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Financial Update For June 23, 2010

2010-06-23T10:15:00.000-04:00

• TSX -138.14 amid fluctuating commodity prices, as traders eyed the U.S. Federal Reserve's two-day meeting in which the Fed is widely expected to leave interest rates unchanged at record lows near zero
• DOW -148.89
• Dollar -.45c to 97.17cUS
• Oil -$.61 to $77.21US per barrel.
Gold +$..20 to $1,239.90 USD per

In economic news, Statistics Canada said the consumer prices index (CPI) rose 1.4% year-over-year in May following a 1.8% increase in April. Economists were expecting CPI to rise to 1.3% year-over-year in May
U.K. Unveils Canada-style Austerity Budget -Paul Vieira, Financial Post •
Britain, Germany and France stood united yesterday in announcing plans to impose a bank tax -- yet another sign of a growing rift among Group of 20 countries ahead of the leaders' summit in Toronto on how to restructure the global economy after they had banded together to pull it out of the abyss.
The disagreements, ranging from banking reform to whether additional stimulus or deeper budget cuts are now required, throw a major wrench into Canada's call for "solidarity" among G20 members to nurture the global recovery while at the same time putting in place the pieces to assure strong but sustainable growth. These divisions are likely to be reflected in the final communique from the Toronto meeting, which may indicate countries are on their own in terms of implementing measures best suited for their economies.
"There's now major differences amongst the players," said Glen Hodgson, senior vice-president and chief economist at the Conference Board of Canada, adding this is a reflection of the uneven recovery underway in the global economy. "The G20 is searching for common interests, and a year on from the peak of the crisis, it doesn't look like it is there."
The debate over the global bank tax was one of those hot-button G20 issues that pitted the big European economies against Canada and other countries that did not bail out their financial institutions. While there is no consensus in the G20 to proceed, that didn't stop Britain, Germany and France from saying banks in their countries would be taxed.
Britain was first off the block, as that country's Conservative-led coalition government unveiled a £2-billion annual levy on banks as part of its budget. At the same time, French President Nicolas Sarkozy and German Chancellor Angela Merkel released a joint letter they sent to Prime Minister Stephen Harper--who is hosting the leaders this weekend -- demanding the G20 agree on a transaction tax. That is highly unlikely, given Canada's stern opposition. Instead, the G20 communique may suggest it will be up to individual countries to determine what measures are required to ensure taxpayers aren't stuck with footing the bank bailout bill.
Canada had proposed an alternative, called embedded capital, which would see lenders insure themselves through the issue of debt securities that could be converted into shares in a crisis. But a spokesman for Finance Minister Jim Flaherty said the Canadian alternative has, so far, won over few converts as "concerns" have been raised.
"I think embedded capital is dead," said Paul Masson, a professor at Rotman School of Management and former senior Canadian official at the International Monetary Fund. "The uncertainty about how the conversion into equity would be triggered makes it a fifth wheel."
With no agreement on a tax or embedded capital, this means more focus will be on changes to banking regulatory standards--governing capital levels and leverage limits -- to curb the type of excessive risk-taking that sparked the crisis. Canada is keen to get further agreement at this G20 summit to ensure a deal is ready later this year. But Mr. Masson said the timetable is too optimistic as the issues are too complicated. And, he said, unanimity is not assured, nor is implementation, as some countries might balk given their weak economies.
The Bank of Canada warned as much this week in its semiannual financial system review, when it said there's a risk the required changes to banking rules could be "diluted."
As if this weren't contentious enough, there's a division emerging on what the global economy requires now. Canada and others want G20 members to outline credible, yet aggressive, plans to reduce debt-to-GDP levels as part of the effort to unwind global imbalances. However, the Obama administration in Washington -- one of the biggest debtor nations -- is now talking about the need to press on with additional stimulus in an effort to avoid a potential double-dip recession.
Canada will seek an agreement among G20 members in Toronto to halve their deficits by 2013, and get debt-to-GDP ratios on a more sustainable level by 2016.
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FINANCE MINISTER VOWS TO SLASH DEFICIT BY £135B. HERE'S HOW HE MEANS TO DO IT:
SPENDING
- Three-quarters of reduction to come from spending cuts.
- Cuts of 25% to all departments outside health, foreign aid.
- Two-year public-sector wage freeze.
- Queen
Elizabeth's public allowance frozen at £7.9-million.
- £11-billion cut from welfare bill. Single mothers enticed to return to work when children reach school age.
TAXES
- Banks to face annual extra levy of £2-billion.
- VAT (like GST) will jump to 20% in January from 17.5%
- Capital gains on sale of assets rises to 28% from 18%.
- Payroll tax to rise one percentage point.
- Threshold at which people
begin paying taxes raised £1,000 to £7,475, exempting 880,000.
- Corporate tax rate falls to 24% by 2014 from 28%.

Read more: http://www.financialpost.com/RIFT+WIDENS/3188568/story.html#ixzz0rg1AoHW4
Forget market timing, it's all about life timing
Garry Marr, Financial Post •
'You know, you're making the biggest mistake of your life. The housing market is going to fall."
I got this great piece of advice from another journalist at the Financial Post, who has since left the newspaper, after buying my first home. Not exactly the type of thing you want to hear after taking on huge debt and making the biggest financial decision of your life.
Lucky for me, I didn't heed that advice about Toronto's red-hot real estate market -- in 1998. I'm not going to say I made a shrewd business decision 12 years ago, or even six years later when I bought a larger house.
For me, it wasn't a case of not following what turned out to be bad advice from a fellow business journalist. Nor was it about trying to time the market.
I was simply following the same pattern as most Canadians: I got married and decided to stop renting and buy something. Later came the need for a bigger home when the second kid was on the way.
Which brings us to today. The supply of housing is rising fast as people try to list their homes for sale before the market "crashes." This is happening at the same time that demand is starting to wane. Economists and even the real estate industry are all predicting a correction, the only argument being how severe it will be.
So, the question for anyone buying is, should you wait?
Don Lawby, chief executive of Century 21 Canada, thinks the strategy of waiting for a crash is not going to work during this economic cycle. "For a market to crash, you have to have people who are desperate to sell," says Mr. Lawby. "People will [only sell] if they can't afford their mortgage or they don't have a job."
He doesn't see a decline in prices, "unless you are predicting that mortgages will renew at a hefty premium, which is not the case, or a whole bunch of people are going to lose their jobs."
Mr. Lawby believes neither will happen.
And, he adds, you are really into a risky game if you are timing the market. "A house is a home. If all you are doing is looking at it as an investment --that's what happened the last 15 years--it's not just that. It's a place to live and a place to raise a family," says Mr. Lawby.
Even Benjamin Tal, a senior economist with CIBC World Markets, who last month said in a report that Canadian housing is 14% overvalued, has doubts about playing the market. But he suspects that's exactly what some Canadians will do.
"Is there a sense that prices will go down and people will wait? I think it might be an issue," says Mr. Tal. "It won't be the main reason [people don't buy], but it will happen at the margins. The fact that people sell at the peak and wait to buy is a normally functioning market."
But even if you do make the right call on housing prices, it could end up backfiring on you in other ways. For example, if interest rates rise fast enough, any gains you make on price could be erased by interest charges, says Mr. Tal.
Edmonton certified financial planner Al Nagy says you need to think of your house the way you think about any long-term investment. "Whether it's an investment for use in your retirement or a house to live in, it's a long-term thing. The timing becomes less critical than it would be if it is a speculative [investment]."
And he says making a call on the housing market is as tricky as any other investment call. "It's very rare you catch the bottom. You can't let the market dictate when it's time to buy. The time to buy is when you can afford it," says Mr. Nagy.
I'm not sure that philosophy would fly with my former colleague, but the problem with timing the market is, what if your timing is off?
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/Forget+market+timing+about+life+timing/3129672/story.html#ixzz0rJ3cAHut

Financial Update For June 22, 2010

2010-06-22T10:49:00.001-04:00

• TSX +8.49 beat a profit taking retreat due to China’s signal that it will let its yuan currency appreciate is a boost to airlines, insurers and consumer firms operating in China
• DOW -8.23
• Dollar -.30c to 97.62cUS
• Oil -$.64 to $77.82US per barrel.
Gold -$.17.50 to $1,239.70 USD per eased from record highs as safe-haven demand eased.

Garry Marr, Financial Post • Friday, May 7, 2010
Here’s one way to tackle the red-hot Canadian housing market: Get someone to buy you a home.
That someone would be your parents. According to a new survey from TD Canada Trust, 10% of Canadians are considering buying a condominium for their adult children. A year ago, only 5% of parents thought about buying the kids a condo.
“It could be something that the parents are looking at as a long-term source of income, letting their children live it in for now,” says Chris Wisniewski, associate vice-president of real estate and secured lending with TD.
It could also be that parents know condominium prices, like detached homes, have climbed to unprecedented levels, making it difficult for adult children to come up with a minimum 5% down payment, let alone the 20% needed to avoid costly mortgage default insurance.
Toronto condo research firm Urbanation Inc. says the average existing condominium in the city sold for $331,000 in the first quarter of 2010. Based on an average $369-per-square-foot price, that’s a 900-square-foot unit.
For a new one, prices averaged $443 per square foot in the first quarter, so about $400,000 for that same-sized condo.
Ms. Wisniewski says low interest rates are convincing parents to step up and buy their children homes. The condominium represents an attractive alternative to those parents because the costs are stable.
“They know what the maintenance costs will be,” she says. “[Parents] are thinking, ‘I’m not worried my children are too young to accept the responsibilities of home ownership if I set them up in an apartment. They don’t have to recognize the responsibilities of maintenance in an apartment.’ ”
Parents might also see a condominium as a way to get their kids to start a family. The survey found 36% of Canadians are willing to raise families in a condo.
“One of the reasons for that is affordability,” says Ms. Wisniewski. “Where are the new condominiums being built? They are being integrated in really nice existing neighbourhoods with all the infrastructure and all the schools and amenities.”
Brian Johnston, president of developer Monarch Corp.’s Canadian division, says he doubts families will ever be integrated into the condominium stock, but does agrees with the premise that parents are helping to buy housing for their children. He says parents often want to keep children close to them so they’ll chip in for a condominium in a nearby neighbourhood.
“How do we know they’re helping out? They tell us when they are writing the cheques for the deposit,” Mr. Johnston says.
Mr. Johnston said when it comes to recent immigrants to Canada, there is “lots of help” from family members to get that first home. “Condominiums are not inexpensive and they’re going to need that help, particularly if the younger ones have not had time to build up their finances.”
The builder has his own children and, based on today’s prices, he figures he’s going to have to lend a helping hand. “I don’t expect them to be able to buy a condo … before they are 30. That is just part of the deal [for parents],” says Mr. Johnston.
It’s not like Baby Boomers don’t have the cash. There have been endless studies that suggest the Boomers are set to inherit billions of dollars in the coming years from their parents.
Craig Alexander, deputy chief economist with TD Bank Financial Group, says there is no hard data to suggest how much parents are helping children, but they certainly have the financial capacity to lend a hand.
Canadians have $1.5-trillion invested in stocks and mutual funds with $500-billion of that figure in capital gains.
“The generation before the Baby Boomers were big savers and, as a consequence, there is a very large income transfer going to take place over time,” says Mr. Alexander, adding it makes sense that some of that money is going to end up in housing and real estate.
For first-time buyers facing rising rates and increasing prices, the helping hand couldn’t come at a better time — just ahead of tighter mortgage financing rules. Most of them probably hope their folks go from “considering” buying a condo to actually doing it.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/Invest+real+estate+your+kids/2999480/story.html#ixzz0rJ4pBdc4
Eric Lam, Financial Post • Monday, Jun. 21, 2010
What the @#$!?
In this occasional feature, the Post tells you everything you need to know about a complex issue. Today, Eric Lam explains what a yuan is, and why the Chinese government has decided to let it appreciate.
So what’s a yuan anyway? Is it the same as a renminbi?
The renminbi, aptly translated as “the people’s currency,” is the official name of the currency of the People’s Republic of China except for Hong Kong and Macau. Meanwhile, the yuan is the primary unit of said currency, along with corresponding terms for 10 cents and a cent. However, in common usage renminbi and yuan are basically interchangeable, kind of like how we also call the Canadian dollar the loonie. At the moment, a loonie gets you a little less than 7 yuan.
What exactly did the Chinese government announce over the weekend?
On Saturday night the People’s Bank of China said it had decided to “proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” It’s pretty vague, as grand pronouncements from central banks go, but the gist of the message is the PBoC has decided to let the renminbi’s value fluctuate compared with the U.S. dollar.
Which means?
Essentially, the renminbi has been pegged to the greenback at a fixed rate since September 2008, a move to protect China’s economy from the financial crisis. However, economists estimate this peg has undervalued the currency as much as 40% as China’s economy roared out of the gates following the crisis. While the renminbi’s value could go either way, it is likely to move in a positive direction in the near-term considering the strength of China’s economy and the relative weakness everywhere else.
Why should anyone care what China’s doing with its money?
A lot of stuff these days is made in China. The Chinese have been accused of manipulating their currency to artificially drum up business for Chinese corporations, and cut other countries out of the global export market. The United States was worried enough about this that it almost ignited a trade war with China earlier this year, after President Barack Obama threatened to impose punishing tariffs on Chinese exports.
Does this mean China caved, then?
Neither side is going to give an inch when the stakes are so high. Most economists do not believe China is simply caving in to the demands of the IMF and the United States. Rather, the move was made to slow runaway growth of China’s economy by making its exports more expensive. At the same time it is expected to boost the development of the consumer side of the economy as imports become cheaper. Also, the timing is likely not a coincidence, with the intense scrutiny and criticism China has faced regarding its currency expected to rise to a fever pitch at the G20 meetings in Toronto this weekend.
Read more: http://www.financialpost.com/news/What+yuan/3182698/story.html#ixzz0ra3prxkU

Financial Update For June 21, 2010

2010-06-21T09:41:00.001-04:00

• TSX -18.38 record bullion prices kept a lid on otherwise broad-based losses across nearly all sectors.
• DOW +16.47
• Dollar +.55c to 97.92cUS
• Oil +$.39 to $76.79US per barrel.
Gold +$9.70 to $1,257.40 USD per ounce a new record high close for gold as investors bought the metal to protect wealth from Europe’s financial turbulence and on concern that the economic recovery isn’t as strong as expected. Gold, up 15% this year, is heading for its 8th straight weekly gain and its 10th consecutive annual gain, the longest winning streak since at least 1920

Seeing through home sellers' camouflage
by Stephanie Farrington, Bankrate.com
Mortgage rates have started to climb again. While that's probably a good sign for the economy, it may also be a wake-up call for people who have been hitting the snooze button on the time in which they hoped to buy a house.

If you're one of the many Canadians just entering the buyer's market, it's easy to get caught up in the critical aspects of home buying and forget some of the details. The clock is ticking, rates are rising and what matters in a house is location, location, location, right?

Yes and no. Location matters, but if you're not careful and observant when making your choice, you could get a great location and still end up with a money pit.

In some cases, people anxious to sell their home have been known to make a few cosmetic adjustments to hide the areas where their house might need a little extra care or even some serious repairs. Here's what to watch out for.

A fresh coat of paint in the basement

Dean Langner, a Canadian Residential Appraiser, or CRA, with Kors & Associates, in Victoria, has worked for 15 years as an appraiser and home inspector. During that time, he's seen a lot.

"One thing I find suspicious is a recently painted concrete floor and two or three feet of foundation in an unfinished basement," he says. "A lot of times, basements will leak, and they'll get that mineral stain around the concrete. Before they sell, some owners will cover it up with a coat of paint."
Langner says if you suspect a problem, go back for a second visit. "The only way to tell is to wait for a good heavy rain and visit again to check for moisture. If you're still uncertain, you can hire a plumber with a camera, and they can look down the pipes."

Checking pipes like this is not done in the course of a usual inspection, but Langner says it's worth making it a condition of the sale if you're really worried, because drainage problems can be very difficult to fix.

New sewage or drainage pipes

Around the foundation of every house is a permanent, porous piping system, called weeping tile, that acts as a drain and keeps water from entering your basement. "Over time, this pipe can fail. It can fill with debris and mud and stuff, and it is not easily fixed," says Langner.

In older houses, weeping tile isn't even made of pipes -- it's a series of half-round, clay tiles placed next to each other. So, if the house or the land shifts, you could be in for trouble.

The money you spend to have a plumber look at your drains could end up saving you thousands of dollars, to say nothing of the time and inconvenience of digging a trench around the perimeter of your house to replace the draining system.

A recently pumped septic tank

Jeffrey D. Leiser, author of "The Home Buying Inspection Guide" and "You Can Sell Your House: For Sale By Owner," has his own cautionary tales about plumbing. "The worst is when a home owner is hiding problems with a septic or sewer system. Having the septic tank pumped out prior to an inspection can give the appearance of a well working system," he says. "A failed septic system can cost well over $20,000 in replacement costs."

He says sewer systems can also be bladed -- which involves using a long tube with a rotating blade at one end to clean pipes and cut out blockages -- so that they appear to be working without backups. But, again, this is a short-term solution to an expensive, long-term problem.

Unusual smells

Your senses are your first and one of your best methods of avoiding deception. Mould smells like mould. It's easy to hide the visual signs of mould with paint, but it's a hard smell to mask. Don't be afraid to sniff around any area that makes you feel uneasy.

Suspicious piles and large plants

If something looks out of place, ask about it. A pile of bricks stacked against the side of the house could just be a pile of bricks, but it could also be a way of hiding a cracked foundation.

That newly planted yet mature tree in the back yard, the one in front of the retaining wall? Look behind it. Just as people will paint over stains, they sometimes landscape over cracked retaining walls or other problem areas.

Protect yourself

Follow your gut. If you think someone is lying to you, ask more questions and use your written offer as a means to get the truth. Contracts are there to protect you, and conditions of sale are a good way to ensure you're covered. If you're unsure about how to do this, ask your real estate agent or your lawyer, but do not go in unprotected. It's usually easier to avoid buying a problem than it is to fix it.

If, in the end, you find yourself left holding the bag despite your best efforts, where can you turn?

Danny Berehula, director of the Saskatchewan branch of the Better Business Bureau, or BBB, says the BBB will try to help, but the help they can offer is limited because the transaction does not typically take place between a business and an individual but rather between two individuals.

"We're another resource for them, but most people, when this happens, would probably want to call their lawyer," he says. "There are laws in place, and if it's a serious matter, then it will become a legal matter. They can use us as a mediation service, but once it becomes a legal issue, we stand out of it."

So, take your time and think through your purchase carefully. All of the experts agree on one point -- sometimes you have to accept a few problems to get your dream house, but it's best to understand how much the trouble your home might cost you before you sign on the bottom line. http://ca.finance.yahoo.com/personal-finance/article/bankratecanada/1597/seeing-through-home-sellers-camouflage

RBC to fund programs helping Canadians avoid credit problems
Garry Marr, National Post • Sunday, Jun. 20, 2010
You find yourself deep in debt and you can’t get out. Who is responsible? Is it the financial institution who handed you the rope you used to hang yourself? Or should you be looking in the mirror?
This past week, Credit Counselling Canada awarded Royal Bank of Canada with its creditor of the year award. “They won it for thinking outside the box,” says Patricia White, executive director of the Toronto-based group.
For years, not-for-profit credit counselling groups have received donations from banks to assist their debt management services. Credit counselling agencies help people organize their finances to avoid bankruptcy. But RBC is also giving money to financial education aimed at helping Canadians — especially younger ones — avoid debt problems.
Until they come up with a vaccine for taking on debt you can’t afford, a little preventative education is probably the next best thing.
“Hopefully, it will stop people from getting into trouble in the first place,” said Ms. White, noting other banks have also been supportive of counselling and education. “But RBC has stood up and said they will support this with some funding. We already go into high schools, but this will help us do more.”
With Father’s Day tomorrow, I can’t help think there is an important role for parents to play in terms of helping children avoid serious credit problems.
Ms. White agrees. “As a parent, I started educating my kids early. I said here’s 5¢ and tried to get them to understand the value of money.”
A survey out of the United States this week by the National Foundation for Credit Counseling found 41% of Americans say they learned their personal finance skills from their parents. Is there any reason to believe Canadian children are any different?
The funny part is, the same U.S. survey asked parents to rate their own financial literacy and 34% gave themselves a grade of C, D or an F. At least they are being honest.
The U.S. group points out that children learn by watching. If they see you saving, they’ll save. If they see you unorganized with your expenses, guess what? The group also suggests involving your children in family financial decisions.
Jeff Bennett, managing director of RBC Collections, says educating consumers earlier in their lives is something the bank is interested in promoting. “We are trying to separate the two important components the not-for-profit credit counselling firms are doing — the educational and financial literacy component from the debt management and budgeting component,” he says.
“We’d like to move things further up in the life cycle to keep people out of trouble, rather than helping them once they are in trouble.”
While some people blame the high interest rates the banks charge on things like credit cards for getting them into trouble, Mr. Bennett says financial institutions have no interest in seeing customers wrestle with debt problems.
“The best thing we can have is a customer who understands the financial requirements of his life and makes plans for the future. Someone who doesn’t have problems is a happy client and a client who will refer people to us,” he says.
Everybody has a role in financial education and Mr. Bennett says it’s never too early to begin teaching about money.
Read more: http://www.financialpost.com/news/fund+programs+helping+Canadians+avoid+credit+problems/3166884/story.html#ixzz0rU9rbZkJ

Financial Update For June 18, 2010

2010-06-18T09:17:00.001-04:00

• TSX +24.92 to11,946 rose for a sixth-straight day, as strong gold shares offset weaker financial issues, which were pressured by soft U.S. economic data. Factory data in the U.S. Mid-Atlantic region was weaker than expected and U.S. jobless claims rose. "The broader concern is the U.S. employment market is not bouncing back," said Francis Campeau, a broker at MF Global Canada
• DOW +24.71
• Dollar -.15c to 97.37cUS .
• Oil -$.88 to $76.79US per barrel.
Gold +$18.20 to $1,248.70 USD per ounce Concern over the U.S. figures lit a flight-to-safety fire under gold futures, which rose to a new record high close

Canada’s financial hub is preparing for G20 lockdown
Jameson Berkow, Financial Post •
All five major banks will be reducing hours or shutting a total of 51 branches that are inside or close to the summit meeting in downtown Toronto. Plans are also underway to reduce staff on trading floors and corporate offices and move some operations to remote locations or allow employees to work from home.
Most banks will be implementing so-called “business continuity plans” — previously put to the test during the SARS outbreak and the Ontario power blackout in 2003 — and now being put through their paces once again. Although the summit takes place on the June 26-27 weekend, many banks will be limiting operations in the days leading up to it.
Banks are keeping details of their plans largely under wraps. Many bank employees who generally work downtown still don’t know if they are going to be coming into work or if they will be at a remote site setup. Much will depend on the intensity of the protests and the level of street disruptions.
The Bank of Montreal, in addition to closing nine downtown locations, intends to shift part of its trading operations to an alternate location outside of the secure zone, which encloses most of the financial district.
“Trading will probably split operations, moving half of its staff to an alternate location to reduce demand on the main trading floor,” Ralph Marranca, a spokesman for BMO said. At the peak of the summit disruption, BMO could have as many as 40% of its downtown staff working from home, he added, though plans are still in flux.
Toronto-Dominion Bank will modify hours at 22 branches, for five business days leading up to the summit.
“Like many companies expecting to be impacted by the summit, we have pretty robust plans in place,” said Wojtek Dabrowski, a spokesman for TD. “In order to make sure everything runs safely and smoothly we’re closing eight branches in the downtown core.”
Decisions about further closures or reductions in hours, including trading and other operations will be made on an ongoing basis, Mr. Dabrowski said.
For Royal Bank of Canada, the summit will be a real-life test of its continuity strategy.
“This is an actual event taking place in Toronto so we are putting our customized business continuity plans in place,” Don Blair, a RBC spokesman said.
RBC’s strategy, which also involves closing eight of its downtown branches from June 24 until June 27, will have as many employees as possible who work downtown either work from home or from alternative RBC locations in the Greater Toronto Area. According to Mr. Blair, RBC is planning to maintain normal trading operations for its investment services, Mr. Blair said.
An RBC branch in Ottawa was firebombed last month. The group that claimed responsibility for the attack, FFFC-Ottawa, has said it planned to protest at the Toronto event as well.
The Canadian Imperial Bank of Commerce will be closing six downtown locations, including its flagship Commerce Court branch, for all or part of the summit duration.
Aside from closing six downtown locations, Bank of Nova Scotia is not planning any specific mitigation strategy to deal with the G20 disruption. Though the bank will be “implementing business continuity plans as required,” said, Joe Konecny a bank spokesman.
The Toronto Stock Exchange (TSX), which maintains a corporate headquarters one block from the secure zone, is expecting approximately 75% of its staff to work from home. Though it does not anticipate any impact on its trading operations which occur off-site, according to TSX spokeswoman Carolyn Quick
Read more: http://www.financialpost.com/news/g20/Canada+financial+preparing+lockdown/3157538/story.html#ixzz0rAW64xT8

Financial Update For June 17, 2010

2010-06-17T10:24:00.002-04:00

Home sales sputter in May
• TSX +13.51 as investors looked for direction and markets digested solid gains from the previous session.
• DOW +4.69
• Dollar -.03c to 97.52cUS.
• Oil +$.73 to $77.67US per barrel.
Gold -$3.90 to $1,229.50 USD per ounce

Home sales sputter in May
Steve Ladurantaye Real Estate Reporter Globe and Mail
Buyers backed away from Canada’s housing market in May, driving sales lower in what is traditionally the busiest month of the year for the country’s real estate agents.
The housing market has been key to Canada’s economic recovery, as low interest rates and pent-up demand drove buyers into the market after months of stagnation in 2008. But with interest rates likely heading higher in the second half of the year, many buyers who would have preferred to buy in the fall or early winter chose to buy sooner.
Tougher mortgage rules imposed by the federal government in mid-April also prompted buyers to act sooner, the Canadian Real Estate Association said. Meanwhile, tens of thousands of homeowners have seen the rampant demand and listed their houses for sale to take advantage of high prices.
Sales fell to 8.5 per cent to 40,393 units in May compared with April. Sales remain elevated by historical markers, but are 15 per lower than last fall’s peak.
Prices were essentially flat in May, gaining 0.5 per cent to an average national resale price of $346,881 – the highest on record.

Financial Update For June 16, 2010

2010-06-16T13:37:00.000-04:00

• TSX +240.20 its 4th straight day of gains and the largest rise since May 10, after healthy demand at several euro zone debt auctions in Spain, Ireland and Belgium, and a subsequent rally in commodity markets whetted investor appetite for riskier assets. Key prices of oil, gold and copper all gained, supporting the index's heavily weighted energy and materials sectors
• DOW +213.88 up after the Federal Reserve Bank of New York economic index showed expansion of manufacturing in and around New York state in June for the 11th straight month
• Dollar +.70c to 97.55cUS shrugging off mediocre North American data and tracking global stocks, commodities and other riskier currencies higher after successful European debt auctions raised confidence in the global economic recovery.
• Oil +$1.82 to $76.94US per barrel. as economists anticipated confirmation on Wednesday that U.S. stockpiles of oil declined for a third straight week.
Gold +$9.90 to $1,234.40 USD per ounce

Wal-Mart Canada issues rewards-based MasterCard
First of several financial services products Barbara Shecter, Financial Post • Tuesday, Jun. 15, 2010
Freshly-minted Walmart Canada Bank kicked off its foray into financial services with a rewards MasterCard credit card on Tuesday, but the low-price retailing giant is not ruling out bringing serious competition to the country’s handful of big banks through products and services such as loans and mortgages.
“Walmart will always look to save customers more so they can live better. That’s our mission,” said Trudy Fahie, chief executive of Walmart Bank Canada. “The bank offering will be no different than our retail offering.”
This month, Walmart won final approval from Canada’s banking regulator to open a full financial services business in Canada, something the successful retailer failed to accomplish in the United States amid fierce industry backlash.
In Canada, consumer groups have pushed for more competition in the banking sector, arguing that services charges and other costs are higher because the landscape is dominated by the country’s six big banks.
Read more: http://www.financialpost.com/news/Walmart+begins+Canadian+banking+push/3156480/story.html#ixzz0r13I2hFo

Financial Update For June 14, 2010

2010-06-14T11:55:00.000-04:00

• TSX +31.07
• DOW +38.54
• Dollar -.24c to 96.73cUS
• Oil -$1.70 to $73.78US per barrel.
• Gold +$8.10 to $1,228.90 USD per ounce enjoys a third straight weekly gain

The new face of debt
Andrew Allentuck, Financial Post • Friday, Jun. 11, 2010
For James Kennedy, a federal civil servant before he retired, and his wife, Jane, who retired from the Calgary civil service, the golden years have become a series of tough compromises. Both 59, they live in Qualicum Beach, B.C., a five-minute walk from the Strait of Georgia on Vancouver Island. They enjoy the mild weather, long walks on the beach and their beautiful home.
Trouble is, a lack of employment income combined with debt stalk the good times they thought they would have after they left their careers.
Their jobs paid them a total of about $100,000 per year. Today, as a result of too much house and the repairs it entails — repainting, new floors, new electrical circuits, new kitchen counters, custom French doors and other elegances — they carry a debt of almost $70,000, nearly twice their retirement income of $37,000 a year.
If they pay off the debt, James and Jane would face a cash shortage. They could do it, but it would wipe out all of their RRSPs and other retirement assets built up over their working lives. A tough choice.
“We used to think that our house would go up enough in price to cover our debts,” Mr. Kennedy explains. “But I don’t think you can rely on that.”
Their situation could be resolved by selling the house, yet they fear that having paid too much in renovations, even downsizing might leave them house broke — with a nice abode and nothing else.
“As I approach the age of 60, I don’t want to carry so much debt. There has to be an end to the debt. I want my mind to be clear that when we get our Canada Pension Plan and Old Age Security, we will be able to keep those benefits. We don’t want to go into our sunset years paying off our debts.”
See The Kennedys are not alone. A flurry of recent studies show a significant increase of retirees in debt. First was Investors Group, which said 62% plan to carry debt such as a mortgage into their golden years. Then Royal Bank of Canada came out with its Ipsos Reid poll, which found four in 10 Canadians retired with some form of debt, and one in four began retirement with a mortgage on their primary residence.
“More and more, Canadians are carrying debt into retirement,” said Lee Anne Davies, head of retirement strategies at RBC.
Just this week, BMO Financial Group noted less than half of Canadians 55 and over have a post-retirement income strategy in place and only a third have considered that they might outlive their savings.
It’s a new and dangerous trend.
Unlike their parents and grandparents, who remembered the Great Depression and regarded debt as a first step toward ruin, today’s retirees, especially Baby Boomers born between 1947 and 1966, grew up comfortable with owing others. Indeed, for many who grew up in the expansionary years of the 1960s, it was a normal and expected to have a credit card, fund a university education with loans, graduate to readily available mortgages and then to handy lines of credit from accommodative banks.
“Retirees, especially Boomers, are less averse to debt than their parents were,” says Peter Drake, vice president for retirement and economic research with Fidelity in Toronto. The contrast with earlier generations is stark, Mr. Drake adds. “They lived through a sustained period of strong economic growth and have adopted the idea that they will be well-off.”
Boomers have always had a major influence on consumer trends, and now they are changing the face of retirement as well.
“Boomers don’t have the same sense of saving for bad days that their parents had,” explains Charles Mossman, a finance professor at the Asper School of Business at the University of Manitoba. “When they retire, former workers, especially those who don’t have defined-benefit pensions that provide a guaranteed and sometimes even an indexed cash flow, wind up with more debt service charges than they can afford.”
According to a special report by The Office of the Superintendent of Bankruptcy that was released in 2008, 15.3% of all individual bankruptcies in Canada in 2003 were of individuals 55 and over, up from 6.9% in 1993. “Those over 65 are less likely to be able to recover economically and socially from the bankruptcy,” noted the OSB.
The risk of senior bankruptcy grows with age. A study for the Canadian Institute of Actuaries released June 2007, shows that longevity risk — the chance of living to a very ripe old age — poses the problem of running out of personal savings.
Given Canadians’ extending life expectancy — currently 78 for males, 83 for females — a person retiring at age 55 has a 40% chance of running out of personal savings by age 85 and a 90% chance of being flat broke by age 95. It should be noted the data shows that women, who outlive men on average and tend to have lower lifetime incomes, have even greater reason to fear poverty caused by longevity.
Compounding the longevity problem is the trend, promoted by some financial services companies, to early retirement. Remember Freedom 55? But retiring at that age means giving up what may be one’s most financially productive years. Indeed, if the average retiree has paid down most of his or her debts, and delays retirement to age 62, he or she can live in reasonable financial security, says demographer David Foot, an economist on the faculty of the University of Toronto and author of the 1996 bestseller Boom, Bust & Echo.
It would be wrong to label all debt foolish and all debtors in peril of financial catastrophe, argues Tina DiVito, head of retirement solutions at BMO Financial Group. “There is bad debt and good debt. Bad debt may be what one borrowed for a transitory pleasure, such as a vacation, after which the borrower has to pay high interest rates and gets no tax breaks.
“Good debt bears moderate rates of interest and is payable in a reasonable time period, perhaps as a part of an investment that makes interest tax-deductible,” Ms. DiVito says.
For good debt, consider the case of 61-year-old Montreal retiree Ioanna Jakus, who has maintained a mid-six figure investment portfolio while living on an after-tax income of less than $2,000 per month.
A former bank employee, she has a $10,000 line of credit with her stock broker. “I use the line to buy stocks and bonds,” she says. “I can deduct the interest I pay from my taxable income. My investments have been successful and have more than paid the cost of credit. What’s more, rates of interest are so low that borrowing to invest just makes sense for me.”
Not only has Ms. Jakus made intelligent use of credit, she has done so expertly, selecting low-risk GICs, bonds and blue-chip stocks with strong dividends. “I have always been motivated by the knowledge that only I can control my destiny,” she explains. “My husband and I paid off the mortgage — that was when interest rates were near 20% — and we never borrowed again for spending.
“Of course, I can clear my investment debt in a moment by using cash in one of my accounts. My philosophy has always been not to take risks that I cannot afford, especially when it comes to borrowing money.
“Nobody can look after me as well as I can,” she adds.
That’s a lesson a lot of retirees have yet to learn.
Read more: http://www.financialpost.com/news/face+debt/3143925/story.html#ixzz0qpSbthjV

Financial Update For June 11, 2010

2010-06-11T11:52:00.000-04:00

• TSX +185.21 sharply higher as good economic news from China sent commodity stocks higher on the resource-heavy TSX and helped curb worry that Europe's debt crisis will seriously hamper the global recovery.
• DOW +273.28 to 10,172
• Dollar +1.21c to 96.97cUS
• Oil +$1.10 to $75.48US per barrel.
• Gold -$7.70 to $1,221.10 USD per ounce as a rise in stocks and the euro reflected sharper appetite for nominally higher-risk assets

Canada modestly impacted by European debt crisis so far, Bank of Canada says
BY LUANN LASALLE
MONTREAL — While the European debt crisis has only had a “modest” impact on Canada, the crisis isn’t over and all governments need to be on healthy fiscal paths, Bank of Canada governor Mark Carney said Thursday.
“So there’s been a modest impact on financial conditions — a slight tightening of financial conditions in Canada — and a modest impact on commodity prices,” Carney said at a news conference.
“But it’s not over. You know, this is serious stuff,” he said, adding that it is “incredibly important” to execute the right policies to deal with the situation.
The head of Canada’s largely independent central bank has been providing similar advice to policymakers for months. His latest speech comes as Canada prepares to play host to G20 and G8 meetings from June 25 to 27, when the state of the world’s financial system will be among the main topics.
Canada won widespread accolades during the 2008-09 credit crisis and recession, for a regulatory regime credited with avoiding problems that forced the United States and other governments to bail out major banks and insurance companies.
Carney said he’s encouraged with the measures that European policymakers have taken so far, “but I don’t think anybody is of the view that more will not be required.”
“What we are seeing at present is a stronger demand from the market for more credible plans, more rapid plans, more rapid movements to fiscal sustainability at any level of government.”
BMO Capital Markets senior economist Michael Gregory said Carney’s remarks suggest the Bank of Canada has room to raise its key rates in July — following a quarter-point hike this month.
The central bank’s policy rate had been set at an all-time low of 0.25 per cent last year as a means to ease the cost of borrowing in order to stimulate the economy out of the deepest recession in decades.
“Bottom line: It sounds like the urgency of the risks posed by the European situation has eased somewhat in the Bank of Canada’s mind,” Gregory wrote in a note.
“Other things equal, this modestly raises the odds of a followup rate hike on July 20.”
Carney wouldn’t say if another hike in the central bank’s policy rate is expected this summer. On June 1, the Bank of Canada raised its key rate a quarter point to 0.5 per cent, the first time in almost three years.
“I would say it’s too early to make a judgment, nor is it necessary for us to make a judgment today.”
This week, the World Bank raised the possibility of a second recession affecting most of the industrialized world if governments don’t deal successfully with the unfolding European debt crisis affecting such countries as Greece and Spain.
The risk is serious enough that it will likely be the key topic of discussion for leaders meeting in Toronto later this month at a G20 summit.
During his speech to a Montreal economic conference, Carney said that banks should prepare for radical reforms to the world’s financial system that will make it look a lot more like what’s already in Canada.
The Canadian banking sector has been held as an example for the international community because its conservative investment practices helped it endure the credit crisis in 2008.
“The rigour of Canadian capital regulation was an important — although far from exclusive — reason why the Canadian system fared so well during the crisis,” Carney told the International Organization of Securities Commissions.
And he stressed that reforms pose no threat to the global recovery, saying the opposite is true — they will help economic growth.
Once implemented, global financial institutions will be required to retain more and better capital, improve liquidity and reduce risk, and introduce a capital buffer that is sufficiently large to absorb losses encountered in the 2008 crisis that led to a global recession, Carney said.
Although the coming changes will be significant, Carney dismissed critics who believe the requirement for more capital reserves will limit banks’ ability to lend and slow down economic activity.
In fact, the opposite will happen, he said.
The reforms will cause banks to shift focus away from trading risky financial instruments and more to conventional lending to businesses and individuals that spur growth, he argued.
And he noted that banks will be given plenty of lead time to meet new standards since the implementation date of key reforms won’t be until the end of 2012.
http://news.therecord.com/Business/article/726447
The bad news - bad news on U.S. jobs
by Brett Arends, WSJ.com and MarketWatch
Commentary: Five reasons the employment numbers are worse than they seem

BOSTON -- The news on jobs isn't as bad as it seemed last Friday.

