Financial Update For April 6, 2010

• TSX +35.29 with well-received economic news in the U.S. sending oil prices higher and giving Toronto's commodity-heavy benchmark index a boost.
• DOW +46.48
• Dollar +.55c to 99.72cUS hitting its strongest level since July 2008, boosted by rising commodity prices and expectations for higher domestic interest rates
• Oil +$1.75 to $86.62US per barrel.
• Gold +$7.80 to $1,132.90 USD per ounce

Loonie closes in on parity as Canadians and firms look to hedge bets
BY JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA — The high-flying loonie renewed its flight towards parity Monday, forcing firms and individuals to adjust to what many believe will become a new normal in the relative value of the two currencies.
Boosted by cycle-high prices for oil and commodities, the loonie soared to within a whisker of parity Monday, reaching as high as 99.87 cents US before closing at 99.72.
The currency has been flirting with par for more than a month, and economists believe it is now only a matter of time before the psychologically important barrier is breached.
“We’re one good number away from seeing the Canadian dollar through parity,” said CIBC chief economist Avery Shenfeld.
If it doesn’t happen earlier, the trigger may be Friday’s employment report for March, particularly if Statistics Canada announces a higher gain than the 25,000 consensus call.
Scotiabank economists sent a note to clients Monday predicting the dollar will appreciate “well north of parity over the spring and summer months.”
RBC currency analyst Matthew Strauss also believes the loonie could stay above parity for several months, although his view is that it will dip slightly below the greenback later in the year when the U.S. starts hiking interest rates.
Regardless of which side of the line the currency trades at any given time, Strauss said Canadians should get used to a strong loonie — within five cents of parity either way — perhaps for years.
Economists say the shock for Canadians won’t be as acute this time as in the fall of 2007, when the loonie rose as high as $1.10 US, resulting in a flood of cross-border shoppers heading south for bargains, and a commensurate dwindling of traffic the other way.
A recent report by the Conference Board of Canada suggested that many industries, particularly multi-nationals in the manufacturing and oil and gas sectors, had globalized their operations to mitigate against a stronger Canadian currency.
Still, there were indications Monday that many Canadians are looking to insulate themselves against currency fluctuations.
Toronto-based currency broker Knightsbridge Foreign Exchange said business has been brisk — about three or four times higher than normal — with small firms and individuals anxious to hedge against volatility.
Knightsbridge president Rahim Madhavji said small firms that import from the U.S. want to ensure that their purchase price won’t be wildly different when it comes time to pay in U.S. dollars. And he says he’s also getting calls from Canadians buying homes in U.S. vacation spots who want to lock in the purchase price months before the closing date.
“Volatility is good for our business,” he said. “People are hedging now because . . . who knows what the rate is going to be in 90 days.”
Kevin Desjardins of the Tourism Industry Association of Canada said the country’s 180,000 tourism operators are also keeping a close eye on the currency, knowing that each cent of appreciation likely means a little less business for them.
With summer’s peak season approaching, the loonie’s strength couldn’t come at a worse time for an industry already hobbled by the poor economy in the U.S. and new border restrictions that require American visitors to carry passports.
“You have to think of tourism as an export industry and like any export industry, a strong Canadian dollar is going to have an impact on our ability to get foreigners to buy Canadian,” he explained.
Many industries have made adjustments for the currency, said Avrim Lazar of the Forest Products Association of Canada, but no one should fool themselves into thinking there isn’t a stiff price to pay whenever the loonie appreciates.
He said a strong dollar means that as his industry recovers from recession, mill owners are likely to re-open in the U.S. over Canada, meaning jobs will go south.
“The government and the (Bank of Canada) feeling complacent about a high dollar would be a serious error (because) we export most of our non-government GDP to the U.S.,” he explained.
Economists say there is not much the central bank can do about the currency because it is appreciating on fundamentals — rising oil and commodity prices, the relatively low national debt, expectations interest rates will rise, and an economy recovering faster than expected and faster than most industrialized countries.
Strauss said the loonie has risen faster than any major currency since the beginning of the year, but looked at in the context of other so-called commodity plays, it has not been a fluke.
“The rally in commodities started in March 2009 and if we look at commodity currencies (Norway, Australia, New Zealand), we’re pretty much in the middle of the pack,” he said.
http://news.therecord.com/Business/article/693916

