finance department of the Chinese Academy of Social Sciences. "A bubble burst in China would not only deal a fatal blow to our own economy, but would also extinguish the world's hope for recovery."
Indeed, Western economies are counting heavily on China to lead the nascent global recovery. China's projected GDP growth this year of about 9.5 per cent will account for about one-third of global economic growth this year.
China has been providing one of the bright spots in the recent global downturn.
Bankruptcy victim General Motors has lost money in North America and Europe for years, but it profits from booming Chinese sales.
And Paul Otelli, CEO of California-based Intel Corp., the world's leading computer-chip maker, recently said, "Thank God for China. It buoyed our company through the depths" of the recent global downturn.
China has just overtaken Germany as the world's largest export economy, and eclipsed the U.S. as the biggest vehicle market.
Wen Jiaboa, the Chinese premier, has acknowledged that "property values have risen too quickly," and vowed a crackdown on speculators. China's central bank has twice this month raised the amount of capital Chinese banks must hold in reserve to cover losses, reducing funds available for property loans. But government officials are in a quandary over how hard to apply the brakes. A sudden about-face in Beijing's easy-money policy of ultralow interest rates could trigger widespread property devaluations that would hit not only homeowners but also construction, finance, steel, furniture and other sectors tied to the real estate market.
Yet the longer the bubble persists, the more punishing the inevitable implosion, as Western economies learned from the collapse of the U.S. housing market in 2007-08.
So, uncertainty rules.
A soft landing can be engineered if China's recent, modest steps to cool the market send a powerful enough signal to developers and panic buyers — and provide enough time for a rise in average income levels to match exorbitant housing prices.
In the meantime, there are a few signs the mania is exhausting itself. The new "instant city" of skyscrapers and thousands of villas built in the coal city of Ordos in China's Inner Mongolia is largely vacant — a sobering sign to overzealous developers.
"Who would go there?" a downtown resident told Bloomberg Business Week recently of the sprawling metropolis taking shape in the nearby suburban desert. "It's a city of empty buildings."
The Romance of Housing show was yanked from the air in November, ostensibly because state officials were offended by a scene depicting a corrupt state official. But the show more likely got the hook over concerns that it celebrated recklessness with personal finances. And in Beijing, dirt is accumulating around the entrances to the newly built twin-tower head office complex of the Bank of Communications Co.
In a business district with a 35 per cent vacancy rate due to over-exuberant developer activity, the lobby of the BCC landmark is now used as a bicycle parking lot.
http://www.thestar.com/business/article/769105--olive-china-s-building-bubble-about-to-burst
Friday, February 19, 2010
Financial Update For Feb. 19, 2010
• TSX +59.35 finished higher for a seventh straight session, led by gold mining shares,
• DOW +83.66
• Dollar +.34c to 96.02cUS
• Oil +$1.73 to $79.06US per barrel.
•
Canada to oppose global bank tax
Paul Vieira, Financial Post
OTTAWA -- Canada will officially oppose international efforts to get the world's major economies to impose a global bank tax, government sources tell the Financial Post.
This could potentially ignite a major divide among Group of 20 leaders at their summit meeting in Toronto this summer, and further thwart efforts to implement uniform financial regulations in the post-recession era.
Senior Canadian officials are in the midst of crafting a public response to be released shortly, say sources with knowledge of the plan. An official response is required, they say, due to recent public musings from Gordon Brown, the British Prime Minister, that the G20 countries were close to a deal on a financial services tax -- the so-called "Tobin" tax.
Canada is co-head of the group this year with South Korea.
"Canada is going to oppose any tax on financial transactions," said one source, adding the tax runs counter to the Conservative government's reputation for lower taxes.
Prime Minister Stephen Harper, as well as Finance Minister Jim Flaherty, want to use their influence as host of the next G20 meeting, in Toronto in June, to kill the proposal. The sources suggested the G20 would not agree to measures or policies unless all leaders sign on.
When he was at the World Economic Forum in Davos last month, Mr. Harper used the global stage to denounce "excessive" and "arbitrary" proposals from countries, such as Britain and France, to regulate the financial-services industry in the aftermath of the global financial crisis.
Among the proposals Mr. Harper was referring to is a levy on financial transactions, designed to make banks pay for the bailouts governments posted in 2008 and 2009 to deal with the financial crisis and to dissuade banks from making risky bets in the future.
Individually, U.S. President Barack Obama has proposed a levy on banks with assets of higher than US$50-billion, while Mr. Brown has taxed bonuses earned by London's top bankers.
Last week, Mr. Brown told the Financial Times he envisaged a G20 deal on a bank tax at the Toronto summit.
Mr. Brown said he believed backing for a global bank tax had gained momentum after Mr. Obama introduced a similar levy.
"People are now prepared to consider the best mechanism by which a levy could be raised," Mr. Brown said in the interview. "I'm interested in the way support is building up for international action."
Mr. Brown's comments have clearly irked Canadian officials. It was only a few weeks ago that Mr. Flaherty and other Group of Seven finance and central officials met in Iqaluit, and appeared to be united in finding a common front of global financial reform. As a show of unity, they agreed to commission a study on the usefulness of a bank levy.
Mr. Brown proposed a global transaction tax at a G20 meeting he hosted in Scotland last November, only to draw stiff opposition -- from, among others, Timothy Geithner, the U.S. Treasury secretary.
Canada's plan to officially quash talk of a bank-tax deal is the latest hiccup in efforts by global leaders to map out a uniform regulatory scheme in the post-crisis world. Leaders from the G20 had agreed to implement uniform rules to prevent companies from seeking out countries with less-stringent regulation. Working groups, such as the Financial Stability Board, are in the midst of developing rules that would apply, such as the levels of capital banks would need to keep on their balance sheets.
But now, despite Mr. Brown's musings, countries appear to be as divided as ever. http://www.financialpost.com/news-sectors/economy/story.html?id=2583353
Fed seeks to calm markets after discount rate rise
Emily Kaiser and Mark Felsenthal, Reuters
WASHINGTON/MEMPHIS, Tennessee -- Federal Reserve officials moved to calm speculation that a surprise rise in its emergency lending rate could bring forward broader policy tightening, saying borrowing costs in the economy would stay low.
Fed Chairman Ben Bernanke flagged the move last week, saying the central bank aimed to widen the spread between its main policy rate that remains pegged near zero and the discount rate at which banks can borrow from the Fed.
However, no one in markets expected it to act so soon and the timing of the move -- well ahead of the March 16 policy meeting -- prompted investors to price in a greater likelihood of a rise in the benchmark fed funds rate late this year.
The dollar jumped and government bonds and bank stocks fell after the Fed raised the discount rate by 25 basis points to 0.75 percent even as it cast it as a response to improved financial market conditions and not a change in monetary policy.
"This is a significant and likely symbolic move that will impact on market sentiment," Robert Rennie, a strategist at Westpac in Sydney said in The Dealing Room, a Reuters Messaging chat room.
"The emergency easing cycle began with discount rate cuts - it was all about easing liquidity to banks. So the move to raise the discount rate means the long journey toward normalization has begun."
Thursday's move is the first increase in any of the Fed's lending rates since the financial crisis blew up in 2007 and the first rate change since December 2008.
"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," the Fed said in a statement.
OVERBLOWN EXPECTATIONS
While investors initially brushed aside the Fed's assurances that no tightening for the broad economy was on the cards, warnings from a senior Fed official that markets have gone too far in their tightening bets finally did sink in.
St. Louis Federal Reserve Bank President James Bullard said investors belief in high probability of a rise in the Fed's benchmark rate this year was "overblown" and that the discount rate rise should not be seen as a policy signal.
"The discount rate move is part of a normalization process which is akin to our discontinuing many of our liquidity programs," Bullard, who votes on the Fed's interest rate-setting panel this year, told reporters in Memphis. "It does not indicate anything one way or the other about what we might eventually do with the federal funds rate," he added.
The dollar pared gains and treasury futures trimmed losses, after Bullard's comments and reminders from fellow Fed officials that cheap credit was still the order of the day.
"Monetary policy -- as evidenced by the fed funds rate target -- remains accommodative," Dennis Lockhart, Atlanta Fed president, said in a speech. "This stance is necessary to support a recovery that is in an early stage and, in my view, still fragile."
Still, share markets in Asia were on the defensive as the Fed's action, which follows China's moves to curb lending, served as a reminder that the period of cheap cash that fueled last year's stock market rally may be slowly drawing to an end.
RETURN TO NORMAL
Before the financial crisis, the discount rate was typically a full percentage point above the federal funds rate. Thursday's decision begins to move it back nearer to its traditional premium and it said it would assess over time whether it needed to further widen the spread between the two rates.
The central bank's view of the economy has brightened in recent months as job losses eased, consumer spending strengthened and businesses stepped up purchases of equipment and software. The Fed has warned, however, that recovery from the deepest U.S. recession since the 1930s will probably be sluggish and has said it expects to keep the federal funds rate near zero, where it has been since December 2008, for "an extended period."
In its statement on Thursday, it said the economic and policy outlook remained broadly unchanged from late January, when its policy committee reiterated that low-rate pledge.
Some other central banks around the world have begun to tighten policy. Australia led the way last year and its central bank chief signaled on Friday more rate increases in months ahead while China surprised markets twice in the past two months by lifting banks' mandatory reserves.
In the United States, however, the Fed has said record low interest rates are still warranted with the unemployment rate near 10 percent.
"I don't think the Fed dares (to) increase the fed funds or policy rate in the face of unemployment at double-digit type of levels," Bill Gross, the manager of Pimco, the world's biggest bond fund, told Reuters after the Fed announcement.
Other changes announced on Thursday included shortening the typical maximum maturity for primary credit loans to overnight from 28 days, effective March 18, and raising the minimum bid rate for the Fed's Term Auction Facility, another scheme put in place to foster market liquidity.