It's worse.

President Obama and Treasury Secretary Geithner were trying to putting on a happy face, but the markets weren't buying. They have tumbled worldwide since the latest payroll data.
But instead of overreacting, the markets may only just be waking up to the real bad news.

1. Look out ahead.

We already know that when you strip out the short-term Census jobs, May's jobs growth was a pitiful 41,000. But what people haven't realized is that the leading indicators for June are even worse. TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June. "The big news is that we have a job loss of about 200,000 coming in June," says Trim Tabs' Madeline Schnapp, "and the market isn't ready for it."

It's not just the stock market. You can bet that the administration -- and the country -- isn't ready either. Remember, we need to create about 100,000 just to keep up with population growth.

2. One and a half million people have 'disappeared'?

The government says the unemployment rate "edged down" to 9.7% -- keeping it below the politically sensitive 10% level.

But that's only because about one and a half million people have just, miraculously "disappeared" from the official labor force.

A million and a half people disappearing? It sounds like a crazy conspiracy theory. But there it is, buried in the fine print of the government's own data.

From May 2009 to May 2010, the U.S. "civilian non-institutional population" of prime working age -- 20 to 64 -- expanded by one and a half million, 180.5 million to 182 million.

Yet over the same period the official tally of the labor force over age 20 held steady at just 148 million.
What happened to those extra people?

The Bureau of Labor Statistics doesn't have a full explanation. "We don't have direct questions (in the survey) addressing that fact," said a spokeswoman. But many of the disappeared are "unemployed who have decided not to look for work any more," or who haven't looked for work recently. Anyone who hasn't actively sought a job in the last four weeks vanishes from the rolls.

People dropping out completely are not a bullish sign -- unless, perhaps, one is measuring the unemployment figures for the government.

3. Some of the new "jobs" may not even exist

That's because they're being counted by the Federal Department of Guesswork. Ever since 1994, say economists, Uncle Sam has been using some statistical, er, "adjustments" to the core jobs data to come up with the, er, "true" picture. It will surprise no one that these "adjustments" make the data look better, rather than worse. The government makes estimates about new companies being started up as well as jobs being lost.

Those adjustments may be adding as many as half a million extra "jobs" to the core figure, says independent economist John Williams at Shadow Government Statistics.

In previous recessions, these adjustments may have had some justifications, because new companies formed very quickly in the recovery. But this recession has been unlike any other in our lifetimes, because it was caused by too much debt rather than economic overheating. So the recovery has been different as well. The slump in bank lending and the money supply in the past year suggest new companies are probably being formed far more slowly than in past recoveries, if at all. Bottom line: many of those jobs may not exist.

4. The private sector picture may still be in recession

Some recovery: The number employed in the private sector is still about 900,000 below where it was even a year ago, and about 8 million below where it was in 2007. And remember, it has to keep growing just to stand still, because the population is growing.

"There's practically no growth in private sector employment," says Gluskin Sheff strategist David Rosenberg. Jobs growth was anemic even in the parts of the economy allegedly leading the recovery, such as manufacturing. And now, he says, many leading economic indicators have started to turn down again.

The jobs growth is so slow, Rosenberg says, that by his calculations "it is going to take years, probably five to seven years, before we recoup the employment (lost) from the Great Recession," he says. Five to seven years? "There's a significant chance," he adds, "that for the first time ever we will go into the next recession without having seen a new peak in employment."

5. And as for earnings...

In the quest for some more cheerful news, the government said for those who do have jobs, average hourly earnings were up 1.9% from a year ago.

Good, yes?

Er, not really.

The government also reported that those workers produced 2.8% more goods and services per hour. So they actually got paid about 1% less for each widget they made, TV they sold, or meal they served. Oh, and over the same period consumer prices rose 2.2%. So even those lucky enough to be working have gone backwards -- before taxes.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1646/the-bad-news---bad-news-on-jobs

Managing debt while rates grow
Terry McBride , For Canwest News Service SASKATOON -- Canadians have taken advantage of extremely low interest rates to overextend themselves. The Bank of Canada wants to try to prevent inflation by raising interest rates to slow the economy down. How will debtors manage?
Inflation vs. deflation
Actually, debtors generally prefer inflation (when prices go up) because that can make it easier to repay a debt, which is a fixed dollar amount owing. Loan payments become more affordable when wages keep up with inflation.
Debtors usually fear deflation (when prices go down) because it becomes more difficult to repay an obligation when the fixed number of dollars can buy more. Deflation is already a major concern these days in Europe where some governments are raising taxes and cutting back on spending to tackle mushrooming public debts. Businesses there may be forced to cut prices and workers’ wages to cope with the economic slowdown.
Debtors fear deflation. How can they handle debt payments after their wages are cut or they lose their jobs? Serious household debt management issues arise.
Mortgage term
If your mortgage is coming up for renewal, how do you choose the best mortgage term? If you have had a variable or floating rate of interest tied to the prime rate, should you take the safe route and lock in a fixed, usually considerably higher, interest rate for five years?
If your mortgage payments rise, then you will have to look at various ways to manage other debts.
Consolidate
One popular debt management strategy is to combine various loans into your mortgage or a line of credit. Consolidation can eliminate high-interest credit card debt. Free up some cash flow by reducing your interest costs.
Talk to a professional debt counsellor. Can you have a single monthly payment? You could continue to make the same level of payments on your consolidated loan as you did before consolidation. Aim to reduce your principal owing and cut interest costs.
Amortization
Knowing how amortization works will help you to understand how to properly manage your debts. Amortization is how long you are scheduled to repay an instalment loan.
If interest rates rise, consider stretching the repayment period on an instalment loan to reduce the size of your monthly payments. Making your payments smaller seems very attractive at first. However, by making payments over a longer time period you will eventually pay much more interest in the long run.
Debt snowball
Here is a strategy for cutting down your overall debt level:
Make a list of your debts. Add up how much you pay on each loan.
Pick the smallest debt to tackle first. Pay the minimum on all debts except for your target debt. Pay whatever is left on your target debt until it is paid off. Then, continue with the debt snowball strategy by choosing the next debt on the list as your target debt. Pay it off.
Borrow wisely
The next time you have to borrow, avoid buying something that drops in value. The only time you should buy something using debt is if it is something that will appreciate in value or generate additional cash flow for you.
As a general rule, if you are buying something with borrowed money, make sure that what you buy lasts longer than the debt. Don’t add to your debt burden by going on a vacation financed by credit cards.
Emergency fund
Do you have to borrow when you have an emergency? Instead you should build an emergency fund with cash held in reserve. You could use a Tax-Free Savings Account, the cash surrender value of a whole life policy or a Canada Savings Bond payroll savings plan, for example. Having cash available to pay for an emergency will give you greater financial security than an untapped line of credit.
Terry McBride is a member of Advocis (The Financial Advisors Association of Canada)
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/Managing+debt+while+rates+grow/3136091/story.html#ixzz0qXodyQrw

Financial Update For June 10, 2010

2010-06-10T10:12:00.001-04:00

• TSX -66.54 another rocky finish as investor sentiment soured after the Federal Reserve's Beige Book said economic growth was subdued in many regions of the United States.
• DOW -40.73
• Dollar +.39c to 95.76cUS
• Oil +$2.39 to $74.38US per barrel.
• Gold -$15.60 to $1,228.80 USD per ounce “With confidence in paper currency systems badly shaken in the financial crisis, gold, it seems, is reasserting its old role as the ultimate debt-free money,” according to a new report from UBS Wealth Management as the yellow metal ran to yet another record high above $1,250 per ounce earlier this week . “We think that the price of gold has yet further to rise.” In its note to clients, the UBS analysts said gold has re-established its role as “safe haven” and should hit US$1,500 an ounce in 12 months’ time

Wells Fargo closes outlets in Canada
Barbara Shecter, Financial Post • Wednesday, Jun. 9, 2010
Wells Fargo Financial Corp. Canada is closing its outlets across the country and will no longer make customer loans, but will maintain existing real estate, auto and consumer loan accounts.
“In response to recent analysis of our operations, we have made the decision to stop originating consumer loan products in Canada,” the company said in a statement to customers on its website, which states that Wells Fargo has 130 stores across Canada.
The company is also suspending originations in its private-label credit card business.
Wells Fargo & Co., one of the largest banks in the United States, began to withdraw consumer lending from Canada in 2008 at the height of the financial and economic crisis. In November 2008, it decided to exit the indirect auto-lending business. Then, last July, Wells Fargo stopped offering residential mortgages and home-equity loans in Canada.
Wells Fargo Financial was the largest of the company’s five business lines in Canada, with total consumer receivables of $1.9-billion at the end of April.
Wells Fargo and other U.S. lenders such as General Electric Co. thrived in Canada before the financial crisis. The companies loaned money to consumers and home buyers, including those who may not have qualified for loans from Canadian banks.
Canada’s financial services sector is dominated by the domestic chartered banks and while foreign players have managed to get a toehold in the country, history has been marked by dramatic entrances followed by often quiet retreats.
According to the Wells Fargo website, the company has been providing financial products and services to Canadians for more than 60 years.
Some operations will remain in Canada, including a building in suburban Toronto to administer existing loans and mortgages.
“There will be no change to our customers’ existing account terms and conditions,” said Rick Valade, president of Well Fargo Financial Corp. Canada. “We still have more than 450 team members based in Canada available to support and service existing customers.”
Business loan operations will continue through division under the umbrella of parent company Wells Fargo & Co., such as Wells Fargo Equipment Finance Inc., and Wells Fargo Global Broker Network, an insurance brokering and risk management services company.
In April, Wells Fargo & Co., which has combined assets of US$57-billion, merged its asset lending businesses in Canada with similar operations acquired through its purchase of Wachovia Crop. in 2008. The combined operations operate under the name Wells Fargo Capital Finance.
Read more: http://www.financialpost.com/news/Wells+Fargo+closes+outlets+Canada/3133005/story.html#ixzz0qRuvrRe7

Bank and investment dealer complaints hit record high BY DAVID FRIEND
TORONTO — More complaints were filed by consumers against Canada’s financial industry last year than ever recorded before, as tumbling stock markets left some customers caught in disputes with their financial advisers.
The Ombudsman for Banking Services and Investments reported Wednesday that it opened 990 cases in 2009, a 48 per cent increase over the previous year.
The national organization also processed more than 12,400 individual inquiries from consumers and small businesses in 2009.
Ombudsman Douglas Melville said a growing number of filings have been made against the investment industry in recent years, and that 2009 was no exception.
“The global economic crisis, coupled with sharp declines in financial markets, gave rise to much of the increase in complaints we saw,” Melville said.
“However, despite the improvement in the markets over the last year, complaint volumes remain high. We expect this to continue.”
Last year, 599 of the cases were related to the investment industry, an increase of 71 per cent, while 391 were banking cases, an increase of 21 per cent.
Melville said that banking complaints often involved mortgage prepayment penalties, lines of credit and fraud.
“On the investment side, the vast majority of cases were related to the suitability of investment advice,” Melville said.
“Investment advisers need to fulfil their ‘know your client’ obligations as well as explain the risks and characteristics of the products they are recommending.”
The ombud said that 28 per cent of cases reviewed last year received compensation, with 20 per cent of banking complaints compensated and 35 per cent of investment complaints.
In response to the findings, the Canadian Bankers Association said that the 391 banking cases examined by the ombud represent about one in every one-hundred thousand transactions that are made at Canadian banks each year.
“With such a huge volume of transactions, mistakes can sometimes happen and we want to make things right,” said CBA spokesperson Maura Drew-Lytle in an email.
“But there are also many cases where a customer is unhappy with a situation and escalates their complaint when the bank was within its rights.”
Drew-Lytle said banking customers can also use a free complaint-handling system designed to resolve consumer complaints, before filing a complaint outside the banking industry.
The ombudsman’s office can investigate complaints from clients of financial institutions, including banks, investment dealers, trust companies, mutual fund dealers, credit unions and scholarship trust plans. Its services are free to consumers, and it can recommend compensation of up to $350,000 http://news.therecord.com/Business/article/725762

Europe’s debt crisis could undermine economic recovery, says World Bank THE CANADIAN PRESS OTTAWA — The World Bank is warning that the European debt crisis could derail the global economic recovery.
In its latest global economic prospects report, released Wednesday, the bank says Europe’s debt problems have created new hurdles on the road to sustainable medium-term growth.
Greece, Spain, Britain and other European countries face huge government debts and are moving to cut spending in a bid to balance their books and get their costs under control.
Many fear the cuts will slow growth in Europe and undermine the fragile recovery from recession now going on in many countries.
The World Bank predicts the global economy will grow between 2.9 and 3.3 per cent this year and next, and between 3.2 and 3.5 per cent in 2012. That would reverse a 2.1 per cent decline in 2009.
The bank says developing economies are expected to grow between 5.7 and 6.2 per cent each year from 2010-2012.
Meanwhile, high-income countries are projected to grow by between 2.1 and 2.3 per cent in 2010 — not enough to undo the 3.3 per cent contraction in 2009. In 2010, those countries could grow by between 1.9 per cent and 2.4 per cent.
“The better performance of developing countries in today’s world of multi-polar growth is reassuring,” Justin Yifu Lin, the World Bank’s chief economist, said in the report.
“But, for the rebound to endure, high-income countries need to seize opportunities offered by stronger growth in developing countries.”
The World Bank says the global recovery faces several important headwinds over the medium term, including reduced international capital flows, high unemployment, and spare economic capacity exceeding 10 per cent in many countries.
While the impact of the European debt crisis has so far been contained, prolonged rising government debt could make credit more expensive and curtail investment and growth in developing countries, the financial agency warns.
On the upside, world merchandise trade has rebounded sharply and is expected to increase by about 21 per cent this year, before growth rates taper down to around eight per cent in 2011-2012.
The World Bank’s projections assume that efforts by the IMF and European institutions will stave off a default or major European government debt restructuring.
But even so, developing countries and regions with close trade and financial connections to highly indebted countries may feel serious ripple effects.
“Demand stimulus in high-income countries is increasingly part of the problem instead of the solution,” said Hans Timmer, director of the Prospects Group at the World Bank.
“A more rapid reining in of spending could reduce borrowing costs and boost growth in both high-income and developing countries in the longer run.”
Regardless of how the debt situation in high-income Europe evolves, a second round financial crisis cannot be ruled out in certain countries of developing Europe and Central Asia, where high debts and slow recovery could threaten the banking sector.
“Developing countries are not immune to the effects of a high-income sovereign debt crisis,” said Andrew Burns, manager of global macro-economics at the World Bank.
“But we expect many economies to continue to do well if they focus on growth strategies, make it easier to do business, or make spending more efficient.” http://news.therecord.com/Business/article/725712
Have a great day!

Financial Update For June 9, 2010

2010-06-09T09:19:00.001-04:00

Housing starts drop in May, in latest sign Canada's housing market is cooling
• TSX +12.44
• DOW +123.49
• Dollar +1.05c to 95.37cUS
• Oil +$.55 to $71.99US per barrel.
• Gold +$4.60 to $1,244.40 USD per ounce

Mortgage brokers not yet fully protecting data
THE CANADIAN PRESS
OTTAWA — Mortgage brokers still have a way to go in protecting the personal information of their customers, the privacy commissioner said Tuesday.
Jennifer Stoddart said an investigation by her office into the loss of hundreds of credit reports in Ontario two years ago found brokers have tightened their security.
But she says the controls should be tougher, especially since brokers play a major role in home-buying. Brokers handle a quarter of all mortgages and almost half of all first-time mortgages.
The audit was started after the brokerages reported 14 data breaches in the space of a few months in mid-2008. Someone impersonating an experienced agent downloaded credit reports for people who hadn’t even applied for a mortgage and compromised the personal information of thousands of people.
The mortgage companies themselves went to the commissioner when they discovered the leaks.
“The breaches prompted the brokerages to take some positive steps to better protect personal information,” Stoddart said in her report. “However, our audit found that those changes did not go far enough.”
The report said brokers now are more careful in allowing access to personal data, but don’t always have the alarm systems, secure walls and other physical safeguards to protect the files.
They also don’t have computer systems to restrict access to credit reports and aren’t always careful in disposing of their files.
She says mortgage brokers audited by her office have accepted her recommendations to improve security.
The association representing mortgage professionals acknowledged Stoddart’s findings and promised full support.
The Canadian Association of Accredited Mortgage Professionals said it has “an ongoing commitment to improving the information-handling procedures of mortgage brokers and their agents to ensure client protection.”
Stoddart said some firms simply didn’t understand the privacy risks and their responsibilities in protecting privacy.
Of the five brokerages audited, four agreed to all of Stoddart’s recommendations for tighter controls. One is out of business.
The brokers’ case was part of Stoddart’s 2009 annual report, tabled Tuesday in Parliament.
The report said the protection of privacy is increasingly moving into the virtual world and requires a global approach.
“In our interconnected world, we need to take a co-operative approach to protecting personal information,” she said.
She pointed to her office’s much-publicized fight with Facebook over privacy issues as an example of the difficulties in the online, borderless world.
“It was wide-ranging and the issues were incredibly complex and, in some aspects, highly technical.”
Stoddart prodded the social network into tightening privacy provisions and says she’ll be watching to make sure these changes are effective.
She has also opened an investigation into Google over accusations that it captured data from private wireless networks while assembling its street views.
The privacy commissioner is an officer of Parliament charged with overseeing the Personal Information Protection and Electronic Documents Act.
http://news.therecord.com/Business/article/724969
Housing starts drop in May, in latest sign Canada's housing market is cooling
By Sunny Freeman, The Canadian Press
TORONTO - New home construction slowed in May as the number of startups last month fell below economists' expectations — the latest indicator that Canada's once white-hot housing market is cooling off.
Canada Mortgage and Housing Corp reported Tuesday that the annual rate of housing starts dropped last month, pegging the rate at 189,100 units in May, down from a revised 201,800 in April.
Douglas Porter, deputy chief economist at the Bank of Montreal, said May's figures were below expectations but "hardly a shock."
"The surprise so far in 2010 had been how quickly starts had ramped up from their depressed levels a year ago," Porter wrote in a note Tuesday. "While the May level of starts is the lowest so far this year, it’s still above where we see activity for all of 2010."
Economists have widely predicted a slowdown in the housing market in the second half of 2010.
Consumers pushed many sales forward into the latter half of 2009 and the early part of 2010 in order to get into the market in advance of tougher new mortgage rules in April, the widely expected interest rate increase that was announced by the Bank of Canada in June and the implementation of the harmonized sales tax in Ontario and B.C. coming July 1.
CMHC said the decrease in May is consistent with its forecast of 182,000 housing starts for all of 2010.
Urban starts fell 9.5 per cent to 165,200 units in May, while rural starts were estimated at an annual rate of 23,900 units. Urban multiple starts, which include condos and townhouses, decreased 5.6 per cent to 92,800 units, while single urban starts dropped 14.1, to 72,400 units.
While spring and summer are generally the busiest building seasons of the year, construction is expected to slow markedly as a result of cooling demand in Canada's housing market, Porter said, adding it looks as though Canadian residential construction activity has peaked for the time being and will recede in the months ahead.
Most economists now predict that home prices will either remain flat or fall in the rest of the year and into 2011.
Derek Burleton, vice-president and deputy chief economist at TD Bank Financial Group, said starts dropped in May despite unseasonably warm, construction-friendly weather in Central and Eastern Canada and were the first major setback for home building in several months.
"Today's data suggest that the rebound in home-building activity from last year's recession is quickly running out of steam," he wrote in a note Tuesday.
"Prior to May, starts had rallied strongly from a recession low of 112,000 units in April of last year. In the first four months of the year, starts had plateaued at the 200,000 level."
He added that TD Economics anticipates average resale home prices to decline by six to seven per cent over the next four or five quarters.
"A bigger culprit (than the HST) however, is easing price conditions in the broader housing market, as sales continue to come off the boil and more listings make their way onto the market," Burleton said.
But, thanks in part to a strong showing in April, housing starts in the second quarter are still likely to be solid—around 190,000 to 195,000 on an annualized basis —down slightly from about 200,000 units in the first quarter, Burleton predicted.
Meanwhile, he said in the second half of the year, housing starts will moderate to the 160,000 to 170,000 unit range.
The Canadian Real Estate Association last week lowered its 2010 national forecast for resale transactions following a weaker than anticipated start to the year in some provinces, mainly British Columbia, Ontario and Alberta.
CREA also revised its projected housing price increases for this year, saying it still expects a record to be set this year but that the increase now is expected to be just 1.6 per cent over 2009.
The previous forecast had called for prices to rise 5.4 per cent over last year's record-setting peak.
The association predicted that by 2011, the national average housing price is expected to decline by 1.5 per cent, driven down by an easing of the growth in sales in B.C. and Ontario.
http://ca.news.finance.yahoo.com/s/08062010/2/biz-finance-housing-starts-drop-latest-sign-canada-s-housing.html

Financial Update For June 8, 2010

2010-06-08T09:49:00.001-04:00

Is it too early to be moving away from stimulus to fiscal restraint?
• TSX -64.87 to 11,504. ended lower again in volatile trading as energy and financial shares tumbled on economic uncertainty
• DOW -115.48 to 9,816 taking Dow industrials below last month's flash crash lows and the S&P 500 to its lowest close in seven months.
Dollar +.04c to 94.32cUS
• Oil -$.07 to $71.44US per barrel.
• Gold +$23.10 to $1,239.80 USD per ounce ongoing fears about euro zone debt contagion causing investors to flee to safe-haven assets, gold rallied to less than $10 below its all-time high

Ford Credit Canada applies for bank status
BY KRISTINE OWRAM
TORONTO — Ford’s Canadian lending arm is applying to become a bank so it can access a new source of funding.
Ford Credit Canada, a subsidiary of Ford Motor Co., would be able to accept consumer deposits that would be guaranteed by the Canada Deposit Insurance Corp. if the company is granted bank status, said Ford Credit spokesperson Margaret Mellott.
“It’s really very simple: our goal is to support Ford dealers and customers, and part of the way we do that is through a wide variety of funding channels and sources and this is a strategy to diversify our funding,” she said.
As a bank, Ford Credit Canada would offer guaranteed investment certificates, or GICs, as well as a “very, very limited online-only savings operation,” Mellott said.
But the company wouldn’t alter its core service, which is to provide financing for Ford dealers and customers.
If the application by Ford Credit Canada is approved, the Oakville-headquartered company will change its name to Ford Credit Bank.
The approval process is expected to be a lengthy one.
“There’s no timetable, but there’s a lot of due diligence. There’s a lot of study involved because, of course, the government will make a very measured decision,” Mellott said.
The major automakers’ finance arms suffered during the 2008-09 financial crisis as credit tightened, making it difficult or nearly impossible to raise money to fund their lending activities.
Frozen credit markets were a major factor in slumping vehicle sales in both Canada and the U.S., which served to exacerbate the recession and forced major automakers Chrysler and General Motors into bankruptcy protection.
Most automakers’ financing arms were forced to increase the credit score necessary to get a lease or loan to protect themselves from defaults after the financial meltdown. That created a vicious cycle, making it harder for consumers to lease or buy new vehicles, while it simultaneously became more difficult for dealers to get the financing necessary to keep their showrooms stocked.
Chrysler Financial was forced to wind down due to a lack of capital after Chrysler filed for bankruptcy protection in the United States in April. General Motors’ credit company, GMAC Financial Services, took over its business.
During the recession, GMAC applied for and received bank holding status in the United States, a category that made it eligible for government support, including guarantees of its debt and access to emergency loans. GMAC’s banking arm has since been rebranded as Ally and offers GICs and savings accounts in Canada.
Ford was the only one of the Detroit Three automakers that wasn’t forced to restructure under U.S. bankruptcy protection during the economic crisis. Ford Credit hasn’t applied for bank status in the United States.
The Canadian Press

Is it too early to be moving away from stimulus to fiscal restraint?

Email the author
THE CANADIAN PRESS
OTTAWA — Governments warned a day would come when they would need to tackle the most tricky and risky period of their economic recovery project. Now it’s here.
With the global economy barely emerging from what was called the worst recession in six decades, governments across Europe are already putting into practice spending restraints that go well beyond withdrawing stimulus.
Other countries, including Canada, have announced plans to follow suit next year.
The drive to consolidation — the new buzzword for austerity measures being demanded of deeply-indebted countries in Europe — is emerging as the key topic of discussion and disagreement at the upcoming G20 leaders meeting in Toronto.
Even Germany, with arguably the healthiest economy in Europe, got into the act Monday by announcing plans to cut welfare benefits, introduce new taxes and shed government jobs to save about $100 billion over the next three or four years.
But while everyone agrees governments must come to terms with ballooning deficits at some point, many analysts are questioning whether they are jumping the gun.
And getting the timing and size of consolidation wrong could be devastating, they say.
Influential economist Paul Krugman, a recent Nobel prize winner, last week referred to talk of consolidation so early in the recovery cycle, particularly with European woes mounting, as “crazy.”
“What I currently find most ominous is the spread of a destructive idea: the view that now, less than a year into a weak recovery... is the time for policy-makers to stop helping the jobless and start inflicting pain.”
Perhaps not surprisingly, only the United States is resisting the siren call of consolidation and in fact appears headed toward more stimulus, although Krugman says the drive to restraint is starting to impact some stimulus measures.
The danger is that removing stimulus and cutting spending too soon can pull the rug out from under the main driver of the economic recovery so far, and that’s the public sector.
But many are already taking the leap. Some, like Greece, because markets won’t lend them money unless they do. Others, like Canada’s admittedly mild measure last week to raise interest rates one-quarter point, because they fear the creation of inflation and asset bubbles if they keep cheap money policies in place too long.
The International Monetary Fund, which supported the weekend communique of G20 finance ministers that asked countries with challenges to accelerate the pace of consolidation, estimated 30 million jobs could be created if governments worked together on the right policies, or 30 million lost if they don’t.
“What’s at stake then in Toronto — the difference between good and bad policy — is 60 million jobs,” said the fund’s managing director Dominique Strauss-Kahn said.
But many economists are questioning whether the global economy is as strong as the pro-consolidation advocates believe, particularly with Europe likely to be mired in zero or even negative growth for years to come.
U.S.-based chief economist Nariman Behravesh of IHS Global Insight says it is far too early to be cutting public spending, adding that even Greece should be allowed some time before starting to consolidate.
“The last thing some of these economies need is fiscal consolidation,” he said.
“You get into this downward spiral in which fiscal contraction makes the recession worse, which makes the deficit worse and you get into this very bad situation that is counterproductive.”
The a real-world example of the consequences of getting it wrong is Japan in 1997, when it erroneously thought the economy was on the mend and raised taxes to repair its fiscal balance sheet.
Instead, the Japanese malaise intensified and wound up causing even bigger deficits.
Canada is regarded as being in a relatively cushy place with debt to gross domestic product ratios half to one-quarter the size of some of its G7 members, but its economy too could take a hit from a slowdown in global growth caused by poor policy decisions.
Scotiabank economist Derek Holt said governments are “between a rock and a hard place” when it comes to making the jarring move from stimulus to restraint.
The transition can be painful, as Canada found out in the mid-1990s when then finance minister Paul Martin pushed through a draconian program of higher taxes, government downsizing and funding cuts that went to social programs like health care. And Canada’s debt problems at the time were mild compared to what much of Europe, Japan and the U.S. face today.
But Canada also caught a break in beginning consolidation as the world entered one of the greatest economic expansion periods in several generations, helping Ottawa grow out of deficit. If emerging markets are strong enough to propel global growth, Europe might also prosper through restraint, said Holt.
“My gut view is that two years from now we’ll be able to say that Europe has gone through a terrible period of virtually non-existent growth, but has repaired much of the damage to their fiscal position and are better prepared for longer-run growth,” he said.
“Whereas the U.S. will be exposed as having been the sleeping giant that waited too long.”
But it could also go the other way. Behravesh said a more sensible path for the G20 to follow is to draft plans for austerity, but wait until 2012 before starting to implement them. http://news.therecord.com/Business/article/724303

Financial Update For June 7, 2010

2010-06-07T09:38:00.000-04:00

• TSX -242.26. After tip-toeing carefully higher for a week, markets lurched violently lower under the weight of disappointing U.S. jobs figures and new worries about European government finances, where accusations that Hungary may have fudged some of its economic statistics -- as had been alleged previously about Greece -- raised new fears about the health of the European economy as its fiscal and sovereign debt crisis drags on. Data showing Canada continues to create solid jobs growth was brusquely dismissed by markets now grudgingly staring at a slower global recovery.
• DOW -323.31 to 9,931slid through psychological support at 10,000. The second and more crippling blow to the markets came with the release of the U.S. employment report. The eagerly anticipated report, released by the U.S. Labour Department, showed that U.S. companies added far fewer than anticipated jobs in May, putting a spotlight on the fragility of the country's economic recovery. While the United States created 431,000 jobs last month, the vast majority of those positions were temporary Census hires by the U.S. government, with only 41,000 jobs added in the private sector. Some economists had been predicting a private-sector increase of as many as 200,000 jobs.
• Dollar -.76c to 94.28cUS
• Oil -$3.10 to $71.51US per barrel.
• Gold +$7.90 to $1,216.20 USD per ounce

Janet Whitman, Financial Post Canada, which remains on much sounder economic footing than the United States, had a better-than-expected increase of 24,700 workers added to payrolls in May, with most of the gain in full-time and private-sector positions, Statistics Canada reported. Bay Street had been forecasting a 15,000 gain.

The U.S. rate isn't likely to head much lower this year or next because the expected U.S. economic growth of around 3% or 4% won't be enough to create sufficient jobs for the roughly 15 million Americans out of work and new entrants in the labour market.
Canada's strong jobs report, meanwhile, shows the Bank of Canada was on the right track by raising interest rates earlier this week despite the financial turmoil in Europe, said Benjamin Reitzes, an economist with BMO Capital Markets. "Canadian employment is now only 108,000 from the peak hit in October 2008, and is up 1.7% from a year ago, much better than the still-negative yearly change in the U.S.," he said.
The strong report indicates more interest-rate increases are coming, perhaps as soon as July, some analysts said. http://www.financialpost.com/Jobs+stall/3115343/story.html
Wal-Mart new kid on bank block John Greenwood, Financial Post •
Wal-Mart Stores Inc. changed the face of retail in North America by making life easier for the little guy through its simple formula of cutting prices and cranking up volumes.
Is banking next?
This week the retailing giant won final approval to open a bank in Canada, providing entry to an industry that has been much criticized for perceived high prices and lack of competition.
Andrew Pelletier, a spokesman for Wal-Mart Canada, said the company plans to provide "convenient and value-focused financial products and services" for its customers.
He declined to discuss details of the company's plans in advance of the official lunch of the new bank, set for June 15.
While the rise of Wal-Mart has been a boon for consumers, it has been devastating for competitors, many of whom ended up being bought out or going out of business.
In the United States, fierce resistance from the banking industry forced the retailer to abandon a bid to buy a bank early in the decade, though it continues to offer services such as cheque cashing and money transfer.
Wal-Mart applied for the licence to the Office of the Superintendent of Financial Institutions, the Canadian banking regulator, nearly two years ago. Mr. Pelletier declined to discuss why the process has taken so long.
If Wal-Mart saw opportunities south of the border where there are more than 1,000 banks fighting it out for customer deposits, there would likely be an even bigger prize waiting in this country, where the industry is dominated by a oligopoly of just six major players.
Consumer groups regularly complain about credit card fees and low interest rates on savings accounts available to bank customers in Canada. Management fees on Canadian mutual funds, most of which are controlled by the big banks, are similarly out of whack compared with the United States and other developed countries.
In the United States, Wal-Mart is a significant player in the money-transfer business, partly because many of its customers are recent immigrants still with family in other parts of the world. Additional services, such as the ability to offer deposits and make loans, would provide further opportunity to the company at a time when profits from its bread-and-butter retail business have come under pressure from the recession.
Wal-Mart would not be the first non-bank to try to break into financial services in Canada. Other retailers such as Canadian Tire Corp. and Loblaw Cos. are also working to establish themselves.
One of Wal-Mart's main advantages may be its reputation for low prices, which may help it get the word out to potential customers that it can offer a better deal than the competition at a time when Canadian consumers are scrambling for all the savings they can get.
The federal government has recently taken steps to shake up the banking sector, including the decision to make it easier for credit unions to expand across the country and the move to prohibit banks from using their websites to sell insurance.
Opening a bank is a costly undertaking for Wal-Mart and the company will likely move carefully as it plots its moves over the next few years, but it clearly believes the investment will pay off. http://www.financialpost.com/news/financials/Mart+bank+block/3115350/story.html

Financial Update For June 4, 2010

2010-06-04T12:29:00.001-04:00

• TSX +31.21. as energy shares rallied on a rise in oil prices
• DOW +5.74 U.S. private sector employers added jobs in May and the services sector increased payrolls for the first time in more than 2 years, building evidence that the U.S. labor market is picking up steam
• Dollar -.26c to 96.04cUS
• Oil +$1.75 to $74.61US per barrel. after a report showed U.S. fuel consumption at its highest level in more than a year, and there was an unexpected decline in oil inventories last week.
• Gold -$12.50 to $1,209 USD per ounce there's some profit-taking in the gold sector on the back of the decline in gold
Pension shortfall hits middle class
About 20 to 25 per cent of Canadians are not saving enough to provide an adequate retirement income, says the chief economist of TD Bank Financial Group.
One of the ironies of that statistic is that these pension laggards fall into the middle class group of those who earn $30,000 to $80,000 a year, Craig Alexander said Thursday in Kitchener.
Every Canadian should have a pension that replaces 60 to 70 per cent of their employment income, Alexander said in an interview. Canadians earning more than $80,000 can generally take care of themselves, while those earning below $30,000 can replace much of that with a variety of government pension supplements, he said.
It’s that middle group that poses one of the biggest challenges, he noted.
Alexander was in Kitchener to attend a roundtable discussion chaired by Ontario Finance Minister Dwight Duncan on ways to improve Canada’s retirement income system. About 30 business, labour and pension experts met with Duncan behind closed doors.
It’s the last of a handful of meetings Duncan is holding across the province in preparation for a meeting of finance ministers in Prince Edward Island on the weekend of June 12-13 to look at Canada’s retirement income system.
While Canada’s pension system is not in crisis at the moment, issues such as pension solvency, volatile financial markets, inadequate savings by some individuals and a decrease in the number of workers with defined benefit plans that provide a fixed source of income all mean we can’t afford to be complacent, Alexander said.
A variety of options have been trotted out, such as raising Canada Pension Plan contributions, supplementing CPP benefits, raising the age at which retirement savings plans can be cashed in, offering better protection for defined benefit plans or more incentives to set up defined contribution plans, he noted.
“I don’t think there is a black and white answer to this one,” he said of the retirement income dilemma.
In any case, politicians need more data, and people need more access and knowledge about how to improve their pension coverage, Alexander said. Solutions could come from either the public or private sectors, he added, noting “I am an agnostic on that issue.”
He would like to see financial literacy courses on such issues as savings, debt, mortgages and pensions taught in school as early as Grade 8.
In an interview prior to the roundtable meeting, Duncan said that with only about 30 per cent of Canadians covered by private pension plans and more baby boomers heading into retirement, governments need to act so that pension obligations don’t cut into health-care spending and other public-sector needs.
The province has already passed one bill on pension reform that addresses some of the less contentious issues, but Duncan said he is planning more legislation in the fall to address more serious issues such as the regulation of defined benefit plans. http://news.therecord.com/Business/article/722251