How the market will fix MLS rules
Comment Eamon Hoey, Financial Post
The Commissioner of Competition recently made an application to the Competition Tribunal claiming that the Canadian Real Estate Association (CREA) uses control of the Multiple Listing Service (MLS) to impose exclusionary restrictions on the use of MLS.
The commissioner claims CREA rules on MLS lessen or prevent competition and deny consumers the benefits of competition in the Canadian residential real estate services market. CREA maintains it has adopted the MLS rule changes proposed by the commissioner. However, the commissioner remains unsatisfied with CREA's changes. It has sought redress from the tribunal.
The commissioner's challenge hardly matters. Powerful external change drivers are already at work altering the way real estate agents conduct business. These external change drivers are a more disruptive force for change than the heavy hand of government.
Canada's residential real estate industry structure is riveted around MLS. Until recently, CREA rules permitted only agents to place an MLS listing and required that the agent handle all phases of a sale. This included setting a list price for the property, preparing a written description of the home and uploading it to the MLS system, marketing the property, handling buyer inquiries, arranging showings and managing the transaction.
These rules limited the industry to one business model, restricting competition and service innovation. For example, the rules prevented flat fee and "à la carte" service. The MLS rule change adopted by CREA is a good first step that opens the way for service innovation, greater competition and consumer choice. It is only the beginning of more significant change to come to the sector.
Technology, demographics, globalization and social and economic change drivers will have a more profound impact on the sector than enforcement of Canada's competition laws. These change drivers, which will create opportunity for entrepreneurial organizations to innovate, will refocus the industry on the customer rather than on inward preservation of the status quo.
Consumers of residential real estate services have benefited only in a limited way from technology innovation. CREA began to convert MLS from a paper to an electronic system in 1995. While the world is swimming in a sea of technological innovation, the information available for public access on MLS is extremely limited.
For example, MLS does not provide access to listings for homes that have been sold and their closing price, agent fee information and the pricing history of a home. By contrast, U.S. purchasers of residential real estate services have an abundance of information found on real estate sites such as Zillow.com and Trulia.com, which give consumers enormous market power. These sites are effective competitors to Realtor.com, a National Association of Realtors site.
Canadian consumers of real estate services have limited buying and selling information to place downward pressure on house prices and agent fees. It is just a matter of time until an entrepreneurial, innovative, technologically smart organization seizes the opportunity and challenges CREA's lock on the residential real estate market.
Globalization is a significant change driver for most sectors of the economy. Many countries, particularly the United States, are experiencing significant stress in their residential real estate market. The healthy Canadian real estate sector is attractive to foreign organizations. These organizations seeking competitive advantage and differentiation will circumvent CREA rules and focus on the consumer's need for a superior value proposition.
Demographics will affect the long-term health of the residential real estate market. Declining fertility, increased life expectancy and an aging population will change the structure of Canada's population. A house will return to being a place to live rather than a get-rich-quick investment scheme. House prices will decline in the suburbs. Prices in the inner core of cities such as Toronto will stabilize. Demand for large homes will drop significantly.
By 2015, the residential real estate sector will decline as Boomers retire and downsize. This will be somewhat offset by a demand for country homes. New family formation will decline, resulting in reduced demand for new housing. In sum, demographics will negatively affect the residential real estate brokerage sector. The forecast is for a slow decline that will place pressure on the realtor's value proposition, push for service innovation, and place downward pressure on agent fees.
The Commissioner of Competition's task is to ensure that competitive forces determine market outcomes. This objective is often achieved through government intervention. However, intrusion in the market place is a quick fix that fails to have lasting effects and it requires long-term monitoring to ensure compliance. Companies soon learn how to game the system. Eventually the government watchdog is indiscernible from the "regulated" company.
Evolving market demographics, technology, globalization and social change drivers are significantly more effective and more powerful in bringing about change than is government intervention. Change creates opportunity for innovative entrepreneurial organizations. It refocuses organizations away from internal concerns to external consumer needs. Entrepreneurial organizations will cause creative destruction in the sector, bringing innovative services and the benefits of competition to consumers, and greater competitive rivalry to the sector.
In the long term, the commissioner's challenge will not matter.
ehoey@hoeyassociates.com
Eamon Hoey is managing partner of Toronto-based Hoey Associates Management Consultants.