• DOW +83.66
• Dollar +.34c to 96.02cUS
• Oil +$1.73 to $79.06US per barrel.
•
Canada to oppose global bank tax
Paul Vieira, Financial Post
OTTAWA -- Canada will officially oppose international efforts to get the world's major economies to impose a global bank tax, government sources tell the Financial Post.
This could potentially ignite a major divide among Group of 20 leaders at their summit meeting in Toronto this summer, and further thwart efforts to implement uniform financial regulations in the post-recession era.
Senior Canadian officials are in the midst of crafting a public response to be released shortly, say sources with knowledge of the plan. An official response is required, they say, due to recent public musings from Gordon Brown, the British Prime Minister, that the G20 countries were close to a deal on a financial services tax -- the so-called "Tobin" tax.
Canada is co-head of the group this year with South Korea.
"Canada is going to oppose any tax on financial transactions," said one source, adding the tax runs counter to the Conservative government's reputation for lower taxes.
Prime Minister Stephen Harper, as well as Finance Minister Jim Flaherty, want to use their influence as host of the next G20 meeting, in Toronto in June, to kill the proposal. The sources suggested the G20 would not agree to measures or policies unless all leaders sign on.
When he was at the World Economic Forum in Davos last month, Mr. Harper used the global stage to denounce "excessive" and "arbitrary" proposals from countries, such as Britain and France, to regulate the financial-services industry in the aftermath of the global financial crisis.
Among the proposals Mr. Harper was referring to is a levy on financial transactions, designed to make banks pay for the bailouts governments posted in 2008 and 2009 to deal with the financial crisis and to dissuade banks from making risky bets in the future.
Individually, U.S. President Barack Obama has proposed a levy on banks with assets of higher than US$50-billion, while Mr. Brown has taxed bonuses earned by London's top bankers.
Last week, Mr. Brown told the Financial Times he envisaged a G20 deal on a bank tax at the Toronto summit.
Mr. Brown said he believed backing for a global bank tax had gained momentum after Mr. Obama introduced a similar levy.
"People are now prepared to consider the best mechanism by which a levy could be raised," Mr. Brown said in the interview. "I'm interested in the way support is building up for international action."
Mr. Brown's comments have clearly irked Canadian officials. It was only a few weeks ago that Mr. Flaherty and other Group of Seven finance and central officials met in Iqaluit, and appeared to be united in finding a common front of global financial reform. As a show of unity, they agreed to commission a study on the usefulness of a bank levy.
Mr. Brown proposed a global transaction tax at a G20 meeting he hosted in Scotland last November, only to draw stiff opposition -- from, among others, Timothy Geithner, the U.S. Treasury secretary.
Canada's plan to officially quash talk of a bank-tax deal is the latest hiccup in efforts by global leaders to map out a uniform regulatory scheme in the post-crisis world. Leaders from the G20 had agreed to implement uniform rules to prevent companies from seeking out countries with less-stringent regulation. Working groups, such as the Financial Stability Board, are in the midst of developing rules that would apply, such as the levels of capital banks would need to keep on their balance sheets.
But now, despite Mr. Brown's musings, countries appear to be as divided as ever. http://www.financialpost.com/news-sectors/economy/story.html?id=2583353
Fed seeks to calm markets after discount rate rise
Emily Kaiser and Mark Felsenthal, Reuters
WASHINGTON/MEMPHIS, Tennessee -- Federal Reserve officials moved to calm speculation that a surprise rise in its emergency lending rate could bring forward broader policy tightening, saying borrowing costs in the economy would stay low.
Fed Chairman Ben Bernanke flagged the move last week, saying the central bank aimed to widen the spread between its main policy rate that remains pegged near zero and the discount rate at which banks can borrow from the Fed.
However, no one in markets expected it to act so soon and the timing of the move -- well ahead of the March 16 policy meeting -- prompted investors to price in a greater likelihood of a rise in the benchmark fed funds rate late this year.
The dollar jumped and government bonds and bank stocks fell after the Fed raised the discount rate by 25 basis points to 0.75 percent even as it cast it as a response to improved financial market conditions and not a change in monetary policy.
"This is a significant and likely symbolic move that will impact on market sentiment," Robert Rennie, a strategist at Westpac in Sydney said in The Dealing Room, a Reuters Messaging chat room.
"The emergency easing cycle began with discount rate cuts - it was all about easing liquidity to banks. So the move to raise the discount rate means the long journey toward normalization has begun."
Thursday's move is the first increase in any of the Fed's lending rates since the financial crisis blew up in 2007 and the first rate change since December 2008.
"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," the Fed said in a statement.
OVERBLOWN EXPECTATIONS
While investors initially brushed aside the Fed's assurances that no tightening for the broad economy was on the cards, warnings from a senior Fed official that markets have gone too far in their tightening bets finally did sink in.
St. Louis Federal Reserve Bank President James Bullard said investors belief in high probability of a rise in the Fed's benchmark rate this year was "overblown" and that the discount rate rise should not be seen as a policy signal.
"The discount rate move is part of a normalization process which is akin to our discontinuing many of our liquidity programs," Bullard, who votes on the Fed's interest rate-setting panel this year, told reporters in Memphis. "It does not indicate anything one way or the other about what we might eventually do with the federal funds rate," he added.
The dollar pared gains and treasury futures trimmed losses, after Bullard's comments and reminders from fellow Fed officials that cheap credit was still the order of the day.
"Monetary policy -- as evidenced by the fed funds rate target -- remains accommodative," Dennis Lockhart, Atlanta Fed president, said in a speech. "This stance is necessary to support a recovery that is in an early stage and, in my view, still fragile."
Still, share markets in Asia were on the defensive as the Fed's action, which follows China's moves to curb lending, served as a reminder that the period of cheap cash that fueled last year's stock market rally may be slowly drawing to an end.
RETURN TO NORMAL
Before the financial crisis, the discount rate was typically a full percentage point above the federal funds rate. Thursday's decision begins to move it back nearer to its traditional premium and it said it would assess over time whether it needed to further widen the spread between the two rates.
The central bank's view of the economy has brightened in recent months as job losses eased, consumer spending strengthened and businesses stepped up purchases of equipment and software. The Fed has warned, however, that recovery from the deepest U.S. recession since the 1930s will probably be sluggish and has said it expects to keep the federal funds rate near zero, where it has been since December 2008, for "an extended period."
In its statement on Thursday, it said the economic and policy outlook remained broadly unchanged from late January, when its policy committee reiterated that low-rate pledge.
Some other central banks around the world have begun to tighten policy. Australia led the way last year and its central bank chief signaled on Friday more rate increases in months ahead while China surprised markets twice in the past two months by lifting banks' mandatory reserves.
In the United States, however, the Fed has said record low interest rates are still warranted with the unemployment rate near 10 percent.
"I don't think the Fed dares (to) increase the fed funds or policy rate in the face of unemployment at double-digit type of levels," Bill Gross, the manager of Pimco, the world's biggest bond fund, told Reuters after the Fed announcement.
Other changes announced on Thursday included shortening the typical maximum maturity for primary credit loans to overnight from 28 days, effective March 18, and raising the minimum bid rate for the Fed's Term Auction Facility, another scheme put in place to foster market liquidity.
Thursday, February 18, 2010
Financial Update For Feb. 18, 2010
Housing market will cool down, real estate industry says
U.S. mortgages little changed
• TSX +49.12
• DOW +40.43
• Dollar -.15c to 95.68cUS
• Oil +$.32 to $77.33US per barrel.
• Gold +$.20 to $1,119.60 USD per ounce
OTTAWA -- Canada's annual rate of inflation rose to 1.9% in January, mainly due to rising gasoline prices, Statistics Canada said Thursday. Economists had expected annual inflation of 1.8% during the month after December's pace of 1.3%.
Housing market will cool down, real estate industry says
THE CANADIAN PRESS
OTTAWA — House price increases will moderate as the resale market becomes more balanced, says the president of the Canadian Real Estate Association.
“The resale housing market is becoming more balanced in a number of provinces,” Dale Ripplinger said Wednesday after the association released January sales statistics that revealed another big year-over-year price increase.
“A more balanced market is likely to result in smaller price increases going forward, with buyers in less of a rush due to an increase in supply.”
While Canadian home resale volumes slipped in January compared with December, they came in far higher than in January 2009, when sales fell to the lowest levels in a decade as the country suffered through the global credit crunch and recession.
The association said 25,671 homes were sold across the country in January, up 58 per cent from the same month a year earlier when consumer confidence hit an ebb, drying up buying and lending activity.
The national average price for homes listed on the association’s Multiple Listing Service was $328,537, up 19.6 per cent from a year ago.
The Kitchener-Waterloo Real Estate Board recorded 416 sales in January, 64 per cent more than a year ago. The Real Estate Board of Cambridge registered 140 sales, an increase of 32 per cent.
The average price in Kitchener rose 12.3 per cent to $278,825 on a year-over-year basis. In Cambridge, the average price jumped 16.3 per cent to $278,527.
The association’s report was issued a day after Finance Minister Jim Flaherty announced that tighter rules for mortgage borrowers will be introduced in April. He described it as a measure to prevent a bubble in the housing market.
Under the new rules, effective April 19, borrowers will have to meet the standards for a five-year fixed-rate mortgage even if the interest they will pay initially is lower.
Compared month-over-month, seasonally adjusted home sales were down 2.8 per cent from the strong levels reported in December, giving a sign that the housing market could be already starting to cool in some regions.
Nearly half of the drop was linked to a slowdown in housing sales in Ontario.
“One car doesn’t make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade,” said association chief economist Gregory Klump.