Financial Update For June 3, 2010

2010-06-03T10:49:00.001-04:00

House prices have peaked for the year
• TSX +208.70. surged after a steep selloff the day before, as upbeat investors scooped up beaten-down shares including heavyweight energy and banking issues. Canada's oil production might be perceived as a bit safer than U.S. Gulf-based production.
• DOW +225.52 where investors were encouraged by U.S. data showing pending sales of previously owned homes increased to a six-month high in April.
• Dollar +1.42c to 96.30cUS
• Oil +$.28 to $72.86US per barrel.
• Gold -$4.20 to $1,221.50 USD per ounce

Outrunning the bear market
by By Alexandra Twin, senior writer
Wednesday, June 2, 2010provided by
After the Dow's worst May in 70 years, the threat of the stock correction becoming a full-blown bear market has intensified.
But this isn't new territory for long-term investors. They've faced this precipice 29 times since World War II, according to Standard & Poor's chief investment strategist Sam Stovall.
In 17 cases, they've avoided seeing a correction (a decline of at least 10% off the highs) turn into a bear market (a decline of at least 20% off the highs).
In 12 cases, they weren't so lucky. And in three of those 12 cases it became what Stovall calls a "mega meltdown," or a decline of 40% or more. In fact, the 2008-2009 stock market bloodletting sent the S&P 500 crashing 57% from an all-time high to a 12-year low.
But as the correction vs. bear market debate continues, what seems to be critical, at least on the technical side, is that the selling not surpass 15%. Historically, if that happens, the correction will become a bear market.
So far this current correction has avoided that 15%. At its worst, the S&P 500 was down 12.3% off the highs. As of Tuesday's close, the S&P 500 was down 12% from the highs.
But hovering below the 15% mark doesn't mean the selling is over by any means.
"We don't know if the market direction is going to be up or down, but we do know it's going to be up and down day to day," said Randy Frederick, director of trading and derivatives at Charles Schwab.
The increased volatility increases the likelihood of more selling, particularly with the market in a mode where it retreats on both big news and a lack of news.
The threat of the European debt crisis, the weaker euro, the BP oil spill, increased tensions between North and South Korea and signs that China's booming economy is slowing all dragged on stocks in May. But there have been numerous days in which there was little relevant news, either on the positive or negative side, and stocks sold anyway. Tuesday's market, for example.
So correction or bear? Here's what to consider:
Correction: If the market is in correction mode, it will probably chop around for a few months, then move higher, according to Stovall.
Of the 17 times that the correction didn't become a bear market, stocks lost an average of 14% over a four-month period. Typically it took stocks another four months to get back to breakeven, and another four months of gains before another correction or pullback kicked in.
A pullback is considered a decline of 5% to 9.99%. They happen frequently and like corrections, are part of normal market functioning. Stovall estimates there have been more than 50 since World War II.
There were only two times (1955 and 1997) that the market "corrected," recovered and then turned lower right away. More often, the market gets back to breakeven and then gains an average of 10%.
Bear market: S&P research shows that when a correction becomes a bear market, it tends to stretch on for 14 months and yield a decline of 33%, on average. The recovery back to zero tends to take nearly two years.
Stocks currently appear to be in a "garden variety bear market," pushing toward a decline of 20% to 30% as the mountain of problems becomes too much for investors, according to the editors of the Stock Trader's Almanac.
Heightened investor worry: In what could be either a bad or good sign, depending on whether you're a contrarian, investor sentiment took a turn for the worse last week, according to the latest survey from the American Association of Individual Investors (AAII).
Bearish sentiment, or the expectation that stocks will fall over the next six months, jumped 17.2% to 50.9%, marking the highest level of pessimism in the survey since November 2009.
Also, AAII's monthly survey showed investors pulled money out of stocks last month and reallocated it to bonds, cash or cash equivalents, reflecting global jitters and the fear of further stock erosion.
Investors held just 50.9% of their portfolios in stocks and stock funds in May, down 9.5% from April. That's the smallest percentage in stocks since May 2009, shortly after the market bottomed. It's also below the historical average of 60% http://ca.finance.yahoo.com/personal-finance/article/cnnmoney/outrunning-bear-market-20100602

House prices have peaked for the year
By Sunny Freeman
TORONTO — Skyrocketing home prices appear to have reached their height and are expected to stabilize for the rest of the year and into 2011 as the real estate market cools significantly, economists say.
Gregory Klump, chief economist at the Canadian Real Estate Association, foresees a slight decline in year-over-year prices in the latter half of 2010 before they flatten in 2011. This will happen as new listings come onto the market faster than anticipated and balance out the dynamics between buyers and sellers.
On Wednesday, the real estate association revised its projected housing price increase for this year down from 5.4 per cent to just 1.6 per cent over 2009.
The association predicted that the national average housing price will decline by 1.5 per cent by 2011, driven down by lower prices in the strong markets of B.C. and Ontario, while prices in the rest of the country will remain stable.
Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals, said this year’s prices have likely peaked, and should remain flat for the rest of the year before falling in 2011.
“Last year there was a pattern during the year — slow at the start, strong at the finish, and it’s going to be the opposite this year, almost a mirror image,” he said.
“Somebody who’s in a position to buy can take the time to make sure they get the property they want at a price they’re comfortable with,” he added.
The real estate association also lowered its 2010 national forecast for resale transactions by nearly 40,000 from its previous forecast of 527,300 due to a weaker-than-expected start to the year in British Columbia, Ontario and Alberta.
“The biggest contributor to the downward revision in annual sales activity would be British Columbia, where affordability has begun to bite into sales activity. Their first quarter came in weaker than expected and that’s expected to carry throughout the year,” Klump said.
The association now expects 490,600 units will be resold nationally this year through the Multiple Listing Service. This is still up 5.5 per cent from 2009.
A number of temporary factors pulled sales forward to the latter part of 2009 and the first part of this year, including anticipation of higher mortgage rates, tougher mortgage lending regulations and new taxes in Ontario and B.C. that will add thousands of dollars to the final price tag of many houses starting July 1.
The association’s revision came a day after the Bank of Canada announced it was hiking its key lending rate from an emergency low of 0.25 per cent to 0.5 per cent. Many economists predict that the era of historically low interest rates has come to an end and that rates are now on an upward trend.
Although mortgage rates have gone up and are expected to rise further, the association says the higher cost of borrowing will have a minimal impact on the market this year. Instead, sharp price increases earlier in the year appear to have been the main factor for the expected decrease in demand in British Columbia and Ontario.
Dunning said while some buyers “could drive themselves crazy” trying to calculate whether it’s better to get into the market now while mortgage rates are low but prices are high, or to wait until the opposite is true, it’s so difficult to get it right that homebuyers should just buy when the time is right for them.
Rob Hafer, regional manager at Invis mortgage brokerage, agreed that market timing is tough, and generally not worth the headache since a house is such a long-term investment.
“If you’re going to buy real estate, it’s a long-term investment, so if you can afford the home now … no matter when you bought within a couple years you’re probably ahead of the game anyway,” he said.
“If you can get in now and you can hold it long term, it’s always a good time to buy,” he added.
Klump said the market adjustment will stop short of venturing into a buyers’ market as “a more challenging pricing environment” will deter some potential sellers and limit the supply of available homes.
“A lot of people who were thinking they were going to clean up on their asking price are going to be faced with a lot of competition from other sellers out there, and ultimately will take their house off the market and try again when the pricing environment becomes more to their liking,” he said
But Dunning said balanced markets don’t last very long and said he believes market conditions will soon favour buyers.
“It’s usually always one way or the other, and we’ve had this immensely powerful sellers’ market and …there could be a very rapid transition so that it now becomes a buyers’ market.”
The Canadian Press http://news.therecord.com/Business/article/721499

Financial Update For June 2, 2010

2010-06-02T09:08:00.000-04:00

Bank of Canada raises interest rate, says considerable stimulus still in place Economic troubles around the world lead Governor Mark Carney to stay uncommitted to future rate rises
• TSX -191.02. as commodity stocks slumped after signals that China’s manufacturing industry is seeing slower growth.
• DOW -112.61 U.S. markets sank firmly into the negative as reports emerged saying Lebanon had fired on Israeli warplanes. This only added to the perception of global instability with Israel’s recent deadly raid of a ship carrying aid supplies, and escalating tensions between North and South Korea.
• Dollar -.95c to 94.88cUS fell against the U.S. dollar, hit by global economic fears and the failure of the Bank of Canada to provide a clear signal that more interest rate increases were in the works. Currencies usually strengthen as interest rates rise as higher rates attract capital flows. The currency was priced for a hike, so the market wasn't disappointed from that perspective. Quite simply it was the accompanying guidance that was somewhat more dovish than expected
• Oil -$1.39 to $72.58US per barrel. closed
• Gold +$12.60 to $1,224.80 USD per ounce closed

Carney plots cautious rate path
Jeremy Torobin Globe and Mail
Mark Carney is taking a cautious approach to raising interest rates, weighing Canada’s powerful economic rebound against the uncertainty of an “increasingly uneven” recovery across the globe.
The Bank of Canada Governor became the first central banker in the Group of Seven to raise borrowing costs since the financial crisis and recession, increasing the benchmark overnight rate Tuesday by one-quarter of a percentage point to a still exceptionally low 0.5 per cent.
Policy makers will keep an eye on Europe’s troubles, and won’t move more aggressively than they see fit, the Bank of Canada suggested, even though the economy is rebounding rapidly and inflation will likely exceed its 2-per-cent target this year. Much like in 2008 when the U.S. financial crisis pulled Canada into recession, the country’s economic health depends in large part on policy makers in other countries successfully containing homemade problems.
“Interest rates are incredibly low, given the strength of the domestic economy, but the global story is where it’s at right now,” Eric Lascelles, chief economic strategist at TD Securities in Toronto, said in an interview. “The level of uncertainty suggests there’s not a lot of confidence in the forecasts.’’ The open-ended nature of the announcement sparked a fall in the Canadian dollar and yields on two-year government bonds as investors pulled back their bets on what they had expected might be a series of uninterrupted rate hikes going forward.

Financial Update For May 31, 2010

2010-05-31T11:19:00.000-04:00

• TSX -77.68
• DOW -122.36
• Dollar -.18c to 95.06cUS
• Oil -$.58 to $73.97US per barrel.
• Gold +$.30 to $1,212.20 USD per ounce

Canada won't fall victim to foreclosure wave: Report
John Shmuel, Financial Post

Canada's housing market is expected to cool off this year and next, but isn't at risk of falling victim to a U.S.-style foreclosure crisis anytime soon, according to a new report by debt-rating firm DBRS Ltd.
DBRS said in the report that Canada will continue to fare well in comparison to its neighbour to the south when the Canadian housing market corrects itself and interest rates are tightened. That is because lending practices here are much more sound than in the U.S.
"The likelihood of us having the kind of situation they had in the U.S. is extremely low," said Jerry Marriott, managing director of structured finance at DBRS . "It's a combination of the lending practices prior to the peak in 2007 - they were more restrained, so there were better underwriting practices in Canada. We also think there are a number of factors in the Canadian market which have lent themselves to more prudent lending."
Those factors includes less aggressive lenders in the market, as well as systems designed to keep people paying their mortgages.
Mr. Marriott said that a cooling effect is gradually taking hold in the housing market as credit availability begins to tighten, and the HST factors into home buying decisions in Ontario and British Columbia.
That means there's a greater likelihood this year that there will be a correction in housing prices rather than a continued increase. Mr. Marriott said the DBRS expects the market to cool throughout the year and continue to cool into 2011. That echoes analysts expectations, who also expect prices to drop as well. A recent report by TD Bank predicts prices will fall by 2.7% in 2011.
"If you add up the factors you would look at as to whether there's going to be further price increases or the potential for a correction, we don't see there's a lot of factors supporting further price increases," Mr. Marriott said. "But there are a number of factors that show there might be some moderation in housing prices."
That may bode well for potential buyers after a report by CIBC this week said that on average, Canadian home prices are currently 14% over their "fair" value - that represents about 1.5 million homes, or 17% of all dwellings.
The report also highlights that Canadian households continue to have a particularly high level of debt, something that the DBRS notes is part of an ongoing trend. But it tempers that by adding that household debt is not as worrying as some analysts have suggested.
"We think the measurement of household leverage is subject to a fair amount of interpretation," said Mr. Marriott.
For instance, the debt-to-disposable income shows Canadians are generally more indebted than Americans - however, the report outlines that this doesn't reflect certain differences between the two countries that affect income, such as the fact that the U.S. has lower taxes but that Americans pay more money toward their health-care bills.
"At the end of 2009, Canadian households remained financially less leveraged by 10% to 45% compared with U.S. households," the report said. Overall, after adjustments, Canada had a household liabilities-to-total gross income ratio of 116.8% at the end of 2009, while the United States's ratio was 161.5%.
But Canadian household debt is growing faster. Household liabilities increased by 29.5% in Canada between 2007 and 2009. In the use, household debt grew just 5.3% during the same period.
Overall, mortgage lending in Canada reached $958.8 billion at the end of 2009. That's more than double the $414.1 billion ten years ago. When including home equity lines of credit, outstanding mortgage-related credit was more than $1 trillion.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=3081970#ixzz0pVaLC07i
Carney's big call
Paul Vieira, Financial Post
Ottawa -- Bank of Canada governor Mark Carney has had a busy time of it since taking over as the country's central banker 27 months ago, mostly tackling the financial crisis, mapping out the road to recovery and reassuring Canadians that at the end of the day the bank's extraordinary policies would work.
The one thing he has yet to do during his term, however, is raise interest rates. That might be about to change on Tuesday. If he does pull the trigger - and that is what most analysts expect - it won't be after grappling with competing forces that convey two starkly different messages about the economic outlook.
"We are at point where it is a tug of war between structural issues that are facing the eurozone and a very strong economic cyclical backdrop," says Stéfane Marion, chief economist at National Bank Financial.
Weighing on the governor are the economic data, which call out for a rate hike - as much as 50 basis points, some reckon. The data have been consistently strong and surprising to the upside. Job creation is in full swing, with a record 109,000 workers added to payrolls in April; consumers are buying up goods at a healthy pace, tax credits or not; corporate profits are rebounding to pre-recession levels; and inflation is creeping closer to the central bank's preferred 2% target. The sterling fundamentals prompted the central bank last month to ditch its conditional commitment to keep its policy rate at a record low 0.25% until July, leading traders to price in a nearly 100% chance of a rate hike on June 1.
That was until sovereign debt worries exploded in Europe, once Greece formally asked for international help days after the last Bank of Canada rate decision. That sparked an across-the-board retreat in global equity markets, down 9.3% since the beginning of May, as traders sold stocks and poured into risk-averse U.S. treasuries and other government securities on fears that another credit crunch was at hand. Mr. Carney is likely aware of this better than most, given his capital markets background from Goldman Sachs.
The most worrying sign on Mr. Carney's radar screen might be the small but steady increases in the cost of borrowing among banks, a signal European lenders are finding it tough to access cash from their peers on concern over how much Greek, Portuguese and Spanish debt they hold.
In the end, the consensus is Mr. Carney is leaning toward a rate hike - a modest one, though, of 25 basis points. The thinking is, an ounce of prevention now is worth a pound of cure later.
"We can't look at things in a vacuum, because there are so many other factors besides Europe's issues" says Jonathan Basile, an economist with Credit Suisse in New York who closely watches Canadian markets. "The truth is the macroeconomic evidence is outweighing the financial risks right now."
The last time the Bank of Canada raised its benchmark rate was in July 2007, by 25 basis points to 4.5%. At the time, former governor David Dodge said the economy was operating above its production potential, and inflation was likely to stay above its 2% inflation target for longer than forecast.
Little did Mr. Dodge know that the U.S. subprime crisis would morph into the worst financial crisis since the Great Depression, roiling markets and economies around the world. This is why Europe's recent fiscal woes have triggered a case of nerves, and might prompt Mr. Carney to rethink any rate move.
"The Bank of Canada wants to raise rates, but it doesn't have a crystal ball," CIBC World Markets said in a note to clients. "It can't be certain that the recent financial market downturn isn't going to morph into something more severe that would make a rate hike look out of place."
There's another school of thought, though, that suggests markets have overreacted to a regional problem. In this context, it is key to remember the Bank of Canada didn't expect the eurozone to contribute much to global growth, envisaging only 1.2% expansion this year and 1.6% in 2011.
"The European picture will calm down and people will realize it is not as dramatic as being played out," says Carlos Leitao, chief economist at Laurentian Bank Securities.
Yes, he acknowledges, the debt-ridden southern European economies have tough years ahead. But other countries, led by Germany and France, are going to capitalize on the lower euro and boost their exports to emerging economies and North America, which will help offset the drag from the so-called Club Med nations.
Besides Europe, Mr. Carney has other factors to consider.
Canada's sovereign debt levels are indeed much better than the industrialized world, as our politicians like to remind us. But the amount of debt held by households, measured as a percentage of disposable income, stood at a historical high of 146% - of which 98% is mortgage related - at the end of 2009, rating agency DBRS estimates. That would put Canadian households ahead of the United States but behind Britain on this measure. A rate hike would signal it might be time to live more modestly and refrain from too much debt-financed consumption (which helped fuel those nasty asset bubbles that central banks may want to pay more attention to in the aftermath of the subprime debacle).
Mr. Carney's other challenge is to explain why, and what's ahead. He has come off a period where he provided extraordinary guidance to markets. Don't expect similar language from the governor.
If anything, Mr. Marion warns the central bank should refrain from using the type of guidance the U.S. Federal Reserve deployed in 2004, when it signalled a period of "moderate" rate hikes were in the offing.
In retrospect, the Fed's use of the word moderate "encouraged more financial excesses," leading to the subprime bust, Mr. Marion says. "Carney doesn't have to be brusque about it. He has the luxury to start slowly, and leave his options open," from pausing should Europe deteriorate to hiking aggressively, by 50 basis points, if conditions warrant.
Mr. Carney reminded us recently that "nothing is pre-ordained" at the Bank of Canada. He's likely to drive home that point on Tuesday, rate hike or not.
Read more: http://www.financialpost.com/news-sectors/story.html?id=3084621#ixzz0pVYuP0cD

Financial Update For May 28th, 2010

2010-05-31T11:18:00.000-04:00

• TSX +205.22 higher for a second straight session as commodity-linked stocks surged after China soothed investor worries by saying Europe was a key investment market.
• DOW +284.54 back over 10,000 to 10,259
• Dollar +1.66c to 95.24cUS as concern eased that Europe’s debt turmoil will worsen
• Oil +$3.04 to $74.55US per barrel.
• Gold -$1.50 to $1,211.90 USD per ounce

Financial Update For May 26, 2010

2010-05-26T09:49:00.000-04:00

• TSX -3.27 only slightly lower after a sharp fall early in the day on worries that Europe's banking problems could derail global economic recovery
• DOW -22.82 .
• Dollar -.94c to 93.46cUS
• Oil -$1.46 to $68.75US per barrel.
• Gold +$4.00 to $1,197.80 USD per ounce as bullion prices climbed on safe-haven buying

Loonie's plunge signals long-term risk for Canadian and global economies
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar plunged to its lowest level in eight months before recovering Tuesday, sending a clear signal that Europe's debt crisis has the potential to reach across the Atlantic and impact Canada's mending economy.
The loonie has lost about eight per cent of its value over the last month in reaction to fears in global equity and financial markets about the lasting imprint of government debt, and now a new risk — the threat of war on the Korean peninsula.
Over the weekend, the Bank of Spain had to bail out Cajasur — the second savings bank in that country to receive public money since March 2009. On Monday, four other Spanish savings banks announced plans to merge amid concerns over solvency in the sector.
Tension in Asia has also risen since last week after North Korea was accused of the sinking in March of a South Korean warship. Seoul has called for sanctions against the North.
The Canadian dollar closed down 0.94 of a cent at 93.46 cents US on Tuesday after bouncing off a low of 92.18 cents US earlier in the day.
The loonie is not alone in seeing its value eroded. Other commodity currencies have also taken a hit in the flight to dependable and liquid U.S. Treasury bills.
The short-term impact on the Canadian economy of frightened financial markets and a loonie closer to 90 cents than parity, ironically, may be mostly positive.
A weaker dollar will give a much-needed boost to manufacturers and exporters who prosper whenever they can sell their products abroad with a currency discount.
And the unsettling of financial markets has caused real interest rates to soften for mortgages and other loans. Many Canadian banks have dropped posted rates on five-year mortgages to below six per cent.
As a result, prospects that Bank of Canada governor Mark Carney will start hiking rates next Tuesday have gone from a virtual sure thing a month ago to a coin-flip today.
Export Development Canada's chief economist, Peter Hall, welcomed the fact that the loonie's wings have been clipped, saying that a dollar at par had the potential to take two or three points off economic growth next year — the equivalent of about $30 billion to $45 billion in output.
But the longer term implications may be that Canada's recovery won't go as smoothly as many had hoped. The loonie is acting as a proxy for the global economy: when the Canadian dollar is down, it means so are prospects for global expansion, say economists.
"Everything and anything that happens in the world affects Canada," said TD Bank chief economist Don Drummond, noting Canada's dependence on trade and on the prices of commodities it sells to the rest of the world.
The longer term outlook is that many governments, not just the poor cousins of Europe, will soon need to deal with debt burdens that cannot be sustained, and the ensuing clampdown on spending will stall the recovery.
Several economists, including David Rosenberg of Gluskin and Sheff, said the risk of a second downturn in key economies, including the United States as Washington withdraws stimulus spending, has become very real. Much like in 2008-09, Canada would become collateral damage, they said.
"For a small, open (and) commodity-sensitive economy whose entire recession in 2009 was imported from abroad and south of the border, the answer is yes," Rosenberg said when asked whether a second dip is possible.
That still remains a minority view, although the TD's Drummond puts the risk at about 20 per cent.
The key question is whether the European crisis is an overblown temporary crisis, or the precursor of government debt woes in the United Kingdom, the United States and other larger economies.
Scotiabank portfolio manager Andrew Pyle said he believes the fears over Europe will blow over in a matter of weeks, which will cause both oil prices and the loonie to recover to previous levels.
"I think people will be surprised to see how quickly that will happen. I wouldn't be surprised to see us back to parity in July," he said.
But it's the longer-term prospects that most worries Drummond. He says the perception that the situation will stabilize if the bailout of Greece and other countries works, or that things will implode if the bailout doesn't work, is simplistic.
"Those countries (with large debts) aren't getting out of this any time soon . . . easy bailout or not," he said.
http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-loonie-s-plunge-signals-long-term-risk-canadian.html

Transmitted by CNW Group
Ontario's housing market continues to sizzle: RBC Economics
TORONTO, May 25 /CNW/ - Ontario's hot housing market is showing few signs of letting up, causing housing affordability measures and property values to reach record highs in many parts of the province during the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
"Despite an increased supply of homes on the market, prices continue to rise which has undermined affordability," said Robert Hogue, senior economist, RBC. "While still well below peak levels, most of the housing affordability measures now stand above their long-term average, suggesting that more and more buyers are being priced out of the Ontario market."
The report found that housing activity in Ontario remained in top gear in the early part of the year. The RBC Housing Affordability measure for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the first quarter of 2010.
Affordability of the detached bungalow benchmark edged up to 39.6 per cent (up 0.4 of a percentage point over the last quarter), the standard townhouse to 32.7 per cent (up 0.4 of a percentage point), the standard condo to 27.8 per cent (up 0.4 of a percentage point) and the standard two-storey home to 45.4 per cent (rising 0.2 of a percentage point).
With the clock ticking toward the implementation of the HST on July 1, 2010, which will increase the transaction costs associated with a home purchase, both the demand for and supply of housing units in the province are likely being boosted by the rush of buyers and sellers to beat the tax.
The Toronto market reached new heights as strong demand catapulted sales of existing homes and property values to record highs in late 2009 and the early part of 2010. Affordability generally continued to weaken in Toronto in the first quarter, with RBC's measures creeping up between 0.3 and 0.6 percentage points for three of the four housing categories (condominiums were the only exception).
"While previously undecided sellers finally joined the fray in recent months, they continue to be outnumbered by buyers with bidding wars and quick sales still common," added Hogue. "All Toronto housing affordability measures now exceed their long-term average, suggesting that the market's dizzying flight could soon run into some turbulence."
The Ottawa-area market continued to chart a record-breaking path in the first few months of 2010, driven higher by motivated buyers. This strong demand added upward pressure on pricing, accelerating the pace of increases relative to the subdued gains recorded during the second half of 2009, although more homes were put up for sale. The higher prices eroded affordability in the area in the first quarter, with the RBC measures rising between 0.3 and 1.0 percentage points, reversing most of the surprising improvement in the fourth quarter.
"Although demand momentum is likely to remain brisk in the very near term, the historically-elevated costs of homeownership in the Ottawa area could well become a factor deterring buyers later this year," noted Hogue.
RBC's Housing Affordability measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Toronto and Ottawa. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:

- British Columbia: Homeownership became even more expensive in B.C.,
as strong home price momentum continued in the first quarter. Housing
affordability measures have now returned close to the all-time highs
reached in early-2008. This trend represents a risk that could weigh
heavily on the province's housing market in the near term.

- Alberta: Affordability measures eased in the first quarter, as
Alberta was the only province to show a decline in the costs
associated with owning a home. Housing price increases in the
province were fairly modest over the past year, which has kept home
ownership relatively affordable. RBC affordability measures are at or
below the long-term averages.

- Saskatchewan: Housing prices picked up in the province in early 2010,
causing home affordability measures to rise significantly in the
first quarter. This is a change from previous quarters, which showed
an improvement in affordability. Despite this increase, affordability
measures still remain well below the all-time peak levels reached in
early-2008.

- Manitoba: Prices for most housing types surged ahead in the first
quarter of 2010, pushing affordability measures above the long-term
average for the province despite a slower pace of resale activity.
Affordability in the province has reached a point where an additional
decline in home affordability may temper housing demand.

- Quebec: Quebec's housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, weakened affordability in the
province. All affordability measures now exceed their long-term
average, which may soon slow housing demand in the province.

- Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales met by a rise in the supply of available
homes. These broadly balanced conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with measures still below long-term averages.

The full RBC Housing Affordability report is available online, at www.rbc.com/economics/market/pdf/house.pdf.

Financial Update For May 25, 2010

2010-05-25T12:31:00.000-04:00

• TSX +115.40 Friday, closed Monday
• DOW +125.38 Friday but down again Monday -126.82stock selling accelerated through the close, with the Dow ending at a three-month low as worries about the global economic outlook overshadowed a bigger-than-expected rise in existing home sales.
• Dollar +.75c to 94.40cUS
• Oil -$.76 Friday back up Monday +$0.17 to $70.21US per barrel.
• Gold -$12.50 Friday, back up Monday $18.10 to $1,193.80 USD per ounce

New rules cuff some mortgages to banks
Garry Marr, Financial Post
A headlock would be the wrestling term to describe the hold Canadian banks will have on some consumers because of new, more strict mortgage rules.
We are already seeing the impact of the changes that came into effect on April 19, but were put in place well in advance by Canadian financial institutions. Consumers are increasingly selecting fixed-rate mortgages of five years or more because it's easier to qualify for them.
On mortgages for terms of four years or less, including variable-rate mortgages, consumers must be able to pay based on the five-year fixed posted rate, which is now 6.1%. Go longer and you can use the rate on your contract, as low as 4.6%. No more than 32% of your gross income can cover principal and interest, property taxes and heat.
Peter Vukanovich, president of Genworth Financial Canada, the largest private provider of mortgage-default insurance, says only 5% of new high-ratio mortgages are going variable versus 15% just six months ago.
But there is another wrinkle to the new rules: Anybody shopping around for a better rate has to requalify based on their current credit situation. Stay with the same bank and there's no check.
"It's definitely a headlock and not a loophole because a loophole you can get out of," says Vince Gaetano, a mortgage broker with Monster Mortgage.
There is a large percentage of Canadians who get a renewal notice from their bank and just sign on the dotted line. The Canadian Association of Accredited Mortgage Professional has found only 22% of Canadians switch banks at renewal time. A significant portion of the remaining 78% are sheep being led around by their financial institutions.
Those looking for some choice may find what was good enough to get into the market a month ago may not meet the test today.
Consider that as recently as two years ago, consumers were able to buy a house with no money down and a 40-year amortization schedule. If that consumer was making regular monthly payments, they would have paid down only 4.7% of their principal after five years. Today, that customer would still be high ratio and subject to requalifying if they switched banks.
"It's not all of them, but a majority of first-time buyers with just 5% down or less won't be able to qualify if they go to another bank," Mr. Gaetano says. Many of those buyers were qualifying based on the three-year rate - about 200 basis points lower than the current qualification rate.
If house prices went down, something many in the real estate community have suggested could happen, that would be an even bigger blow for consumers. It would mean an even larger percentage of homeowners would still be considered high ratio upon renewal because they wouldn't meet the test of having 20% equity in their home.
Marcel Beaudry, vice-president of ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks, but noted anyone who had a 40-year amortization and changed institutions also had to requalify and there hasn't been a huge impact.
"There will be a segment of the population tied down by the new rules to their bank," Mr. Beaudry says.
That's a position nobody should be in.
Read more: http://www.financialpost.com/story.html?id=3057768#ixzz0owPZtf4I

Rate hike not guaranteed….Global financial chaos could override domestic factors
Emily Mathieu Business Reporter Toronto Star
Higher than expected rates of inflation and reports of record breaking retail sales means interest rate hikes will likely go ahead, according to a top economist with BMO Capital Markets. But domestic strength might not be enough to justify increases if the upheaval in global markets continues, said Porter.
“If the (Bank of Canada’s) decision was based solely on domestic factors, then this would be no questions asked, no debate,” said Doug Porter, deputy chief economist.
The central bank has long predicted rates would rise on June 1, but Porter said doubt over the future of global economic stability could cause them to go off course.
“It would take a very brave central bank indeed, I think, to raise interest rates in the face of the turmoil we are seeing in global financial markets right now.”
According to Statistics Canada’s Consumer Price Index, the core index advanced 1.9 per cent during the 12 months leading up to April, following a 1.7 per cent increase in March.
The boost in April was due mainly to a rise in prices for the purchase of passenger vehicles, passenger vehicle insurance premiums, property taxes, and food purchased from restaurants, the report showed.
The seasonally adjusted monthly core index rose 0.2 per cent in April, following a 0.3 per cent decline in March.
Consumer prices across the country rose 1.8 per cent in the 12 months leading up to April, following a 1.4 per cent increase in March. In Ontario, prices rose 2.2 per cent.
Porter said BMO has no plans to alter their position that rates will rise on June 1, but said that position could change if market upheaval continues into next week.
“If Canada were an island there would be no debate,” said Porter. “There is a very compelling domestic case for higher interest rates.”
Statistics Canada reported a 2.1 per cent increase in retail sales dollars in March, to $37 billion. Porter said earlier reports had predicted sales would be close to flat. “Instead we get one of the best gains on record.”
National energy prices rose 9.8 per cent between April and the same time the previous year, following a 5.8 per cent increase during the 12 months between March 2010 and the same time the previous year. Excluding the increase in energy the index rose 1.1 per cent, compared with a 1 per cent increase in March.
For the sixth month in a row, gas prices exerted the strongest upward pressure on the index. In April, Canadians paid 16.3 per cent more at the pump than they did the same time the previous year. That change follows a 17.2 per cent increase between March of this year and the same time in 2009.
Natural gas prices were up 3.3 per cent in April than the same time the previous year. Between March 2010 and the same time the previous year prices had dropped 22.4 per cent.
The cost of transportation was up 6.2 per cent in the 12 months to April and consumers paid a 5.6 per cent more for insurance premiums in April compared to the previous year.
Housing costs were up 0.8 per cent, after declining 0.7 per cent in March, with household utilities exerting the most upward pressure. The mortgage cost index fell 6.1 per cent, the report showed.
Food prices were up 1 per cent, following a 1.3 per cent increase in March. The 1 per cent rise, largely related to prices for food purchased in restaurants, was the smallest since March 2008.
Health care prices rose 3.3 per cent, the report showed. http://www.thestar.com/business/article/812567--rate-hike-not-guaranteed
Home ownership costs increase across Canada except Alberta says RBC report
By The Canadian Press TORONTO - Owning a home in Canada has become even more expensive _ unless you live in Alberta, according to the latest housing report by RBC Economics Research.
The report, released Tuesday, says homeownership costs in Canada rose for the third straight quarter across all housing segments in the first quarter of 2010. A strong real estate market and jacked up housing prices are getting the blame for putting a strain on Canadians' bank accounts.
"Although home ownership became more costly in the first quarter of 2010, affordability measures are still moderately above the long-term average and below peak levels," said RBC senior economist Robert Hogue.
"We expect affordability to deteriorate throughout 2010 and 2011, but this should be limited as more balanced supply and demand conditions will take much of the steam out of the housing market," he said.
The RBC Housing Affordability report projects that the cost of owning a home will continue to rise.
The main contributing factor is an expected rise in interest rates, as the Bank of Canada moves towards raising the current exceptionally low rates to more normal levels through the second half of this year and in 2011.
According to the report, housing affordability measures in Canada are unlikely to exceed the peak levels reached in early 2008.
With the exception of Alberta, home affordability measures deteriorated across all provinces with a significant decline in affordability in B.C., Saskatchewan and Manitoba.
Housing affordability declined more moderately in Quebec, Ontario and Atlantic Canada. Alberta is the only province to show a drop in the costs of owning a home. http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-home-ownership-costs-increase-across-canada-except-alberta.html

Financial Update For May 18, 2010

2010-05-18T09:13:00.001-04:00

• TSX -201.97 to 11,813 fell for a third straight session to below 12,000 points, as oil and metal prices tumbled on concerns about euro zone debt and weaker growth in China, knocking commodity issues lower. China's key stock index tumbled 5.07 percent on Monday to its lowest close in a year. That fall was led by property issues, as retail investors fled the market after a month-long rout sparked by a severe government clampdown on surging property prices.
• DOW +5.67
• Dollar -.19c to 96.74cUS
• Oil -$1.53 to $70.08US per barrel. has now fallen about 20 per cent in just two weeks as investors worry about the ripple effects of a debt crisis in Europe. The oil spill in the Gulf of Mexico has done nothing to slow the drop in crude prices and, so far, has not interfered with tankers carrying imported crude to Gulf ports. There is concern though that the spill could eventually slow shipments if vessels must be scrubbed of oil before they reach port

Mortgage Rates – Is It Time To Gird Our Loins?
by Andrew Pyle, for Yahoo! Canada Finance
Thursday, May 13, 2010
Now that Europe appears to have bought itself some time from those vicious currency and bond speculators (and what a price tag, at a cool trillion dollars), individuals are also feeling a little more relieved about their finances. And they are indeed quite eager to put May behind them. Where investors were lulled into a sense of false security during April, as equity volatility fell to the lowest level since July 2007 (as measured by the VIX index), the spike in volatility this month knocked people off their chairs. True, the high in the VIX last week of just above 40 was still only 50% of the peak seen in November 2008; however, it has served as a wake-up call that there are as many risks out there as rewards.
For now, though, let’s assume there are no further shocks to the system for the coming weeks and that volatility subsides. The focus for individuals and households should then return to their own fundamentals. What does the job and income situation look like? Are financial plans still intact? And what about that mortgage coming due next month?
Ah, the dreaded mortgage decision. Despite the signs of an impending rise in the general level of interest rates and warnings from government officials, I find that there is still a lack of conviction among Canadians as to whether they should lock in their mortgages at prevailing rates, versus holding on to a floating rate mortgage. It’s therefore a good time to review the facts and fiction out there so that you can make a better educated decision.

Regardless of the recent jump in rates, we still look to be in the middle of a downward trend in mortgage rates since 1981. You may remember that year, when five-year term rates were in excess of 22% in Canada. It came at the same time that North America fell victim to a painful double-dip recession. Of course, inflation was also sitting around 12% at the time. Many families lost their homes to be sure, but the threat posed by higher rates today is greater because of the fact that debt levels are much higher today than back then. The increased leverage in the housing sector, to say nothing of general credit among individuals, increases the sensitivity to rates – something we saw so very clearly in the US housing sector from 2003 to 2006.

Today, floating rate mortgages are still trading at various spreads to the prime rate, which itself hasn’t budged from 2.25% since April of last year. How much that spread is will depend on a host of factors, not the least of which is your credit score and perceived credit worthiness by your lender. That said, whether you chose a floating versus fixed rate mortgage doesn’t matter anymore since the new federal regulations went into effect last month. You must now meet the requirements or standards of a five-year term mortgage even if you want the adjustable rate variety. In other words, if you’re not going to budget for the possibility of short-term rates rising to where prevailing five-year rates are today, the government has done it for you.

