Stunning rejection shocks markets
Black September
RON EDMONDS, THE ASSOCIATED PRESS
RON EDMONDS,THE ASSOCIATED PRESS
After an abysmal month that has seen banks collapse and staggering amounts of wealth disappear, Congress defies Bush and votes down the bailout he says is needed to avoid economic disaster
· TSX -840.93pts the biggest one day point drop in history and the biggest percentage drop in 8 years
· Dow -777.68pts. As the U.S. House voted to reject the Wall Street rescue plan, concerns mounted that the fallout from the crisis in the United States was spreading rapidly around the globe and that the world economy was headed for a sharp downturn as Europe also continued a bank rescue
· Dollar -1.03c to $95.79US.
· Oil -$10.52 to $96.37US per barrel. almost a 10% drop in price
· Gold +5.30 to $888.20US per ounce
September 30, 2008 Tim Harper and Rita TrichurRecord news services WASHINGTON
A stunning rejection of a $700 billion financial bailout package by the U.S. House of Representatives yesterday sparked a historic North American stock market sell off and left this country in a crisis with no end in sight.
During an emotional afternoon in which the House dissolved into partisan finger-pointing, the bill was defeated 228-205 and, even before the voting was complete, the Dow Jones index began a free fall which ended with a loss of 777 points and $1.2 trillion in market value.
Toronto's S&P/TSX composite index collapsed into a sea of red after shedding a whopping 840.93 points to close at 11,285.07. The benchmark index had fallen by more than 900 points at one point during the session, buckling under the weight of tumbling energy and financial shares.
While it managed to recover from that low point, yesterday's 6.93 per cent decline was the index's steepest one-day percentage drop in nearly eight years. With only one trading day left in September, the TSX is now poised for its worst monthly performance in about a decade.
The next move in Washington was unclear.
Both sides pledged to go back to work at crafting a package which can pass muster, but Congress now goes dark until Thursday.
More than two-thirds of Republicans, as well as 40 per cent of Democrats voted against the bill.
The vote had reverberations on the campaign trail in both Canada and the U.S.
NDP Leader Jack Layton demanded an emergency leaders' meeting as chaos on Bay Street and Wall Street mounted.
Prime Minister Stephen Harper rejected Layton's request and the Conservatives continued to claim that their party is the best bet to lead Canada at a time of economic instability.
Layton had urged Harper to convene an all-party meeting this week to discuss the economic problems and what they mean for Canada.
On the presidential campaign trail, Democrat Barack Obama counselled calm and urged Congress to get back to work.
"Get this done,'' Obama said. "Democrats and Republicans, step up to the plate and get this done.''
Republican John McCain, who dramatically suspended his campaign last week to deal with the crisis, accused Obama of a lack of leadership and said Democrats had torpedoed the effort with a last-minute partisan foray.
As it became clear the House bill was going to die, some members started shouting that the Dow was down more than 600 points and television screens around the world offered a jolting split screen of the market diving with every vote in the "nay'' column.
In the end, House Republicans, faced with the pleadings of President George W. Bush and the anger of their constituents, turned their backs on the president.
They then attempted to blame Democratic House Speaker Nancy Pelosi, saying a speech she delivered on the floor blasting Bush economic policies had injected partisan politics into the effort to craft a bipartisan solution.
Bush and Treasury Secretary Henry Paulson expressed disappointment and pledged to go back to work, but Paulson looked particularly grim as he spoke to reporters at the White House.
"Markets around the world are under stress, and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories,'' Paulson said.
"Families, too, feel the credit crunch, as it becomes more difficult to get car loans or a student loan.''
Bush, who last week used his prime time television bully pulpit to warn Americans of dire consequences, spoke only briefly, pledging to redouble efforts with congressional leaders.
"We put forth a plan that was big because we got a big problem,'' Bush said.
Global banks have already taken some $590.8 billion US in write downs and credit losses since the implosion of America's subprime mortgage market triggered the credit crunch last year. With the International Monetary Fund predicting that losses could eventually top $1 trillion, banks are increasingly skittish about lending to each other.
"Nobody wants to lend money to anybody right now. The cost of funds is very high,'' said Andrew Martyn, a portfolio manager at Davis-Rea Ltd.