Klump suggested that Flaherty’s new plan and the harmonized sales tax, which replaces provincial sales taxes in Ontario and British Columbia on July 1, could encourage more Canadians to enter the market in the first half of the year.
“It could take until the second half of the year before a cooling trend becomes evident,” he said.
Resale homes were still drawing a stronger demand for January, with 170,199 listed homes on the Multiple Listing Service in Canada, a decline of 18 per cent over the same time last year, the report said. http://news.therecord.com/Business/article/672304
U.S. mortgages little changed
Canada leads way with pre-emptive measures
Janet Whitman, Financial Post
NEW YORK - As Canada took pre-emptive steps this week to thwart a possible housing bubble, the United States has done little to reform the reckless lending practices that, two years ago, led to the near-collapse of the country's financial system.
For now, the industry is cleaning up its own bad behaviour. U.S. lenders have put a stop to zero-money-down mortgages and so-called liar loans, the "no-doc" or "low-doc" mortgages that don't require income documentation. But there has been little in the way of new regulation that would prevent the return of such practices.
Meanwhile, the ability of Americans to get a tax deduction for their annual mortgage interest payments -- which essentially encourages them not to pay down their mortgages -- remains sacrosanct. Sweeping reforms, including a simple provision that would require lenders to ensure a borrower's ability to repay, were proposed by U.S. lawmakers in 2007, but they remain hung up by debate.
"There's been a fair amount of tightening, but it's coming out of the private sector," said Greg Rand, managing partner at Better Homes and Gardens Rand Realty, a brokerage in the suburbs north of New York. "It sounds simplistic, but lenders want to make sure they get their money back."
Vince Malta, liaison to government affairs with the National Association of Realtors, said he's worried the pendulum might swing too far and U.S. lawmakers will crack down on the industry too hard.
"I would hate to see someone who qualifies to purchase a home, but is unable to because of some regulatory scheme that goes overboard," he said.
Meantime, not only are the exotic loans that got the United States into the housing crisis gone, but standard mortgage loans also are hard to come by for many prospective buyers around the country.
"Even regular, good people cannot get a loan," said Andrew Mungar, a real estate broker in Texas and author of the new book The Homeowner Survival Guide. "I have a lot of clients that make good income but are still having trouble getting a loan because conditions are so tight."
With 10,000 new U.S. foreclosures still hitting the market each day, the caution might be understandable, Mr. Mungar said. "We still have billions of dollars of adjust able-rate mortgages and interest-rate only mortgages to hit the market."
One of the main reasons why Canada's housing market held up while America's cratered is that U.S. lending standards all but disappeared.
Canada also wasn't as swept up by the securitization market, in which bankers bundled mortgages and sold them off to investors.
Barry Ritholtz, a well-known blogger and investor, pointed out other important factors at play in a recent post on his "Big Picture" blog.
While Americans are walking away from their underwater mortgages in droves, Canada has full recourse mortgages, which means a homeowner can walk away from the house, but not the duty to pay the mortgage debt, Mr. Ritholtz said.
U.S. mortgages little changed
• TSX +49.12
• DOW +40.43
• Dollar -.15c to 95.68cUS
• Oil +$.32 to $77.33US per barrel.
• Gold +$.20 to $1,119.60 USD per ounce
OTTAWA -- Canada's annual rate of inflation rose to 1.9% in January, mainly due to rising gasoline prices, Statistics Canada said Thursday. Economists had expected annual inflation of 1.8% during the month after December's pace of 1.3%.
Housing market will cool down, real estate industry says
THE CANADIAN PRESS
OTTAWA — House price increases will moderate as the resale market becomes more balanced, says the president of the Canadian Real Estate Association.
“The resale housing market is becoming more balanced in a number of provinces,” Dale Ripplinger said Wednesday after the association released January sales statistics that revealed another big year-over-year price increase.
“A more balanced market is likely to result in smaller price increases going forward, with buyers in less of a rush due to an increase in supply.”
While Canadian home resale volumes slipped in January compared with December, they came in far higher than in January 2009, when sales fell to the lowest levels in a decade as the country suffered through the global credit crunch and recession.
The association said 25,671 homes were sold across the country in January, up 58 per cent from the same month a year earlier when consumer confidence hit an ebb, drying up buying and lending activity.
The national average price for homes listed on the association’s Multiple Listing Service was $328,537, up 19.6 per cent from a year ago.
The Kitchener-Waterloo Real Estate Board recorded 416 sales in January, 64 per cent more than a year ago. The Real Estate Board of Cambridge registered 140 sales, an increase of 32 per cent.
The average price in Kitchener rose 12.3 per cent to $278,825 on a year-over-year basis. In Cambridge, the average price jumped 16.3 per cent to $278,527.
The association’s report was issued a day after Finance Minister Jim Flaherty announced that tighter rules for mortgage borrowers will be introduced in April. He described it as a measure to prevent a bubble in the housing market.
Under the new rules, effective April 19, borrowers will have to meet the standards for a five-year fixed-rate mortgage even if the interest they will pay initially is lower.
Compared month-over-month, seasonally adjusted home sales were down 2.8 per cent from the strong levels reported in December, giving a sign that the housing market could be already starting to cool in some regions.
Nearly half of the drop was linked to a slowdown in housing sales in Ontario.
“One car doesn’t make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade,” said association chief economist Gregory Klump.
Klump suggested that Flaherty’s new plan and the harmonized sales tax, which replaces provincial sales taxes in Ontario and British Columbia on July 1, could encourage more Canadians to enter the market in the first half of the year.
“It could take until the second half of the year before a cooling trend becomes evident,” he said.
Resale homes were still drawing a stronger demand for January, with 170,199 listed homes on the Multiple Listing Service in Canada, a decline of 18 per cent over the same time last year, the report said. http://news.therecord.com/Business/article/672304
U.S. mortgages little changed
Canada leads way with pre-emptive measures
Janet Whitman, Financial Post
NEW YORK - As Canada took pre-emptive steps this week to thwart a possible housing bubble, the United States has done little to reform the reckless lending practices that, two years ago, led to the near-collapse of the country's financial system.
For now, the industry is cleaning up its own bad behaviour. U.S. lenders have put a stop to zero-money-down mortgages and so-called liar loans, the "no-doc" or "low-doc" mortgages that don't require income documentation. But there has been little in the way of new regulation that would prevent the return of such practices.
Meanwhile, the ability of Americans to get a tax deduction for their annual mortgage interest payments -- which essentially encourages them not to pay down their mortgages -- remains sacrosanct. Sweeping reforms, including a simple provision that would require lenders to ensure a borrower's ability to repay, were proposed by U.S. lawmakers in 2007, but they remain hung up by debate.
"There's been a fair amount of tightening, but it's coming out of the private sector," said Greg Rand, managing partner at Better Homes and Gardens Rand Realty, a brokerage in the suburbs north of New York. "It sounds simplistic, but lenders want to make sure they get their money back."
Vince Malta, liaison to government affairs with the National Association of Realtors, said he's worried the pendulum might swing too far and U.S. lawmakers will crack down on the industry too hard.
"I would hate to see someone who qualifies to purchase a home, but is unable to because of some regulatory scheme that goes overboard," he said.
Meantime, not only are the exotic loans that got the United States into the housing crisis gone, but standard mortgage loans also are hard to come by for many prospective buyers around the country.
"Even regular, good people cannot get a loan," said Andrew Mungar, a real estate broker in Texas and author of the new book The Homeowner Survival Guide. "I have a lot of clients that make good income but are still having trouble getting a loan because conditions are so tight."
With 10,000 new U.S. foreclosures still hitting the market each day, the caution might be understandable, Mr. Mungar said. "We still have billions of dollars of adjust able-rate mortgages and interest-rate only mortgages to hit the market."
One of the main reasons why Canada's housing market held up while America's cratered is that U.S. lending standards all but disappeared.
Canada also wasn't as swept up by the securitization market, in which bankers bundled mortgages and sold them off to investors.
Barry Ritholtz, a well-known blogger and investor, pointed out other important factors at play in a recent post on his "Big Picture" blog.
While Americans are walking away from their underwater mortgages in droves, Canada has full recourse mortgages, which means a homeowner can walk away from the house, but not the duty to pay the mortgage debt, Mr. Ritholtz said.
Wednesday, February 17, 2010
Financial Update For Feb. 17, 2010
The question most heard yesterday was, “what 5 year rate will they have to qualify on?”.
It will be the 5 year rate at that institution granting the commitment. As the client was having to qualify on that institutions 3 year rate, it will now be their 5year rate.
The changes will take place on April 19, 2010.
• TSX +116.56 rose to its highest level in more than 3 weeks as oil and gold prices soared, leading resource issues higher, and as risk appetite returned to the market.
• DOW +169.67
• Dollar +.50c to 95.83cUS A weaker U.S. dollar served to boost the prices of oil and gold, both important Canadian exports
• Oil +$2.88 to $77.01US per barrel.
• Gold +$29.80 to $1,119.40 USD per ounce
GOVERNMENT OF CANADA TAKES ACTION TO STRENGTHEN HOUSING FINANCING
It will be the 5 year rate at that institution granting the commitment. As the client was having to qualify on that institutions 3 year rate, it will now be their 5year rate.
The changes will take place on April 19, 2010.
• TSX +116.56 rose to its highest level in more than 3 weeks as oil and gold prices soared, leading resource issues higher, and as risk appetite returned to the market.
• DOW +169.67
• Dollar +.50c to 95.83cUS A weaker U.S. dollar served to boost the prices of oil and gold, both important Canadian exports
• Oil +$2.88 to $77.01US per barrel.