That five-year rate has been a bit of a bouncing ball over the past year. In April 2009, the conventional five-year rate (or the posted rate) fell to a generational low of 5.25%, coinciding with the last quarter-point rate cut by the Bank of Canada. Through the summer and fall of last year, the rate got as high as 5.85%, but then eased back during the early months of this year as equity markets got a little shaky and bond yields stabilized. That all changed towards the end of the first quarter. Economies were looking a lot better, equities picked up the pace and inflation fears began to creep back in the market. There was also a definite shift in opinion as to when the Bank of Canada would start hiking rates, with the consensus focused on June 1st. Since bond yields needed to price in this new anticipation, other rates went up in sympathy, including mortgage rates as well as GICs. To give you an illustration, the five-year Government of Canada yield rose from about 2.4% in February to 3.2% in April. The five-year mortgage rate, which reached a low of 5.25% in March, shot up to 6.25% by late April. The only relief for borrowers has been a paltry 15-basis-point reduction by banks in the past week to 6.10%. Hardly a surprise when you consider the sharp drop in bond yields worldwide when it looked like contagion was going to put a recessionary grip on the world again.

But, have a look at where things are today. Despite the recent mortgage cuts, bond yields are rising again as investors move money from fixed income to stocks (not what I’m necessarily recommending). Assuming the European calm persists, economic fundamentals in North America continue to firm and China doesn’t upset the apple cart too much with its measures to rein in credit in that country, bonds will likely come under more pressure, sending yields higher. This should pave the way for five-year mortgage rates in Canada to climb to 6.5% and then potentially to 7%. Note, the high before the recession was only 7.5% - a level which could be reached this year under ideal economic conditions.

Now, some will say that it doesn’t matter where longer-term mortgage rates go, since short-term rates won’t likely climb to those levels. This has some merit to it, as the prime rate only got as high as 6.25% prior to the recession. Of course, with today’s spreads added on, the mortgage rate then for some would have been close to the 5-year rate. Whether or not short rates return to those levels depends on a number of things, including inflation, and with world governments still borrowing ridiculous amounts to fund fiscal spending, inflation cannot and should not be ruled out.

All this aside, the decision on which mortgage to chose ultimately comes down to a combination of expectations and emotion. It might seem okay to assume that the stock market won’t experience another meltdown like in 2008-09, but few of us would be willing to throw 100% of our assets into the market on that call. We need to sleep at night and therefore we apply balance to our portfolios. The same holds true for our borrowing decisions. I can come up with an economists’ tale of how interest rates will stay relatively low because of economic headwinds and the increased sensitivity to debt, but what if inflation fears overrule that view?
For those looking to put a household budget together that allows for an extended uninterrupted sleep, the five-year term option is still the best bet. There is also what I call a ‘sticker shock’ factor to keep in mind here. If rates at both ends of the spectrum climb over the next several years, those already acclimatized to a higher borrowing rate will find it less ‘shocking’ upon renewal than the individual with a floating rate mortgage that has to see a continual erosion of their monthly payment towards interest. In other words, the person with the longer and fixed-term mortgage will arrive at the principal amount that was anticipated. The adjustable rate mortgagor will not.

My final point on this has to do with opportunity cost. If the view of rising interest rates turns out to be false, and rates fall or stay flat, then this probably means the economy isn’t so hot. I would suggest in that event that there will be bigger concerns on the household budget than the extra couple of percentage points in interest. In short, this is not a time for aggressive offense, but a good shield.

Financial Update For May 13, 2010

2010-05-13T11:02:00.001-04:00

U.S. Trade deficit climbs to 15-month high in March A trade deficit is when the total value of imports is greater than the total value of exports, a surplus is when the total value of exports exceeds the total value of imports.
The higher deficit is evidence of an improving economy. It shows demand is picking up in the United States following the recession, which had cut the trade gap last year to the lowest level in eight years
So far so good on Greek bailout, but dark legacy of recession becoming clearer former Bank of Canada governor David Dodge, warned that the crisis should be considered a “wake-up call” to other countries, including the United States and the United Kingdom, to get their fiscal houses in order.

U.S. Bank Regulations Miss the Point

• TSX +195.47 Europe’s trillion-dollar debt solution held for a second day as global shares rose after Spain outlined measures to cut its deficit, allaying fears about Greek debt crisis contagion.
• DOW +148.65
• Dollar +.19c to 98.06cUS climbed for a fourth straight session, boosted by rallying equities and easing fears that sovereign debt problems could spread in the euro zone.
• Oil -.72 to $75.65US per barrel. dropped after government data showed rising U.S. inventories.
• Gold +$22.80 to $1,242.70 USD per ounce Safe-haven buying pushed gold prices to another new record high as traders pondered if the $1-trillion U.S. loan package would suffice to ensure long-term financial stability in the euro-zone.

• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

So far so good on Greek bailout, but dark legacy of recession becoming clearer
BY JULIAN BELTRAME
OTTAWA — Europe’s trillion-dollar debt solution held for a second day Tuesday as global stock markets and currencies headed back nearer to levels they enjoyed prior to last week’s steep selloff.
The Toronto market was up after big rebounds on Monday. Meanwhile, the Canadian dollar rose past 98 cents US, a signal that markets judged that global risk was diminishing.
But it appeared that investors as well as governments were keeping their fingers crossed, given the growing realization that the eurozone rescue package hammered out on the weekend may only delay the day of financial reckoning. Gold, a traditional safe haven destination for nervous money, rose to a record high close.
The New York Times quoted a prominent equity analyst as describing the mood on Wall Street as a “wall of worry” over sovereign debt, China and other uncertainties.
The market monitoring group of the Institute of International Finance, co-chaired by former Bank of Canada governor David Dodge, warned that the crisis should be considered a “wake-up call” to other countries, including the United States and the United Kingdom, to get their fiscal houses in order.
In the short term, the backstop agreement did appear to assure holders of Greek treasury bonds they will get their money on maturity next week, and gave the country a window to make some additional borrowings at non-crippling rates.
But what happens next? And what might happen to the $1-trillion in pledged support if the rest of the so-called PIIGS (Portugal, Italy, Ireland, Spain and Greece) need help to finance their debt.
“We fear that as the market gives this announcement . . . more than a few hours of scrutiny and assessment, the day after the day after may not play out as nicely as the day before it,” said Carl Weinberg of U.S.-based High Frequency Economics.
Although North America’s exposure is indirect, even Canada stands to lose from the fallout.
The TD Bank’s deputy chief economist, Craig Alexander, says Canada’s economy would take a significant hit — just like it did in 2008 — if government debt worries lead to a second financial market crisis. Even if the problem is somewhat contained, Canadian economic growth will be slowed by Europe’s debt problems, he said.
A slowdown in the European economy — the world’s biggest — would cut demand for Canadian exports to Europe of everything from machinery and manufactured goods to food products, grain, fertilizers and chemicals. But Europe represents only about 10 per cent of Canadian exports, so the impact would be relatively minor.
A debt default would also cause financial losses to any Canadian bank or companies holding European bonds, but again the exposure appears to be minor.
The real danger, says Alexander, is if a debt default or debt restructuring leads to the failure of one or more major European banks, it could cause a knock-on effect that causes international credit markets to seize up as occurred in the fall of 2008 following the collapse of Lehman Brothers.
“We saw the real impact of that. You saw export financing dry up and exports shipments plunge globally. That’s the worst case scenario for Canada,” he said.
Given that about one third of Canada’s economy is based on exports, the country fell into a recession lasting almost a year with the loss of over 400,000 jobs as a result of the recession after the Lehman collapse.
Even under the best case scenario — that European countries and the United States manage to put in place the austerity measures needed to assure markets their debts can be managed — the result would be slower global growth, which would still affect Canada’s export sector to some degree.
By one calculation, modest austerity measures in Europe would slice about one per cent of gross domestic product from the continent’s already weak growth prospects, with some Mediterranean countries plunged back into recession.
The irony is that Canada would also suffer even though it has done most things right, says David Rosenberg, chief economist with Toronto-based Gluskin Sheff. “Being a small, open economy sensitive to commodity prices, this is one of the many times when sudden shifts in global economic sentiment can hit us disproportionately,” he said.
Alexander still believes a double-dip recession remains an outside risk, but adds it can no longer be dismissed as easily as it was a few months ago.
Canada’s economy grew by a surprisingly strong five per cent in the last three months of 2009, and judging by the 109,000 new jobs added in April, it is still advancing strongly. But now it is expected to slow considerably in the second half of the year.
“The good news is we got out of the recession; the bad news is we have the legacy of late 2008-2009 to deal with and those legacies are enormous,” Alexander said.“I’m worried (that) if the U.S. economy slows down and the global economy moderates, once again the export sector is challenged, and we’re going go through this at the same time the dollar is strong. I think the expectations for strong economic growth going forward needs to be tempered.”
For Europe, the repercussions from letting government debt cross over to the unmanageable column could restrain growth for a decade, he said. http://news.therecord.com/Business/article/710277 SPECIAL FEATURES

U.S. Trade deficit climbs to 15-month high in March
BY MARTIN CRUTSINGER The Associated Press
WASHINGTON — The U.S. trade deficit rose to a 15-month high as rising oil prices pushed crude oil imports to the highest level since the fall of 2008, offsetting another strong gain in exports. The larger deficit is evidence of a rebounding U.S. economy.
The Commerce Department said Wednesday that the trade deficit rose 2.5 per cent to $40.4 billion in March. It was close to the $40.1 billion deficit economists had expected and the biggest monthly trade deficit since December 2008.
Exports of goods and services rose 3.2 per cent to $147.87 billion, the highest level since October 2008. Imports were up 3.1 per cent to $188.3 billion.
The higher deficit is evidence of an improving economy. It shows demand is picking up in the United States following the recession, which had cut the trade gap last year to the lowest level in eight years.
Economists believe U.S. manufacturers will continue to get a boost from rising demand for their products, reflecting the rebound in the global economy and a weaker dollar against many major currencies. However, that forecast could turn out to be too optimistic if a widening European debt crisis cuts into demand for American products in Europe, a major market for U.S. goods.
So far this year, the deficit is running at an annual rate of $467.2 billion, 23.4 per cent higher than last year’s imbalance of $378.6 billion.
For March, the rise in exports reflected increased sales of American farm products and a wide range of heavy machinery from electric generators to earthmoving equipment.
The increase in imports was led by a 25.5 per cent jump in crude oil shipments, which rose to $22.3 billion March, the highest level since October 2008. That increase reflected higher volume and higher prices. The average price for a barrel of crude oil rose to $74.32, up from $72.92 in February.
Prices have been falling since oil hit $87.15 a barrel in early May. The debt crisis in Europe has raised concerns about the durability of the global economic recovery. In trading Wednesday, oil dipped to near $76 per barrel.
The deficit with China rose 2.4 per cent to $16.9 billion in March, the highest level since January and the largest trade gap with any country. The Obama administration is facing growing political pressure to impose trade sanctions on China if Beijing doesn’t allow its currency to rise in value against the dollar.
Treasury Secretary Timothy Geithner raised hopes for a change in monetary policy when he stopped in Beijing last month to talk with Chinese economic officials on his way back from India. But Chinese President Hu Jintao, who discussed the issue with President Barack Obama during a trip to Washington last month, said China’s decision on the currency “won’t be advanced by any foreign pressure.”
American manufacturers are pressing for a tougher trade policy. They say America’s trade deficit with China has cost 2.4 million manufacturing jobs at a time when the jobless rate in this country is 9.9 per cent.
Geithner is expected to raise the currency issue when he and Secretary of State Hillary Clinton go to China for two days of high-level talks later this month.
The deficit with the 27-nation European Union rose to $7.1 billion in March, a jump of 32.7 per cent. Imports from Europe rose faster than U.S. exports to the EU.
The deficit with Canada, America’s largest trading partner, fell by 15.8 per cent to $2.3 billion. The imbalance with Mexico rose 26.7 per cent to $6 billion as imports from Mexico hit an all-time high. http://news.therecord.com/Business/article/710990

Financial Update For May 12, 2010

2010-05-12T09:34:00.000-04:00

• TSX +52.71 to 12,000
• DOW -36.88
• Dollar +.24c to 97.87cUS
• Oil -.43 to $76.37US per barrel.
• Gold +$19.50 to $1,219.90 USD per ounce Safe-haven buying pushed gold prices to a new record high as traders pondered if the $1-trillion U.S. loan package would suffice to ensure long-term financial stability in the euro-zone.

Even recession didn't slow down Canadian's spending, report finds
By Julian Beltrame, The Canadian Press
OTTAWA - Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians' appetite for spending money they don't have.
A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.
That's $41,740 on average per Canadian, or debt to income ratio of 144 per cent that is the worst among 20 advanced countries in the OECD.
"This report is another indication of Canadians' readiness to consume today and pay later," says association president Anthony Ariganello.
"The concern is do they understand the full cost of paying later?"
The Bank of Canada has also voiced similar concerns, with governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.
Most Canadians don't yet share that concern. The accountants' survey found that almost 60 per cent of Canadians whose debt had increased still felt they could manage it or take on more obligations.
But the accountants say many households could find themselves in difficulty when interest rates, as expected, begin to rise.
The report estimates that even a small two per cent increase in rates would mean that mid-income and higher income households would have to cut their outlays on non-essentials by between nine and 11 per cent.
The finding is similar to one reached by the Canadian Association of Accredited Mortgage Professionals in a survey results release Monday.
The survey showed that while Canadians appeared well positioned to absorb higher rates, there would be a significant number that would come under stress. The mortgage professionals estimated that 475,000 households would be challenged if mortgages rates rose to 5.25 per cent, and that 375,000 were already facing pressure paying their bills.
The most likely outcome for a debt squeeze is that households will stop spending on non-essentials, and that could ripple in a general slowing of economic growth.
Household spending, particularly in the housing sector, was a mainstay of the economy during the recession. But as interest rates grow, a bigger percentage of household income may need to be diverting into paying off debt, meaning less cash for other purchases, like autos, appliances, furniture and clothes.
BMO Capital Markets economist Sal Guatieri says that is the flip-side to the Bank of Canada's decision to slash rates to historic lows during the recession.
"That's why we did not experience a great recession," he noted. "That was the intention all along of the Bank of Canada, to get people borrow and spend. The problem is if that continued, Canada eventually would have a debt problem."
But that is why the central bank is preparing to reverse course and start increasing the cost of borrowing, he added.
Most analysts believe Carney will start moving on rates on June 1 with a small quarter-point hike. http://ca.news.finance.yahoo.com/s/11052010/2/biz-finance-recession-didn-t-slow-canadian-s-spending-report.html
Feds want tighter rules to ground fly-by-night movers
• By Dean Beeby, The Canadian Press
OTTAWA - The federal government is putting the moves on movers.
Industry Canada wants to tighten the rules for moving companies after a deluge of complaints from consumers who say they've been ripped off by crooked operators.
Armed with a cellphone and a Kijiji or Craigslist ad on the Internet, scam artists are preying on Canadians looking for cheap moving help, says the department.
"Complaints include holding furniture hostage at the destination until consumers pay more than the original estimate and producing new hidden costs such as packaging," says an internal document.
"In some cases, the belongings are not delivered but are dumped or remain in warehouses and storage facilities. Consumers in this market are particularly vulnerable to such practices because of the ability of movers to confiscate or ransom their belongings."
The Consumer Measures Committee, a federal-provincial group run by Industry Canada, launched a project last July to better monitor the household moving sector by analyzing consumer complaints.
"This work is in the very early stages of development and findings are not yet available," department spokesman Michael Hammond said.
Regulation of the moving sector is largely a provincial responsibility, even though some moves cross provincial boundaries. Eight provinces have highway traffic legislation that governs the household-goods moving trade, with Prince Edward Island and Newfoundland and Labrador the exceptions.
Many provinces also have consumer protection laws, as does the federal government.
But industry players contacted by the committee in the last few months say officials want to end that patchwork coverage by harmonizing laws, regulations and practices across the country.
The 2006 census of Canada found that 1.2 million households had moved in the last five years. Some estimates say Canadians change addresses an average of 13 times through their lifetimes.
And the Canadian Council of Better Business Bureaus says complaints about movers were No. 7 on its Top 10 list of consumer beefs in 2009. Just over half of the 636 formal complaints about moving firms last year were settled.
An Industry Canada briefing note, obtained under the Access to Information Act, suggests about one of every four moves generates a consumer complaint.
The head of Canada's largest industry group, the Canadian Association of Movers, supports harmonization but says the best protection for consumers is education.
"You have people having all their life possessions destroyed, stolen, rifled through, held for ransom, overcharged," president John Levi said in an interview from the group's Mississauga, Ont., headquarters.
But even with tougher regulations "there's no government agency out there that can help you in a timely fashion."
Consumers are understandably intimidated by large men suddenly demanding more cash before unloading the truck, Levi said.
"There's sufficient legislation and regulation in place — if it were enforced."
The best defence is to do some research, he said.
The mover's association — with about 200 members, including big operators like Atlas, Allied, Mayflower, United, North American — certifies its firms after checking their standards and reputations, and having them sign a code of ethics.
The Better Business Bureau as well as Industry Canada posts consumer checklists and advice on moving on their websites. A joint consumer tips release is also planned shortly by the movers' association and the business bureau.
Better Business Bureaus across Canada fielded almost 98,000 inquiries about moving companies last year, the second-most common query after consumer questions about roofing contractors.
http://ca.news.finance.yahoo.com/s/09052010/2/biz-finance-feds-want-tighter-rules-ground-fly-night-movers.html

Financial Update For May 11, 2010

2010-05-11T09:55:00.001-04:00

Time to lock in that mortgage rate?

• TSX +255.47 to 11,947 in a broad-based rally as investors were emboldened by a $1 trillion emergency rescue package out of Europe aimed at containing Greece's debt crisis

• DOW +404.71 to 10,785

• Dollar +1.83c to 97.63cUS

• Oil +1.69 to $76.80US per barrel. Energy producers were among the top gainers as the price of U.S. crude oil rallied more than 2 percent on the back of the aid plan.

• Gold -$9.60 to $1,200.40 USD per ounce as the better prospects for the European economy undercut safe haven buying of gold

Time to lock in that mortgage rate?

Andrew Allentuck, Financial Post Published: Thursday, May 06, 2010
Taking on a mortgage is a big commitment. Every buyer who uses a mortgage has the choice of floating or going with a fixed rate that often costs a couple of percentage points higher per year. Today, for example, one can get variable rates at an average rate of 2.34% while five year closed rates average 5.27%, according to Fiscal Agents Financial Services Group in Oakville, Ontario. Negotiated rates can be lower.
If rates never changed very much, there would be no contest – the floating rate deal would win. But rates do rise and fall and therein lies the borrower's dilemma.
Borrowers with kids and an aging car fear that their ability to pay interest rates twice or thrice the current floating rates are limited. "The test is liquidity and risk tolerance," says Derek Moran, a registered financial planner who heads Smarter Financial Planning Ltd. in Kelowna, B.C. "People with ample liquidity can afford to take a chance on rising mortgage rates. It follows that those who lack liquidity feel some pressure to avoid drastic interest rate increases."
The point is not merely academic, for Canada, in spite of recent mortgage rate increases, is still at a relatively low point of rates over the last four decades. "There is more room for rates to go up than down," Moran points out.
The cost of making a decision to float or go fixed varies with the rate differences.
In 2008, Moshe Milevsky, Associate Professor of Finance at the Schulich School of Business at York University, and Brandon Walker, a research associate at the Individual Finance and Insurance Decisions Centre in Toronto, published a study that measured the direct and opportunity costs of going with either choice. "Over the long run, homeowners really do pay extra for fixed rate mortgages," they concluded.
The reason is intuitive. Lenders do not want to take the chance that when they have to refinance a loan that they will be stuck paying more than they are getting.
Mismatching what they lend with the cost of what they borrow can cut their profits and even lead to insolvency. So lenders attach what amounts to an interest rate insurance fee and bundle that into the price of money they lend on fixed terms.
Milevsky and Walker confirmed this explanation. "The study showed that a positive Maturity Value of Savings [the value of investing the difference between floating and fixed mortgages in 91-day T-bills] was positive the majority of the time, so the homeowner saved by using a variable-rate mortgage."
The amount of money that the homeowner can save by taking a chance on floating rates varied in the Milevsky and Walker study, depending on the time periods in question. But the average amount was impressive: $20,630 as of 2008. Put another way, floating allowed borrowers to cut the time it would take to pay off the mortgages by a year or more, in some cases as much as five years on 15-year amortizations.
Rational calculation and personal feeling are, of course, different things. A person with a fixed income and a great deal of debt may be reluctant to put a rate casino between himself and the lender and will therefore go with certainty, even at a high price.
It is also a matter of experience. "First time buyers tend to pay close attention to the cost of the mortgage," says Laura Parsons, Areas Manager of Specialized Sales – which includes mortgages, for the BMO Financial Group in Calgary. For them, the appeal of locking in is relatively high. Their mortgages are new, the amounts they owe are higher than they would be 10 or 15 years in future when the mortgage is substantially reduced, and their incomes, often early in their adult lives, are lower than they will be in future.
"First time home buyers are net debtors and they don't want to endanger their finances," suggests Adrian Mastracci, a portfolio manager and financial planner who heads KCM Wealth Management Inc. in Vancouver.
There are other strategies that the buyer can use to provide some rate insurance without taking on what Milevsky and Walker have demonstrated as the high cost of peace of mind.
"The buyer can take a variable rate mortgage but set payments higher than the minimum required" says Parsons. "That could be at the 5 year closed rate, which would mean a faster paydown and growing asset security while still keeping the low cost of the variable rate mortgage. Faster paydown is itself cost insurance if interest rates do rise."
Banks are nothing if not inventive in helping clients cope with the fixed versus floating dilemma. For example, TD Bank offers to give 5% of the amount borrowed on a five or six year fixed rate residential mortgage to the borrower. The program, aptly dubbed the "5% CashBack Mortgage," implicitly acknowledges that fixed rate loans can be more costly than variable rate ones.
For its part, RBC has a RateCapper Mortgage that builds on the initial low cost of a variable rate mortgage but limits the cost if rates shoot up. On a five year mortgage, the borrower will never pay more than the capped rate and if the variable rate, based on the prime rate, drops below the RateCapper mortgage maximum, the interest rate charged to the borrower also drops. The plan is a compromise and spreads interest rate risk. Many other lenders allow borrowers to mix fixed and variable rates, thus accomplishing a similar goal.
Plan selection, it turns out, is gender-related. According to a BMO survey, men, 44% of the time, are more likely than women to choose a fixed rate mortgage than women, who make that choice only 28% of the time. Women, it turns out, tend to make the better choice, for as BMO's analysis shows, "fixed rates were advantageous during only two periods – through the late 1970s and in the late 1980s, in both cases ahead of a period rising interest rates, as is the case now."
So where are interest rates headed? The yield curve, a line that links interest rates for periods of time from 1 day to 30 years, implies that rates will rise, but not very much.
There is no sense that we are returning to a period of double digit rates. Moreover, there are deflationary forces at work, notes Patricia Croft, chief economist of RBC Global Asset Management in Toronto. "The present crisis in European finance and the potential fizzling out of the present recovery in North American capital markets could presage falling inflation and even disinflation – the subsidence of rising prices and interest rates," she explains..
BMO forecasts that the rising Canadian dollar will put downward pressure on consumer prices, reflecting the fact that much of what Canadians eat and use is imported. Inflation could flare up, BMO's economists say, but there is a balanced risk of declining prices. For now, the Bank of Canada is being very cautious in its interest rate management commitments. For those who are strapped for cash, personal circumstance may dictate the choice of a fixed rate. But for everyone else, the folly of trying to make interest rate predictions over a business cycle and to predict both the short term rates and the long term rates along the yield curve should be apparent. No promises, of course, but the odds of saving money are with borrowers who choose variable rate plans or those that emulate them.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=2994048#ixzz0nWSeUpXO

Financial Update For May 10, 2010

2010-05-10T10:09:00.000-04:00

Trading on emotion "The market realizes there is actually a country risk, Since Lehman's collapse the banks were in focus, now it is the credibility of countries.”
Housing starts expected to build on recovery data Today, Canada Mortgage and Housing Corp. reports its April housing-start figures

• TSX -150.00 to 11,692 Markets continued to sell off Friday as fears of a widening government debt crisis in Europe overshadowed strong job numbers. However markets surged around the world this morning after the European Union launched a loan plan at 3am in Brussels worth almost $1-trillion (U.S.) to reverse the losing war against the sovereign bonds of debt-choked countries that had threatened to sink the euro zone.
• DOW -139.80 to 10,380
• Dollar +.77c to 95.80cUS
• Oil -$2.00 to $75.11US per barrel."If the world is a risky place and growth is in question, that hits commodities and that hits Canada hard," said Patricia Croft, chief economist, RBC Global Management.
• Gold +$13.10 to $1,210.00 USD per ounce
•
Trading on emotion
Janet Whitman, Financial Post, with files from Bloomberg Published: Saturday, May 08, 2010
Gobsmacked traders and investors stared at their computer screens in disbelief on Thursday as stocks nosedived, wiping out a trillion dollars in market value in 10 stomach-churning minutes.
As panic spread that stocks were veering off a cliff, the market snapped back just as quickly, recouping most of its losses. Jittery investors haven't been so quick to recover.
On Friday -- a day after what is believed to be a technical glitch helped take the Dow Jones Industrial Average down a record 998.50 points -- stocks zigzagged in volatile trading as market participants tried to make sense of the turmoil.
The panicky reaction could be a sign of the summer to come as stressed investors trade on gut reactions instead of using their heads.
"We are chained to this problem of going up with greed and down with fear and the market either thrills or haunts us," said Somnath Basu, professor of finance at California Lutheran University in Thousand Oaks.
"None of it's driven by reasonable thinking. People forget and go chase returns and then when the markets start crashing they get scared and start getting out. They're not thinking that stocks should be held for 20 or 30 years."
Prof. Basu, an expert in "behavioural economics," said he anticipates a series of mini stock-market bubbles and crashes leading to bigger bubbles and crashes as people let their emotions rule their investment decisions.
Before their tumble this week, stocks were up around 70% from the lows they reached at the height of the financial crisis in 2008.
"Is that driven by fundamentals or irrational exuberance?" asked Prof. Basu. "Many economic indicators are not showing the same thing. We don't know what's going to happen when the US$2-trillion in stimulus and bailout money stops working. Maybe the stock-market gain was premature, because people were tired of being in the dumps."
At this stage, it's still unclear how a technical glitch might have sparked a sell-off that led to one of the craziest 10 minutes in stock-trading history.
Barack Obama, the U.S. president, said U.S. regulatory authorities are probing the wild swing in stocks that appears to have been exacerbated as investors shrugged off surprisingly strong gains in employment in Canada. The TSX index dropped 4.24% for the week, its worst performance since July last year.
"It might be an opportunity to look at some companies that got knocked lower, but people are more afraid to invest when they see this kind of thing going on," said Peter Cohan, an economic analyst and professor of management at Babson College in Wellesley, Mass.
"The smart thing to do is buy here by a torrent of computerized selling in a market that was already on edge over concerns that Greece's debt woes could drag down the rest of Europe and slow global economic growth.
"In my view, there was no emotion in it at all," said Mr. Cohan of Babson. "High-frequency trading and flash trading accounted for 60% of the volume. We don't know yet what triggered all of that buying and selling. The majority of the volatility had nothing to do with human emotion at all. It had to do with what was programmed in the computers."
Regardless of the cause, investors do seem to be gripped once again by fear and emotion at a level not seen since the height of the financial crisis.
The dramatic sell-off sent the market's so-called fear gauge -- formerly known as the Chicago Board Options Exchange volatility index, or VIX -- to its biggest surge in three years.
The index surged again yesterday, reaching a high for the year and a record 86% increase for the week amid concerns European leaders won't be able to control Greece's debt crisis.
"The market realizes there is actually a country risk," said Achim Matzke, head of global index and technical research at Commerzbank AG in Frankfurt. "Since Lehman's collapse the banks were in focus, now it is the credibility of countries." Read more: http://www.nationalpost.com/story.html?id=3003011#ixzz0nWWeHztC
Housing starts expected to build on recovery data
; 'Housing starts have risen 80% from their cyclical lows'
Derek Abma, Financial Post
If record job gains from April weren't enough to convince you the Canadian economy is on solid ground, a few more measures are coming down the pipe over the next week that could support the case.
"In Canada, we're in the home stretch of reports on what was evidently a very strong first quarter, and the early news on Q2," CIBC World Markets chief economist Avery Shenfeld said in a research note on Friday, which followed Statistics Canada's report that 108,700 additional people found work last month-- about four times what was expected.
Today, Canada Mortgage and Housing Corp. reports its April housing-start figures. Economists anticipate an annualized rate of 205,000, up from a revised figure of 200,900 in March. The last figure marked a small decline from the previous month, on a seasonally adjusted basis, but things have come a long way since the market bottomed out at 112,000 in April 2009.
"To date, housing starts have risen a massive 80% from their cyclical lows, retracing over half of the peak-to-trough drop," Millan Mulraine, senior strategist with TD Securities, said in a report released on Friday.
Mr. Mulraine, who's forecasting a start level of 210,000 for April, attributes some of the current strength to homebuyers looking to avoid the new harmonized sales taxes taking effect in Ontario and British Columbia in July. He also noted that April was warmer than usual, helping along construction efforts.
Another big report comes Wednesday in the form of merchandise trade data for March. Economists anticipate a Canadian surplus -- the amount exported minus what's imported -- of $1.6-billion, up from $1.4-billion in February. If right, it would mark the fourth straight surplus.
CIBC World Markets economist Krishen Rangasamy credited improved economic conditions globally as probably helping Canada maintain it trading-surplus streak in March, including greater demand for vehicles in the United States.
"The merchandise trade report for March will likely add to earlier data that presages (Canadian economic) growth of around 5.7% (annualized) for the first quarter," Mr. Rangasamy said. "But the party won't last forever for exporters, given the lagged effects of a strong Canadian dollar and the expected slowdown in the U.S. economy later in the year."
Speaking of the auto industry, Statistics Canada on Friday will release data on domestic new-vehicle sales for March. A 4% monthly decline is expected following an 8.1% jump in February.
The federal agency will also release March figures for manufacturing sales that day. A one% rise in the value of factory transactions is expected by economists after the slim 0.1% gain in February.
"Canadian manufacturing-sector activity has been on a breathtaking run lately, with sales rising for six consecutive months on the back of strong domestic and foreign demand," Mr. Mulraine said.
Mr. Mulraine is in line the consensus of economists in his March manufacturing forecast, citing transportation equipment as well as products made of petroleum and coal as helping to fuel the gains.
Besides these reports, a number of Canadian companies, such as George Weston and Jazz Air, will release quarterly earnings. As well, the United States will see data on March wholesale trade toomorrow, its own March trade data on Wednesday and April retail sales on Friday.
Read more: http://www.financialpost.com/story.html?id=3007517#ixzz0nWZkq2Sr

Financial Update For May 7, 2010

2010-05-07T09:34:00.002-04:00

Was typo behind Wall Street plunge? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover
Greek legislators pass crucial austerity bill despite protests “Either we vote and implement the deal, or we condemn Greece to bankruptcy”
Islamic mortgages now in Canada
• TSX -32.73 to 11,842 closed lower for a fourth straight session. Amid the selloff, the TSX fell 452 points, or 3.8 percent, to 11,422,73, its lowest level since February 25. It was the steepest one-day percentage fall since June 2009. Article below…
• DOW -347.80 to 10,520
• Dollar -2.09c to 95.03cUS hitting a near 3 mth low. What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
• Oil -$2.86 to $77.11US per barrel. on fears the debt crisis could threaten economic recovery and undercut demand for oil.
• Gold +$22.30 to $1,196.90 USD per ounce . jumped 3 percent to a near record on a broad flight to safety.
•
The Canadian Press OTTAWA - Canada added 108,700 jobs in April, far more than economists had expected.

As a result of the huge number of jobs added last month, Canada's unemployment rate slipped to 8.1 per cent — down from 8.2 per cent in March.

Was typo behind Wall Street plunge?
The Canadian Press, Reuters and thestar.com
What was that? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover.
But by the end of the day U.S. stocks had recovered much of their losses, the Toronto Stock Exchange was basically flat losing 32.7 points to close at 11,842.43, and the Canadian dollar, though pummeled, was still intact.
Experts were flustered, but puzzled by the wild action, though they generally pointed to the ongoing Greek debt crisis.
Rumors also circulated that the panicky sell-off had been triggered by a U.S. stock trader mistakenly put in a sell order for 15 billion shares of Procter & Gamble on the New York Stock Exchange, instead of 15 million.
Whether that’s true or not, the stock dived to $40 from $60 within moments just before 2.30 p.m..
The Dow Jones Industrial Index also began a free-fall of about 1,000 points, or 10 per cent, in less than half an hour.
It didn’t stop with stock markets. The U.S. dollar soared, which meant the Euro plunged along with the Canadian dollar.After rising as high as 97 cents U.S, at one point the Canadian dollar was down almost 4 cents. It finished the day at 95.03 cents U.S.
Pascal Gauthier of TD Economics pointed to the Greek debt crisis as a possible trigger for the turmoil.
Jean-Paul Trichet, who heads the European Central bank, said in Lisbon Thursday that the bank’s governing council had not discussed the possibility of buying government bonds. Many analysts have speculated it might do so, as a means of providing debt-crushed governments with financial support.
“There might have been expectations that the bank might take some measures, though we were of the view that they would not,” Gauthier speculated.
He warned that other days like this could loom ahead.
“On the fiscal side, those economies that were fragile to begin with before the recession like Greece, Italy, Spain are going to be vulnerable, and markets are going to be nervous,” he said.
“This is going to stay with us. This isn’t just a one-day thing.
Camilla Sutton, currency strategist at Scotiabank, said no one was attacking the Canadian dollar. Instead, investors ran for the safety of U.S. investments.
“This story is about the U.S. dollar,” she said. “What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
The Canadian dollar was simply trampled by the rush into the U.S., she said.
* NEW YORK—The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said Thursday.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumor but that the bank currently had no evidence that an erroneous trade had been made.
CNBC reported this afternoon that a trader entered a "b" for billion instead of an "m" for million in a trading order, setting off a series of events that led to the Dow’s biggest one-day drop since 1987.
Greek legislators pass crucial austerity bill despite protests
BY ELENA BECATOROS

ATHENS — Greek police fired tear gas to repel stone-throwing protesters after lawmakers approved drastic austerity cuts Thursday needed to secure international rescue loans worth $147 billion Cdn.
The rescue loans are aimed at containing the debt crisis and keeping Greece’s troubles from spreading to other countries with vulnerable state finances such as Portugal and Spain. The money will come from the International Monetary Fund and the 15 other governments whose countries use the euro.
Clashes in Athens broke out at the end of the main protest that drew tens of thousands of people as police pushed back a few thousand demonstrators outside parliament.
The violence was quickly contained with riot police firing tear gas at the protesters, who had earlier pelted them with oranges and bottles. Several small fires burned in surrounding streets. No injuries or arrests were reported.
The clashes followed violent street protests Wednesday that left three people dead after a bank was firebombed.
Demonstrators banging drums and shouting anti-government slogans through bullhorns, unfurled a giant black banner outside parliament earlier Thursday. More than 30,000 demonstrators filled downtown streets, chanting “They declared war. Now fight back.”
In parliament, lawmakers voted 172-121 to approve the cuts — worth some $40 billion Cdn. through 2012 — that will slash pensions and civil servants’ pay and further hike consumer taxes.
Prime Minister George Papandreou expelled three Socialist deputies who dissented in the vote, reducing the party’s number of seats to 157 in the 300-member parliament.
“We have done what was necessary, not what was easy,” Finance Minister George Papaconstantinou said after the vote. “Without these measures, we’d be thrown into the deepest recession this country has ever known.”
The bulk of Thursday’s protest — organized by the Greek Communist Party — quickly dispersed, leaving about 5,000 demonstrators outside parliament before police dispersed them.
Protester Thodoris Mougiakos said he was angry the IMF would control Greek finances.
“It’s blackmail,” the 32-year-old engineer said. “There is money, but they spend it on things like armaments and businesses. The church has money, too. If we had been drawing money from all these sources, we wouldn’t be in this situation now,”
But the protest remained peaceful, in contrast with Wednesday’s rioting that left three people dead, 59 injured and 25 people arrested. Police said 50 stores, banks and offices were damaged and seven vehicles damaged or burned.
Papaconstantinou said Greece would default on debt payments this month unless it received the bailout loans from the International Monetary Fund and 15 euro-zone countries that had remained divided for months on how to aid Athens.
“Today things are simple. Either we vote and implement the deal, or we condemn Greece to bankruptcy,” Papandreou told parliament before the vote.
“Some people want that, and are speculating (on it), and hope that it will happen,” he said, referring to speculative attacks that have been blamed for raising Greece’s borrowing costs to unsustainable levels. “We, I, will not allow that. We will not allow speculation against our country, and bankruptcy to happen.”
European governments are now scrambling to get parliamentary approval for the Greek loans. European leaders will meet on the issue in Brussels today.
Fears of Greek default have undermined the euro, and while the current package should keep Greece from immediate bankruptcy, its long-term prospects are unclear. The country’s growth prospects are weak, and the population’s willingness to accept cutbacks may wane, leading some economists to predict an eventual debt restructuring somewhere down the road.
Opposition parties lambasted the government for imposing measures that are too harsh for the population to bear.
“The dose of the medicine you are administering is in danger of killing the patient,” conservative opposition leader Antonis Samaras said.
“You know that these measures have sparked a social explosion ... The citizens of this country have to believe there is a way out. Because whoever cuts pensions of €700 cannot convince anyone.”
Samaras also expelled a dissenting lawmaker, former Foreign Minister Dora Bakoyannis, reducing his share of parliamentary seats to 90.
The Associated Press http://news.therecord.com/Business/article/707717
Man. credit union 1st to offer Islamic mortgages
A Manitoba credit union has become the first major financial institution in Canada to offer mortgages geared towards the needs of devout Muslims.
On Wednesday, Winnipeg-based Assiniboine Credit Union (ACU) announced it was launching an Islamic Mortgage Program.
Currently, the majority of the Winnipeg's roughly 13,000 Muslims rent or don't own the homes they live in, the credit union said.
For-profit loans are problematic for people of the faith because the Qur'an forbids the payment of interest.
Under the program, the credit union and the homebuyer enter into what ACU calls a "declining partnership agreement." Both parties co-own the home and its title.
"During this time, the family has exclusive rights to live in the home and in exchange they agree to pay ACU a profit. At the end of the contract the Muslim family is the sole owner of the home," the credit union said in a press release.
The would-be homeowner must contribute a minimum of 20 per cent of the home's price at the start of the agreement, ACU said.
The plan was developed with the help of Islamic religious scholars in Canada and the U.S., the credit union added.