That crisis of confidence also has an impact on Canadian banks, which have relatively little exposure to America's subprime market or the troubled mortgage-backed securities that have brought down larger rivals.
Also weighing heavily on market sentiment was Citigroup Inc.'s hastily-arranged takeover of Wachovia Corp. and the partial nationalization of a handful of European lenders.
Republican House leader John Boehner said he thought he had the votes until the last minute.
"Americans are angry, and so are my colleagues. They don't want to have to vote for a bill like this, and I understand that,'' he said.
Republicans say they lost about a dozen votes at the last minute.
"The speaker had to give a partisan (speech) that poisoned our conference, caused a number of members we thought we could get to go south,'' Boehner said.
Pelosi countered that Democrats had held up their end of the bargain.
But Barney Frank, the legendarily cantankerous Democratic chair of the House banking committee, said Republicans were accusing themselves of a level of pettiness so base, that even he would never have launched such a broadside.
"There's a terrible crisis affecting the American economy,'' Frank said.
"We have come together on a bill to alleviate the crisis. And because somebody hurt their feelings they decide to punish the country.
"Give me those 12 people's names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are and maybe they'll now think about the country.''
Against the $700B deal: 228
For the $700B deal: 205
Tuesday, September 30, 2008
Monday, September 29, 2008
Financial Update
Why was the TSX down and the DOW up on Friday?
Research In Motion, which torpedoed down 28.2% due to a softer forecast of 1c per share, which resulted in $100m less profit, even though RIM posted quarterly revenue of US$2.58-billion, up 88% from the same period a year ago.
· TSX -420.51pts hit with a triple whammy-- uncertainty over the fate of the U.S. financial system rescue plan, a selloff of RIM and lower oil prices Normally, a 400+ point drop is big news, but this is only the 4th-largest drop in the month so far.
· Dow +121.07pts. on optimism as U.S. lawmakers were back at the bargaining table Friday after a standoff by a group of Republicans derailed a tentative agreement on the controversial rescue package Thursday, and that they will come to some kind of agreement soon over the $700b plan that calls on the U.S. government to buy up toxic mortgage debt and other questionable securities.
· Dollar +.14c to $96.82US.
· Oil -$1.13 to $106.89US per barrel.
· Gold +5.20 to $882.90US per ounce Lawmakers. Some participants in the talks expressed hope that a deal could be reached over the weekend or early next week
Bailout pressure mounts; U.S. sees largest bank failure in its history
More bank bailouts on the horizon? Eoin Callan, Financial Post
If you have an account with this bank, have no fear, all accounts have simply been moved over to another institution and "no one lost any money that was deposited," said an official note to Washington Mutual Inc. customers from the U.S. government Friday after the largest bank collapse in American history.
If you have shares or bonds in this bank, too bad - you've probably lost everything, the note effectively went on to say after the Federal Deposit Insurance Corp. stepped in to seize the sixth-largest U.S. lender and hand much of its branches and deposit base over to its more stable competitor JP Morgan Chase & Co.
The message posted by the government was a sign of the times. And it looks to become a recurring feature as more banks turn to Washington or former rivals for relief from the punishing mortgage meltdown.
"Wachovia is next," said a senior investment banker on Friday, as the U.S. lender's value was cut by 40% amid growing expectations it will surrender its independence as early as this weekend.
The government-led rescues have featured late-night operations executed without the knowledge or consent of the bank management, board members or shareholders and have cast their interests aside in a bid to avert the chaos and panic that would accompany sudden branch closures.
The way investors are being cast aside is in turn pushing down the bank shares of other walking wounded like Wachovia. But the distress is creating plum opportunities for competitors that want to expand their footprint of bank branches in the U.S., like TD Bank Financial Group, which this week signalled its intentions to come out on top after the corporate bloodletting abates.
TD was still in the running on Friday to pick up the seized branch networks of Washington Mutual after it got privileged access to the bank's private books earlier this week by entering an auction process that ended with government intervention.
While JP Morgan has right of first refusal on the branch network, analysts expect the U.S. bank to shed more than 500 storefronts that overlap with its existing operations to recoup the estimated $30-billion in writedowns it has agreed to assume for the government .
"The combination itself presents an opportunity for TD to acquire locations, customers and deposits," according to Michael Goldberg, an analyst with Desjardins.