• Gold +$29.80 to $1,119.40 USD per ounce
GOVERNMENT OF CANADA TAKES ACTION TO STRENGTHEN HOUSING FINANCING
Tuesday, February 16, 2010
Financial Update For Feb. 16, 2010
New mortgage rules introduced to lessen mortgage crunch risks
• TSX +34.32
• DOW -45.05 to 10,999
• Dollar -.05c to 95.08cUS
• Oil -$1.15 to $74.13US per barrel.
• Gold -$4.70 to $1,089.50 USD per ounce
New mortgage rules introduced to lessen mortgage crunch risks: sources say
By Julian Beltrame, The Canadian Press
OTTAWA - The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada's hot housing market.
Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.
Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.
Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.
But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise, in some cases by more than two percentage points.
Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.
Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.
It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.
Economists have cautioned the minister against putting on the brakes too strongly. They say raising the minimum downpayment requirement to 10 per cent, one of the suggestions given the minister, could cause a crash in a key mainstay of the fragile economic recovery.
The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating rate mortgages once rates start rising, likely as early as this summer.
By the central bank's own stress test calculation, almost one in 10 households would have a debt-service ratio that makes them vulnerable to economic shocks by the middle of 2012 if current trend continue.
In an address written for deputy governor Timothy Lane last month, the bank suggested the government has all the tools it needs to address the problem.
"An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks," said notes the address.
"These include capital requirements for institutions, leverage ratios, loan-to-value ratios, terms and conditions for mortgage insurance, and a variety of other measures. These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions http://ca.news.finance.yahoo.com/s/15022010/2/biz-finance-new-mortgage-rules-introduced-lessen-mortgage-crunch-risks.html
• TSX +34.32
• DOW -45.05 to 10,999
• Dollar -.05c to 95.08cUS
• Oil -$1.15 to $74.13US per barrel.
• Gold -$4.70 to $1,089.50 USD per ounce
New mortgage rules introduced to lessen mortgage crunch risks: sources say
By Julian Beltrame, The Canadian Press
OTTAWA - The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada's hot housing market.
Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.
Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.
Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.
But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise, in some cases by more than two percentage points.
Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.
Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.
It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.
Economists have cautioned the minister against putting on the brakes too strongly. They say raising the minimum downpayment requirement to 10 per cent, one of the suggestions given the minister, could cause a crash in a key mainstay of the fragile economic recovery.
The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating rate mortgages once rates start rising, likely as early as this summer.
By the central bank's own stress test calculation, almost one in 10 households would have a debt-service ratio that makes them vulnerable to economic shocks by the middle of 2012 if current trend continue.
In an address written for deputy governor Timothy Lane last month, the bank suggested the government has all the tools it needs to address the problem.
"An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks," said notes the address.
"These include capital requirements for institutions, leverage ratios, loan-to-value ratios, terms and conditions for mortgage insurance, and a variety of other measures. These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions http://ca.news.finance.yahoo.com/s/15022010/2/biz-finance-new-mortgage-rules-introduced-lessen-mortgage-crunch-risks.html
Friday, February 12, 2010
Financial Update For Feb. 12, 2010
• TSX +149.16 as a commitment from the European Union to help Greece deal with its huge debt problem eased fears of a default.
• DOW +105.81 The announcement gave investors the impetus to push the Dow back above the 10,000 mark, which it has been straddling for the last week
• Dollar +01.06c to 95.13cUS
• Oil +$.76 to $75.28US per barrel.
• Gold +$18.40 to $1,094.30 USD per ounce
Statistics Canada reported this morning that the New Housing Price Index rose 0.4% in December, the same increase as reported in November.
Proposals would shake pillars of real estate
Garry Marr And Theresa Tedesco, Financial Post
The Canadian Real Estate Association has proposed an overhaul of its rules in the wake of allegations by the federal competition watchdog that some of CREA's practices are anti-competitive, according to internal documents obtained by the Financial Post.
The documents show the proposed amendments, which will be voted on on March 22, will ultimately give consumers some ability to decide how much they use a realtor on a transaction and allow consumers to conduct parts of a transaction without using a realtor.
The Ottawa-based association will present the proposed modifications to its bylaws to the representatives of the 100 real estate boards that comprise its membership.
The rule revision comes after the federal Competition Bureau filed an application with the Competition Tribunal five days ago. The dispute centres around the Multiple Listing Service system, owned by CREA, that handles about 90% of the real estate transactions in Canada each year.
A source familiar with the discussions said many of the proposed rule changes to be voted on are similar to those the Competition Bureau has already rejected.
"CREA's leadership was unwilling to agree to changes that would have opened up competition, and offered options for consumers and real estate agents," Melanie Aitken, Commissioner of Competition, said earlier this week. The bureau had been negotiating with CREA since October 2009 after a three-year investigation.
The source said the bureau filed the application after CREA was unwilling to make changes to the "three pillars," the main rules that govern use of the MLS system.
In its application to the tribunal, the bureau laid out those three pillars. It described the first as allowing only a realtor to place a listing on MLS. The second requires that a listing realtor act as an agent for the seller of the property and assist them during the entire time of the listing contract. The third pillar demands the listing realtor agree to pay the co-operating realtor compensation that must be more than zero.
The rules to be voted on make only changes to the second pillar, removing the requirement that a realtor act as agent for the seller "throughout the entire time" of a listing contract. In CREA's proposed amendments, its interpretations of the three pillars have eliminated the clause that required a realtor to handles all offers and counter offers.
It has also removed the qualification that made it against the rules to simply post property information without providing more service. The watchdog had singled out that rule in particular as anti-competitive in its release on Monday. "The Bureau is looking for removal of all of the three pillars. They are saying if you are lawfully licensed and a member of a board you should be able to list on MLS. They don't want any another rules," said the source.
Another source familiar with the workings of the federal competition agency said, "they've been trying to get CREA to bend and couldn't get anywhere. The bureau decided it was taking too long and it was time to put some public pressure on them."
If CREA is successful at modifying its bylaws and eliminating some or all of the alleged anti-competitive restrictions, the real estate association can go back to the competition bureau and ask the federal agency to discontinue its application to the Competition Tribunal.
"At that point, they can argue there are no longer any anti-competitive restrictions to haggle over," said the source who asked not to be named.
If CREA is not successful at persuading the bureau to withdraw its complaint, it may continue to make changes to its bylaws, or decide to challenge the competition agency at the Tribunal, which is a legal battle that could take two to three years to resolve.
Lawyer Lawrence Dale, a part owner of Realtysellers (Ontario) Ltd., which was singled out as a victim of anti-competitive practices by the Bureau, said it now appears that CREA is retracting many of the changes it implemented in 2007. Back then CREA put in a series of rules on how you could sell on the MLS, saying they were vital to protecting its trademark.
"That position was obviously a sham given what they are proposing to do now," said Mr. Dale, who sued the Toronto Real Estate Board (TREB) and Canadian Real Estate Association. "It appears to me the Bureau saw through their antics and wasn't prepared to be maneuvered around."
• DOW +105.81 The announcement gave investors the impetus to push the Dow back above the 10,000 mark, which it has been straddling for the last week
• Dollar +01.06c to 95.13cUS
• Oil +$.76 to $75.28US per barrel.
• Gold +$18.40 to $1,094.30 USD per ounce
Statistics Canada reported this morning that the New Housing Price Index rose 0.4% in December, the same increase as reported in November.
Proposals would shake pillars of real estate
Garry Marr And Theresa Tedesco, Financial Post
The Canadian Real Estate Association has proposed an overhaul of its rules in the wake of allegations by the federal competition watchdog that some of CREA's practices are anti-competitive, according to internal documents obtained by the Financial Post.
The documents show the proposed amendments, which will be voted on on March 22, will ultimately give consumers some ability to decide how much they use a realtor on a transaction and allow consumers to conduct parts of a transaction without using a realtor.
The Ottawa-based association will present the proposed modifications to its bylaws to the representatives of the 100 real estate boards that comprise its membership.
The rule revision comes after the federal Competition Bureau filed an application with the Competition Tribunal five days ago. The dispute centres around the Multiple Listing Service system, owned by CREA, that handles about 90% of the real estate transactions in Canada each year.
A source familiar with the discussions said many of the proposed rule changes to be voted on are similar to those the Competition Bureau has already rejected.
"CREA's leadership was unwilling to agree to changes that would have opened up competition, and offered options for consumers and real estate agents," Melanie Aitken, Commissioner of Competition, said earlier this week. The bureau had been negotiating with CREA since October 2009 after a three-year investigation.
The source said the bureau filed the application after CREA was unwilling to make changes to the "three pillars," the main rules that govern use of the MLS system.
In its application to the tribunal, the bureau laid out those three pillars. It described the first as allowing only a realtor to place a listing on MLS. The second requires that a listing realtor act as an agent for the seller of the property and assist them during the entire time of the listing contract. The third pillar demands the listing realtor agree to pay the co-operating realtor compensation that must be more than zero.
The rules to be voted on make only changes to the second pillar, removing the requirement that a realtor act as agent for the seller "throughout the entire time" of a listing contract. In CREA's proposed amendments, its interpretations of the three pillars have eliminated the clause that required a realtor to handles all offers and counter offers.
It has also removed the qualification that made it against the rules to simply post property information without providing more service. The watchdog had singled out that rule in particular as anti-competitive in its release on Monday. "The Bureau is looking for removal of all of the three pillars. They are saying if you are lawfully licensed and a member of a board you should be able to list on MLS. They don't want any another rules," said the source.
Another source familiar with the workings of the federal competition agency said, "they've been trying to get CREA to bend and couldn't get anywhere. The bureau decided it was taking too long and it was time to put some public pressure on them."
If CREA is successful at modifying its bylaws and eliminating some or all of the alleged anti-competitive restrictions, the real estate association can go back to the competition bureau and ask the federal agency to discontinue its application to the Competition Tribunal.
"At that point, they can argue there are no longer any anti-competitive restrictions to haggle over," said the source who asked not to be named.