Financial Update For May 6, 2010

2010-05-06T13:46:00.001-04:00

$70m mortgage fraud
House prices to cool in 2011
• TSX -155.73 to 11,875 as worries about a spreading European debt crisis darkened investor sentiment after Moody's Investor Services warned it may also downgrade its view on Portugal's debt in the next three months. There are also concerns about the Greek government's ability to push through massive austerity measures in return for the cash. Wednesday's general strike in Greece -- which left three dead -- is unlikely to assuage concerns that the government will get the popular backing it needs
• DOW -59.94 to 10,866 amid rumours that Spain was also negotiating a bailout from the International Monetary Fund

Why are you seeing CMHC respond with “unsupported values” recently?
When CMHC says they can only support $x on a file, they aren’t necessarily saying the house is only worth that amount.
The interpretation is ,…
“based on the home value and possible renovations done, how recent an mpac assessment is, the type of home-o/o or rental, the clients job consistency and security, their credit and amount utilized and whether it’s a purchase or refi and for what reasons …..
they are saying, “based on above, we have $xxx comfort level with doing that deal”.
Based on new rules and qualifications they are taking less risk this year. It is important to remember that a property valuation is not a fixed or permanent number
Sometimes an appraisal will assist, but if their concern is based more on covenant criteria as opposed to an old mpac value, we are also seeing files where the appraisal doesn’t increase their comfort.

So when discussing with your clients a value to use when submitting your applications, take all the criteria above into consideration before using the highest resale on the street to base your qualifications on. This will assist you to under-promise and over-deliver, provide you with more expert guidance than a bank employee provides, have less puzzled and disappointed clients, and improve your efficiency ratios too!
House prices to cool in 2011, says TD
Financial Post
OTTAWA -- The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.
The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.
"While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes," TD said in its report.
The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.
As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.
The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.
TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.
The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation - after having averaged 8% annual gains over the last eight years - and household incomes catch up.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2990374#ixzz0n98RQoRI

Bank of Montreal alleges huge mortgage fraud
By Charles Rusnell, CBC News
This house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. (CBC)
The Bank of Montreal is suing hundreds of people in Alberta, including lawyers, mortgage brokers and four of its own employees, in what is one of the largest alleged cases of mortgage fraud in Canadian history.
Legal documents obtained exclusively by CBC News allege the bank was the target of a sophisticated fraud operated by 14 inter-connected groups. The documents allege the scheme generated at least $140 million, about $70 million of which was for phoney mortgages.
The bank has estimated it may lose as much as $30 million.
Toronto forensic accountant Al Rosen said he has never seen anything like it.
"This is massive in the sense that it is so broad and so deep," Rosen said Tuesday. "This is [allegedly] a huge fraud. I can't think of any situation that has so many people involved and over a period of time like this one."
Problems detected in 2006
The bank said it first detected the alleged scam in 2006 when its security department noticed "irregularities" in a number of mortgages in Western Canada. Officials immediately hired a forensic accounting firm, which spent nearly a year unravelling what the bank calls a sophisticated scheme.
Legal documents allege millions of dollars have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan. (CBC)
The bank's investigators say the scam's ringleaders would identify the worst house in a good neighbourhood. They would buy at an affordable, fair-market value price, but convince the bank it was worth much more because of the neighbourhood it was in.
The bank, which relies on a software program to determine house prices by neighbourhood, claims it would end up providing a grossly inflated mortgage, and the ringleaders would pocket the difference.
To carry out the alleged scheme, the bank claims masterminds would recruit what's known in fraud parlance as a "straw buyer." For a payment of $2,000 to $8,000, these straw buyers, mostly new immigrants, would allow their name to be used to obtain the mortgage on the house.
According to the court documents, the ringleaders allegedly created fake, inflated wage and net income documents for the straw buyers to make them appear richer than they were.
Lawyers, who are alleged to have been in on the scheme, would then produce the necessary legal documents for the house sale. Seventeen lawyers have been named in the bank's lawsuit.
House nets $180,000
In one case, a house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. An Edmonton house is alleged to have netted the scheme nearly $180,000.
During its investigation, bank investigators seized records that showed millions of dollars from the alleged scheme have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan.
The Bank of Montreal said it conducted the investigation and filed the lawsuit for two reasons.
"One was to recover as much as possible of what was taken from the bank from the fraud," Ralph Marranca, the bank's spokesman told the CBC on Tuesday.
"And secondly was to send a very strong message to fraudsters and anyone who might contemplate something like this that the bank will pursue this very aggressively and will not tolerate fraud."
Other banks don't appear to be as aggressive in their approach, even though documents indicate they may have been targeted too. Bank of Montreal investigators found documents that showed one Calgary management company had 150 suspect mortgages from 16 different financial institutions.
Rosen said this alleged fraud illustrates how weak and ineffective the controls are in our banking system.
"To me the most exasperating part of our business is we are not doing what we are supposed to be doing," he said. "We are kidding ourselves that we have good systems, because we don't."

Read more: http://www.cbc.ca/canada/calgary/story/2010/05/04/mortgage-fraud-bank.html#ixzz0n43X4GCP

Financial Update For May 5th

2010-05-05T10:13:00.001-04:00

Housing affordability: the great quandary Why there’s time to wait for the right home at the right price
• TSX -165.65 sharply lower, weighed down by persisting worries about Greece's aid package that sent investors to the safety of the U.S. dollar and hit oil prices.
• DOW -225.06 to 10,926echoed the wave of worry that gripped financial markets as investors fretted that the crisis in Europe could derail global economic recovery
• Dollar 1.39c to 97.56cUS
• Oil -$3.45 to $82.74US per barrel.
• Gold -$14.10 to $1,168.60 USD per ounce .

Housing affordability: the great quandary Why there’s time to wait for the right home at the right price
With only Montreal and Vancouver left to cheer for in the Stanley Cup playoffs, many luncheon conversations have returned to the topic of housing prices.
Recently, we’ve seen lots of headlines suggesting that house prices have run up to an unsustainable level and are due for a correction.
In mid March, The New York Times made a rare foray north of the border with a headline that read “Some See a Real Estate Bubble Forming in Canada.” A couple of weeks back, Gluskin Sheff star economist David Rosenberg released a report suggesting that Toronto and Vancouver housing prices could drop by 20 per cent.
And one of the most e-mailed Globe articles last week was based on a ReMax report trumpeting the buoyant sales of luxury homes.
Focusing on affordability
Perhaps the most important determinant of short-term-price movements is affordability, the percentage of a typical household’s income required to carry a house. The two big variables that drive this number: house prices and mortgage rates.
RBC has been tracking this data for 100 neighbourhoods across Canada since 1985, focusing on typical two bedroom homes, bungalows, townhouses and condos.
The traditional rule of thumb for banks is that mortgage payments, property taxes and utilities shouldn’t exceed 32 per cent of a household’s income, assuming a 25 per cent down payment. The more of a household’s income required to carry a house, the lower the affordability.
As housing prices spiralled up in the 1980s, this guideline was relaxed – since 1985, the typical household would have devoted 39 per cent of its income to carrying a detached, 1,200 square foot bungalow.
RBC economist Robert Hogue points out that there have been large swings in affordability over time and that different cities show different patterns.
In most cities, rising house prices meant that affordability was at its lowest in early 1990, when the typical household would have spent 53 per cent of income to carry a bungalow. On the other end of the scale, Vancouver, always an outlier when it comes to real estate, hit its own high of 81 per cent of household income to carry a bungalow in early 2008.

Once out of balance, there are only three ways for affordability to get back in line:
- Prices can stay flat as incomes increase over a period of years
- Mortgage rates can come down – unlikely in the next while
- Or housing prices can drop – something that happened after the all-time lows on affordability were hit in 1990
The impact of low mortgage rates
In the past eighteen months, governments around the world chopped interest rates to boost economies – and Canada was no exception.
As a result of low interest rates, carrying costs dropped and affordability improved. Even with strong housing prices, at the end of December the affordability level in most cities was close to its long-term average. The exception, again, was Vancouver – with the average bungalow taking up 69 per cent of the typical family’s income, up from the historical average of 57 per cent.
In a recent report, RBC estimated that in late December posted rates for a five year mortgage were 5.6 per cent, 1.6 percentage points lower than normally expected given inflation expectations. Note that we’ve already seen mortgages rates begin moving up toward those higher levels, with more increases likely to come.
RBC estimates that if mortgages had been at their normal levels in December, the percentage of the typical Canadian household’s income to carry an average bungalow would have increased by four percentage points – although some cities would have been hit worse than others.
The affordability verdict
If mortgage rates in December had been at normal levels, the percentage of income to carry a house in most cities would have been well above its long-term average. The good news: In most cities those percentages would still have been well below their highs – prices may be a bit elevated but this doesn’t suggest a bubble or a big drop ahead.
The one city to worry about if you’re a homeowner is Vancouver, where normal mortgage rates would have resulted in the typical household spending 78 per cent of its income to carry a bungalow, just shy of the peak level.
History shows that it’s impossible to accurately predict short-term movements of house prices – markets regularly overshoot rational levels both on the way up and the way down. What we can say is that based on current affordability, if house prices do continue to escalate, at some point they’re almost certain to correct back down.
That means there’s no rush to buy and time to wait for the right home at the right price – and that for the next while at least home buyers should evaluate houses as places to live rather than on their potential for appreciation. http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/housing-affordability-the-great-quandary/article1554481/

Financial Update For May 4, 2010

2010-05-04T09:50:00.001-04:00

Europe’s economic woes hitting home in Canada From food importers who are seeing interruptions as Greek suppliers fold, to Italian-Canadians whose pensions have dwindled on euro weakness, consternation is growing
• TSX -14.19 as gold miners fell on profit-taking, outweighing a rise in financials and general market optimism over an aid package for Greece
• DOW +143.22
• Dollar +.51c to 98.95cUS
• Oil +$.04 to $86.19US per barrel.
• Gold +$2.60 to $1,182.70 USD per ounce .

Europe’s economic woes hitting home in Canada
Tavia Grant Globe and Mail Update
Troubles in southern Europe are hitting home for many of the 2.4 million Canadians with origins in Greece, Portugal, Italy and Spain.
Euro woes have rocked global stock markets and wreaked havoc with currencies. At the macro level, economists say the region’s fiscal crisis now represents the biggest risk to the global recovery.
But the turmoil is trickling into the micro level, too. From local food importers who are seeing distribution interrupted as Greek suppliers fold, to Italian-Canadians, whose homeland pensions have dwindled with euro weakness, many are watching the crisis with growing consternation.
And they loathe the PIGS acronym.
Alexander Georgiadis imports goods such as olives, feta, baklava and balsamic vinegar as president of Krinos Foods Canada Ltd., the country’s largest importer and distributor of Greek specialty foods.
He has been hit hard by the fiscal crisis on a number of fronts. A string of general strikes in Greece have disturbed shipments. A port dispute also upset distribution. Some of his small-scale, family-owned suppliers have folded. He was able to find other suppliers for some products, such as olives and peppers. But he hasn’t found any replacement for his now-bankrupt supplier of canned anchovies.
Wild swings in the exchange rates are causing worse headaches. Theoretically, importers like Mr. Georgiadis should benefit from the euro's 15-per-cent slide against the Canadian dollar in the past half year. In reality, it has made business planning chaotic because prices and costs change between when a deal is signed, and when the goods arrive. “The volatility of the currency is the biggest problem we're facing – trying to guess every time when you should make a payment.”
He’s fielding calls from worried friends in Canada, asking whether they should move their savings out of banks in Greece in case their accounts are frozen. He thinks their money is likely safe – but many people are moving money out of the country anyway.
Then there is the personal worry. “I’m very preoccupied,” says the Toronto-based business man. “It’s not going to be easy to do all the changes that are necessary. There is a big danger of social unrest, and that’s what people are afraid of.”
Canadian officials are also fretting. Bank of Canada Governor Mark Carney said last week that the problems could hamper the Canadian recovery, while Toronto-Dominion Bank said the Greek fiscal crisis “represents the largest single risk to the global economic recovery.”
A host of concerns are rippling through Canada's Greek community, said Crist Geronikolos, president of the Canadian Hellenic Congress and the Greek Community of Toronto.
Many people have investments in the Greek stock market, which has tumbled 31 per cent in the past six months. Others with property in their home country are bracing for tax hikes. Talk is starting to percolate about immigration – how, if things worsen, more people will want to leave the country.
Then there's the added insult of the PIGS (Portugal, Italy, Greece, Spain) acronym, which he says compounds a negative perception of Greece. “It is irritating people. You know what? That gives a really bad connotation. There's a lot of other countries around the world with a much larger deficit, but with the ability to print money. Greece doesn't. It's an unfair portrayal,” Mr. Geronikolos said.
Sharing entrepreneurial know-how may be the best way for the ex-pat community to help Greece, said Werner Antweiler, who specializes in trade at University of British Columbia's Sauder School of Business. “The Greek expatriate community in Canada can contribute to Greece's recovery by fostering entrepreneurship in Greece, as many immigrants from Greece have become successful business people here in Canada. It's that kind of entrepreneurial spirit that will move things forward in Greece, along with the necessary policy corrections.”
Some Italian-Canadians are also feeling the effects. The euro's dive means pensions from Italy and elsewhere are worth much less than a year ago, said Angelo Persichilli, columnist at Italian-language newspaper Corriere Canadese. “They are very concerned,” he said. “Now that the euro has lost 15 per cent, for pensioners it's a huge loss. We are talking about millions of dollars in losses to vulnerable people who are on a fixed income.”
His newspaper, too, has been hit. Italy's government, which finances many overseas Italian papers, is proposing to slice the Toronto-based paper's budget in half as part of its austerity measures.
It has also become tougher to drum up interest in investing in Italy, said Corrado Paina, executive director of the Italian Chamber of Commerce of Ontario. “Canadian investors in this moment aren't too eager to invest in Italy.” Conversely, he's seeing more Italian companies that want to boost their presence in Canada because of its relative economic stability.
There are some positive offshoots, however. For many who regularly return to their homelands, the strength of the Canadian dollar is making those visits much cheaper this year. And a falling euro is generally advantageous to Canadian importers.
Brito Fialho, president of the Federation of Portuguese Canadian Business and Professionals, said most members of his organization haven't yet felt a negative impact. But some people with investments in Portuguese banks are “a little apprehensive.”
Mr. Geronikolos is also apprehensive about his homeland. “We look at this little country ... and it hurts to see what’s happening,” he said. Still, the hope is Greece will emerge “after being a little bruised and battered, stronger and better for the experience.” http://www.theglobeandmail.com/report-on-business/europes-economic-woes-hitting-home-in-canada/article1555476

Financial Update For May 3, 2010

2010-05-03T10:51:00.001-04:00

• TSX +10.38 As confidence in Europe erodes, the attraction of Canada, with its stable economy and rising currency, has grown ever stronger for international investors looking for sure-fire returns
• DOW -158.71 .
• Dollar -1.02c to 98.44cUS
• Oil +$.98 to $86.15US per barrel.
• Gold +$11.90 to $1,180.70 USD per ounce Gold has been climbing steadily for the past two weeks as fears over European sovereign debt have prompted investors to embrace the metal as a safe-haven asset giving signs the metal could be set to top last year's record highs.
•
Shoppers in British Columbia and Ontario start paying the HST on Saturday on a number of services — including theatre packages, airplane tickets and gym memberships — that will continue to be delivered after July 1, the day the HST will start to be broadly applied in both provinces.
The tax, which combines the five per cent federal goods and services tax with the provincial sales tax, has met with opposition from those who fear it will drive up the cost services that were previously exempt from provincial sales tax.
Islands join Greek party
Diane Francis, Financial Post Published: Saturday, May 01, 2010
Greece isn't a country. It's a party.
The Germans, one of the few groups in Europe who work, are furious. They are balking at the bailout but must come across because a couple of big German banks are on the hook for Greece's IOUs.
Best suggestion by a German politician, not altogether silly, is that Greece should pay off its lenders with islands. These Aegean beauties are government-owned and their privatization might help skate the whole place onside quickly.
Despite the world's crisis, there are plenty of well-heeled buyers: the suits at Goldman Sachs (dubbed "haves" and "have yachts"), Russian oligarchs, oil sheiks or Mexican cartelistas.
That aside, the details oozing out about Greece's spendthrift ways, make it obvious that the real legacy of Goldman Sachs and Wall Street is that they democratized greed.
Greek retirement ages are 60 and 65 years, respectively, for males and females, but the average is more like 53 years because many jobs are considered physically strenuous or hazardous. These include hairdressers (all that standing and putting your hands into chemicals); musicians (all that plucking into the wee hours); bakers and radio presenters.
Public-sector employees have got bonuses for showing up to work on time. They received a 13th month's wages at Christmas and a 14th month's wages at Easter.
While these perqs are now history, at the insistence of the IMF and EU, it's hard to imagine the Greeks rolling up their sleeves and getting back to work. The same goes for the other members of PIIGS, more elegantly dubbed the "Club Med," which includes fellow miscreants Portugal, Italy, Ireland and Spain.
Well, the party's over for them, but not for Goldman Sacks (sic) yet. The investment banking casino played a starring role in the Greek comedy when it gave the country a strategy to hide debts from euro zone officials.
As we write, Goldman trading desks are busily shorting all those Greek stocks and bonds they once sold long to clients, and its underwriters are undoubtedly preparing a series of IPOs to peddle those islands.
Read more: http://www.financialpost.com/story.html?id=2973587#ixzz0mobwuzPX
5 year Fixed rate at 4.39% (unpublished).
• Float downs of 4.44% qc deals permitted
• Closing date now extended to June 15th 2010.
• Available for new business to MERIX only. Preapprovals n/a
• Additional 15 bps rate premiums apply Non-Owner Occupied Rental Programs.
• No non-conforming/illegal suite rental income
• No Transfers/Switches permitted under this offer due to the strict closing deadline.

Financial Update For April 30, 2010

2010-04-30T09:44:00.000-04:00

Greek crisis 'serious,' could imperil Canadian economy, says BoC's Carney
• TSX +123.43 the biggest one day move in over 2 months, as fears over euro zone sovereign debt ebbed and healthy corporate earnings boosted optimism.
• DOW +122.05 .
• Dollar +.33c to 99.46cUS
• Oil +$1.95 to $85.17US per barrel.
• Gold -$3.00 to $1,168.80 USD per ounce

Mark Carney among Time’s ‘most influential’ people
Bank of Canada Governor Mark Carney has been named to Time magazine’s seventh annual list of the world’s 100 most influential people.
Mr. Carney was included on the leaders section of the list. Others featured include the likes of U.S. President Barack Obama, former Republican vice-presidential candidate Sarah Palin, International Monetary Fund Managing Director Dominique Strauss-Kahn, golfer Phil Mickelson and Lady Gaga.
Greek crisis 'serious,' could imperil Canadian economy, says BoC's Carney
By Julian Beltrame, The Canadian Press
OTTAWA - Bank of Canada governor Mark Carney is warning G20 countries to come to terms with the full implications of the Greek crisis and debt overhangs in other countries, or risk a setback to the global economic recovery.
Canada's top banker told a Senate committee Thursday that he does not believe the problems emerging in Greece and other southern European countries will lead to a second recession, but they could hamper the recovery.
If markets respond to Greece's appetite for debt by making borrowing more expensive overall, Carney says there will be an impact on Canada's growth.
"The situation is serious," he said, adding that if appropriate steps are not taken "one can expect an increase in longer-term interest rates on a global level."
"Canada's fiscal position is among the best, (so) we will do better than others, but we will be pulled up by the rise in global interest rates, and that will have a knock-on effect on investment and growth in this country."
In Gatineau, Que., Prime Minister Stephen Harper also highlighted the Greek situation at a gathering of representatives of G20 business groups, saying the debt crisis in Athens serves as an object lesson to other governments.
"The Greek crisis reminds us that government borrowing and government debts cannot go on without limit," Harper said.
Canada plays host this summer to both the G8 and G20 summits, a gathering of leaders from the world's biggest economies.
Carney, recently ranked No. 21 on a list of most influential world leaders by Time magazine, told the Senate committee that he has been in contact with European officials and is encouraged that there will be a solution to the Greek crisis.
European and German officials assured markets Thursday they were working quickly on approving a bailout for Greece as they try to keep the country's debt crisis from dragging others into a continent-wide financial meltdown.
But Carney said the problem extends beyond Greece, a view echoed in a TD Bank report released later in the day that names France, Germany and the United Kingdom, along with the so-called PIIGS countries (Portugal, Ireland, Italy, Greece and Spain).
All are approaching or have already surpassed debt burdens of more than 100 per cent of gross domestic product. Canada's debt burden, by comparison, is expected to peak at around 35 per cent.
"There is no guarantee that this will be sufficient to reassure investors regarding the outlook for the other debt-beleaguered euro members," TD's economists said of the Greek rescue efforts.
Even if Europe passes that immediate test, severe austerity measures — such as higher taxes and reduced spending on pensions and health care — will be necessary to stop the budgets of other countries from imploding, they argue.
"That's the risk," adds BMO deputy chief economist, Douglas Porter. "You will have a lot of governments forced to take some pretty severe medicine and it takes a lot of the wind out of the world economy's sails."
Carney says the industrialized countries can't do it alone and calls the upcoming June G20 meeting in Toronto critical because of the need to bring emerging economies, such as China, on side.
He said the industrialized countries must make clear to China and other emerging economies that the system cannot function unless they adjust their currencies and play a bigger role in supporting global demand.
The United States, Canada and others have long complained that Asian states have kept their currencies low to boost exports at the expense of other industrial economies, mostly in North America and Europe.
"What's required is countervailing policies that are in the interests of other countries to expand domestic demand, particularly in emerging markets, to enhance flexibility in exchange rates and obviously keep the global financial system and trading system open," Carney said.
Carney also stressed the importance to the recovery of the G20 adopting measures to reform the international banking system, which is regarded as a key contributor to the 2008-09 recession.
While Canada's banks held up well under the stress, Carney said new rules that will require financial institutions to hold more capital reserves to discourage risk-taking will likely also impact Canada's banks.
"There are some merits to thinking about further strengthening of the capital regime in this country as well," Carney said.
http://ca.news.finance.yahoo.com/s/29042010/2/biz-finance-greek-crisis-serious-imperil-canadian-economy-says-boc.html

Financial Update For April 29, 2010

2010-04-29T10:33:00.001-04:00

Are Big Banks jumping the gun? Interesting Globe and Mail article below on interest rate increases says “it looks like the Big Banks are pushing things a bit with mortgages”…….
• TSX -69.85 fell for a second straight day as worries over Europe's fiscal troubles outweighed a brief shot in the arm provided by a more upbeat U.S. Federal Reserve outlook. Spain was hit by a credit rating downgrade, following downgrades to Greece and Portugal on Tuesday
• DOW +53.28 to 11,045 after the U.S. Federal Reserve left interest rates unchanged near zero and offered a brighter economic view. The U.S. central bank renewed its promise to keep rates low for an "extended period" and said U.S. consumer and business spending were picking up steam.
• Dollar +.86c to 99.13cUS
• Oil +$.78 to $83.22US per barrel.
• Gold +$9.60 to $1,171.80 USD per ounce

Are Big Banks jumping the gun?
Rob Carrick
The Globe and Mail Published on Thursday, Apr. 29, 2010
Interest rates are rising – we all get that – but it looks like the Big Banks are pushing things a bit with mortgages.
After a pair of increases in the past two weeks, the posted Big Bank five-year fixed mortgage rate now stands at 6.25 per cent. Does that seem high? In fact, it’s just half a percentage point below the average level for the past decade.
We’re supposed to be in the early phase of what could be a long cycle of rate increases. The Bank of Canada hasn’t even started raising its overnight rate, which sets the trend for borrowing costs other than fixed-rate mortgages. The overnight rate could very well start rising June 1 (that’s the central bank’s next rate-setting date), but even then it’s not dead certain that rates will move.
Mortgage rates are linked to bond yields, which have been rising for a while now. But mortgage rates have been moving faster.
Thanks to the always helpful Bank of Canada online interest rate database, we know that the yield for five-year Government of Canada bonds has averaged 4.03 per cent since the beginning of 2000. Five-year Canada bonds had a yield of 3.02 per cent yesterday, which means they’re three-quarters of the way back to their average of the past decade.
The 10-year average for posted five-year fixed-rate mortgages is 6.75 per cent, which means this rate is almost 93 per cent of the way back to its long-term average. There is zero consensus that things have normalized after the financial crisis, but the banks are just about all the way back to pricing mortgages as if they were.
And, no, this “go big or go home” attitude to rates has not been extended to guaranteed investment certificates, which are one source the banks use for the money they lend out as mortgages. The current posted Big Bank five-year GIC rate tops out at 2.1 per cent, or 63 per cent of its 10-year average rate of 3.31 per cent.
John Turner, director of mortgages at Bank of Montreal, said the banks are simply reacting to the rising rate environment in setting borrowing costs for mortgages.
“It’s not about any of us trying to get ahead of things, because the market won’t let us,” he said. “It’s a very competitive market.”
Mr. Turner cited two factors that have driven fixed-rate mortgages lately. One is an effort by the banks to anticipate higher bond yields and avoid repeated increases in mortgage rates. “We don’t like to move rates because it causes dissatisfaction, and it causes disruption in the sales force.”
The other driver of higher mortgage costs is the rising cost of providing interest-rate guarantees for people who are smart enough to lock in a rate as soon as they start looking for a home. Mr. Turner said these costs haven’t been a factor much in recent years because the general trend for interest rates has been downward. Now, with rates on a definite upward path, rate guarantees are a bigger consideration for lenders.
Banks won’t say this out loud, but their own internal business considerations help set mortgage rates as well. Sometimes, this works in favour of borrowers. In February, for example, the banks lowered mortgage rates even as bond yields rose a tick or two. Now, the banks seem to be in a mood to emphasize profits over market share or, as it’s known in bank land, widen spreads between what they charge and what they pay.
“The banks normally do this when interest rates are moving,” said David McVay, a financial services industry consultant with McVay and Associates. “But their retail profits have been pretty strong, and they widened spreads quite well when they put up line-of-credit rates [in 2008-09]. That was a big boost to profits right there.”
Mr. McVay seconded Mr. Turner’s comment about the mortgage marketplace being too competitive for banks to be out of line with their mortgage rates. In fact, there is a huge variation in rates right now that demands some shopping around from homebuyers and people facing renewals.
One of the better deals in the mortgage market today is BMO’s offer of a 4.35-per-cent five-year, fixed-rate mortgage. You can’t take an amortization longer than 25 years with this mortgage, and there’s less room to make pre-payments than there is with a standard BMO mortgage. But a glance at the websites of several mortgage brokers yesterday suggests you won’t find a lower rate.
http://www.theglobeandmail.com/globe-investor/are-big-banks-jumping-the-gun/article1550163/

Financial Update For April 28, 2010

2010-04-28T09:20:00.000-04:00

• TSX -134.43 fell from a 19-month high as investors bailed out of stocks across all industry groups after ratings agency Standard & Poor's downgraded Greek ratings to junk status on concerns about its ability to implement the reforms needed to address its high debt burden and also cut the rating on Portugal by two notches to A-minus, four levels above speculative, because of concerns about the country's ability to deal with high debt levels. The worst fear is that other heavily indebted governments such as Spain and Italy will face the same vicious spiral, in which default fears lead to higher borrowing costs that in turn fuel default fears even more. A key indicator of attitudes toward Greece — the interest rate gap, or spread between Greek 10-year bonds and the benchmark German equivalent — hit an astonishing 9.63 points, a massive jump from around 6.4 points on Tuesday. The higher the spread, the more investors think Greece might default
• DOW -213.04 to 10,991.99 falling below the 11,000 benchmark
• Dollar -1.59c to 98.27cUS the downgrades sparked a flight-to-safety U.S. dollar rally that pressured commodity prices.
• Oil -$1.76 to $82.44US per barrel.
• Gold +$8.20 to $1,161.70 USD per ounce

Canada consumers get the blues, accountants brighten
(Reuters) - Consumer confidence fell in April in Canada, but the nation's accountants displayed optimism about the economy in the first quarter that approaches levels not seen since 2007, surveys on Tuesday showed. The Conference Board of Canada said its consumer confidence index was down a sharp 7.8 points to 84.8 this month.
"This last month was a surprise to see it come down," said Pedro Antunes, director of national and provincial forecasts at the Conference Board. "We think it may have something to do with the fact that there's a lot of news about interest rates and lending rates coming up."
Antunes said the market consensus that interest rates will rise this year has also spurred concern about a correction in Canada's booming housing market. Changes in mortgage rules and revised sales-tax regimes in Ontario and British Columbia have added to the concern about falling demand.
"Households are very heavily invested in their homes and if they feel there may be some correction to housing prices that may have played a role in the numbers," he said.
The quarterly Business Monitor survey done in March by the Canadian Institute of Chartered Accountants and Royal Bank of Canada, however, did not reflect the concern. The survey seeks the opinions of executive chartered accountants who have first-hand knowledge of the financial performance of Canadian companies.
Sixty-one percent of executive chartered accountants surveyed said they were optimistic about the economy over the next 12 months, up from the 48 percent who expressed optimism in the final quarter of 2009. The figure was in stark contrast to the 4 percent who were optimistic in the first quarter of 2009.
"The latest findings clearly underscore a growing comfort with the Canadian economy," Kevin Dancey, president and chief executive of the Canadian Institute of Chartered Accountants.
U.S. consumer confidence rises to 57.9 in April, highest since September 2008
Anne D'Innocenzio, The Associated Press NEW YORK, N.Y. - Americans' confidence in the economy rose in April to its highest level since September 2008, just as the financial crisis escalated, according to a private research group.
The upbeat reading, combined with bullish earnings reports this week from companies ranging from Whirlpool Corp. to UPS Inc., offers more hope the economic rebound is gathering steam. Meanwhile, a key home price index reported its first annual increase in more than three years, though it's too early to say the housing market is recovering.
The U.S. Conference Board, a private research group based in New York, said Tuesday that its consumer confidence index increased to 57.9, up from a revised 52.3 in March. The April reading is the highest since September 2008's 61.4. That was when the financial crisis intensified with the collapse of Lehman Brothers, sending confidence into freefall the following month. Economists surveyed by Thomson Reuters were expecting a reading of 53.5.
The index — which measures how shoppers feel about business conditions, the job market and the next six months — had been recovering fitfully since hitting an all-time low of 25.3 in February 2009. Economists watch the number closely because consumer spending including health care and other major items, accounts for about 70 per cent of U.S. economic activity.
April's reading is still far from what's considered healthy. A reading above 90 indicates the economy is on solid footing; above 100 signals strong growth. Still, the monthly survey of consumers showed that consumers' current and short-term concerns about jobs and the overall economy are easing.