The analyst sees the tranche of 237 branches in New York state and 86 branches in New Jersey as the best fit for TD, which is already among the top five banks in that region and stands to increase its size by up to a third.
TD also emerged from this week's failed auction for Washington Mutual two slightly more intangible benefits. The first was a qualified mandate of sorts to pursue retail acquisitions in the U.S. from some of its own biggest shareholders, who did not flee for the exits when word leaked TD was in the auction for a badly listing U.S. bank, and instead told the Financial Post they backed management.
The auction also allowed TD to stare into the banking system's heart of darkness: toxic pools of original subprime mortgages, and glean intelligence about the worth of the underlying assets.
"Information is valuable in this marketplace," said one banker on Friday.
This knowledge will give TD an edge in bidding rounds for a growing list of regional banks and financial companies likely to entice interest from other Canadian banks, including Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada.
Royal Bank Chief Executive Gord Nixon said on Friday the bank would consider buying branch networks or wealth-management units, but cautioned against expecting large-scale deals.
"Under the right circumstances we could strategically support a retail-banking or wealth-management acquisition and we expect opportunities particularly, but not limited to, the United States over the next 12 months," he said.
One of the stumbling blocks facing Canadian banks is ambiguity over how a planned US$700-billion bail out fund will treat U.S. operations owned or acquired by foreign companies.
There is a deep split on Capitol Hill over the issue, with one camp wanting to exclude foreign-owned subsidiaries, according to a bank lobbyist in Washington. This would pull the rug from under Canadian bidders on distressed banks.
"It would hurt foreign buy-outs, and leave a very bad taste in the mouths of foreign investors," said Gary Hufbauer of the Peterson Institute.
A separate camp wants discretionary power handed to Hank Paulson, the U.S. Treasury secretary, that would, in turn, give Washington leverage over other countries.
Canada 'not immune' from U.S. fallout: Carney Paul Vieira, Financial Post Dean Bicknell/Calgary Herald Mark Carney, the Governor of the Bank of Canada OTTAWA -- Canada is "not immune" from the negative fallout in the U.S. financial system, Mark Carney, the Bank of Canada governor, said Thursday, warning the current credit turmoil "poses particular problems" for the Canadian economy.
In an address to the Canadian Club of Montreal, Mr. Carney suggested the U.S. economy may not recover as quickly as the central bank initially expected, and that commodity prices, which have driven income growth in Canada, will remain volatile due to slower economic growth in emerging markets.
The remarks were the first public comments by Mr. Carney on the financial turmoil in the U.S. system. Bank of Canada watchers said they were more cautious than usual, likely because of the federal election campaign in which the economy has emerged as the top issue. For weeks, the Conservative Party, which is seeking another mandate to govern, has argued that Canada's economic fundamentals are "solid" and not at risk despite the meltdown in the U.S. markets.
In comments last week, Stephen Harper, the Prime Minister, told reporters the negative fallout from the U.S. financial turmoil "should not spill over into Canada."
As it happens, economists at Toronto-Dominion Bank released their outlook for the Canadian economy. The TD report said the economic fallout in the United States will get worse before it gets better, and as a result it will likely be a year before Canada experiences a "shallow recovery."
Mr. Carney indicated through his remarks that the central bank may be of a similar view as the TD economists.
He said the central bank is in the midst of "revisiting" its outlook for the U.S. economy, adding the turmoil in that country's financial sector has increased the risk that a U.S. economic recovery will be delayed.
"A fall in U.S. domestic demand seems likely. Household credit growth has slowed sharply and will slow further," he said. "Any slowdown in the U.S. economy would have consequences for Canada, but the current situation poses particular problems.
"The prolonged housing slump has affected Canadian exports of lumber and building materials. In addition, the fall in U.S. motor vehicle sales ... has adversely affected our auto sector. Even the spring fiscal stimulus package does not appear to have boosted consumption in the areas that matter most for Canada."
Mr. Carney reiterated that Canada's financial system is solid and well-positioned to withstand the financial turmoil. Nonetheless, "we are not immune from the fallout from this process elsewhere."
Despite the credit turmoil, Mr. Carney said the central bank "will not deviate" from ensuring, through its monetary policy, that inflation remain at its 2% target. Yet, he added, "events beyond our borders have important influences on the outlook for inflation in our country. They must be considered in tandem with domestic factors, including the strength of domestic demand, the evolution of potential growth, and the health of our financial system."