If CREA is not successful at persuading the bureau to withdraw its complaint, it may continue to make changes to its bylaws, or decide to challenge the competition agency at the Tribunal, which is a legal battle that could take two to three years to resolve.
Lawyer Lawrence Dale, a part owner of Realtysellers (Ontario) Ltd., which was singled out as a victim of anti-competitive practices by the Bureau, said it now appears that CREA is retracting many of the changes it implemented in 2007. Back then CREA put in a series of rules on how you could sell on the MLS, saying they were vital to protecting its trademark.
"That position was obviously a sham given what they are proposing to do now," said Mr. Dale, who sued the Toronto Real Estate Board (TREB) and Canadian Real Estate Association. "It appears to me the Bureau saw through their antics and wasn't prepared to be maneuvered around."
Thursday, February 11, 2010
Financial Update For Feb. 11, 2010
• TSX +12.09
• DOW -20.26
• Dollar +0.43c to 94.07cUS Canada's currency bounced higher against the U.S. dollar as investors took on more risk-sensitive securities with the hope that Greece will see some form of help for its debt problems
• Oil +$.77 to $74.52US per barrel.
• Gold -$.80 to $1,075.30 USD per ounce
Ottawa advised to tighten mortgage rules
February 10, 2010
By Julian Beltrame
OTTAWA — The federal government should avoid major surgery and make only minor adjustments to deal with fears of overheating in Canada’s housing market, a number of leading economists said Wednesday.
Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise.
But some solutions being floated in advance of Flaherty’s March 4 budget — doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years — could do more harm than good, the economists said.
“We want some sort of micro-surgery, not (taking) a pickaxe to the problem,” said Avery Shenfeld, chief economist with CIBC World Markets.
Bank of Nova Scotia economist Derek Holt said such radical surgery could cause home prices to crash and shake confidence in the consumer sector, a key driver of the fragile economic recovery.
Interviews with economists at four of Canada’s big banks showed some disparity of views as to the size of the problem, but general agreement that there is good reason for concern.
Most see home prices in Canada as being 10 to 15 per cent too high, largely because construction of new homes ground to a halt during the recession, decreasing available supply, and because of record-low interest rates, which are luring many new entrants into the market.
The Canadian Real Estate Association said this week it expects home prices to gain another five per cent to a record average of $337,500 this year. Sales will also hit record levels this year before tailing off next year, the association said.
It is unclear whether Flaherty is contemplating measures to cool prices and activity. Last weekend, the minister told reporters he was closely watching prices, but did not believe Canada had a housing bubble as yet.
But if one were to develop it could have wider repercussions on the economic recovery, as occurred in the United States, the economists said.
The best approach now is to take baby steps that would help moderate prices and activity and create a so-called soft landing.
One measure, according to TD Bank deputy chief economist Craig Alexander, would be to tighten the “income test” banks use to assess whether a prospective homeowner can meet monthly mortgage payments.
Already, banks build in a cushion in handing out floating mortgages by judging credit worthiness based on the borrower’s ability to make payments on the three-year rate, not the variable rate — about a two percentage point difference. Alexander said that could be increased to the still higher five-year posted rate.
A variation would be for banks to judge ability to meet payments not just on the mortgage but on all outstanding debts of a prospective homebuyer.
Yet another idea would be to deny government-backed insurance on mortgages for investment properties, thereby dampening speculation.
Economists believe such measures could help deflate any housing bubble without bursting it.
“It’s not in the interest of either buyers or lenders to have boom-bust cycles,” said the TD’s Alexander.
“That’s the lesson from the U.S. experience. If you have the wrong incentives and you don’t have regulations, you end up in a place you don’t want to be.”
Bank of Montreal economist Douglas Porter said if Ottawa chooses to raise the down payment requirement, it should do so modestly, perhaps to six or seven per cent.
Porter said, however, that he didn’t think reducing the amortization period to 30 years would be dramatic enough to cause a major disruption in the market.
Economists point out that home affordability is expected to tighten this summer even if Flaherty does not change the rules.
The introduction of the harmonized sales tax starting July 1 in Ontario and British Columbia — two of the hottest home markets — is expected to add a couple of thousand dollars to home purchases in those provinces.
And Bank of Canada governor Mark Carney is widely expected to start raising interest rates as early as July
• DOW -20.26
• Dollar +0.43c to 94.07cUS Canada's currency bounced higher against the U.S. dollar as investors took on more risk-sensitive securities with the hope that Greece will see some form of help for its debt problems
• Oil +$.77 to $74.52US per barrel.
• Gold -$.80 to $1,075.30 USD per ounce
Ottawa advised to tighten mortgage rules
February 10, 2010
By Julian Beltrame
OTTAWA — The federal government should avoid major surgery and make only minor adjustments to deal with fears of overheating in Canada’s housing market, a number of leading economists said Wednesday.
Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise.
But some solutions being floated in advance of Flaherty’s March 4 budget — doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years — could do more harm than good, the economists said.
“We want some sort of micro-surgery, not (taking) a pickaxe to the problem,” said Avery Shenfeld, chief economist with CIBC World Markets.
Bank of Nova Scotia economist Derek Holt said such radical surgery could cause home prices to crash and shake confidence in the consumer sector, a key driver of the fragile economic recovery.
Interviews with economists at four of Canada’s big banks showed some disparity of views as to the size of the problem, but general agreement that there is good reason for concern.
Most see home prices in Canada as being 10 to 15 per cent too high, largely because construction of new homes ground to a halt during the recession, decreasing available supply, and because of record-low interest rates, which are luring many new entrants into the market.
The Canadian Real Estate Association said this week it expects home prices to gain another five per cent to a record average of $337,500 this year. Sales will also hit record levels this year before tailing off next year, the association said.
It is unclear whether Flaherty is contemplating measures to cool prices and activity. Last weekend, the minister told reporters he was closely watching prices, but did not believe Canada had a housing bubble as yet.
But if one were to develop it could have wider repercussions on the economic recovery, as occurred in the United States, the economists said.
The best approach now is to take baby steps that would help moderate prices and activity and create a so-called soft landing.
One measure, according to TD Bank deputy chief economist Craig Alexander, would be to tighten the “income test” banks use to assess whether a prospective homeowner can meet monthly mortgage payments.
Already, banks build in a cushion in handing out floating mortgages by judging credit worthiness based on the borrower’s ability to make payments on the three-year rate, not the variable rate — about a two percentage point difference. Alexander said that could be increased to the still higher five-year posted rate.
A variation would be for banks to judge ability to meet payments not just on the mortgage but on all outstanding debts of a prospective homebuyer.
Yet another idea would be to deny government-backed insurance on mortgages for investment properties, thereby dampening speculation.
Economists believe such measures could help deflate any housing bubble without bursting it.
“It’s not in the interest of either buyers or lenders to have boom-bust cycles,” said the TD’s Alexander.
“That’s the lesson from the U.S. experience. If you have the wrong incentives and you don’t have regulations, you end up in a place you don’t want to be.”
Bank of Montreal economist Douglas Porter said if Ottawa chooses to raise the down payment requirement, it should do so modestly, perhaps to six or seven per cent.
Porter said, however, that he didn’t think reducing the amortization period to 30 years would be dramatic enough to cause a major disruption in the market.
Economists point out that home affordability is expected to tighten this summer even if Flaherty does not change the rules.
The introduction of the harmonized sales tax starting July 1 in Ontario and British Columbia — two of the hottest home markets — is expected to add a couple of thousand dollars to home purchases in those provinces.
And Bank of Canada governor Mark Carney is widely expected to start raising interest rates as early as July
Financial Update For Feb. 10, 2010
• TSX +158.94
• DOW +150.25 back up over 10,000 pts to 10,058
• Dollar +0.57c to 93.64cUS as risk appetite was whetted by reports of European rescue efforts for debt-strapped Greece. Also supporting Canada's commodity-linked dollar were firmer oil prices, and a 1% gain in gold prices.
• Oil +$1.86 to $73.75US per barrel.
• Gold +10.90 to $1,076.70 USD per ounce
Info below published in the US weekly MBA newsletter
Economy & Business: Delinquencies
Washington Post (02/09/10) P. A11
While the rest of the private loan market seems to be stabilizing, Fitch Ratings reports that delinquencies on prime "jumbo" mortgages nearly tripled last year and continued to climb in 2010. January -- when 9.6 percent of big loans not backed by government agencies were 60 days or more late -- marked the 32nd consecutive month of growth in "serious delinquencies," according to the ratings firm.
Real estate association’s rules challenged by federal competition watchdog
The Canadian Press
OTTAWA — The Competition Bureau says it’s challenging rules imposed by the Canadian Real Estate Association, a body that represents more than 98,000 real estate brokers, agents and salespeople.
The federal agency says the association’s rules limit choices for consumers and force them to pay for services they don’t want, also stifling innovation in the market for residential real estate services.
The Competition Bureau is challenging association rules imposed on agents who list properties on the association’s Multiple Listing Service, also known as MLS.
The agency says most real estate transactions in Canada make use of the MLS system, which includes information available only to association members.
But under association rules, according to the Competition Bureau, agents are forbidden from offering consumers the option of simply paying a fee to list a home on MLS.
• DOW +150.25 back up over 10,000 pts to 10,058
• Dollar +0.57c to 93.64cUS as risk appetite was whetted by reports of European rescue efforts for debt-strapped Greece. Also supporting Canada's commodity-linked dollar were firmer oil prices, and a 1% gain in gold prices.
• Oil +$1.86 to $73.75US per barrel.