Real estate fraud rare but experts warn homeowners to be on the lookout
by Malcolm Morrison, THE CANADIAN PRESS
TORONTO - Real estate fraud is a rare thing but experts in the field say that doesn't mean people should assume it will never happen to them - considering the misery it can inflict on the unwary homeowner, it's worth knowing that it's out there and it's nasty.
"I compare the fraud issue to the lottery," said Ray Leclair of title insurance provider TitlePlus.
"There are millions of transactions in Ontario alone in real property every year. A very minute number of those are fraudulent. So for the public to win or lose in the fraud lottery, the odds are very low."
But it's not an experience you would ever want to go through, he said, even though governments have put in place some measures to make it easier for people to regain ownership title that have been fraudulently pilfered.
"At the end of the day, even if you get your title back, there's the question of (legal fees)."
There are two types of real estate fraud to be concerned about - mortgage fraud and title fraud.
Mortgage fraud is something that is more troublesome for lenders. It involves a fraudster leaving the title or ownership of a property in the current owner's name but mortgaging it without their knowledge, sometimes by fraudulently discharging the existing mortgage. It can also happen when a would-be homeowner falsifies information to get a mortgage.
"That's just a fact of lending," said Laura Parsons, manager of specialized sales for Bank of Montreal in Calgary.
"There are people out there who normally wouldn't get a loan granted to them but because they are fraudulent and give incomplete information or they don't let the lender know all the information, they end up getting approved."
What the average homeowner has to look out for is title fraud. It happens when a fraudster changes the ownership or title of a property into another name in order to sell or refinance the property.
According to the Ontario Ministry of Consumer Services, "it often involves fraudsters using stolen identity or forged documents to transfer a registered owner's title to himself or herself securing a mortgage on the property and then disappearing with the mortgage proceeds."
Parsons calls it a form of identity theft.
"So they know all the details of the person, they go to the land title registry, they pull a title and they find out that there is no encumbrance on the property," she said.
"Now they have basically a ticket to sell the property, so they go in and they can change home ownership."
If the fraudster has enough information, they can change ownership of the property at a land titles office, put a property in their own name. Then they either sell it or go to the bank and get a homeowner line of credit or a mortgage put on that property for their own purposes.
You would think that you would know immediately if you had been scammed, but fraudsters aren't entirely stupid and there are ways to delay finding out.
"They have gone in and taken the title or put a mortgage on and then they will pay it for two or three months," said Leclair.
In the meantime, you're getting all your bills and everything looks fine.
"In the meantime, your mortgage is gone and there's a new mortgage on there - it's going to be paid for two or three months and then two or three months later, they default, there's two or three months waiting time before the bank actually does something so six months, nine months down the road, you now get an angry bank calling you, saying they're going to sell, or you get someone showing up at the door saying you're out the door."
Leclair also pointed to a fraud victim in Vancouver who started wondering why he wasn't getting his property tax bill.
He called city hall and was told "well, you sold the property."
"It's very ordinary things. You don't get a water bill, you don't get those kind of things that could be a hint that something has changed along the way."
Leclair notes that while the government has systems in place to help you if you are defrauded, it's up to the homeowner to monitor. Both he and Parsons emphasized the importance of protecting your private information as a way to avoid becoming a target of real estate fraud.
Parsons said, in particular, you want to keep your social insurance number confidential. And that means not carrying around your SIN card in your wallet where it could be lost or stolen.
"And now with these recycling bins, people are throwing more and more of their mail and personal information in the blue bin - people should get a shredder - $149 buys you some security," she said.
And consider title insurance. Not only does it protect you now and in the future, it provides coverage for fraud that may have occurred prior to your purchase of your home.
Leclair said the insurance costs about $200 to $300, depending on the value of the property, and it is good for as long as you own the home.
And one of the worst things you can do?
"I've read articles where people say the best protection against fraud is to get the biggest mortgage you can on your property - it's a fallacy," said Leclair.
"People figure, well if there's no equity in the property, how can they steal it? Well they can go in and fraudulently discharge the mortgage. I laugh every time I see this. Discharging a mortgage is probably simpler than anything else. It's the bank's signature, it's very easy to imitate. Who knows what a bank's signature looks like?"
http://ca.finance.yahoo.com/personal-finance/article/cpmoney/real-estate-fraud-rare-but-experts-warn-homeowners-lookout-20100408
Beware fraudsters' dirty tricks
A hot real-estate market has lit a fire under criminal activity
Be warned: Booming markets bring not only higher home prices but often a significant increase in residential real-estate fraud.
That is the word coming out of such disparate organizations as title insurance companies, mortgage insurance firms and law enforcement agencies.
“Yes indeed, we see instances of fraud rise with booming markets, especially in major cities,” says Ray Leclair, vice-president at TitlePLUS, the title insurance arm of Lawyers Professional Indemnity Co., which provides lawyers their version of medical malpractice insurance.
But, he adds, real-estate fraud is not confined exclusively to any upsurge in prices. “It can also take place years after you have bought a home, at a time when homeowners would not expect it.”
While there are no hard statistics on real-estate and mortgage fraud for Canada, in the United States estimates of annual losses run between $4-billion (U.S.) and $6-billion a year. In June, 2008, the U.S. Federal Bureau of Investigation had 42 working groups investigating 1,380 cases – and that was after the U.S. real-estate bubble burst.
“Industry statistics suggest mortgage fraud alone results in annual losses in the hundreds of millions of dollars,” Mr. Leclair says. “In many cases there is little publicity because banks are concerned about maintaining customer confidence.
“They just quietly absorb the losses.”
If you want another statistic, think about this one. Many forms of real-estate fraud require the participation of a lawyer. Last fall, The Globe and Mail reported that in Ontario, between 100 and 140 lawyers were under investigation for complaints having to do with alleged mortgage irregularities.
So what is real-estate fraud?
Criminals are an inventive lot. If there is money to be made, they will find ways to get at it. When 1930s bank robber Willie Sutton was asked why he robbed banks, his answer was a no-brainer. “Because that is where the money is,” he said.
Same with real estate. When the average home price in the GTA is well above $450,000 and a $400,000 mortgage is at stake, that is a powerful incentive for a few days’ work for those with a criminal bent.
The Criminal Intelligence Service Canada (cisc.gc.ca), a group that represents 308 law enforcement agencies across Canada, lists half a dozen schemes that have made villains millions in recent years. They range from tarting up a grow-op house and selling it complete with mould and structural damage to unsuspecting buyers to “fraud for shelter.”
In those cases, a buyer wildly overstates family income, buys a home, gets a mortgage and then promptly stops paying the bills. These relatively garden-variety criminals can often get six months free of basic living costs before they are forced to move on.
More common scams are variations on the Oklahoma, in which a property is sold to a fictitious buyer, who then arranges a large mortgage, pockets the proceeds and disappears. This may also involve a number of equally fictitious buyers flipping the property one to another. Each sale raises the purchase price until the final sale involves a whopping big mortgage.
This crew then pockets the proceeds and vanishes.
Then there are those involving identity theft. Criminals find ways – almost always involving bent lawyers – to change the name of the registered owner on the title to the property. They then obtain a mortgage or even sell the home, collect the proceeds and move on.
The real owners only find out when the mortgage company starts sending nasty letters about missed mortgage payments or the new owners show up with a moving van.
Is there any way to protect homes against fraud? Not surprisingly, Mr. Leclair is a keen proponent of title insurance. Yes, lawyers are supposed to do due diligence, but all they can certify is that everything was ship-shape on closing day.
Title insurance, however, safeguards against fraud, misrepresentation or error as long as a person owns a home.
Title insurance can even kick in should a builder make an unintentional error in paperwork. Mr. Leclair talks about a recent case where a client bought a condo with a lake view and paid extra for it. On moving day, however, his key did not fit the door of the suite he thought he bought. It did, however, open the door to the one across the hallway with a lovely view of a parking lot.
“It was a clerical error,” Mr. Leclair says. “It was not intentional.”
TitlePLUS worked with their client and the developer to find a resolution. The client liked the suite, so a significant reduction in purchase price was arrived at.
“Title insurance can also cover a huge range of small items,” Mr. Leclair says. “We get lots of cases involving things like the vendor not paying taxes or utility bills as claimed or buyers not given the parking spots they were entitled to.”
He suggests simple preventative measures such as checking credit scores regularly to spot inquiries you do not recognize; protecting personal documents so no one can access birth certificates, social insurance numbers, bank statement or credit card information; and keeping an eye on the mail lest property tax and utility bills you do not recognize show up.
“Real-estate fraud is one of those crimes that can happen to anyone,” he says. http://www.theglobeandmail.com/real-estate/beware-fraudsters-dirty-tricks/article1535677/?cmpid=rss1

Financial Update For April 27, 2010

2010-04-27T09:22:00.001-04:00

ReMax reports record-breaking sales of luxury homes
• TSX +41.33 to 12,280.97 finished higher for a sixth straight session, helped by strength in consumer discretionary issues and financials -its highest close since September 2008
• DOW +.75 as bank shares fell on fears that financial reforms making their way through Congress would curb profits.
• Dollar -.05c to 99.86cUS
• Oil -$.92 to $84.20US per barrel.
• Gold +$.40 to $1,153.50 USD per ounce

ReMax reports record-breaking sales of luxury homes
Steve Ladurantaye Globe and Mail
Luxury homes sales not only recovered from recessionary depths in the first quarter of this year, ReMax Canada said they shattered previous all-time records in most Canadian cities studied.
Attributing the upswing in sales to “improved economic performance, increased personal wealth, immigration and foreign investment” in its Upper End Market Trends report, ReMax Canada said previous sales records for high-end homes broke records in nine of the 13 regions examined. The real estate sales company didn't provide statistics to back up the reasons for the bounce in sales, but did allow that the comparisons to last year's first quarter are flattering because very few people were buying and selling through the recession.
ReMax's definition of a luxury home varies by market, from $400,000 in St. John's to $2-million in Greater Vancouver.
Those who returned to the market in the first quarter were able to take their time making up their minds because the market is balanced, ReMax said. This contrasts with the broader market, where analysts worry that low interest rates have created an unsustainable bubble as buyers rush to get in on what they see as a market with limited downside.
This has led to a rapid increase in average national sale prices - almost 20 per cent in the last year - as buyers bid each other higher in bidding wars. The market survey doesn't mention anything about the rapid rise in prices, and the role the appreciation may have played in pushing more homes into so-called luxury territory. http://www.theglobeandmail.com/report-on-business/remax-reports-record-breaking-sales-of-luxury-homes/article1546686/
Mortgage rates on the rise again
Garry Marr, Financial Post
A new survey says more than four out of five home buyers feel comfortable with their debt, but another hike in interest rates might get Canadians squirming next time they're polled.
Canada and Mortgage and Housing Corp. surveyed 2,503 mortgage consumers between Feb. 11 and Feb. 28 and found 81% were comfortable with their current debt levels. However, the survey was done before three successive hikes in interest rates that have pushed the five-year, fixed-rate, closed mortgage from 5.25% to 6.25% in less than a month.
"Rates were low throughout most of the time [of the survey]," said Pierre Serré, CMHC vice-president of insurance products and business development, adding it was unclear whether the 81% figure might fall because of the hike.
Based on an average Canadian home-sale price of $340,920 in March and a 5% down payment, the minimum allowed, mortgage payments for a five-year, fixed-rate product have climbed almost 10%.
As it has throughout this rate-hike cycle, Royal Bank of Canada got the ball rolling Monday by adding another 15 basis points to its fixed-rate product. Toronto-Dominion Bank was next, with most of banks expected to follow shortly.
The hike means that a typical Canadian homeowner with a 25-year amortization with that $340,920 home and 5% down is now paying $2,120.54 per month in mortgage costs, up sharply from the $1,930.03 it was costing them before the latest hike in rates. The dramatic shift is likely once again to push people back toward a variable product linked to prime.
The same mortgage based on the current prime rate of 2.25% would cost only $1,410.84 to carry. Still, many economists predict the Bank of Canada will begin raising its rates as early as June, lifting the prime rate.
The survey also found homebuyers are relatively cautious when taking out their mortgages. Only 20% of them took out mortgages based on amortizations of longer than 25 years. CMHC also said 68% of consumers plan to pay off their mortgage sooner than current amortizations.
"In talking to some lenders I've heard of lots of people who get extended amortizations but accelerate their payments," Mr. Serré said.
The survey came out the same day as new statistics from Re/Max which show the high-end of the housing market continues to soar. Re/Max surveyed 13 markets in the first quarter and found records for high-end homes sales in nine of them.
Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada didn't think the latest hike in rates would do anything to slow the market. "It's still minor. Interest rates overall, as far as I'm concerned, are still at historic lows," he said. "Are they climbing up? Yes. It's time to consider locking in. Are they going to skyrocket? I don't think so."
Bernice Dunsby, Royal Bank's director of home equity, said the one percentage point rise in rates was not that large a leap on a historical basis.
"It has been widely anticipated that rates would be on the rise. The cost of funds just continues to raise," said Ms. Dunsby. "The thing our clients are looking for is options that provide additional rate protection."
She said customers have been opting for mortgage products that divide their debt in half, some of it going long and some of it going short. But the percentage of customers just going short continues to slide with variable rate products becoming less popular at Royal Bank.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2952380#ixzz0mIZFfOdu
Have a great day!

Financial Update For April 26, 2010

2010-04-26T11:25:00.001-04:00

• TSX +78.77 gained ground for a fifth consecutive day, rising within a whisper of a 19-month high as strong economic data and a weaker U.S. dollar boosted demand for resource stocks.
• DOW +17.46 Data showing a surprising 27 percent jump in new U.S. home sales in March gave investors an early go-ahead to buy
• Dollar -.13c to 98.07cUS
• Oil -$1.44. to $79.80US per barrel.
• Gold +$3.60 to $1,105.10 USD per ounce

GM repays US $8.1B in government loans ahead of schedule, sets expansion plans Ken Thomas,Tom Krisher, The Associated Press
WASHINGTON - Fallen giant General Motors Co. accelerated toward recovery Wednesday, announcing the repayment of US$8.1 billion in U.S. and Canadian government loans five years ahead of schedule.
The Obama administration crowed about the "turnaround" at GM and fellow bailout recipient Chrysler LLC, saying the government's unpopular rescue of Detroit's automakers is paying off.
Much of the improvement comes from GM slashing its debt load and workforce as part of its bankruptcy reorganization last year. But the automaker is a long way from regaining its old blue-chip status: It remains more than 70 per cent government-owned and is still losing money - $3.4 billion in last year's fourth quarter alone. And while its car and truck sales are up so far this year, that's primarily due to lower-profit sales to car rental companies and other fleet buyers.
Possible rise in mortgage rates pitting couples against one another
Steve Ladurantaye and Carly Weeks From Saturday's Globe and Mail
When Rae Whitton started house shopping with Dan Madge last year, she agreed to a variable mortgage rate after their broker explained rates were likely to remain low until spring, at which point they could lock into a fixed rate.
But when February came and signs indicated the economy was getting stronger, anxiety kicked in. Ms. Whitton e-mailed Mr. Madge newspaper articles warning of possible mortgage rate hikes, and worried about worst-case scenarios, remembering how her parents paid up to 18 per cent on their mortgage.
“I was just freaking out. Not that I think it will ever be like that again, but what if this happens? What would we do?” she said. “You always think of the worst thing.”
With mortgage rates set to climb in coming months from historic lows, the emotionally charged decision to lock into a predictable fixed-rate mortgage or gamble on a variable rate that could change at any time is pitting couples against each other as they try to plan their future.
Call it the Battle of the Sexes: the Housing Boom Edition.
Ms. Whitton was terrified that rocketing rates would price them out of their new Toronto home and pushed for the certainty of a fixed-rate. Mr. Madge wanted to take a chance that rates would be lower.
“I didn’t like the uncertainty of it,” Ms. Whitton said. “I like knowing how much our payments are going to be every month.”
The conflict is based on fear of the unknown, and the fear of losing a home if circumstances spiral out of control.
A study commissioned by the Bank of Montreal indicated that women were more likely to be overwhelmed when buying a home than men, at 44 per cent versus 28 per cent. Men were also more likely – 39 per cent vs. 26 per cent – to take interest rates into account when deciding whether to buy.
“When it comes to a risky situation which usually involves some kind of uncertainty, women tend to perceive negative consequences to be more likely and perceive negative consequences to be more severe,” says Li-Jun Ji, a psychology professor at Queen’s University in Kingston, Ont., who studies how decisions are made.
After debating for several months, Ms. Whitton and Mr. Madge went to the bank a few weeks ago and locked into a three-year fixed-rate mortgage. And while Ms. Whitton said she knows more of their payment is now going to interest, she’s not going to let it get to her.
“I just try not to look at the statements,” she said.
Variable rate mortgages can be had for about 1.75 per cent right now, while a 5-year fixed-rated can be had for about 4.5 per cent. A homeowner can save thousands by choosing variable, but their monthly payments will get higher every time interest rates increase.
With the Bank of Canada expected to move its key lending rate higher in June, the variable rate will increase as well. And if history is any indication, rates go up a lot faster than they go down. From 1980 to mid-1981, rates gained 67 per cent, making many mortgages unaffordable.
There’s no sense that will happen this time, but even small increases can mess up a tight budget.
For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750.
It’s that kind of uncertainty women may be hardwired to avoid, said Lise Vesterlund, a professor at the University of Pittsburgh who has studied the role gender plays in financial decisions.
“My own work has shown that women are less confident about their decisions,” she said. “There are evolutionary reasons for that, and you can also argue there are circumstantial reasons as well.”
She said men are natural risk-takers - after all, there was a time when they could reproduce indiscriminately and not worry about consequences, while the women had to be prudent and think about the future.
That sense of risk is still fostered by parents today, she said, with the majority of boys playing games that have measurable results while girls are offered activities that have no discernible conclusion.
“From an evolutionary standpoint, men have always had more to gain by taking gambles,” she said. “Women tend not to get the same kick out of taking risks – part of the reason they like to lock in to something is they want to have more information about what their prospects will be like in the future.”
http://www.theglobeandmail.com/report-on-business/possible-rise-in-mortgage-rates-pitting-couples-against-one-another/article1545411/

Inflation eases in March, gives central bank more wiggle room
JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA - Inflationary pressures in Canada eased considerably last month, putting into question expectations that the Bank of Canada will be raising interest rates in a matter of weeks.
Statistics Canada reported Friday that Canada’s annual inflation rate slipped by two-tenths of a point to 1.4 per cent, and the closely watched Bank of Canada core rate fell even further — by four-tenths of a point to 1.7 per cent in March.
On a month-to-month basis, Canadians saw no increase in overall prices between February and March.
The agency said the big reason for the drops in both annual indexes was that the price-distorting Olympics ceased being a major contributor to inflation with the conclusion of the Winter Games at the end of February.
Prices for traveller accommodation soared 64.1 per cent in February, but in March they dropped back to earth to a more tame 2.8 per cent increase from March 2009.
Earlier in the week, the Bank of Canada cited inflationary risks for dropping its year-old conditional pledge to leave interest rates at record lows until at least July after the core reached as high as 2.1 per cent in February.
Economists had expected a slight slip in core inflation, once the Olympics ended, but the consensus was that core inflation would be right on the central bank’s target of two per cent.
March’s large fall now puts the core inflation rate, which excludes volatile items such as gasoline prices, well below the central bank’s target.
The March data suggests prices continue to be soft across many sectors with the exception of gasoline and everything else to do with cars.
Prices at gas pumps across Canada were 17.2 per cent higher in March than they had been a year earlier, overall transportation costs were six per cent higher, prices for the passenger vehicles rose 3.9 per cent and the cost of insuring them cost 5.5 per cent more. But food costs only advanced 1.3 per cent, mostly due to a 2.6 per cent hike in restaurant bills.
As well, consumers paid slightly more for household operations and furnishings, for health and personal care, reading, tuition fees, and cable and satellite services. But many items cost less this March than they did a year ago, including shelter costs and mortgage costs, clothing and footwear, as well as fresh vegetables, meat and fresh fruit.
With interest rates at record lows, mortgage costs were a full six per cent less in March than a year ago. Regionally, the agency said all provinces recorded a price increases, with the Atlantic provinces registering the biggest gains. http://news.therecord.com/article/701309

Financial Update For April 22, 2010

2010-04-22T14:10:00.002-04:00

• TSX +21.03
• DOW +7.86
• Dollar -.04c to 100.08cUS
• Oil -$.17 to $83.68US per barrel.
• Gold +$9.60 to $1,148.20 USD per ounce

Global economy growing but rising government debt worrisome
BY MARTIN CRUTSINGER WASHINGTON — The International Monetary Fund says the global economy, after enduring a crippling recession, should see better-than-expected growth this year, led by strength in China and other developing countries.
In an updated economic outlook, the IMF forecast that the world economy would expand 4.2 per cent this year, faster than its previous projection and a sharp improvement from 2009 when global output fell by 0.6 per cent, the worst performance since the Second World War.
However, the international lending agency warned that the recovery still remained vulnerable with the biggest threat likely to come from a surge in government debt burdens.
“The outlook for activity remains unusually uncertain,” the IMF said in its latest World Economic Outlook. “Although a variety of risks have receded, downside risks related to the growth of public debt in advanced economies have become sharply more evident.”
The IMF’s estimate that the global economy would grow 4.2 per cent this year, represented a 0.3 percentage point increase from the IMF’s January forecast. For 2011, the IMF projected global growth of 4.3 per cent, no change from its January outlook. The IMF expects wide disparities between regions with the United States and Canada outperforming Europe and Japan but lagging China and other developing countries.
For the United States, the IMF expects growth of 3.1 per cent this year, in line with private forecasters, after a 2.4 per cent plunge in the U.S. gross domestic product in 2009, the biggest decline since 1946. That compares with growth of 2.6 per cent expected for advanced economies as a whole. U.S. growth is forecast at 2.6 per cent in 2011, slightly above the 2.4 per cent predicted overall for advanced economies.
“Turning to Canada, the recovery there is . . . expected to be protracted, reflecting more moderate demand growth than in the United States as well as the substantial strengthening of the Canadian dollar,” the report said.
It said output growth is projected at 3.1 per cent in 2010, up from 2.6 in the IMF’s previous projection in January. However, its current projection of 3.25 per cent growth in 2011 was down from 3.6 per cent in the previous report. Recent Bank of Canada estimates projected growth in Canada at 3.7 per cent this year and 3.1 per cent next year.
“Canada entered the global crisis in good shape, and thus the exit strategy appears less challenging than elsewhere,” the IMF said. “The main priorities are returning Canada’s debt to a downward trajectory, ensuring that financial stability remains intact — amid rising house prices — and raising Canada’s labour productivity and potential growth.”
The IMF forecast that China’s economy would surge 10 per cent this year and that India would grow 8.8 per cent. But it looked for the 16 European countries that share the euro currency to see economic growth of just one per cent in 2010.
The new forecast was prepared for upcoming meetings of global financial leaders, including daylong talks in Washington on Friday involving the Group of 20, which include the world’s richest industrial countries and major developing states including China, Brazil, India and Russia.
The U.S. delegation will be led by Treasury Secretary Timothy Geithner and Federal Reserve chair Ben Bernanke. The G-20 talks and weekend discussions at the IMF and World Bank are expected to focus on overhauling financial regulatory systems and rebalancing global growth to make the recovery more sustainable.
Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney will lead the Canadian delegation.
U.S. Treasury officials who briefed reporters Tuesday on Geithner’s agenda said they believed support was growing for a financial risk levy along the lines of one proposed by U.S. President Barack Obama that seeks to raise $90 billion from the largest American banks to recoup losses from the $700-billion financial bailout fund. Flaherty has said Canada would not support such a levy.
The U.S. officials said they expected another key discussion topic would be the need to eliminate global imbalances, a goal that Obama and other G-20 leaders set at a summit in Pittsburgh last September. The rebalancing effort would mean countries with large trade and budget deficits would seek to boost savings and lower domestic demand while countries such as China that are running huge trade surpluses would transition to more domestic-led growth.
To foster the change in China, the Obama administration has been pressuring Beijing to allow its currency, the yuan, to rise in value against the dollar. American manufacturers contend the yuan is undervalued by as much as 40 per cent, giving Chinese producers huge trade advantages over U.S. companies.
However, the Treasury officials did not answer directly when asked whether the U.S. complaints would be brought up in the G-20 discussions. The administration has been recently seeking to temper its rhetoric with China on currency issues in hopes a softer tone will gain better results.
The IMF said it was essential for China, now the world’s third-largest economy, to do its part to assist in combating global imbalances.
The IMF said even with global growth rebounding, unemployment was likely to remain high in the United States and other developed countries over the next two years, given the severity of the downturn in those countries. The Associated Press http://news.therecord.com/Business/article/700389
What does one TRILLION dollars look like?

All this talk about "stimulus packages" and "bailouts"...

A billion dollars...
A hundred billion dollars...
Eight hundred billion dollars...

One TRILLION dollars...

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so here is an illustration from Google Sketchup to try to get a sense of what exactly a trillion dollars looks like.

We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them. Guaranteed to make friends wherever they go.

A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...

And $1 BILLION dollars... now we're really getting somewhere...

Next we'll look at ONE TRILLION dollars. This is that number we've been hearing about so much. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

You ready for this?

It's pretty surprising.

Go ahead...

Financial Update For April 21, 2010

2010-04-21T10:45:00.000-04:00

• TSX +10.56 for a second straight session as a rebound in the price of oil sent the hefty energy group higher. But declining financials, one of the weightiest sectors, kept gains in check after the Bank of Canada made its clearest signal yet that it may raise interest rates as soon as June
• DOW +25.01
• Dollar +1.58c to 100.12cUS its biggest single-day gain in nine months following a bullish* economic forecast from Canada's central bank. At one point in the day it was up 1.76c. The Canadian dollar will remain strong as long as investors expect the bank to raise rates and tighten the money supply
• Oil +$.72 to $83.85US per barrel. snapped its three-day decline on demand increase as some European flights resumed after the threat from volcanic ash from Iceland receded.
Gold +$3.40 to $1,138.60 USD per ounce
•
There are many financial terms that are commonly used in daily discussions, however if we had to define some of them we might be stumped. Here are a few simple definitions
Basis Point
One-hundredth of a percentage point. For example, the difference between 5.25% and 5.50% is 25 basis points.
Bear Market
A market in which stock prices are falling. The rule of thumb seems to be at least 20 percent. However, a lot depends on how long the drop lasts. The quicker the rebound, the less likely that investor psychology will turn from optimism to the pessimism that usually accompanies a bear market.
*Bull Market
A market in which stock prices are rising for a length of time. Prices need not rise continuously. There can be days, weeks and even months in which prices fall. What matters is the long-term trend. When it comes to people, bullish describes one who is optimistic.
Dow Jones Industrial Average (DJIA)
There are thousands of investment indexes around the world for stocks, bonds, currencies and commodities however the DJIA is one of the best known and most widely quoted stock market averages in the media. It contains an average made up of 30 actively traded blue chip stocks spanning many different industries that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing.. The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The average is quoted in points rather than dollars. It is price weighted, meaning that a $2 change in a $100 per share stock will have a greater affect than a $2 change in a $20 per share stock.

Gross Domestic Product
GDP is the value of all goods and services produced in Canada in a calendar year. The gross domestic product includes only final goods and services, not goods and services used to make another product. Changes in the gross domestic product are an indication of economic output.

Income Trust
Trusts structured to own debt and equity of an underlying entity, which carries on an active business, or has royalty revenues generated by the assets of an active business. By owning securities or assets of an underlying business, an income trust is structured to distribute cash flows, typically on a monthly basis, from those businesses to unit holders in a tax-efficient manner. The trust structure is typically utilized by mature, stable, sustainable, cash-generating businesses that require a limited amount of maintenance capital expenditures. An income trust is an exchange-traded equity investment that is similar to a common share
Index or stock price index
A statistical measure of the state of the stock market, based on the performance of stocks. Examples include the S&P/TSX Composite Index
Recession
Two consecutive quarters of contraction in the gross domestic product
TSX Composite Index
Comprises the majority of market capitalization for Canadian-based, Toronto Stock Exchange listed companies. It is the leading benchmark used to measure the price performance of the broad, Canadian, senior equity market. It was formerly known as the TSE 300 Composite Index
Bank signals higher interest rates only weeks away, as dollar soars
By Julian Beltrame, The Canadian Press
OTTAWA - The Bank of Canada signalled Tuesday it is poised to start raising interest rates in a matter of weeks, a move that will make borrowing costs higher on everything from car loans to mortgages.
Over the last few weeks, Canadians have already felt the impact of expectations that rates were due to rise - most major Canadians banks started hiking fixed-rate mortgage rates by as much as 0.85 per cent.
But with the central bank now saying it is prepared to move off its emergency 0.25 per cent overnight rate as early as June 1, the whole menu of variable and short-term rates are being brought into play.
"The one that will be affected is the prime lending rate... so the whole gamut will go up when the Bank of Canada raises its rate," said Bank of Montreal economist Michael Gregory. Those include variable-rate mortgages, lines of credit and short-term car loans, he said.
The bank is also risking sending the Canadian dollar into the stratosphere by moving significantly and robustly before the U.S. Federal Reserve moves off its own zero per cent interest rate policy.
The loonie soared within minutes of the central bank's 9 a.m. ET policy statement, which, while leaving the rate unchanged for now, made no secret of where it is headed.
The bank's governing council declared that with the economy and inflation growing faster this year than had been previously thought, there was no need to stay with its "conditional commitment" to leave rates unchanged until the end of the second quarter, or after June 30.
"This unconventional policy provided considerable additional stimulus during a period of very weak economic conditions," the council wrote.
"With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus."
Hence, the council went on, it was withdrawing the conditional commitment.
The bank also said it was ending its key emergency lending instrument that helped inject liquidity into money markets during the crisis, which economists called a clear signal about the central bank's future intentions.
The dollar rose about 1.5 cents shortly afterwards, breaking through the parity ceiling with the U.S. greenback. It closed up 1.58 cents at 100.12 cents U.S.
The currency move suggested that while the market had expected bank governor Mark Carney to signal a tightening bias, it was surprised by the hawkish tone.
"Removing the conditional commitment to keep rates on hold until July and ending purchase and resale agreements are as good as cementing a June 1 hike," said economists Derek Holt and Karen Cordes Woods of Scotia Capital in a note to clients.
Holt added in an interview that the language from the bank opens the door for a bigger-than-expected hike in June, perhaps by as much as half a point.
Not all analysts believe the market is right to anticipate a June hike, however. Some say Carney is still leaving himself some wiggle room to stay at the lower bound until July 20, while others are advising the governor to wait until the Fed acts.
"I would keep rates unchanged until the Fed moves, because otherwise you create this problem on the Canadian dollar," said Brian Bethune, chief economist with IHS Global Insight.
A strong loonie is regarded as a brake on economic growth because it makes the price of Canadian exports less competitive in foreign markets.
In the statement, the central bank conceded the point, listing the "persistent strength of the Canadian dollar," along with poor productivity and low U.S. demand as "significant drags" on the Canadian economy.
But economists suggested the bank's language suggests it is prepared to live with a strong loonie.
Even so, economists that favoured a rate hike said the bank can only get so far ahead of the Fed. They note the Canadian bank has flown solo twice before in the past two decades, only to have to subsequently pull back.
"The need for emergency rates have passed but we still have a need for low rates," Holt explained.
C.D. Howe's monetary policy council, a sampling of nine economists, sees the bank's policy rate rising to 2.5 per cent by the spring of 2011. That is a significant hike from the current level, but it is still below what would be considered normal and only slightly above the rate of inflation.
While the tone on interest rates was hawkish, the bank's view on the economy was only mildly more rosy. It upgraded this year's growth to 3.7 per cent, from a previous prediction of 2.9 per cent, but it lowered its forecast for 2011 to 3.1 per cent, and it believes 2012 will only bring a 1.9 per cent advance.
It now expects the economy to return to full capacity in the spring of 2011, a full quarter before the previous estimate it made in January.
The bank did raise the temperature, slightly, on inflation.
It said core prices have been firmer than projected, but that they were expected to ease slightly in the second quarter of this year and remain near the bank's two per cent target over the next two years.
Total headline inflation, which includes volatile items such as gasoline prices, was expected to be higher than two per cent this year, but returning to target in the second half of 2011.

Financial Update For April 19, 2010

2010-04-19T10:38:00.001-04:00

New Rules for Rental Properties begin today(article below),
as well as new qualifying rates for high ratio Arms and high ratio terms less than 5yrs

• TSX -140.86 Despite this drop, since bottoming in March 2009, the TSX has risen almost 61 percent as of Friday's close
• DOW -125.91
• Dollar -.97c to 98.70cUS
• Oil -$2.27 to $83.24US per barrel.
Gold -$23.40 to $1,136.30 USD per ounce
•

New rules for rental properties could squeeze first-time homebuyers
By Derek Scott, The Canadian Press
VANCOUVER, B.C. - Buying a house in the hot housing markets of Vancouver, Toronto and other major cities in recent years has been a possible dream for some first-time homebuyers only because many of those houses had suites they could rent out.
But new rules coming into effect April 19 will all but wipe out that advantage in the eyes of banks handing out mortgages.
"It makes it much more difficult for people with rental properties to qualify for their own mortgage on their personal residence," said Vancouver mortgage specialist Patrick Mulhern.
The new regulations are designed to prevent speculation in the market, said Jack Aubrey, of the Canada Mortgage and Housing Corporation.
But Vancouver mortgage agent Mike Averbach said the new rules will do little to prevent investors from gambling in the housing market.
"They haven't decreased risk," he said. "They're just not allowing you to use the income."
Currently, landlords can use 80 per cent of their rental income to offset monthly mortgage payments. That means, if they receive $1,000 per month in rental income, they can use $800 to offset a $1,200 mortgage payment, leaving only $400 to be debt financed.
But under the new rule, only 50 per cent of a landlord's rental income will be used. Even then, that money will not be used to offset their monthly mortgage payment. It will be added to their total income, forcing them to qualify for the entire monthly mortgage.
For instance, a person earning $100,000 per year in regular income plus $12,000 per year in rental income will have a total income of $106,000 with which to qualify for a mortgage on their own home.
Rental income is essential for many of his clients, Averbach said.
In cities like Vancouver, where the average home price in February was more than $662,000, rental offset is the only way many people can qualify for a mortgage and the new rules will keep many of his clients in condos rather than houses, he said.
"Putting a renter in your basement is not speculative, it's reality," he said. "It helps you pay your mortgage."
The rule changes also make it more difficult for people to buy a property separate property to use as a revenue generator.
CMHC will no longer offer high-ratio financing on rental property not lived in by the owner. That means someone looking to buy a house as a rental investment will have to come up with a 20-per-cent down payment on the property, as opposed to five per cent before the rules changed.
The changes haven't worried groups advocating for tenants.
Jeordie Dent, of the Federation of Metro Tenants' Association in Toronto, where vacancy and availability rates have dropped over the last year, said he doesn't see a negative impact on renters.
Instead, he said his group welcomes the changes.
Dent said too many people become landlords without the financial or intellectual wherewithal to properly manage their properties.
"Anything that strengthens mortgage rules, from our perspective, is a good thing."
http://ca.news.finance.yahoo.com/s/03042010/2/biz-finance-new-rules-rental-properties-squeeze-first-time-homebuyers.html

Financial Update For April 16, 2010

2010-04-16T12:12:00.001-04:00

• TSX +7.11
• DOW +21.46 after the jobless claims report, which showed a surprise surge for the second week in a row. However the U.S. Labor Department's weekly jobless claims report said there were 484,000 new claims filed last week, up 24,000 from the previous week. Separately, a report from RealtyTrac said there were more than 930,000 foreclosure filings in the first quarter of 2010, up 7% from the previous quarter. Filings were up 16% versus the first-quarter of 2009.
• Dollar +.27c to 100.08cUS
• Oil -$.33 to $85.51US per barrel.
Gold +$1.00 to $1,161.00 USD per ounce
•

Housing may have peaked
Gary Marr, Financial Post
The spring homebuying season has reached a fever pitch with a record number of "for sale" signs being placed on Canadian lawns for the month of March.
But there are indications the market has reached the peak with nowhere to go but down.
The Canadian Real Estate Association said yesterday that 97,663 properties were put on market last month, a 25% increase from the number of new listings in March a year ago. Since the beginning of the new year, there have been 233,402 homes put on the market, the best-ever first quarter for new listings.
With demand still strong, sales continue to soar. There were 49,256 units that traded hands in March, the second-best March on record, and a 40.8% rise from a year earlier.
Yet despite the huge increase in year-over-year sales, March was the fifth straight month that the percentage increase has declined. In some markets, sales are already falling. Seasonally adjusted sales in British Columbia dropped 17.8% from a quarter earlier and Alberta sales dropped 9.7% during the same period.
Phil Soper, chief executive of Royal LePage Real Estate Services, said affordability and consumer confidence drive the market. "The former has not eroded enough to affect the market and the latter has improved considerably," he said.
Still, he concedes the spring market may be the top for real estate. "It will be the top from an industry-volume perspective. It's the last hurrah for the pent-up demand in the market," said Mr. Soper, who expects prices to continue to rise, but more slowly.
Even with the increase in the supply of homes, sales are expected to remain strong this spring as homebuyers scramble before tougher mortgage rules, rising interest rates and the new HST in Ontario and British Columbia come into play - all by July 1.
Many in the industry concede, however, the spring market could be the last gasp before housing sales start to drop, along with prices. Few, however, are predicting a U.S.-style crash.
"If this isn't the top, we are very close to it in terms of sale activity and price," said Gregory Klump, chief economist with CREA.
Mr. Klump doesn't predict the market will reverse dramatically, but says year-over-year comparisons are going to continue to shrink for sales and prices.
Mr. Klump said prices at the high end of the market are going to start driving down because consumers in that segment are trying to beat the clock on all the changes ¬coming.
New mortgage rules, which go into effect on April 19, will force consumers to borrow based on the five-year posted rate if they are locking in for a term less than five years. Previously, they could use the actual rate on their contract, meaning they could borrow more.
Banks have also raised long-term mortgage rates in the past two weeks, with a five-year, fixed-rate closed mortgage rising from 5.25% to 6.10%. The Bank of Canada is expected to raise its own benchmark rates shortly and that will affect consumers with floating-rate mortgages now based on a prime rate of 2.25%.
And the introduction of the harmonized sales tax on July 1 will raise costs for some services associated with buying a house, such as a real estate commission. It is coming only to British Columbia and Ontario, but Toronto and Vancouver are the most expensive real estate markets in the country and skew the national averages.
For now, the market still has some wind behind it. "Negotiations still favour sellers during the home-buying process in a number of major Canadian housing markets," said Georges Pahud, CREA's president.
"The rise in new listings means that buyers may shop around more before making an offer."
Financial Post Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2911893#ixzz0lGFvTYK7

Bank to keep us guessing on rates
Financial Post
OTTAWA -- Traders hope next week's interest-rate decision from the Bank of Canada settles the debate as to whether the central bank's first rate hike in nearly three years comes in June or July.
Some observers warn, though, that the central bank might keep people guessing.
"The reality may be somewhat messier, with quite a number of viable scenarios, and the most likely outcome [is] that the central bank elects to leave both options open - to be settled by incoming economic data," said Eric Lascelles, chief Canadian strategist at TD Securities.
It will be a big week for Mark Carney, the Bank of Canada governor, with the rate statement on Tuesday, followed two days later by the release of the central bank's latest economic outlook, which is bound to incorporate the robust data emerging not just in Canada, but the United States and the rest of the globe.
Markets, through bankers' acceptance futures, have priced in a 100% chance that the rate hike comes in July, allowing the central bank to fulfill its conditional commitment to maintain its 0.25% rate until the end of the second quarter. But those same instruments have priced in a 50-50 likelihood of a June increase.
Pressure on Mr. Carney to move in June has mounted in recent weeks, especially on news that inflation is stronger than the central bank had forecast, and a sharp upturn in inflation expectations among firms.
Core inflation in February surpassed the key 2% mark, while headline inflation remained above forecast. The central bank sets its interest rate to achieve and maintain 2% inflation.
The yield on the two-year Canada bond now stands at roughly 1.92%, for a spread of nearly 170 basis points against the Bank of Canada benchmark rate. Yanick Desnoyers, assistant chief economist at National Bank Financial, said history dictates rate hikes emerge once that spread reaches 160 basis points. (Higher yields generally forecast higher inflation down the road.)
"How can you justify a yield curve that is calling for rate hikes," said Mr. Desnoyers, who is among those calling for a June move.
Still, the consensus among private sector economists is that the Bank of Canada will wait until July. Even though inflation is stronger than expected, analysts note that's likely due to one-off factors such as the Winter Olympics, which will no longer be accounted for in future readings.
Further, an early rate hike could spark a sudden surge in the Canadian dollar, as the U.S. Federal Reserve has indicated no plans to raise its policy rate any time soon as inflation in that country remains tepid and unemployment relatively high.
"The Canadian dollar has to be a consideration for the Bank of Canada, and is the main reason we think it will wait until July," said Sal Guatieri, senior economist at BMO Capital Markets.
Sheryl King, head of Canadian economics strategy at Merrill Lynch Canada, said it would be best if the Bank of Canada began rate hikes in June, and take a "low and slow" approach. One option mentioned – that the central bank waits until July and undertake a 50-basis-point increase at that time – is "crazy talk," she said, as the market would then expect all future hikes to be similar in size and drive up long-term yields in "a heartbeat."
Financial Post