Douglas Porter, deputy chief economist at BMO Capital Markets, said Mr. Carney's language has turned more "dovish," suggesting the bank may be "open to the thought" of cutting rates if necessary. This month, the central bank said its current benchmark lending rate was at an "appropriately accommodative" level.Some economists, most notably David Wolf of Merrill Lynch and Derek Holt of Scotia Capital, have argued the central bank would need to cut lending rates, starting next month
Research In Motion, which torpedoed down 28.2% due to a softer forecast of 1c per share, which resulted in $100m less profit, even though RIM posted quarterly revenue of US$2.58-billion, up 88% from the same period a year ago.
· TSX -420.51pts hit with a triple whammy-- uncertainty over the fate of the U.S. financial system rescue plan, a selloff of RIM and lower oil prices Normally, a 400+ point drop is big news, but this is only the 4th-largest drop in the month so far.
· Dow +121.07pts. on optimism as U.S. lawmakers were back at the bargaining table Friday after a standoff by a group of Republicans derailed a tentative agreement on the controversial rescue package Thursday, and that they will come to some kind of agreement soon over the $700b plan that calls on the U.S. government to buy up toxic mortgage debt and other questionable securities.
· Dollar +.14c to $96.82US.
· Oil -$1.13 to $106.89US per barrel.
· Gold +5.20 to $882.90US per ounce Lawmakers. Some participants in the talks expressed hope that a deal could be reached over the weekend or early next week
Bailout pressure mounts; U.S. sees largest bank failure in its history
More bank bailouts on the horizon? Eoin Callan, Financial Post
If you have an account with this bank, have no fear, all accounts have simply been moved over to another institution and "no one lost any money that was deposited," said an official note to Washington Mutual Inc. customers from the U.S. government Friday after the largest bank collapse in American history.
If you have shares or bonds in this bank, too bad - you've probably lost everything, the note effectively went on to say after the Federal Deposit Insurance Corp. stepped in to seize the sixth-largest U.S. lender and hand much of its branches and deposit base over to its more stable competitor JP Morgan Chase & Co.
The message posted by the government was a sign of the times. And it looks to become a recurring feature as more banks turn to Washington or former rivals for relief from the punishing mortgage meltdown.
"Wachovia is next," said a senior investment banker on Friday, as the U.S. lender's value was cut by 40% amid growing expectations it will surrender its independence as early as this weekend.
The government-led rescues have featured late-night operations executed without the knowledge or consent of the bank management, board members or shareholders and have cast their interests aside in a bid to avert the chaos and panic that would accompany sudden branch closures.
The way investors are being cast aside is in turn pushing down the bank shares of other walking wounded like Wachovia. But the distress is creating plum opportunities for competitors that want to expand their footprint of bank branches in the U.S., like TD Bank Financial Group, which this week signalled its intentions to come out on top after the corporate bloodletting abates.
TD was still in the running on Friday to pick up the seized branch networks of Washington Mutual after it got privileged access to the bank's private books earlier this week by entering an auction process that ended with government intervention.
While JP Morgan has right of first refusal on the branch network, analysts expect the U.S. bank to shed more than 500 storefronts that overlap with its existing operations to recoup the estimated $30-billion in writedowns it has agreed to assume for the government .
"The combination itself presents an opportunity for TD to acquire locations, customers and deposits," according to Michael Goldberg, an analyst with Desjardins.
The analyst sees the tranche of 237 branches in New York state and 86 branches in New Jersey as the best fit for TD, which is already among the top five banks in that region and stands to increase its size by up to a third.
TD also emerged from this week's failed auction for Washington Mutual two slightly more intangible benefits. The first was a qualified mandate of sorts to pursue retail acquisitions in the U.S. from some of its own biggest shareholders, who did not flee for the exits when word leaked TD was in the auction for a badly listing U.S. bank, and instead told the Financial Post they backed management.
The auction also allowed TD to stare into the banking system's heart of darkness: toxic pools of original subprime mortgages, and glean intelligence about the worth of the underlying assets.
"Information is valuable in this marketplace," said one banker on Friday.