• Gold +10.90 to $1,076.70 USD per ounce
Info below published in the US weekly MBA newsletter
Economy & Business: Delinquencies
Washington Post (02/09/10) P. A11
While the rest of the private loan market seems to be stabilizing, Fitch Ratings reports that delinquencies on prime "jumbo" mortgages nearly tripled last year and continued to climb in 2010. January -- when 9.6 percent of big loans not backed by government agencies were 60 days or more late -- marked the 32nd consecutive month of growth in "serious delinquencies," according to the ratings firm.
Real estate association’s rules challenged by federal competition watchdog
The Canadian Press
OTTAWA — The Competition Bureau says it’s challenging rules imposed by the Canadian Real Estate Association, a body that represents more than 98,000 real estate brokers, agents and salespeople.
The federal agency says the association’s rules limit choices for consumers and force them to pay for services they don’t want, also stifling innovation in the market for residential real estate services.
The Competition Bureau is challenging association rules imposed on agents who list properties on the association’s Multiple Listing Service, also known as MLS.
The agency says most real estate transactions in Canada make use of the MLS system, which includes information available only to association members.
But under association rules, according to the Competition Bureau, agents are forbidden from offering consumers the option of simply paying a fee to list a home on MLS.
Tuesday, February 9, 2010
Financial Update For Feb. 9, 2010
• TSX -107.82 as investors continued to take profits from the strong rally of 2009 amid worries about the strength of the global economic recovery and sovereign debt issues in Europe. Concerns are growing that some European countries, including Greece, Portugal and Spain, might not be able to handle their mounting levels of debt
• DOW -103.84 falling below the 10,000 pt threshold to 9,908
• Dollar +0.39c to 93.07cUS
• Oil +$.70 to $71.89US per barrel.
• Gold +13.40 to $1,065.10 USD per ounce
CREA forecasts record home market this year
Garry Marr, Financial Post
Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.
The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.
The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.
Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.
"One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.
There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.
Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act.
Mr. Klump's group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.
That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.
"There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months," said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.
Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.
"It's a factor fuelling a higher level of activity in Ontario and British Columbia," Mr. Klump said. "What's more Canadian than avoiding taxes?"
Elton Ash, vice-president of Re/Max of Western Canada, said he thinks the forecast put out Monday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. "But I also think the market will be better in 2011 [than CREA]."
Mr. Ash is actually in favour of some measures to cool the market, like reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.
"I think leaving it at 5% would be okay," Mr. Ash said.
• DOW -103.84 falling below the 10,000 pt threshold to 9,908
• Dollar +0.39c to 93.07cUS
• Oil +$.70 to $71.89US per barrel.
• Gold +13.40 to $1,065.10 USD per ounce
CREA forecasts record home market this year
Garry Marr, Financial Post
Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.
The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.
The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.
Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.
"One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.
There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.
Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act.
Mr. Klump's group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.
That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.
"There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months," said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.
Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.
"It's a factor fuelling a higher level of activity in Ontario and British Columbia," Mr. Klump said. "What's more Canadian than avoiding taxes?"
Elton Ash, vice-president of Re/Max of Western Canada, said he thinks the forecast put out Monday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. "But I also think the market will be better in 2011 [than CREA]."
Mr. Ash is actually in favour of some measures to cool the market, like reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.
"I think leaving it at 5% would be okay," Mr. Ash said.
Wednesday, February 3, 2010
Financial Update For Feb. 3, 2010
• TSX +90.79 to 11,408.34 Rising commodity prices drive up shares of metals, mining and energy stocks
• DOW +111.21 to 10,296.85
• Dollar +0.12c to 94.63cUS
• Oil +0.40 to $77.73US per barrel.
• Gold +13.20 to $1,118.20USD per ounce
'Good and boring:' Canadian banks win praise
Janet Whitman, Financial Post Published: Tuesday, February 02, 2010
NEW YORK -- Paul Volcker, the former U.S. Federal Reserve Board chairman who's now a key economic advisor to the White House, told U.S. lawmakers Tuesday they ought to learn from Canada's banking system as they seek to overhaul rules governing the biggest U.S. banks.
Speaking at a hearing to tout his proposal to rein in risky investing activities by large U.S. commercial banks, Mr. Volcker said the life's work of Canadian banks is retail banking: "That's no longer true of great big American banks."
With just five or six banks dominating the industry, Canada's banks benefit from having less competition, Mr. Volcker said. "It's a stable oligopoly."
Canada's banking system also has been shielded by the fact that it has less government interference in its mortgage market, unlike in the United States, where banks have been pressured by the government to make low-cost loans to the economically disadvantaged, he said.
Mr. Volcker's endorsement of Canada's banking system - the only Group of Seven nation that didn't need taxpayers to bail out its banks - came two days after The New York Times published a piece by Nobel Prize-winning economist and columnist Paul Krugman that said the United States should emulate Canada's financial regulatory regime.
After its publication, the article, entitled "Good and Boring," became the most emailed on the Times website.
Mr. Volcker made his positive comments about Canada toward the end of Tuesday's Capital Hill hearing after Charles Schumer, a Democrat from New York, asked whether the United States should form a consumer protection agency similar to Canada's to fix the banking system.
Mr. Volcker declined to comment directly on the consumer agency question, but said Canada's mortgage market is more privately owned than in the United States, which has government-sponsored Fannie Mae and Freddie Mac backing home mortgages.
Canada has much less securitization - the practice of banks bundling off loans and selling them off to investors -than the United States, which might give Canada an incentive to stay with more conservative practices, he said.
Mr.. Volcker, widely credited with taming inflation as Federal Reserve Bank chairman under U.S. presidents Jimmy Carter and Ronald Reagan, said Canada hasn't been completely immune to fallout in its banking sector
He noted a couple of its regional banks went bankrupt some years ago after getting into trouble, an apparent reference to the collapse of Northland Bank and the Canadian Commercial Bank in 1985.
"At that point, people were not so proud of the regulatory system in Canada," he said.
U.S. lawmakers didn't seem impressed Tuesday by the case Mr. Volcker tried to make that big U.S. commercial banks should be barred from high-risk trading in a bid to curb the problem of financial firms that are "too big to fail" without putting the entire financial system at risk.
The Volcker Rule would ban large commercial banks from "proprietary trading," in which they use their private-equity arms or hedge funds to rack up their own profits.
Christopher Dodd, a senator from Connecticut heading up the proposed revamp of the U.S. financial system, said at the end of the hearing he would need more specific details on how such a ban would work before making its part of the draft overhaul plan he introduced last year..
Financial Post
Barack Obama, the U.S. president, unveiled the Volcker Rule proposal after a stunning U.S. Senate seat upset in Massachusetts.
Mr. Volcker said Tuesday the announcement was in the works weeks before the seat long held by Democrat Ted Kennedy went to a Republican..
"I want the American public to know that," he said.
• DOW +111.21 to 10,296.85
• Dollar +0.12c to 94.63cUS
• Oil +0.40 to $77.73US per barrel.
• Gold +13.20 to $1,118.20USD per ounce
'Good and boring:' Canadian banks win praise
Janet Whitman, Financial Post Published: Tuesday, February 02, 2010
NEW YORK -- Paul Volcker, the former U.S. Federal Reserve Board chairman who's now a key economic advisor to the White House, told U.S. lawmakers Tuesday they ought to learn from Canada's banking system as they seek to overhaul rules governing the biggest U.S. banks.
Speaking at a hearing to tout his proposal to rein in risky investing activities by large U.S. commercial banks, Mr. Volcker said the life's work of Canadian banks is retail banking: "That's no longer true of great big American banks."
With just five or six banks dominating the industry, Canada's banks benefit from having less competition, Mr. Volcker said. "It's a stable oligopoly."
Canada's banking system also has been shielded by the fact that it has less government interference in its mortgage market, unlike in the United States, where banks have been pressured by the government to make low-cost loans to the economically disadvantaged, he said.
Mr. Volcker's endorsement of Canada's banking system - the only Group of Seven nation that didn't need taxpayers to bail out its banks - came two days after The New York Times published a piece by Nobel Prize-winning economist and columnist Paul Krugman that said the United States should emulate Canada's financial regulatory regime.
After its publication, the article, entitled "Good and Boring," became the most emailed on the Times website.
Mr. Volcker made his positive comments about Canada toward the end of Tuesday's Capital Hill hearing after Charles Schumer, a Democrat from New York, asked whether the United States should form a consumer protection agency similar to Canada's to fix the banking system.
Mr. Volcker declined to comment directly on the consumer agency question, but said Canada's mortgage market is more privately owned than in the United States, which has government-sponsored Fannie Mae and Freddie Mac backing home mortgages.
Canada has much less securitization - the practice of banks bundling off loans and selling them off to investors -than the United States, which might give Canada an incentive to stay with more conservative practices, he said.
Mr.. Volcker, widely credited with taming inflation as Federal Reserve Bank chairman under U.S. presidents Jimmy Carter and Ronald Reagan, said Canada hasn't been completely immune to fallout in its banking sector
He noted a couple of its regional banks went bankrupt some years ago after getting into trouble, an apparent reference to the collapse of Northland Bank and the Canadian Commercial Bank in 1985.
"At that point, people were not so proud of the regulatory system in Canada," he said.
U.S. lawmakers didn't seem impressed Tuesday by the case Mr. Volcker tried to make that big U.S. commercial banks should be barred from high-risk trading in a bid to curb the problem of financial firms that are "too big to fail" without putting the entire financial system at risk.
The Volcker Rule would ban large commercial banks from "proprietary trading," in which they use their private-equity arms or hedge funds to rack up their own profits.
Christopher Dodd, a senator from Connecticut heading up the proposed revamp of the U.S. financial system, said at the end of the hearing he would need more specific details on how such a ban would work before making its part of the draft overhaul plan he introduced last year..
Financial Post
Barack Obama, the U.S. president, unveiled the Volcker Rule proposal after a stunning U.S. Senate seat upset in Massachusetts.