Financial Update For April 15, 2010

2010-04-16T12:09:00.001-04:00

• TSX +102.89 to 12,204 Banks powered TSX's main index to close at its highest level in nearly 19 months, encouraged by forecast-beating results from U.S. bank JP Morgan, while upbeat U.S. economic data and firmer commodity prices played supporting roles in the rise.
• DOW +103.69 to 11,123 in the U.S., a report Wednesday showed retail sales rose by a better-than-expected 1.6% in March over February
• Dollar +.27c to 100.08cUS A number of factors were driving the loonie . The U.S. dollar sold off against most developed world currencies after Singapore announced it would revalue its exchange-rate policy band to allow for "modest and gradual" appreciation. The Singapore move was viewed as a mark of confidence in the economic recovery, helping growth-sensitive currencies like the Canadian dollar. Also, South Korea's sovereign debt rating was raised by Moody's to A1 from A2 . Intel reported better-than-expected earnings and revenue, and provided an upbeat outlook for technology spending, suggesting business spending would lead the U.S. recovery
• Oil +$1.79 to $85.84US per barrel.
Gold +$6.20 to $1,159.00 USD per ounce

Anticipation of Bank of Canada rate hikes are fuelling mortgage increases, high dollar
BY JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA — The Bank of Canada has yet to officially start hiking interests rates, but already Canadians are feeling the impact of higher borrowing costs.
Analysts say expectations the central bank will boost rates June 1 at the earliest and July 20 at the latest have boosted the Canadian loonie and pushed the big banks to twice raise mortgage rates in the past two weeks.
The loonie has been steadily gaining ground for weeks and Wednesday closed above parity, at 100.08 cents U.S., for the first time in almost two years.But economists warn there is danger in the Bank of Canada moving ahead of the U.S. Federal Reserve on hiking rates, even if it is justified by the fundamentals.
“The Bank of Canada is basically going to fly solo,” said Benjamin Tal, an economist with CIBC World Markets.“The markets are already discounting 75, maybe 100 basis points and it’s already in the price of the dollar.”
Canada’s economy has sprinted forward following last year’s recession to record a five per cent advance in the fourth quarter of 2009, and expectations are the first quarter will show an even quicker pace.
More importantly, Canada has recouped nearly half of the total job losses of the downturn, while the United States still struggles with the disappearance of 8.5 million jobs, a decimated housing market and a financial sector still hobbled by an excessive overhang of debt.
In testimony to Congress on Wednesday, Fed chair Ben Bernanke suggested it will be some time before the U.S. starts raising the policy rate from the current near-zero emergency stance.
“The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period,” Bernanke told a Congressional committee.
Economists say moving ahead of the U.S. — which is all but certain — could have some beneficial effects, such as cooling what many believe is an overheated housing market by making mortgage costs higher.
But the bigger problem is that higher rates attract more foreign capital into Canada and gives an additional lift to the loonie, something few, except for possibly cross-border shoppers, want.
Finance Minister Jim Flaherty said Wednesday that the strong loonie is a reflection of the relative strength of the Canadian and U.S. economies.
While true, said Liberal critic John McCallum, a former bank economist, there is a risk in raising rates while the U.S. keeps theirs low.
“Then our dollar could get even stronger and that would be really bad for exports and jobs,” he said.
While some analysts have speculated that Canada’s manufacturing sector is no longer as exposed by a strong currency as a decade ago, few disagree with the notion that currency appreciation is a net negative for the economy.
This week’s trade numbers showed the rebound is almost all due to energy, while the goods side registered a $4.4 billion deficit in February.
Carl Weinberg of U.S.-based High Frequency Economists was not impressed.
“You might think that the largest supplier of crude oil to the United States would be able to run a bigger surplus,” said Weinberg. “Blame the strong loonie for a lot of the woes of exporters, especially since so much of what Canada sells is priced in U.S. dollars.”
Given the signals the bank has sent, it would take a major reversal in the recent spate of good economic news, as well as easing inflationary pressures, to stay the central bank’s hand on rates.
However, Sheryl King, chief economist with Merrill Lynch in Canada, says she does not believe governor Mark Carney will get too ahead of the curve and will keep the increases modest.
She says the economy may be hot now, but she sees it cooling in the second half of the year, and Carney putting on his brakes until the Fed shows signs of joining him on the policy tightening track. http://news.therecord.com/Business/article/698287
BMO lengthens its reach in the marketplace
John Greenwood, Financial Post
The big banks have long complained about federal rules prohibiting them from selling insurance from their branches, calling the situation protectionist and anti-competitive. But now Bank of Montreal may have found a way to get deeper into the insurance business without raising the ire of the federal government.
Canada's fourth-biggest bank plans to start distributing its mortgages, credit cards and other financial products through a network of as many as 4,000 independent insurance brokers as a way to dramatically broaden its reach and distribution in the marketplace.
The new approach also benefits the outside advisors, says the chief executive of BMO Life Assurance Co.
"The more products they can add to their clients, the closer they become to becoming that valued first advisor," Peter McCarthy told Bloomberg News.
Broadening distribution is typically a cost-intensive exercise involving the construction of new branches, one that players in Canada's mature banking industry embark on only after long and careful planning. But by allowing outside third-party players to market its products, BMO avoids much of that additional expense.
It's good that Bank of Montreal "is exploring new distribution channels," said Craig Fehr, an analyst at Edward Jones. "Any additional customer touch points is clearly going to be a positive in terms of overall sales growth."
But while the strategy creates the potential for increased sales, it also requires the bank to give up some control over the way its products are marketed, and that necessarily involves increased risk.
"The flip side of using a non-agency sales channel is that you are relying on the training and expertise of people outside the bank rather than BMO staff," Mr. Fehr said.
The big banks have been aggressively moving into insurance over the past few years which they see as one of the last few opportunities to significantly grow profits in what is one of the most mature financial services markets in the world.
BMO bought the Canadian life insurance operation of American International Group last year for $330-million.
But they are moving carefully as Canada's Bank Act strictly proscribes ways in which banks can compete in insurance and includes an outright ban on insurance sales from bank branches.
The banks were hit with a major setback last fall when Jim Flaherty, the Finance Minister, warned them to stop selling insurance on their websites.
Many in the industry expect Mr. Flaherty to soften his position in the coming months but BMO's move to start allowing insurance brokers to sell its banking products is at least in part a way to break into insurance that doesn't involve either bank branches or websites.
Read more: http://www.financialpost.com/news-sectors/financials/story.html?id=2906518#ixzz0lAPJbdwD

Financial Update For April 14, 2010

2010-04-14T10:32:00.000-04:00

Canadian firms expect gradual recovery

• TSX -47.15 closed lower for a second straight day as materials and energy shares were hit hard by slipping commodity prices and a soft earnings report from U.S. aluminum giant Alcoa. The report raised fears of a sluggish economic recovery and commodity prices weakened. Canadian economic figures however, reinforced the view that growth is accelerating in this country. Trade data for February was stronger than expected and new-home prices rose in the same month.
• DOW +13.45
Dollar +.14c to 99.81cUS
• Oil -$.29 to $84.05US per barrel. lost ground for a fifth straight session
Gold +$8.80 to $1,153.40 USD per ounce
•

Canadian firms expect gradual recovery
BY JULIAN BELTRAME
OTTAWA - The Bank of Canada’s spring survey of businesses is providing further evidence that the economic recovery is taking hold, but that key decision-makers expect improvements will be gradual rather than robust.
Canadian firms are saying they expect sales to increase modestly over the next year. They also plan to hire more workers and invest more on new equipment and machinery.
But most also report that they are operating below their capacity and expect to do so for at least the next six months.
“Firms expect a modest increase in sales volumes following declines over the past year,” the central bank said today.
“Firms reported that sales expectations are supported by the U.S. general economic recovery, an improving near-term U.S. economic outlook, and, in a growing number of cases, their own initiatives to reposition themselves for growth.”
The quarterly survey of 100 key firms is also often cited by the central bank as a factor in its forecasts and decisions about interest rates.
The latest result, while positive, is also muted enough that it is unlikely to put additional pressures on the Bank of Canada to move more quickly than it otherwise would have on interest rates.
Recently, some economists have predicted the central bank would start raising interest rates at the June 1 scheduled announcement date, about a month-and-a-half before governor Mark Carney’s conditional commitment.
With the economy growing at an expected six per cent clip in the first quarter, on the heels of a five per cent advance in the last three months of 2009, there is no longer any need to keep the policy rate at the emergency level of 0.25 per cent, the analysts argue.
But business leaders seem to be less certain that the economy will continue to speed ahead at such a accelerated rate.
On many of the indicators surveyed, the firms are telling the bank that their views have not changed in the past three months and in some cases, they have become more cautious.
While 64 per cent of firms expect their sales volume to rise in the next 12 months over the previous year, the balance of opinion on this question was slightly lower than during the winter survey.
As well, the balance of opinion on hiring intentions is high, but still slightly lower than it was in the winter survey.
The central bank says 50 per cent of firms say they intend to hire more workers in the next year than they did in the previous 12 months.
More firms expect inflation to be two to three per cent range over the next two years, but nearly all still anticipate prices to remain well anchored within the central bank’s range of one to three per cent annual inflation range.
A separate survey of senior loan officers showed that over all lending conditions are improving, but the firms themselves say they are about the same as they were three months ago.
More critically, “many firms noted that access to credit remains more restrictive than it was prior to the intensification of the financial crisis in September 2008,” the bank said.
The most positive of the indicators was on firms’ investment expectations. Forty-three per cent of firms said they expected to increase their spending on machinery and equipment over the next 12 months, with only 21 per cent saying it will likely be lower.
“Rather than just repairing or replacing existing equipment, firms are increasingly focusing investment spending on expansion — often into new markets or product lines — or on improving efficiency. This is particularly the case among manufacturers,” the bank said.
The Canadian Press http://news.therecord.com/Business/article/697177
Pain in Australia is a peek at what's to come Published on Tuesday, Apr. 13, 2010 The Globe and Mail Report on Business
berman@globeandmail.com
For a glimpse of what the future may feel like in the Great White North, look Down Under.
Faced with a jumping housing market, a steadily improving job market and a commodity boom, all of which sound familiar to Canadians, Australian central bank chief Glenn Stevens is cranking up interest rates hard and fast.
The goal is to unwind emergency cuts and return borrowing costs to the historical average, and fast. Last week Mr. Stevens tightened again, his fifth quarter point move in seven months, leaving home builders furious and retailers begging for mercy because customers are disappearing.
The rapid rate increases have made the Australian central bank chief a controversial figure in a world where most central banks have been standing pat. He is a hero to many who believe that other bankers are leaving rates too low too long and courting inflation. Doubters believe he risks overdoing it and the Australian economy will suffer.
With Bank of Canada Governor Mark Carney widely expected to embark on a path to higher interest rates in coming months, Mr. Stevens' actions and their consequences are a reminder to Canadians who haven't had to deal with rising rates in four years just what it feels like. In short, it hurts.
Thanks to the $250 (Australian) a month in interest that the Stevens rate increases now are costing the average homeowner on a $300,000 mortgage, Australia's roaring housing market is finally showing signs of slowing. Building permits are suddenly unexpectedly soft, price gains are tapering off and home loan approvals have fallen for five straight months. Some analysts are raising the prospect of an outright price decline.
At the same time, even though the country is enjoying a job boom, increasingly strapped consumers are apparently dealing with higher interest payments by cutting back on spending. Retail sales fell in two of the three most recent months.
These are all the aftershocks of a central bank dealing with the difficult transition from easy money that was pushed into the economy to cope with a perceived emergency to a post-crisis world where rates more truly reflect the realities of the business cycle.
The Reserve Bank of Australia is "reaching the point at which the central bank does make tradeoffs between economic growth and its desire to contain inflation pressures, and at the point where those tradeoffs where those tradeoffs become quite fine judgment calls," said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce's investment banking arm.
"It's premature to say they've overdone it because they intend to sacrifice growth at this point in the cycle," he added.
At some point, Mr. Carney will face the same tradeoff.
There are some fundamental differences between the two countries' economies that mean it will be a while before Canada gets to the same turning point that Australia is now reaching.
While many people view the countries as very similar, Australia has a big head start economically. It skirted the global recession, its housing market didn't drop as much in the worst of the crisis and the jobs picture is much brighter. The Australian unemployment rate is 5.3 per cent, compared to 8.2 per cent in Canada.
The other big difference is geography - Australia exports more to Asia, which has been fuelling the global recovery, while Canada remains heavily dependent on the hard-hit U.S.
Still, once Canadian rates start rising, they are likely to go up reasonably quickly. The Bank of Canada has a chance to hike at a scheduled rate-setting date next week, but most analysts expect the first increase closer to mid-year. After that, even the most dovish forecasters like Mr. Shenfeld lay out a scenario where Canadian rates climb over the next year and a half by much more than they have in Australia so far.
CIBC anticipates the Bank of Canada will take its benchmark rate up from the current 0.25 per cent to 2.5 per cent by the end of 2011. At the other end of the spectrum, Toronto-Dominion bank expects 3.25 per cent and Royal Bank of Canada forecasts 3.5 per cent.
At that point, as consumers feel the squeeze, having a thick skin becomes a key part of central banking. Mr. Stevens is blunt and seemingly unrepentant about the effects of his increases, judging by his recent statements. The hurt of higher rates is just part of economic life, so better to get it over with.
"If we wait too long do we end up having to do more of that (raising rates), and those people would actually end up in a lot more pain."
http://www.theglobeandmail.com/report-on-business/pain-in-australia-is-a-peek-at-whats-to-come/article1532435/

Financial Update For April 13, 2010

2010-04-13T09:04:00.001-04:00

Australia boosts key rate
When will the Bank of Canada raise interest rates and by how much?

• TSX -28.18 to 12,148
• DOW +8.62 to 11,005 closed above 11,000 for the first time in almost 19 months as expectations of solid first-quarter earnings spurred buying in financial, energy and industrial sectors
Dollar +.07c to 99.67cUS
• Oil -$.58 to $84.34US per barrel. Recently has moved off of center stage, but by mid fall prediction is that oil will move beyond the transformational US$100 per barrel price
Gold +$.30 to $1,161.60 USD per ounce

When will the Bank of Canada raise interest rates and by how much?
Posted to FP: April 12, 2010, Jonathan Ratner
With most agreeing that a rate hike from the Bank of Canada is imminent, the talk now turns to the exact timing and extent of the central bank’s policy changes.
Governor Mark Carney made a “conditional” promise to keep the benchmark interest rate at 0.25% through the end of June 2010. However, one way to keep to this expiry date and provide markets with a jolt would be an initial rate hike of 50 basis points on July 20, according to Bank of America Merrill Lynch economist Sheryl King.
“Futures markets are only partially pricing in that possibility so it would be a shot across the bow to be sure,” she said in a note. “The strongest argument against this tack in our view is that the market would immediately rush to the conclusion that all future hikes will be similar in size.”
The economist thinks a 25 basis point hike on June 1 is the most likely scenario.
Meanwhile, Ms. King feels a 25 basis point hike on July 20 is the least likely scenario. She noted that this expectation is already fully priced into the Eurodollar and overnight index swap (OIS) markets. “If the Bank wants to elevate the risk premium in the bond market, validating market pricing cannot be the way they will go.”
The economist said that with growth running 40% faster than the Bank of Canada’s January forecasts, a rollover in unemployment and core CPI “frustratingly high,” there is justification to move a bit early. She added that moving early rather than large would help build up that needed risk premium without having 10-year notes move above the 6% mark that a normalized risk premium of 1.8% and a neutral overnight rate of roughly 4.5% would command.
The main arguement against a June 1 rate hike is that it comes ahead of the June 30 expiry commitment and puts the Bank’s credibility in the market at risk. Ms. King insists that credibility in achieving the central bank’s 2% inflation target is “very arguably the more important badge to maintain.”
“All along, the Bank has warned investors the commitment to not touch rates was not a promise and earlier rate hikes possible if conditions warranted.” http://network.nationalpost.com/NP/blogs/tradingdesk/archive/2010/04/12/when-will-the-bank-of-canada-raise-interest-rates-and-by-how-much.aspx
Australia boosts key rate
Central bank puts benchmark rate at 4.25%, says economy no longer needs the stimulus of low rates
Adelaide, Australia — the Globe and Mail-The Associated Press
Australia's central bank raised its key interest rate Tuesday for a fifth time in six months and said the economy no longer needs the stimulus of low rates with unemployment lower than expected and housing sales robust.
The quarter percentage point rise took the benchmark rate to 4.25 per cent and followed a warning last week by the central bank governor that mortgage rates would continue to rise.
“It is appropriate for interest rates to be closer to average” because this year's economic growth and inflation are likely to be near target levels, the Reserve Bank of Australia bank said in a statement.
Australia weathered the global downturn better than most developed countries and the economy grew at its fastest pace in nearly two years in the fourth quarter of 2009.
The central bank cited indications that lenders were more willing to lend, buoyancy in the housing market and lower unemployment than expected.
“With the risk of serious economic contraction in Australia having passed some time ago, the Board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker,” the bank said.
Federal Treasurer Wayne Swan said rates are still lower than they were before the global downturn and the central bank was making moves to bring them to normal levels.
“I know that is cold comfort for a lot of families and a lot of people in businesses,” he told reporters. “But that is the reality of a strengthening economy.”
http://www.theglobeandmail.com/report-on-business/economy/australia-boosts-key-rate/article1524458/

Financial Update For April 12, 2010

2010-04-12T12:55:00.000-04:00

• TSX +63.31 its fourth straight weekly gain with broad gains backed by a rise in the price of key metals and optimism that Canada's economic recovery is on track.
• DOW +70.28 The improving economy theme was also noted in the United States, with the Dow surpassing 11,000 for the first time since September 2008
• Dollar -.12c to 99.60cUS The Canadian dollar fell back from just above parity on a Canadian employment report for March that disappointed. Statistics Canada reported that the economy created just under 18,000 jobs last month, lower than the 25,000 that had been expected.
• Oil -$.47 to $84.92US per barrel.
• Gold +$8.90 to $1,152.30 USD per ounce

Risk of Japan going bankrupt is real, say analysts TOKYO (AFP) - Greece's debt problems may currently be in the spotlight but Japan is walking its own financial tightrope, analysts say, with a public debt mountain bigger than that of any other industrialized nation.
Public debt is expected to hit 200 percent of GDP in the next year as the government tries to spend its way out of the economic doldrums despite plummeting tax revenues and soaring welfare costs for its ageing population. Based on fiscal 2010's nominal GDP of 475 trillion yen, Japan's debt is estimated to reach around 950 trillion yen -- or roughly 7.5 million yen per person.
Japan "can't finance" its record trillion-dollar budget passed in March for the coming year as it tries to stimulate its fragile economy, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute."Japan's revenue is roughly 37 trillion yen and debt is 44 trillion yen in fiscal 2010, " he said. "Its debt to budget ratio is more than 50 percent." Without issuing more government bonds, Japan "would go bankrupt by 2011", he added.
Despite crawling out of a severe year-long recession in 2009, Japan's recovery remains fragile with deflation, high public debt and weak domestic demand all concerns for policymakers. Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of further price drops. Its huge public debt is a legacy of massive stimulus spending during the economic "lost decade" of the 1990s, as well as a series of pump-priming packages to tackle the recession which began in 2008.
Standard & Poor's in January warned that it might cut its rating on Japanese government bonds, which could raise Japan's borrowing costs amid the faltering efforts of Prime Minister Yukio Hatoyama's government to curb debt. The system of Japanese government bonds being bought by institutions such as the huge Japan Post Bank has been key in enabling Japan to remain buoyant since its stock market crash of 1990.
"Japan's risk of default is low because it has a huge current account surplus, with the backing of private sector savings," to continue purchasing bonds, said Katsutoshi Inadome, bond strategist at Mitsubishi UFJ Securities.
But while Japan's risk of a Greek-style debt crisis is seen as much less likely, the event of risk becoming reality would be devastating, say analysts who question how long the government can continue its dependence on issuing public debt.
"There is no problem as long as there are flows of money in the bond market," said Kumano. "It's hard to predict when the bond market might collapse, but it would happen when the market judges that Japan's ability to finance its debt is not sustainable anymore." "And when that happens, the yen will plummet and a capital flight from Japan's government bonds to foreign bonds will occur," he said.
Yet others argue that there is no precedent for the ratio of debt to GDP nearing 200 percent being dangerous. Nomura Securities economist Takehide Kiuchi cited Britain's government debt in the post-war period "which reached 260 percent but (the government) didn't face a debt crisis.
"There is no answer to the question of what the critical level of debt is for a government to go bust." The likes of single-currency Greece and non-eurozone countries are also different in that the latter group have flexible currency exchange rates which are more closely calibrated to their fiscal conditions, he said.
Instead, the most realistic hazard brought by huge Japanese debt is prolonged deflation under a shrinking economy, say analysts.
"Regaining fiscal health needs fiscal austerity, which could weigh on economic growth," said Kiuchi. "And when the economy is bad, people don't spend money as they are worried about their future, which in turn intensifies the deflational trend," he said.
Continued deflation could further worsen Japan's fiscal health because of less tax revenue and more stimulus spending, stirring fears over big tax hikes, which in turn weigh on demand and again reinforce deflation, analysts said. The key to breaking the vicious cycle is drafting a feasible economic growth strategy for Japan, they said.
"If the economy grows, tax revenue increases," Kumano of Dai-ichi Life said.
Since 2001 Japan's annual growth rate has peaked at 2.7 percent in 2004. The economy shrank 1.2 percent in 2008 and 5.2 percent last year. Prime Minister Yukio Hatoyama's centre-left government has pledged to announce details of its new strategy in June, which aims to lift annual growth to two percent by focusing on the environment, health, tourism and improved ties with the rest of Asia. http://ca.news.finance.yahoo.com/s/11042010/24/f-afp-risk-japan-bankrupt-real-say-analysts.html
Subprime prime alive here
'Orphan mortgages' begin to surface
John Greenwood, Financial Post

Rod and Joyce Marentette bought their house in Chatham, Ont., a month before getting married in 2005. The economy was booming and credit was plentiful, so even though they didn't have a down payment and Rod had recently gone through a bankruptcy, there were plenty of mortgage companies willing to lend to them.
The house was $98,000 and with the additional legal fees the total price came to $100,000, all of which they were able to borrow from the mortgage company.
Things took a turn for the worse when Rod, who is 39, suffered a workplace injury and had to leave his job as a factory supervisor. But Joyce, 40, was determined to hold on to the house, taking on extra work to make ends meet. When Rod finally recovered two years later, he found a new job with a construction company. While the paycheque was lower, it took the financial pressure off.
That's when they got the call from the mortgage company. It was the year the credit crunch hit. The economy was in a tailspin and lenders around the world were scrambling for liquidity. The mortgage, they were informed, could not be renewed and as the company was closing its subprime business, they would have to find another lender.
But the little lenders who had been so eager for their business back in 2005 had disappeared. That left the big banks and insurance companies, but they wouldn't lend either and the Marentettes quickly realized their dream of owning a home was about to become a nightmare.
It ends up that despite its squeaky-clean financial image, Canada does indeed have its own subprime-mortgage mess.
Industry insiders say that over the next few years the Marentettes' story will play out over and over again across Canada, as an estimated 30,000 so-called "orphan mortgages" reach maturity. Unless the government takes action, this may trigger a flood of foreclosures.
In the wake of the financial crisis, the business of subprime loans has dried up. Prior to 2007, there were at least a dozen subprime lenders in Canada and it was the fastest-growing sector of the entire mortgage market, says Benjamin Tal, senior economist at CIBC World Markets, who pegged it at about 5% of the total market.
But most of those lenders, including players such as Xceed Mortgage Corp., GMAC Residential Lending and Wells Fargo, have either changed their business or closed up shop.
Meanwhile, the rules around home loans have been tightened. Earlier this year, the federal government raised the minimum down payment required for Canada Mortgage and Housing Corp. insurance.
The mortgage industry clearly has a problem on its hands.
"This thing is a wave and it's just starting," says Eric Putnam, formerly with a subprime lender, now managing director of Debt Coach Canada, a company that provides financial and bankruptcy advice to consumers.
Estimates vary on the total value of the subprime market in Canada.
No one knows for sure how big it really is because there is no central database tracking these mortgages.
But according to Ivan Wahl, chief executive of Xceed, one of the biggest players in Canada until it recently converted to a bank, the subprime market in this country grew to about $11-billion in 2006, the year before things started to implode.
Given that the total mortgages outstanding in Canada amount to around $1-trillion today, the subprime portion is not a huge slice.
But the vast majority were made toward the middle of the decade with terms of three and five years and they're coming due over the next two years.
"Given the current environment it will be very difficult to finance these [people]," says Mr. Tal, who calls it "a big problem for specific borrowers but not one from a macro perspective."
But the industry is so concerned about the situation that it recently approached the federal government with a request for a bailout.
According to Mr. Putnam and others, it wants the federal government to participate in a $1-billion fund to help finance the coming flood of orphan mortgages.
During the credit bubble, subprime lenders funded themselves through the asset-backed commercial paper market.
The loans they made were packaged up and sold to securitization pools and then to investors in the form of ABCP.
But when the commercial paper market froze up in the financial crisis, lenders were suddenly left without a way to fund their businesses.
"Investors are no longer willing to continue on and these mortgages were not insured by the Canada Mortgage and Housing Corp., so the borrowers are not going to be able to move to another lender in today's environment," Mr. Putnam says.
The definition of subprime depends on who you ask, but for practical purposes the term generally refers to high-interest loans made to people who are unable to get a better deal at one of the big banks. Many such borrowers are simply self employed entrepreneurs but a good part are people with bad credit histories.
In the United States, the subprime market took off in the run-up to the crisis, growing to more than 20% of total mortgages outstanding as the loans were packaged up into complex securities and sold to investors around the world. When real estate prices finally started to crumble the value of the securities cratered, ultimately destabilizing the global financial system.
Analysts say it's difficult to draw comparisons between the U.S. subprime market and what happened in Canada. The market here never grew to more than a sliver of the total and, more important, the type of loans offered by Canadian players were more conservative than those offered by their peers south of the border.
But there are nevertheless some disturbing parallels between the two markets. "Compared to what was going on in the U.S., it never got to the same level here, but having said that, they were going down the same slippery slope," says Mr. Putnam.
"The Canadian population wanted to buy a home, that was the No. 1 goal.
"People were taking on high debt loads, stretching the amortization out as long as possible and lenders were looking at all the opportunities. It made sense when the market was hot, but of course, no one could foresee the problems."
Exacerbating the situation, the early part of the decade saw the arrival of a number of U.S. players looking to get in on the Canadian market.
Because many of the players were not deposit-taking institutions, they qualified for looser regulations than banks and other traditional players.
That meant, for instance, that they didn't need insurance for risky loans and they could lend in excess of the value of the property. Borrowers loved it at the time but in today's post-crisis world, such loans are almost impossible to renew.
The good news for the Marentettes is that they succeeded in finding a new lender, though they're still paying almost double the interest rate of a conventional mortgage.
Thousands of other subprime borrowers may not be so lucky.
"Hopefully, if they have been making their payments, they can qualify for [another mortgage]," says Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.

Financial Update For April 9, 2010

2010-04-09T10:17:00.000-04:00

• TSX +2.63
• DOW +29.55
• Dollar +.23c to 99.72cUS
• Oil -$.49 to $85.39US per barrel.
• Gold -$.10 to $1,152.30 USD per ounce

Rates staying low into next year
Julie Fortier, Financial Post

OTTAWA - With the Canadian economy doing surprisingly well over the past six months, many see higher interest rates from the Bank of Canada in the not so distant future, but according to a report released Thursday from CIBC's chief economist Avery Shenfeld, rates are likely to remain at a very low 2.5% through to 2011.
In CIBC World Markets' latest Global Positioning Strategy report, Mr. Shenfeld lists several reasons for Bank of Canada Governor Mark Carney to keep interest rates subdued after July. He points out that the U.S. will probably have a more gradual approach to raising rates and if Canada gets too far ahead, that could send the Canadian dollar soaring.
"While factories are recovering in Canada alongside a global industrial revival, output remains nearly 20% below the pre-recession peak, and wages are now substantially above those stateside without the productivity gains to match. There's only so much of a competitive challenge that non-resource exporters can take in short order," Mr. Shenfeld said.
He also pointed out that inflation is not expected to rise much further and stimulus spending is expected to be reigned in by governments - including Canada's - which will slow growth.
"If the U.S., the U.K., and Japan all move from huge stimulus to even modest restraint, Canada will feel it in our export prospects come 2011," Mr. Shenfeld pointed out.
Mr. Carney has promised to keep interest rates where they are at 0.25% until the end of June. However, the latest reading of Canada's economic growth showed the core inflation rate at 2.1% in February, far above the Bank of Canada's forecast of 1.6% for the first quarter of the year. Many analysts believe the Bank of Canada will not wait until mid-2010 to raise rates.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2777584#ixzz0kYfL1zaB

Financial Update For April 8, 2010

2010-04-08T09:14:00.000-04:00

Average house prices up at least 10 per cent in major Canadian markets

• TSX -45.81 Stock markets around the world fell as worries about Greece's fiscal woes brewed. The interest rate gap, or spread, between Greek 10-year government bonds and the German equivalent, considered a benchmark of stability, spiralled to record highs. In wildly oscillating morning trading, spreads were jumping between 4.01 and 4.30 percentage points - the highest level since Greece joined the euro. The higher interest rates demanded by bond investors are potential poison for the Greek budget; unless they fall, the government will pay a premium to borrow and face a vicious cycle where higher borrowing costs fuel fresh default fears.
• DOW -72.47
• Dollar -.39c to 99.49cUS pushed through parity for a second day, nearing a 21-month high, but then fell back sharply as oil prices fell and risk appetite dried up.
• Oil -$.96 to $85.88US per barrel.
• Gold +$17.00 to $1,152.40 USD per ounce

(REUTERS)Canadian building permits data for February came in weaker than the market had forecast, also pressuring the currency. Building permits, a barometer of future construction activity, slid 0.5 percent in the month to C$5.7 billion versus market expectations of a 2 percent gain.
The next major Canadian economic report will be employment data for March, due for release on Friday. The median forecast of 19 analysts is for a net gain of 25,000 jobs, slightly more than the 20,900 jobs added in February. None of the analysts expected job losses, with forecasts for creation ranging from 5,000 to 45,000

Average house prices up at least 10 per cent in major Canadian markets: LePage
By The Canadian Press
TORONTO - Prices for all key housing types were up more than 10 per cent across Canada in the first quarter, although some markets were hotter than others.
That's according to a national real-estate survey by Royal LePage, which says the Canadian housing market will likely become more moderate as 2010 unfolds.
The survey found that, on a national basis, the average price of a detached bungalow in Canada rose to just over $329,000 in the first three months of this year - up 11 per cent from the first quarter of 2009.
Standard two-storey homes rose 10.3 per cent, to about $365,000, while condominium units increased by 10.9 per cent to just under $229,000.
Royal LePage, which is a national real-estate sales organization, says the national numbers don't paint the whole picture, however.
It says some local markets, such as Vancouver and Toronto, may be overheated while most others have shown more moderate growth.

Financial Update For April 6, 2010

2010-04-06T09:32:00.001-04:00

• 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.