This knowledge will give TD an edge in bidding rounds for a growing list of regional banks and financial companies likely to entice interest from other Canadian banks, including Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada.
Royal Bank Chief Executive Gord Nixon said on Friday the bank would consider buying branch networks or wealth-management units, but cautioned against expecting large-scale deals.
"Under the right circumstances we could strategically support a retail-banking or wealth-management acquisition and we expect opportunities particularly, but not limited to, the United States over the next 12 months," he said.
One of the stumbling blocks facing Canadian banks is ambiguity over how a planned US$700-billion bail out fund will treat U.S. operations owned or acquired by foreign companies.
There is a deep split on Capitol Hill over the issue, with one camp wanting to exclude foreign-owned subsidiaries, according to a bank lobbyist in Washington. This would pull the rug from under Canadian bidders on distressed banks.
"It would hurt foreign buy-outs, and leave a very bad taste in the mouths of foreign investors," said Gary Hufbauer of the Peterson Institute.
A separate camp wants discretionary power handed to Hank Paulson, the U.S. Treasury secretary, that would, in turn, give Washington leverage over other countries.
Canada 'not immune' from U.S. fallout: Carney Paul Vieira, Financial Post Dean Bicknell/Calgary Herald Mark Carney, the Governor of the Bank of Canada OTTAWA -- Canada is "not immune" from the negative fallout in the U.S. financial system, Mark Carney, the Bank of Canada governor, said Thursday, warning the current credit turmoil "poses particular problems" for the Canadian economy.
In an address to the Canadian Club of Montreal, Mr. Carney suggested the U.S. economy may not recover as quickly as the central bank initially expected, and that commodity prices, which have driven income growth in Canada, will remain volatile due to slower economic growth in emerging markets.
The remarks were the first public comments by Mr. Carney on the financial turmoil in the U.S. system. Bank of Canada watchers said they were more cautious than usual, likely because of the federal election campaign in which the economy has emerged as the top issue. For weeks, the Conservative Party, which is seeking another mandate to govern, has argued that Canada's economic fundamentals are "solid" and not at risk despite the meltdown in the U.S. markets.
In comments last week, Stephen Harper, the Prime Minister, told reporters the negative fallout from the U.S. financial turmoil "should not spill over into Canada."
As it happens, economists at Toronto-Dominion Bank released their outlook for the Canadian economy. The TD report said the economic fallout in the United States will get worse before it gets better, and as a result it will likely be a year before Canada experiences a "shallow recovery."
Mr. Carney indicated through his remarks that the central bank may be of a similar view as the TD economists.
He said the central bank is in the midst of "revisiting" its outlook for the U.S. economy, adding the turmoil in that country's financial sector has increased the risk that a U.S. economic recovery will be delayed.
"A fall in U.S. domestic demand seems likely. Household credit growth has slowed sharply and will slow further," he said. "Any slowdown in the U.S. economy would have consequences for Canada, but the current situation poses particular problems.
"The prolonged housing slump has affected Canadian exports of lumber and building materials. In addition, the fall in U.S. motor vehicle sales ... has adversely affected our auto sector. Even the spring fiscal stimulus package does not appear to have boosted consumption in the areas that matter most for Canada."
Mr. Carney reiterated that Canada's financial system is solid and well-positioned to withstand the financial turmoil. Nonetheless, "we are not immune from the fallout from this process elsewhere."
Despite the credit turmoil, Mr. Carney said the central bank "will not deviate" from ensuring, through its monetary policy, that inflation remain at its 2% target. Yet, he added, "events beyond our borders have important influences on the outlook for inflation in our country. They must be considered in tandem with domestic factors, including the strength of domestic demand, the evolution of potential growth, and the health of our financial system."
Douglas Porter, deputy chief economist at BMO Capital Markets, said Mr. Carney's language has turned more "dovish," suggesting the bank may be "open to the thought" of cutting rates if necessary. This month, the central bank said its current benchmark lending rate was at an "appropriately accommodative" level.Some economists, most notably David Wolf of Merrill Lynch and Derek Holt of Scotia Capital, have argued the central bank would need to cut lending rates, starting next month
Friday, September 26, 2008
Financial Update
· TSX +33.15pts
· Dow +196.89pts Financial markets grew more upbeat as political leaders said they struck an agreement in principle on a massive spending plan to revive the crippled financial system. The Dow jumped s on optimism about the bailout, and demand for safe-haven assets remained high but eased slightly as some investors placed bets that a deal would help unclog credit markets.