Mr. Volcker said Tuesday the announcement was in the works weeks before the seat long held by Democrat Ted Kennedy went to a Republican..
"I want the American public to know that," he said.
Tuesday, February 2, 2010
Financial Update For Feb. 2, 2010
• TSX +223.34 to 11,327.55 closed at its lowest level in 3 months, pressured by weak commodity prices after stronger than expected U.S. economic data sparked a rally in the greenback.
• DOW +118.30 to 10,185.53
• Dollar -.35c to 94.53cUS
• Oil +0.88 to $75.31US per barrel.
• Gold +21.50 to $1,105.30.USD per ounce
Finally, Canada's financial system gets some respect
Posted: February 01, 2010, 7:44 PM by Pamela Heaven
While Canada's ability to sidestep the banking crisis has earned a slow drip of respect from the rest of world over the past year and half, it turned into a flood over the weekend.
On Monday, the most e-mailed story on the entire New York Times website was an economist advocating that the United States emulate Canada’s financial regulatory regime. It helps that the economist/columnist was Paul Krugman, Nobel prize winner and one of the most ardent critics of the way the U.S. government bailed out its big banks.
Mr. Krugman concludes that the U.S. will likely do very little to fix its banking system but “it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.”
He writes that Canada was better at protecting consumers from predatory lending and that may, along with our supposedly more conservative nature, be a big contributor to our financial stability.
In the Financial Times, Chrystia Freeland, the paper’s U.S. managing editor, hit on some of the same points as Mr. Krugman including repeating the commonly held assumption that we are too collectively dull as a nation to even create a bubble worth bursting.
Ms. Freeland, a Canadian, does add more depth than Mr. Krugman and actually talks to many of the leaders of Canada’s financial system. She runs through several of the possible reasons for our good fortune: a more prudent culture, better rules, regulators that talk to each other and a cozy, conservative mortgage market.
All of these topics have been covered extensively by reporters like John Greenwood, Paul Vieira and Theresa Tedesco in the Financial Post, but it’s nice to see two other prominent papers taking notice.
Grant Ellis, associate editor, Financial Post
Flaherty urged to keep spending taps open
Jeremy Torobin and Tavia Grant
Ottawa, Toronto — Globe and Mail Update Published on Monday, Feb. 01, 2010 8:15PM EST Last updated on Tuesday, Feb. 02, 2010 6:40AM EST
Canada's leading private economists are urging Finance Minister Jim Flaherty to tread a cautious path in his March budget and keep spending flowing in a fragile recovery.
At a meeting in Ottawa on Tuesday, the economists will suggest Mr. Flaherty look past some of the better-than-expected data in Canada and the United States and resist moving too quickly to rein in the deficit.
The economists have boosted their projections for the economy, which Mr. Flaherty uses to shape his own assessments. They now see average economic growth of 2.7 per cent this year, according to a Bloomberg survey. That's higher than the 2.3 per cent Mr. Flaherty projected in his September fiscal update, but still well below the 5 per cent to 6 per cent that typically follows a deep slump.
“The dominant theme here is that unlike recoveries from previous recessions this one's going to be fairly slow and drawn out,” said Craig Alexander, deputy chief economist at Toronto-Dominion Bank. “I don't think the government should be tightening fiscal policy before the recovery has gained greater traction.”
In the U.S., President Barack Obama is facing intense political pressure to start taming a deficit on track to reach a record $1.6-trillion (U.S.), even as a stubbornly high unemployment rate forced him to ask Congress on Monday for another $100-billion to create jobs.
Canada, by comparison, is in a better position to carefully talk about a plan for tackling the budget shortfall that the global downturn spawned. Mr. Flaherty and newly minted Treasury Board President Stockwell Day have said the budget will include a road map to bring the budget back into balance within five years.
Most Canadian economists say outlining such a strategy is a good idea, but caution against being too aggressive.
“Unless economic growth turns out to be significantly stronger than economists like myself are projecting, the recovery won't do enough to get back into a balanced budget,” TD's Mr. Alexander said. “The budget is an opportunity to lay out a framework for what you try to do over a five-year horizon, and in that context there's a perfectly good opportunity to outline how you intend to, after the economy's gained significant momentum, get back into a balanced budget.”
At the same time, some economists are so cautious in their outlook that they say it's premature to even talk about spending restraint. Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce , said that even if the Parliamentary Budget Officer's recent warnings come true and Canada faces a so-called structural deficit of up to $19-billion (Canadian) five years from now, the country's debt load wouldn't be rising at a pace that increases the ratio of debt to gross domestic product.
“We're not Greece, so we don't have to impose an austerity program while the economy's still weak, or even talk about it,” Mr. Shenfeld said. “There's lots of time to adjust fiscal policy if it turns out three or four years from now we're still running a modest deficit.”
The deficit spending, and when and how to refill the hole, will be the front-and-centre topic at today's meeting, said Michael Gregory, senior economist at BMO Nesbitt Burns, not least because of nagging concerns about the effect that an aging population and health-care costs will have on long-term growth, regardless of the economic slump.
Reports late last week on both sides of the border showed Canada's economy grew at a faster-than-anticipated 0.4-per-cent pace in November and that the U.S. economy expanded at an impressive 5.7-per-cent annual pace in the final three months of 2009. Still, although both numbers caused some forecasters to increase their estimates of Canada's growth in the fourth quarter, many economists are skeptical the U.S. can keep growing at anywhere near its October-through-December pace, most of which was attributed to companies replenishing depleted inventories.
In any case, growth in both Canada and the U.S. this year will be on the strength of billions in government stimulus measures, not to mention rock-bottom interest rates, so fiscal policy makers face the crucial task of timing their belt-tightening just right because it remains unclear when the private sector will see self-sustaining demand.
Deficit reduction is important, but governments will have to walk a tightrope in the next year, said Jay Myers president and chief executive officer of Canadian Manufacturers & Exporters, which is hosting Mr. Flaherty at a conference later Tuesday in Ottawa.
“The year of recovery is going to be much more challenging for federal and provincial governments than the year of recession,” Mr. Myers said. “They basically knew what they had to do in recession. It's much more challenging now, to make the right choices.”
The balance hinges on beginning to unwind the extraordinary spending while also encouraging investments in new technology, innovation, skills development and market diversification that help growth over the long haul, he said.
Other topics that might be raised Tuesday range from new housing regulations to learning to live with the strong dollar, said Sheryl King, head of economics at Merrill Lynch (Canada).
The Finance Minister warned last month he will step in if the white-hot home resale market continues to push prices higher by tightening the rules for borrowers, such as increasing minimum down payments and shortening the maximum length of mortgages.
• DOW +118.30 to 10,185.53
• Dollar -.35c to 94.53cUS
• Oil +0.88 to $75.31US per barrel.
• Gold +21.50 to $1,105.30.USD per ounce
Finally, Canada's financial system gets some respect
Posted: February 01, 2010, 7:44 PM by Pamela Heaven
While Canada's ability to sidestep the banking crisis has earned a slow drip of respect from the rest of world over the past year and half, it turned into a flood over the weekend.
On Monday, the most e-mailed story on the entire New York Times website was an economist advocating that the United States emulate Canada’s financial regulatory regime. It helps that the economist/columnist was Paul Krugman, Nobel prize winner and one of the most ardent critics of the way the U.S. government bailed out its big banks.
Mr. Krugman concludes that the U.S. will likely do very little to fix its banking system but “it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.”
He writes that Canada was better at protecting consumers from predatory lending and that may, along with our supposedly more conservative nature, be a big contributor to our financial stability.
In the Financial Times, Chrystia Freeland, the paper’s U.S. managing editor, hit on some of the same points as Mr. Krugman including repeating the commonly held assumption that we are too collectively dull as a nation to even create a bubble worth bursting.
Ms. Freeland, a Canadian, does add more depth than Mr. Krugman and actually talks to many of the leaders of Canada’s financial system. She runs through several of the possible reasons for our good fortune: a more prudent culture, better rules, regulators that talk to each other and a cozy, conservative mortgage market.
All of these topics have been covered extensively by reporters like John Greenwood, Paul Vieira and Theresa Tedesco in the Financial Post, but it’s nice to see two other prominent papers taking notice.
Grant Ellis, associate editor, Financial Post
Flaherty urged to keep spending taps open
Jeremy Torobin and Tavia Grant
Ottawa, Toronto — Globe and Mail Update Published on Monday, Feb. 01, 2010 8:15PM EST Last updated on Tuesday, Feb. 02, 2010 6:40AM EST
Canada's leading private economists are urging Finance Minister Jim Flaherty to tread a cautious path in his March budget and keep spending flowing in a fragile recovery.
At a meeting in Ottawa on Tuesday, the economists will suggest Mr. Flaherty look past some of the better-than-expected data in Canada and the United States and resist moving too quickly to rein in the deficit.
The economists have boosted their projections for the economy, which Mr. Flaherty uses to shape his own assessments. They now see average economic growth of 2.7 per cent this year, according to a Bloomberg survey. That's higher than the 2.3 per cent Mr. Flaherty projected in his September fiscal update, but still well below the 5 per cent to 6 per cent that typically follows a deep slump.
“The dominant theme here is that unlike recoveries from previous recessions this one's going to be fairly slow and drawn out,” said Craig Alexander, deputy chief economist at Toronto-Dominion Bank. “I don't think the government should be tightening fiscal policy before the recovery has gained greater traction.”
In the U.S., President Barack Obama is facing intense political pressure to start taming a deficit on track to reach a record $1.6-trillion (U.S.), even as a stubbornly high unemployment rate forced him to ask Congress on Monday for another $100-billion to create jobs.
Canada, by comparison, is in a better position to carefully talk about a plan for tackling the budget shortfall that the global downturn spawned. Mr. Flaherty and newly minted Treasury Board President Stockwell Day have said the budget will include a road map to bring the budget back into balance within five years.