Financial Update For March 31, 2010

2010-03-31T09:04:00.001-04:00

• TSX +14.49 amid another dose of solid U.S. consumer data following a report from the U.S. Conference Board showing that its consumer confidence index rose to 52.5 in March, recovering about half of the nearly 11 points it lost in February. Analysts had been expecting a reading of 50 for March.
• DOW +11.56
• Dollar +.12c to 98.09cUS hit a one-week high against the U.S. dollar, helped by a positive tone in oil and stock markets
• Oil +$.20 to $82.37US per barrel.
• Gold -$5.80 to $1,104.50 USD per ounce

Roughly 20 per cent of Canadians struggle to afford their homes, study finds
THE CANADIAN PRESS

OTTAWA — A gap in the supply of affordable housing has left one-fifth of Canadians struggling to afford the homes they live in and there’s a risk that number could rise as mortgage rates increase from historic lows.
A Conference Board of Canada report released Tuesday, dubbed Building from the Ground Up, concludes 20 per cent of Canadians can only keep a roof over their heads by cutting costs in ways that could harm their health — such as buying less nutritious food.
The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pre-tax income.
The report comes as CIBC and National Bank announced they were following the move of other major Canadian banks in raising mortgage rates by more than half a point ahead of an anticipated spike in the Bank of Canada’s lending rates this summer.
The biggest increase at five of Canada’s largest banks affects five-year mortgages. All are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.
The rise in rates signals the end of an era of historically low borrowing costs that have contributed to an overheated rebound in the housing market, with some consumers taking on dangerously high debt loads.
The end to rock-bottom interest rates could pose a major housing affordability risk to those who have overextended themselves to get into the housing market, said Tom Carter, a University of Winnipeg professor and the Canada research chair in Urban Change and Adaptation.
Meanwhile, he added, income levels have remained relatively flat.
“There’s a lot of people who didn’t have to put very much down,” Carter said. “Mortgage rate lending has been fairly flexible in recent years, but they still have very high mortgages and when the rates go up we are going to have more people with a serious affordability problem.”
If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points — an average increase during a rate-rising cycle — a homeowner with a variable rate could pay about 30 per cent more in mortgage costs per month, according to experts.
The Bank of Canada has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy, but rates could rise by 75 basis points by September as the central bank moves to fight growing inflationary pressures in the economy.
Meanwhile, high construction costs have led developers to focus on building homes that are affordable to people in higher income brackets, leaving a large segment of the population underserved, the report found.
Carter said there is also a severe affordability problem for renters because the number of rental units in major cities is declining as developers build condominiums instead of apartment units.
Carter said there could be more defaults on loans and more home foreclosures in the coming year, but added most people will scrimp on other spending to pay off their mortgages or rents, posing a risk to Canada’s economic recovery.
“If people really have to cut back in other areas to make their housing payments, it’s going to affect consumer spending overall,” he said.
“So if it becomes a significant problem I can see it slowing the recovery from recession because it’s simply going to reduce household spending.”
The Conference Board report calls upon governments to partner with real-estate developers and civil organizations to increase the amount of affordable housing in the country, saying such changes would have positive impacts on both Canadians’ health and the national productivity level. http://news.therecord.com/Business/article/691138

Financial Update for March 30, 2010

2010-03-30T11:04:00.002-04:00

• TSX +.72.35 to 12,029 ahead for the first time in four sessions, as commodity prices rallied on U.S. dollar weakness, propping up the market's heavyweight resource shares.
• DOW +45.50 Also boosting risk appetite, data released on Monday showed U.S. consumers tapped their savings in February to keep spending on an upward path for a fifth straight month, implying that consumption may be strong enough in coming months to keep a recovery going.
• Dollar +.67c to 97.97cUS
• Oil +$2.17 to $82.17US per barrel.
• Gold +$6.10 to $1,110.30 USD per ounce

No GST hit for financial sector: Ottawa
Tara Perkins
Globe and Mail Update
Finance Minister Jim Flaherty has pledged to not impose any additional GST on financial services, suggesting that a rule change that appeared to cost the sector $1-billion was just badly worded.
“There's no intention of changing tax policy,” he said Friday at a press conference in Oshawa, Ont., on another subject.
The Finance Department issued a statement late Friday saying that the Canada Revenue agency will review and update the rules, and that it welcomes views and suggestions from the industry.
“Businesses need clear GST rules,” Mr. Flaherty said. “We are not imposing new taxes.”
Mr. Flaherty's comment was met with cautious optimism from the industry.
Barry Segal, a tax partner with Ogilvy Renault, said the comments “should be viewed as a positive step in the tax and financial communities.”
Mr. Flaherty's remarks suggest that the Canada Revenue Agency's February notice, which laid out what many experts in the financial sector viewed as a radical change to the way GST applied to a number of services, “may have gone beyond what the Department of Finance intended,” Mr. Segal said.
“We will have to see whether the government's legislation conforms to Minister Flaherty's comments,” he added.
The issue began when Ottawa said in December that it would clarify the rules that govern how GST applies to a number of financial services, in response to recent court cases on the topic. The CRA followed up with details in February. The changes applied retroactively to Dec. 14.
The financial sector says the CRA notice amounted to a drastic change in tax policy that would increase Ottawa's GST revenue by more than $1-billion a year.
It boils down to the definition of “financial service” in tax laws. Such services are usually exempt from GST but Ottawa altered the definition so that many activities that “facilitate” or “prepare” financial services appeared to be newly subject to tax.
Mr. Flaherty said Ottawa did not mean to do that. “We will have the tools in the first Budget Implementation Act to make sure we get back to the status quo before the court cases, so people can rest assured that the tax treatment of defined financial services will not change,” he said.
Some experts are not satisfied.
Mike Firth, a tax partner with PricewaterhouseCoopers, said that “what industry really needs is a clear response on the specific examples of [services] which the CRA has clearly declared are taxable effective Dec. 14, 2009, whereas they were clearly agreed as exempt before that date, such as commissions paid to car dealers to arrange for consumer credit and commissions paid to investment dealers for the sale of mutual fund units.”
Most industry voices were optimistic.
“Anybody that's trying to save for retirement or anybody that's trying to save using mutual funds or other financial products, this is good news for them,” said Barbara Amsden, director of strategy and research at the Investment Funds Institute of Canada.
However, she added that she remains cautious until she hears the final word from the Canada Revenue Agency.
“It gives us some assurance,” Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals, said of Mr. Flaherty's position.
“We hope the Minister's comments today reflect the government policy of not raising taxes on consumers,” said Steve Masnyk, a spokesman for the Insurance Brokers Association of Canada.
http://www.theglobeandmail.com/report-on-business/economy/no-gst-hit-for-financial-sector-ottawa/article1514043/
Big banks raise mortgage rates in sign era of historically low rates ending
Sunny Freeman, The Canadian Press TORONTO - Rising mortgage rates announced Monday signal the end of historically low home borrowing costs and present Canadian consumers with a dilemma: either stay flexible, hope for the best and ride out the next several months or lock in to long-term loans.
Three big banks raised their mortgage rates by more than half a point, effective Tuesday, and most industry watchers expect that's just the beginning of future small jumps that will hike the the cost of home ownership the rest of this year.
For consumers nervous about the changes, the security of five-year, or longer, fixed loans may be the best option, says one mortgage expert.
'If that (rising rates) causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be," said Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.
"If you're closing in the next six months, I suggest people do that quickly."
The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX: RY.TO), Laurentian Bank (TSX: LB.TO), and TD Canada Trust (TSX: TD.TO). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets, where mortgage loans are financed.
Other banks are expected to follow suit.
The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.
That means a homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.
Many people with decent credit history who are applying for mortgages can negotiate better than posted rates.
The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.
The latest increases reflect real-time market interest rates, which usually signal future central bank rate jumps months in advance.
Looking ahead, potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?
Historically, staying short-term and flexible has been the best strategy over the long term. But banks advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk and sleep at night.
If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points - an average increase during a rate-rising cycle - a homeowner with a variable mortgage should expect to pay about 30 per cent more on the monthly mortgage, says McLister.
Generally, long-term fixed rates rise by about half of the variable rate, he said.
While the fixed versus variable decision is specific to each individual, McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.
Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.
McLister said it's difficult to tell if bank prime rates will rise by 2.5 points, but he added the banks have begun a cycle of rate increases and rates in the near and medium term will continue to rise before falling again.
'They came down in the most recent rate cutting cycle by 4.25 (percentage points), so going up about half of that is definitely achievable," he said.
McLister added that most economists expect a half to one point increase in banks' prime rates by the end of this year.
But using recent history as a guide, its not likely rates will rise much higher than 2.5 points.
'When the rates go up three (percentage points) or so they don't stay there and go in a flat line. They go up and they go down."
CIBC (TSX: CM.TO) chief economist Avery Shenfeld also said mortgage rates hikes are a trend consumers should expect to continue.
'Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."
He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of September.
That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.
'Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs," he said.
'Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."
When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.
Gregory Klump, chief economist at the Canadian Real Estate Association, said even though mortgage rates are rising, they are still comparatively low.
'Even with interest rates expected to rise over the second half of this year, it's going to be a while before mortgage rates are basically neutral. Even with interest rates rising they're still going to be stimulative, just not as much."
'We're coming off emergency level rates, and clearly the emergency has passed."
http://ca.news.finance.yahoo.com/s/29032010/2/biz-finance-big-banks-raise-mortgage-rates-sign-era-historically.html

Financial Update For March 29, 2010

2010-03-29T10:33:00.000-04:00

• TSX -.74 Investors will receive guidance this week from some top-drawer economic data, including key reports on Canada's economic growth and the U.S. job situation
• DOW +9.15
• Dollar -.18c to 97.40cUS
• Oil -$.08 to $80.53US per barrel.
• Gold +$11.50 to $1,104.30 USD per ounce

The realtors' new realities
Garry Marr, Financial Post

The last thing Shauna Bailey wants to think about is what she makes on an hourly basis.
The 27-year-old Regina real estate agent's phone starts ringing at about 7:30 a.m. for the six listings she currently has on the market. She also works for a new home builder, which generates its own set of calls.
"A typical day is eight to 10 hours and I haven't had a weekend off in two years," says Ms. Bailey.
"I don't remember the last time I had a day off. On weekends, my mornings usually start with showings. In the afternoon, I'm either at [the builder's] showroom or doing an open house for a client. People want to see houses every day. I had two people phone me on Grey Cup day who wanted a viewing. The Riders were playing!"
Ms. Bailey is one of the more than 98,000 real estate agents in Canada, a group feeling under siege. From the volatility of the real estate market to increasingly commission-wary consumers to the continuing loss of business to the Internet, wholesale changes loom over their industry and the way they conduct business.
This week, realtors became even more uneasy with the attempts by the Competition Bureau to crack down on their industry. The bureau has filed a complaint with the Competition Tribunal against the Canadian Real Estate Association, sayings its practices are anti-competitive.
The battle centres around the proprietary Multiple Listings Service system, to which CREA owns the rights. It is estimated 90% of the country's homes are sold through MLS. The watchdog wants it opened up so that consumers and discount agents can list homes for a fee, as opposed to paying realtors commission for access to the service.
Realtors have fought back, with CREA passing new rules that would allow consumers to decide how much they use an agent on a deal and to conduct parts of a transaction without using an agent at all. The amendments, an attempt to ward off further action by the competition watchdog, were rejected by the bureau. In particular, the watchdog took issue with a clause which would allow local real estate boards to make their own rules about who could access the MLS.
In its legal defence filed with the tribunal Friday, CREA has referred to the position taken by the Commissioner of Competition Melanie Aitken as "preposterous," and says it has always followed competition law.
Although realtors have been more successful than other agent-model industries - travel agents, stock brokers, insurance agents - at fending off major upheaval, it appears their time has come. The industry is bracing for change.
This week, in the midst of CREA's battle with the Competition Bureau, Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada, sent out an email to his 8,500 agents, to calm the troops. "Let me assure you that I did not say that we should throw in the towel," said Mr. Polzler, referring to a news story in which it claimed he wanted CREA to give up its battle with the bureau.
"However, I've also been in the business too long not to recognize the fact that our industry is changing," he wrote.
Century 21 Canada chief executive Don Lawby plans to send a similar note to his agents on Monday, telling them there will always be a place for the full-service real estate agent.
Agents are obviously worrying about the impact on their livelihood. Bank of Nova Scotia economist Derek Holt has estimated that if the Competition Bureau wins its battle to open up the MLS, real estate agent commissions could fall by as much as $15,750 per transaction. He is basing this on the difference between what a full-service broker and discount broker earn; discount brokers charge a flat-fee or 1% commission.
On Thursday, in a letter obtained by the Financial Post, CREA accused Ms. Aitken of the Competition Bureau of harming the reputation of Canadian real estate agents. "The unfounded allegations made by you tarnish the reputation not only of CREA and its member boards but of all Realtors," wrote Georges Pahud, CREA's new president, who stepped into the role this week.
There is good reason for realtors to resist wholesale changes to their business. Last year, the industry did almost $150-billion in existing homes sales. At a 5% commission rate - the average in Canada - consumers forked out almost $7.5-billion in commissions. In the hot real estate market of 2007, when there was $160-billion in buying activity, realtors would have earned a total of $8-billion in commission (based on the 5% rule).
A decade ago, there was 335,490 sales across the country at an average sale price of $158,145. That works out to an estimated $2.6-billion paid in total commissions to the industry. In 10 years, the industry has reaped an 188% increase in total commissions paid, not adjusted for inflation, thanks to rising real estate prices.
Statistics Canada data backs that up. Residential ownership transfer costs jumped to more than $19-billion last year, up from almost $7.4-billion a decade ago. Those figures include land transfer fees, legal fees, inspection and surveying, but the largest component is believed to be commissions.
Yet, agents say they've never worked harder for clients. "I probably get to keep half of my revenue, but the rest goes to expenses. It is like running a small business," says Ms. Bailey who, like most agents, ends up giving a cut to the brokerage firm, in this case Royal LePage Regina Realty. "I was an accountant before I was real estate agent. The hours were easier but it wasn't as exciting."
Last year, she was part of 32 deals. She doesn't want to reveal her total commissions, but the average home in Regina sold for $244,328 last year, which would translate into about $7.8-million in property changing hands for her 32 sales. Commissions are about 5% of the sale price in her area and each realtor gets about half of that. By her estimates, she is doing well but hardly getting rich.
Ms. Bailey knows her industry is evolving, but she says there will always be a role for full-service agents. "I don't worry about it. People who want to work with me will want my help. They don't have time to do their open houses and market their property," she says.
There are similar optimistic views across the country. "I'm not just an agent. Half the time I'm acting as psychologist, holding the buyer's hand," says Ellie Silver, a 12-year industry veteran who works in Montreal's exclusive Westmount area. She adds people will never be able to effectively negotiate when it comes to the price of their home. "They are just too close to it," she says.
"Not everybody is going to want to have their services managed by a realtor from start to finish," says Re/Max's Mr. Polzler. "With some of the changes coming down the pipe through the Competition Bureau and CREA, there will be more à la carte services."
But he says the majority of consumers are still going to want to use a realtor to handle their transaction - whether the market is hot or cold.
"Right now, a realtor is not often needed in the selling process, but you sure need a realtor in the buying process. If you don't have a good realtor in this market, finding the right property and going in at the right price, people are being rejected all over the place," says Mr. Polzler.
He acknowledges that industry changes might put pressure on commissions, but he also predicts there will be fewer agents to share the pie in the new environment. "The number of non-producing agents in the industry is obscene. They are going to get squeezed because they generally do not provide a service," says Mr. Polzler.
He thinks it's time for the industry to toughen up the requirements for selling property. "I'm a proponent of increasing education. I'd like to see a one-year apprenticeship program," says Mr. Polzler.
The rules for selling real estate vary from province to province, but in Ontario, a realtor can be licensed and in business in less than three months. In Nova Scotia, you are entitled to sell real estate under the designation of sales person after a three-week course.
Mike Graham is the Surrey-B.C.-based owner of Usellahome.com, a site promoting "for-sale-by-owner" real estate transactions. Not even he sees the disappearance of real estate agents anytime soon. "You are still going to have people who want to use an agent. Half the people out there don't want to make a $500,000 decision without someone holding their hand," he says.

Read more: http://www.financialpost.com/news-sectors/story.html?id=2731912#ixzz0jUtFzOs9

Financial Update For March 26, 2010

2010-03-26T09:04:00.001-04:00

• TSX -4.86 to 11,962
• DOW +5.06
• Dollar +.05c to 97.58cUS on a growing conviction that Canadian interest rates could rise sooner than later.
• Oil -$.08 to $80.53US per barrel.
• Gold +$4.10 to $1,092.70 USD per ounce

Ottawa changes GST rules, setting up finance battle
Tara Perkins
From Friday's Globe and Mail
Ottawa has quietly moved to tax some financial services , setting up a fight the sector says will cost more than $1-billion a year.
The government has changed the rules on a goods and services tax exemption in a way that the industry says applies GST for the first time to a number of financial services offered by, for example, mortgage brokers and insurance advisers. The industry says the costs will be passed on to consumers. Banks, insurers, mortgage and insurance brokers, and investment companies are urging the Finance Department to retract its amendments and hold broad consultations before going back to the drawing board.
At issue is the definition of “financial service” in the tax laws. Such services are generally exempt from GST but Ottawa has changed the definition so that many activities that “facilitate” or “prepare” financial services are now subject to tax. The industry says Ottawa hasn't clarified how broadly the rules will apply but it appears that many services offered by brokers and advisers are newly taxable, including, for example, trailer commissions paid to mutual fund dealers, commissions paid to a car dealer to arrange credit for a car buyer, and some work telemarketers do for insurers.
Mike Firth, a tax partner with PricewaterhouseCoopers, has written a paper for the CCH GST Monitor, a tax publication, in which he calls the situation a “ghastly mess.”
In an interview he said that Ottawa either made a “deliberate decision to extract billions more in revenue from the financial sector, presented as a ‘clarification,’ or the intention was much more limited but the combination of legislation drafted by the Finance Department and execution by the [Canada Revenue Agency] has mutated into a very radical policy shift. Neither possibility is very attractive.”
Ottawa issued a press release in December saying it was clarifying the rules, and the CRA followed up with a notice in February. Legal and accounting experts with financial services clients say that notice went far beyond what the sector was expecting and made a number of services that have been exempt from the GST since 1991 taxable.
A finance department official said Ottawa issued its release to address the uncertainty that some recent court cases created respecting the scope of the definition of “financial service” in the Excise Tax Act, and to “affirm the longstanding tax policy.”
“We are aware that some industry representatives have raised concerns,” the official said. “They have been invited to contact Finance and the CRA with further information, so that we have a better understanding of their concerns.”
The GST is currently 5 per cent but the relevant services would be charged 12 per cent and 13 per cent in British Columbia and Ontario respectively when they roll out the harmonized sales tax, said Barry Segal, a partner at Ogilvy Renault with concerned mutual fund industry clients.
“The big concern for our members would be it applying to commissions,” said Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals. “There would probably be a significant net reduction in income to mortgage brokers.”
The Canadian Life and Health Insurance Association says the move could cost life insurers half a billion dollars a year.
For example, insurance advisers are paid commissions that could now be taxable, said Ron Sanderson, the CLHIA’s director of policy-holder taxation. “Ultimately these things are going to show up in customer costs.”
Joanne De Laurentiis, chief executive of the Investment Funds Institute of Canada, wrote to the Finance Department saying the amendments have created “tremendous concern” and asked for them to be withdrawn.
“During our consultations over the last several months, you have consistently indicated that policy changes to the GST regime will not be contemplated until after implementation of the newly harmonized regimes has occurred,” she wrote. “These announcements are a reversal of that position.”
Like many, Ms. De Laurentiis argued the announcements were not “clarifications” but “a significant policy change.”
IFIC has questions about how the GST and HST will now apply to commissions on buying and selling stocks and mutual funds, as well as redemption fees paid by investors.
Advocis, the financial advisers association, is concerned the moves will create an uneven playing field between financial products sold by commissioned-based financial advisers and products sold by banks using non-commissioned employees.
“The CRA notice amounts to an expansion of the GST tax base,” the group said in a bulletin.
Ottawa has said it plans to tackle the deficit without raising taxes.
There is fear that work will leave Canada as a result of this issue, Mr. Segal said. “A lot of the services that are provided, particularly many of the administrative services, are portable.”
Another problem is that the changes apply retroactively to Dec. 14, he said. “I know there is grave concern in the financial community about the operational complexity that this is going to cause. There may be GST or HST owing on transactions back to that date that hasn’t been collected.”
http://www.theglobeandmail.com/report-on-business/ottawa-changes-gst-rules-setting-up-finance-battle/article1512595/

Financial Update For March 25, 2010

2010-03-25T11:27:00.001-04:00

Higher interest rates could be coming sooner, says Bank of Canada governor

• TSX -81.57 to 11,962
• DOW -52.68
• Dollar -.89c to 97.53cUS
• Oil -$1.30 to $80.61US per barrel.
• Gold -$14.90 to $1,108.60 USD per ounce

Higher interest rates could be coming sooner, says Bank of Canada governor
By Julian Beltrame, The Canadian Press
OTTAWA - Canadians could be facing higher interest rates sooner than previously thought as a result of stubborn inflation and stronger economic growth, Bank of Canada Mark Carney said Wednesday.
Carney did not declare higher rates were on the way, but issued his clearest signal to date that his year-old commitment to keep the policy rate at the record 0.25 per cent until July was "expressly conditional" on inflation remaining tame.
In a speech to a business audience, the bank governor noted that both underlying core inflation and economic growth have grown slightly stronger, although broadly proceeding as expected.
The tip-off to economists was that he changed his language on his conditional commitment on interest rates, which has led to historically low rates for both consumers and businesses in Canada and helped the country recover from recession.
"This commitment is expressly conditional on the outlook for inflation," he told the Ottawa Economic Association.
It was the first time Carney has undercut the commitment in such pointed language.
Later, Carney downplayed the significance, joking with reporters that he needed to used different words to keep the media's attention.
But economists said the distinction was significant.
"They still have considerable latitude, but the changes that would be required to their forecast are consistent with hiking rates sooner than markets are anticipating," said Derek Holt, Scotiabank's vice-president of economics. He said Carney may move as early as June 1.
But Holt stressed that Carney's overall message to Canadians is that rates will remain low by historical standards for some time.
"No matter what, we emerge from this with lower rates at the end point of the hiking campaign than in past cycles. He's saying the outlook is clouded with risks and there's a number of reasons to expect growth to be lower than past cycles."
Core inflation - which excludes volatile items like energy - has been stubbornly sticky the past few months, with the index rising to 2.1 per cent in February. That's the first time it has been above the central bank's target of two per cent in more than a year.
And Carney pointed out that the economy has performed better than he thought when the bank issued its last forecast in January, predicting growth of 2.9 per cent this year. Since then, several private sector economists have increased their projections and Carney is expected to do the same at the next scheduled forecast date on April 22.
At a news conference following his speech, Carney warned against reading in too much optimism in his assessment.
"It wasn't that rosy a message," he said.
He cautioned that low U.S. demand and the high Canadian dollar, which was trading below 98 cents US on Wednesday but still high by recent standards, were acting as "significant drags" on the economy.
On a longer term basis, Carney's message to Canadians was positively dark, warning that the country needs to address its "abysmal" productivity record and that the world needs to follow through with reforms to address global imbalances, particularly China's undervalued currency.
Carney calculated that unless the country improves its productivity or output per unit of work, Canadians can expect to lose a total of $30,000 in real income over the next decade.
"Canada does underperform," he said. "We are not as productive as we could be. Our potential growth is slowing. Moreover, this is occurring as the very nature of the global economy ... is under threat."
Canada's productivity has advanced a meagre 0.7 per cent annually over the last decade, he noted, less than half the rate in the U.S. and half the rate Canada managed between 1980 and 2000.
He placed the blame on the doorstep of Canadian business, which he said needs to make much bigger investments in equipment and machinery and in information technologies.
Canadian workers have about half the information and communication technology at their disposal as their American counterparts, he said, adding that changes must be make quickly because the landscape of the global economy has shifted and it requires a "big response."
Carney also said a key to future prospects for the Canadian and global economies is adoption of the G20 framework for economic sustainability. That will require addressing global imbalances which, in part, are caused by fixed currencies like China's yuan which are kept artificially low to boost exports and discourage imports.
He produced a chart showing that unless the G20 measures are adopted, global growth will be about one percentage point lower in the next five years than it might otherwise be. The worse case scenario is a prolonged global recession that triggers protectionism, deepening the crisis. The irony, he said, is that China loses out in the long run as well.
Carney is the second Canadian policy-maker in as many days to warn about the devalued yuan. On Tuesday, Finance Minister Jim Flaherty said Canada will push the issue at the upcoming G20 meetings in Toronto in June. A revaluation of the yuan would likely lead to adjustments in other fixed currencies in Asia, economists said.
The U.S. has taken the lead in pressuring China on the yuan, but so far the emerging economic superpower has dismissed such calls and said it would move on its own schedule.
"An adjustment in global exchange rates is part and parcel of global rebalancing," said Carney. "What's at stake here is enormous and the adjustment of those real, effective exchange rates of all major currencies is an important component of rebalancing." http://ca.news.finance.yahoo.com/s/24032010/2/biz-finance-higher-interest-rates-coming-sooner-says-bank-canada.html
Consumer credit experts call on homebuyers to exercise caution
THE CANADIAN PRESS

TORONTO — Potential homebuyers spurred into action by fears of an imminent interest rate hike may be better off to wait and avoid bidding wars that can prove even more costly, according to consumer credit experts.
Laurie Campbell, executive director of Credit Counselling Canada, says Canadians already feeling societal pressure to be homeowners are more likely to engage in bidding wars and overspend when they hear that their ability to fulfil that “North American dream” could soon erode.
“We’re not only enticed by agents and those who market mortgages and the whole concept but ... society as a whole,” she said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
“They’re overpaying for houses because they’re all trying to get into the market before interest rates go up,” Campbell said. “Especially right now with this whole time bomb of interest rates, for sure there’s a lot of people out there thinking they better get in the market today.”
Two bank surveys released Wednesday found that potential homebuyers are feeling pressure to buy homes sooner, but are worried about their ability to pay for their homes when mortgage rates rise.
The Bank of Montreal said as many as one-third of respondents in a homebuyers survey believe their expectation that housing prices would increase, and interest rates would soar, left an impression on their decision to make a purchase in the short term.
About 15 per cent of potential homebuyers said they have been in bidding wars, and for those who had their housing bids rejected, 14 per cent believe it caused them to overspend on their next offer.
“There’s definitely a sense of urgency among home buyers,” said Lynne Kilpatrick, senior vice-president of personal banking at BMO.
“While we encourage Canadians to pursue their home ownership dreams, we recognize it’s easy to get caught up in the emotions of the purchase and this can lead to stretching one’s budget too thin.”
Meanwhile, Royal Bank’s annual home ownership survey found about 64 per cent of mortgage holders are concerned about higher rates over the next year. Almost three-quarters of homeowners, 73 per cent, felt strongly that homebuyers needed to think ahead to ensure they will still be able to make their mortgage payment if rates rise.
The bank said six in 10 mortgage holders said they had taken advantage of current low interest rates to pay more principal on their loans.
Most economists say low interest rates are behind the continued strength in the housing market and expect the Bank of Canada to raise interest rates in late spring or early summer.
The cost of servicing a mortgage fell 5.8 per cent in February as a result of record-low interest rates, but with many Canadians taking on ever larger mortgages in expensive markets across the country, higher rates could create problems for some.
BMO’s senior economist, Sal Guatieri, says that with a cooler housing market “just around the corner,” prudence may be a good choice for many new entrants. http://news.therecord.com/Business/article/688274

Financial Update For March 24, 2010

2010-03-24T09:22:00.000-04:00

• TSX +77.37 led by a rally in financial and mining shares that lifted the index back over the 12,000 mark.
• DOW +102.94
• Dollar +.27c to 98.42cUS
• Oil +$.31 to $81.91US per barrel.
• Gold +$4.20 to $1,103.50 USD per ounce

Canada's housing boom continues to outpace recovery in developed countries
By Sunny Freeman, The Canadian Press
TORONTO - Canada's housing boom will continue this spring as exceptionally low mortgage rates - and the expectation that borrowing costs will soon be headed higher - add a sense of urgency to consumer buying.
A Scotiabank global real estate trends report released Tuesday predicts most Canadian regions will remain sellers' markets for the first half of the year, as strong demand and rising prices continue.
"I think you're going to have a very active spring market, probably some cooling off in the second half of the year," Adrienne Warren, the Scotiabank economist who wrote the report said in a presentation Tuesday.
"We're looking at once in a lifetime interest rates that people are taking advantage of...but certainly confidence is coming back, the job markets are stabilizing," she said.
Scotiabank expects about 510,000 home sales this year, up ten per cent from 2009, but just shy of the 2007 record. Average prices are forecast to increase about eight per cent to a record $345,000, while housing starts are expected to reach 190,000, up from 149,000 last year.
The economic recovery from last year's painful recession has improved consumer confidence, although a bounceback in the jobs market is taking more time. Just over a third of the 417,000 jobs lost in the 2008-2009 recession have been replaced and the jobless rate is still at 8.2 per cent, only half a point below its high last August.
Most experts predict the rise in consumer confidence about the economy, and low interest rates, are behind the continued strength in the housing market.
Warren said the spring rush will be driven by an influx of buyers hoping to preempt tighter lending rules for mortgages and the introduction of the harmonized sales tax in Ontario and B.C. But a steady increase in the number of listings and a rise in construction are helping to restore a more balanced market.
"We're starting to see better balance, we're seeing more listings. There was a real lack of listings for the better part of last year...we're moving back into a better balanced situation," Warren said.
Warren said the hot spring market should give way to more subdued activity in the second half of the year, as higher interest rates and higher home prices erode affordability.
Economists expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning in late spring or early summer to fight inflationary pressures in the economy.
With many Canadians taking on larger and larger mortgage debt in expensive markets across the country, higher rates could create financial problems for some homeowners.
Warren added that the incentive for builders to add new houses to the market should also fade as supply increases and prices cool.
The front-loaded activity in the first half of the year will also contribute to lower sales, prices and construction in 2011, she said.
Canada's recovery continues to outpace developed countries around the world with housing prices in the fourth quarter up 19 per cent year over year. The strong performance has carried through into 2010, with sales in the first two months just slightly behind the near-record levels seen in late 2009.
Warren said that year-ago comparisons are amplified by the sharp drop in sales and prices at the end of 2008, but still represent a remarkable turnaround in a short time.
"We're not seeing a lot of evidence of speculative activity, I think you're just looking at a tight market, more buyers than sellers and people have to pay a premium in that environment,"she said.
She added that milder that usual temperatures across the country may have also put a bit of spring into a typically slow winter sales season.
Meanwhile, housing prices in countries including the U.K., Japan and the U.S. were still below year-earlier levels in the final quarter of 2009.
http://ca.news.finance.yahoo.com/s/23032010/2/biz-finance-canada-s-housing-boom-continues-outpace-recovery-developed.html

Financial Update For March 23, 2010

2010-03-24T09:19:00.000-04:00

• TSX +19.19 .
• DOW +43.91
• Dollar -.24c to 98.15cUS The Canadian dollar touched a one-week low against the U.S. dollar, weakened by mixed commodity prices and uncertainty about Europe's handling of Greece's debt
• Oil +$.63 to $81.60US per barrel.
• Gold -$8.10 to $1,099.50 USD per ounce

Fight over real estate fees not over
Michael Babad Globe and Mail
The fight over the Multiple Listing Service run by Canada's realtors isn't over yet. The Canadian Real Estate Association said today it approved changes that would give home buyers and sellers more power over their transactions on MLS. Under the change, a consumer will now be able to pay an agent a flat fee to list on the service, where about nine out of 10 of all deals are done. Agents must now pass along a seller's home phone number, if that's what the seller wants, to a potential buyer if asked. The association said in a statement that it believes it has now addressed the issues raised by the Competition Bureau, which has taken the issue to the Competition Tribunal.
But the Competition Bureau immediately responded that it plans to continue to challenge the “anti-competitive rules that deny consumer choice and stifle competition” despite the CREA changes.
“There is nothing in these proposals that we haven't seen before and they do not solve the problem,” Melanie Aitken, the Commissioner of Competition, said in a statement. “They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”
The bureau said CREA's amendments do not remove “existing roadblocks to real estate agents who list properties on the MLS from offering innovative services and pricing options to consumers.”

Financial Update For March 22, 2010

2010-03-22T10:08:00.002-04:00

• TSX -92.03 after uncertainty over the Greek financial crisis pushed the U.S. dollar higher, which in turn helped drive down prices for oil and metals.
• DOW -37.19 Investors were taken aback after India's central bank unexpectedly raised interest rates for the first time since July, 2008 after inflation ran ahead to a 16-month high. The Reserve Bank of India increased the benchmark reverse repurchase rate by a quarter point to 3.5 per cent. That move rekindled concerns about central banks removing stimulus too early
• Dollar -.46c to 98.61cUS The greenback continued to gain strength after Greece's prime minister said the country might turn to the International Monetary Fund for support if European leaders can't agree on a bailout plan that would reduce high borrowing costs. However the loonie had run up strongly to above the 99-cent level earlier Friday after Statistics Canada said consumer prices rose 1.6 per cent last month, following a 1.9 per cent increase the previous month. Economists had been expecting prices to rise at an annualized rate of 1.4 per cent.
• Oil -$1.52 to $80.68US per barrel.
• Gold +$19.90 to $1,107.60 USD per ounce

When you start to earn, you should start to save
BY LUISA D’AMATO
CAMBRIDGE — Young people who are just starting their careers have a lot to think about in terms of finances, says Irene Vassalo, a financial consultant with Investors Group in Cambridge.
Anyone who is self-employed, or doesn’t get benefits, should be thinking about covering themselves with a benefits plan that includes financial protection if they’re hit with a disease like cancer, a stroke, a heart attack or disability from a car accident.
It may be hard for someone in his or her 20s to imagine being disabled, but it can happen to anyone. “They definitely need to look at protection,” said Vassalo.
People in their 20s are often getting married, buying their first home and having their first child — although not necessarily in that order
Vassalo believes in putting money away for a registered retirement savings plan — even if it’s only $25 a month — as soon as you start earning.
Maybe you can’t imagine yourself retiring, but you can keep that money away from government taxes. You can use it as a down payment on your first home, and you can use it as a long-term savings plan.
Also, you need a special fund — of at least two to three months’ income — for “emergencies and opportunities,” she says.
An emergency would be losing your job, becoming ill, your car breaking down, or your roof or furnace needing replacement. An opportunity is the happier prospect of buying a new car or piece of furniture, or going on a trip.
If you’re getting married, “watch the wedding expenses,” she says. “It doesn’t have to be a $50,000 wedding.”
In an ideal world, you should save 10 per cent of your income by putting it into registered retirement savings, put another 20 per cent into the emergency fund, and spend the remaining 70 per cent on your bills and daily needs.
When you get to buying your first home, you can lend yourself the money you put away into retirement savings plans for that down payment. You’ll have to pay yourself back over time.
It’s best to get your mortgage pre-approved before you find your dream home. Banks will look at how much income you have and how much debt.
Should you go for a larger mortgage because interest rates are low? What if they start to go up?
For that question, Vassalo recommends this strategy: Assume interest rates are double what they now are, then see if you can still afford the home.
Also, consider other costs: The biggest expenses in a home apart from the mortgage are property taxes, heat and utilities.
If you are considering renting out the home, or part of it, check the situation and be realistic. How is the vacancy rate in your community? How handy are you? How will you feel about being called in the middle of the night to fix the toilet or get rid of a mouse? What will happen if your tenant is badly behaved and doesn’t pay the rent?
“You have to be prepared for all circumstances,” says Vassalo.
If you’re starting a family, start a registered education savings plan immediately. The government matches 20 per cent of your contribution to a maximum of $400 a year. And you can use it to pay for all sorts of educational institutions, even a performing arts conservatory or correspondence courses.
Help your children become financially smart by training them to save part of their allowance or birthday money. Some should be saved for their education, and some should be saved for a short-term goal like buying a bicycle or video game system. http://news.therecord.com/article/686919

Financial Update For March 19, 2010

2010-03-19T10:26:00.000-04:00

• TSX -60.65 A continuing Greek debt crisis helped push the TSX lower, with commodity stocks dampened by worries an already shaky global economic recovery could have the wind knocked out of it should EU bailout efforts fail.
• DOW +45.50
• Dollar -.46c to 98.61cUS
• Oil -$.92 to $82.01US per barrel.
• Gold +$1.00 to $1,125.00 USD per ounce
Generating 70% replacement ratio to retire at 65, requires 35 years of saving 10-20% of income Jonathon Chevreau, Financial Post
Canadians hoping to "replace" 70% of their working income when retiring at 65 will need to save a "very high" portion of their annual pre-retirement earnings, says a C.D. Howe Institute study released today. Depending on their earned income while working, they will need to save between 10 and 21% of their pre-tax earnings every year: for 35 consecutive years between age 30 and 65, says the report, titled The Piggy Bank Index: Matching Canadians' Savings Rates to Their Retirement Dreams. The full 10-page e-brief can be found by clicking here. [If you have trouble with the link, as I did, copy it and paste it directly into your browser.]
Limits on tax-assisted savings prevent most high-earners from replacing 70% of working incomes
The authors -- David A. Dodge, Alexandre Laurin and Colin Busby -- say Canadians face obstacles in saving more. "The problem is that although private savings allow choice about retirement age and income, the Income Tax Act limits on tax-recognized savings may prevent many higher income earners from accumulating sufficient RRSP savings to securely replace 70% of their final earnings."
In a press release, former Governor of the Bank of Canada David Dodge [pictured above] said the findings provide "a ‘reality check' about the saving rates required to meet [Canadians'] retirement goals and inform the choices they could have to make between working longer or consuming less and saving more."
The authors assume a 3% real return on investments, despite the fact 4% is the historical norm. They assume inflation will average 2% a year and that public pensions like the CPP/QPP and Old Age Security will continue in their present form.
While a 70% replacement ratio is considered the "gold standard" an appendix provides calculations for more modest income replacement ratios of 60% and 50%.
Only "working poor" can get by saving less than 10% of gross earnings
It finds that with the exception of what it calls "the working poor," most Canadians must save 10 to 21% of gross earnings every year to get to the 70% replacement ratio in retirement. "This fraction is likely higher than many Canadians believe and higher than is set aside in most employer-based group RSPs or defined-contribution plans," the authors write, "It is also higher than the effective contribution over time to many employer-sponsored defined-benefits plans, and for high-income earners exceeds the annual limits placed on RRSP contributions."
Note that last point, given an earlier CD Howe recommendation that RRSP contribution limits be almost doubled from the current 18% of earned income and $22,000 maximum to 34% and $42,000 respectively, as reported in this blog here early in February. The recent federal budget ignored the recommendation but indicated further consultation will occur in the spring. In today's e-brief, the institute adds that "Income Tax Act limits would prevent many earners from accumulating enough RRSP savings over 33 years (by age 63) to replace 70% or more of their working income."
Delaying retirement to age 67 so you save for 37 years reduces the fraction that must be saved somewhat, "but the required saving rate still remains high," the brief says, "People wishing to retire even earlier at 63 face even higher costs."
Delaying saving past 30 means saving more than 20% of income
And as all the nation's banks tell us during RRSP season, delaying the commencement of saving past age 30 means eventually having to save what the institute calls "extraordinarily large fractions of income -- more than 20%" for many above-average earners during the last decade of one's working years.
The paper concludes on a public policy note, saying the debate on how to improve our pension system is "well founded." Policy changes can improve incentives to save for retirement and to more efficiently manage retirement savings. But CD Howe's final line in the brief could have been written by virtually any financial planner or advisor: "In the end, if Canadians want high incomes and consumption in their retirement years, they will have to save more of their incomes and forgo more consumption during their earning years."
Malcolm Hamilton: dreams "shattered" only if you accept 70% replacement target
Asked for his reaction to the paper, Mercer's actuary Malcolm Hamilton -- pictured left from a Wealthy Boomer video interview last year -- said he had read an earlier draft but little appears to have changed. Here, unfiltered by me and only lightly edited, is his input sent by email. I've italicized it to make it clear the authorship is his, not mine. I've added the subheads in bold:
The paper shows that:
* If you want to replace 70% of your gross income when you retire at 65, and
* If you earn an above average wage,
then you need to save quite a bit from a rather young age (30). If you want to retire early with that same standard of living, you need to save even more. The conclusions are very sensitive to assumptions about future returns, but that's the way it is.

The big question is whether you need to replace 70% of your gross income to preserve your standard of living when you retire. Most Canadians retire with closer to 50% replacement. Most say that their quality of life is as good or better after retirement than before. As you know, I always felt that 50% would preserve the standard of living of the average family of 4 because a large percentage of their pre retirement income (often 40% to 50%) is consumed by kids, mortgages and taxes.
50% replacement ratio may suffice to preserve low standard of living while working
All of these burdens are hopefully gone by the time they retire. Their pre retirement standard of living is low. The good news is that they don't need to save much to preserve this low standard of living. One of the tables in the report concludes that those with average earnings can retire with 50% replacement at age 65 by saving only 5% of their incomes ... as compared to 11% if they want 70% replacement.

I do worry about the message accompanying the paper ... in essence that Canadians are saving too little and that their dreams will be shattered when they retire. This is true if we accept the 70% target. But it is not true if the target is wrong, and no evidence is offered in support of the 70% target. In essence, if you assume that everyone needs more than they really need when they retire, you conclude that everyone's dream will be shattered ... but so what?
Obsessive retirement saving shouldn't come at cost of raising families
We need to strive for a more balanced perspective. Yes, we want people to have adequate incomes when they retire. But we also want them to have adequate incomes when they are carrying a mortgage and raising their children. Telling them to save obsessively solves the first problem but exacerbates the second. And from my perspective, the second problem may
be the bigger one.