Most Canadian economists say outlining such a strategy is a good idea, but caution against being too aggressive.
“Unless economic growth turns out to be significantly stronger than economists like myself are projecting, the recovery won't do enough to get back into a balanced budget,” TD's Mr. Alexander said. “The budget is an opportunity to lay out a framework for what you try to do over a five-year horizon, and in that context there's a perfectly good opportunity to outline how you intend to, after the economy's gained significant momentum, get back into a balanced budget.”
At the same time, some economists are so cautious in their outlook that they say it's premature to even talk about spending restraint. Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce , said that even if the Parliamentary Budget Officer's recent warnings come true and Canada faces a so-called structural deficit of up to $19-billion (Canadian) five years from now, the country's debt load wouldn't be rising at a pace that increases the ratio of debt to gross domestic product.
“We're not Greece, so we don't have to impose an austerity program while the economy's still weak, or even talk about it,” Mr. Shenfeld said. “There's lots of time to adjust fiscal policy if it turns out three or four years from now we're still running a modest deficit.”
The deficit spending, and when and how to refill the hole, will be the front-and-centre topic at today's meeting, said Michael Gregory, senior economist at BMO Nesbitt Burns, not least because of nagging concerns about the effect that an aging population and health-care costs will have on long-term growth, regardless of the economic slump.
Reports late last week on both sides of the border showed Canada's economy grew at a faster-than-anticipated 0.4-per-cent pace in November and that the U.S. economy expanded at an impressive 5.7-per-cent annual pace in the final three months of 2009. Still, although both numbers caused some forecasters to increase their estimates of Canada's growth in the fourth quarter, many economists are skeptical the U.S. can keep growing at anywhere near its October-through-December pace, most of which was attributed to companies replenishing depleted inventories.
In any case, growth in both Canada and the U.S. this year will be on the strength of billions in government stimulus measures, not to mention rock-bottom interest rates, so fiscal policy makers face the crucial task of timing their belt-tightening just right because it remains unclear when the private sector will see self-sustaining demand.
Deficit reduction is important, but governments will have to walk a tightrope in the next year, said Jay Myers president and chief executive officer of Canadian Manufacturers & Exporters, which is hosting Mr. Flaherty at a conference later Tuesday in Ottawa.
“The year of recovery is going to be much more challenging for federal and provincial governments than the year of recession,” Mr. Myers said. “They basically knew what they had to do in recession. It's much more challenging now, to make the right choices.”
The balance hinges on beginning to unwind the extraordinary spending while also encouraging investments in new technology, innovation, skills development and market diversification that help growth over the long haul, he said.
Other topics that might be raised Tuesday range from new housing regulations to learning to live with the strong dollar, said Sheryl King, head of economics at Merrill Lynch (Canada).
The Finance Minister warned last month he will step in if the white-hot home resale market continues to push prices higher by tightening the rules for borrowers, such as increasing minimum down payments and shortening the maximum length of mortgages.
Monday, February 1, 2010
Financial Update For Feb. 1, 2010
• TSX -179.89 to 11,094 closed at its lowest level in 3 months, pressured by weak commodity prices after stronger than expected U.S. economic data sparked a rally in the greenback.
• DOW -53.13 to 10,067
• Dollar -.27c to 93.52cUS
• Oil -$.75 to $72.89US per barrel.
• Gold $-.60 to $1,083.USD per ounce
Signs of recovery starting to sway the skeptical
Looks like a V shaped recovery afterall
Paul Vieira, Financial Post
OTTAWA -- Despite all the angst in financial markets over sovereign debt and the populist influence on banking reform proposals, the economies in the United States and Canada have chugged along the road to recovery at a pace that's surprising even the most skeptical of analysts.
Data released Friday indicate U.S. GDP grew in the fourth quarter, an estimated 5.7%, at its fastest pace in six years. Meanwhile in Canada, data show November growth was stronger than expected, at 0.4%, while revisions to September and October figures indicate the economy was much stronger than earlier thought.
"It couldn't have been that easy, could it?," asked Stewart Hall, economist at HSBC Securities Canada, who in previous notes had expressed caution about a slow, uneven recovery. "Yet charting out the month over month GDP looks an awful lot like a "V" shaped recovery."
Prior to the release of this data, markets had been consumed with worries in the aftermath of the financial crisis, be it the debt levels of industrialized countries; a slowdown in Chinese growth as Beijing looks to tighten credit conditions, and measures proposed by the U.S. White House that could scale back the size of U.S. banks, leading them in the meantime to restrict credit growth as given their uncertain future.
"One of the important lessons of the crisis was that it was often helpful to focus squarely on more comprehensible macro-cyclical dynamics than on the noise and complexity of these other areas," Dominic Wilson, director of global macro and markets research for Goldman Sachs, said in a note this week.
"The latest focus on the banks might inadvertently restrict credit or tighten financial conditions in ways that do alter the macro path. But we think it makes sense to stay more focused on the economic news rather than shifting views too much on the basis of handicapping the twists and turns of possible legislation and the inevitable news from Washington."
As for the nuts and bolts of the data, analysts had mixed views.
In the U.S., economists at Capital Economics argued the big estimated headline gain was largely due to inventory rebuilding – hence, there's some skepticism that will kickstart a self-sustaining recovery.
But Dawn Desjardins, assistant chief economist at Royal Bank of Canada, said the U.S. data suggest "the consumer, after being in hiding the previous-six quarters, re-emerged in the second-half of 2009. ... This was a reflection of rising confidence that the recession was ending, the effect of government programs and a very low interest rate environment. Going forward, we expect that consumer spending will remain positive but that increases will be moderate as the hangover from the buying binge in previous years constrains activity."
It is not just the consumer. Business investment also surprised on the strong side, with growth of 2.9% after a 5.9% drop in the previous quarter. Investment in equipment and software jumped 13.3%, well above the 1.5% expansion in the third quarter. Net exports also added to U.S. GDP, in a sign that the country is beginning capitalize on its weaker currency and stellar productivity when it comes to trade.
In Canada, the surprisingly strong November data – and upward revisions to September and October – have economists indicating that the recovery is for real, with some now penciling in growth of at least 4% for the fourth quarter, or above the Bank of Canada's own projections. And remember, the central bank's forecast is at the upper end of market projections.
"This is one of the most convincing signs so far that the Canadian recovery is for real, and neatly dovetails with the robust U.S. GDP result," said Douglas Porter, deputy chief economist at BMO Capital Markets.
• DOW -53.13 to 10,067
• Dollar -.27c to 93.52cUS
• Oil -$.75 to $72.89US per barrel.
• Gold $-.60 to $1,083.USD per ounce
Signs of recovery starting to sway the skeptical
Looks like a V shaped recovery afterall
Paul Vieira, Financial Post
OTTAWA -- Despite all the angst in financial markets over sovereign debt and the populist influence on banking reform proposals, the economies in the United States and Canada have chugged along the road to recovery at a pace that's surprising even the most skeptical of analysts.
Data released Friday indicate U.S. GDP grew in the fourth quarter, an estimated 5.7%, at its fastest pace in six years. Meanwhile in Canada, data show November growth was stronger than expected, at 0.4%, while revisions to September and October figures indicate the economy was much stronger than earlier thought.
"It couldn't have been that easy, could it?," asked Stewart Hall, economist at HSBC Securities Canada, who in previous notes had expressed caution about a slow, uneven recovery. "Yet charting out the month over month GDP looks an awful lot like a "V" shaped recovery."
Prior to the release of this data, markets had been consumed with worries in the aftermath of the financial crisis, be it the debt levels of industrialized countries; a slowdown in Chinese growth as Beijing looks to tighten credit conditions, and measures proposed by the U.S. White House that could scale back the size of U.S. banks, leading them in the meantime to restrict credit growth as given their uncertain future.
"One of the important lessons of the crisis was that it was often helpful to focus squarely on more comprehensible macro-cyclical dynamics than on the noise and complexity of these other areas," Dominic Wilson, director of global macro and markets research for Goldman Sachs, said in a note this week.
"The latest focus on the banks might inadvertently restrict credit or tighten financial conditions in ways that do alter the macro path. But we think it makes sense to stay more focused on the economic news rather than shifting views too much on the basis of handicapping the twists and turns of possible legislation and the inevitable news from Washington."
As for the nuts and bolts of the data, analysts had mixed views.
In the U.S., economists at Capital Economics argued the big estimated headline gain was largely due to inventory rebuilding – hence, there's some skepticism that will kickstart a self-sustaining recovery.
But Dawn Desjardins, assistant chief economist at Royal Bank of Canada, said the U.S. data suggest "the consumer, after being in hiding the previous-six quarters, re-emerged in the second-half of 2009. ... This was a reflection of rising confidence that the recession was ending, the effect of government programs and a very low interest rate environment. Going forward, we expect that consumer spending will remain positive but that increases will be moderate as the hangover from the buying binge in previous years constrains activity."
It is not just the consumer. Business investment also surprised on the strong side, with growth of 2.9% after a 5.9% drop in the previous quarter. Investment in equipment and software jumped 13.3%, well above the 1.5% expansion in the third quarter. Net exports also added to U.S. GDP, in a sign that the country is beginning capitalize on its weaker currency and stellar productivity when it comes to trade.
In Canada, the surprisingly strong November data – and upward revisions to September and October – have economists indicating that the recovery is for real, with some now penciling in growth of at least 4% for the fourth quarter, or above the Bank of Canada's own projections. And remember, the central bank's forecast is at the upper end of market projections.
"This is one of the most convincing signs so far that the Canadian recovery is for real, and neatly dovetails with the robust U.S. GDP result," said Douglas Porter, deputy chief economist at BMO Capital Markets.
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