· Dollar +.22c to $96.68US. The Canadian dollar rose against a slumping U.S. dollar as U.S. data missed expectations, compounding concerns about the economy as U.S. lawmakers tried to reach an agreement on a proposed bailout package for the battered financial sector
· Oil +2.29 to $108.02US per barrel.
· Gold -11.30 to $877.70US per ounce
Mortgage rates begin to rise
Kristine Owram The Canadian Press
Mortgage rates in Canada are heading higher as fears of inflation resonate through the bond market while U.S. legislators struggle toward agreement on a $700 billion US bailout plan for Wall Street banks.
TD Canada Trust and Bank of Montreal said last night they have raised mortgage rates by more than a third of a percentage point on three, four and five-year loans.
The changes reflect the rising cost of borrowing in the bond market, an inflation-sensitive financial marketplace where banks finance their mortgage lending.
Effective today, a five-year mortgage at both banks increases by 0.35 of a percentage point to 7.2 per cent, while a three-year closed term rises by the same amount to 7.05 per cent.
A one-year closed mortgage loan at TD Canada Trust falls by .3 of a percentage point to 6.35 per cent.
The changes suggest bond markets are worried about the future inflationary pressures from the proposed U.S. bailout of Wall Street banks, said TD Bank chief economist Don Drummond.
"We always did figure that adding $700 billion to the deficit of the United States would probably cause something like a 25 basis point (quarter point) increase in the longer-term interest rates and that seems to have already happened,'' said Drummond.
"(The bailout) does increase the risk to bonds. In just plain good old demand and supply that means there has to be an awful lot of bond issuance and there's a limited supply of people that want to buy them so it's natural that the price goes up,'' he added.
The interest rates on mortgages and other short-term borrowing are set based on the price of bonds. With lower demand for bonds and fears of inflation, rates have to rise to lure investors willing to part with their money.
Other interest rates in the economy -- from consumer and car loans to mortgage rates tied to the prime rate -- are affected by the Bank of Canada trend-setting rate, which is expected to fall or remain stable over the next few months at least.
A bailout is expected to push up inflation and force the U.S. Federal Reserve Board to raise rates in the future.
· Dow +196.89pts Financial markets grew more upbeat as political leaders said they struck an agreement in principle on a massive spending plan to revive the crippled financial system. The Dow jumped s on optimism about the bailout, and demand for safe-haven assets remained high but eased slightly as some investors placed bets that a deal would help unclog credit markets.
· Dollar +.22c to $96.68US. The Canadian dollar rose against a slumping U.S. dollar as U.S. data missed expectations, compounding concerns about the economy as U.S. lawmakers tried to reach an agreement on a proposed bailout package for the battered financial sector
· Oil +2.29 to $108.02US per barrel.
· Gold -11.30 to $877.70US per ounce
Mortgage rates begin to rise
Kristine Owram The Canadian Press
Mortgage rates in Canada are heading higher as fears of inflation resonate through the bond market while U.S. legislators struggle toward agreement on a $700 billion US bailout plan for Wall Street banks.
TD Canada Trust and Bank of Montreal said last night they have raised mortgage rates by more than a third of a percentage point on three, four and five-year loans.
The changes reflect the rising cost of borrowing in the bond market, an inflation-sensitive financial marketplace where banks finance their mortgage lending.
Effective today, a five-year mortgage at both banks increases by 0.35 of a percentage point to 7.2 per cent, while a three-year closed term rises by the same amount to 7.05 per cent.
A one-year closed mortgage loan at TD Canada Trust falls by .3 of a percentage point to 6.35 per cent.
The changes suggest bond markets are worried about the future inflationary pressures from the proposed U.S. bailout of Wall Street banks, said TD Bank chief economist Don Drummond.
"We always did figure that adding $700 billion to the deficit of the United States would probably cause something like a 25 basis point (quarter point) increase in the longer-term interest rates and that seems to have already happened,'' said Drummond.
"(The bailout) does increase the risk to bonds. In just plain good old demand and supply that means there has to be an awful lot of bond issuance and there's a limited supply of people that want to buy them so it's natural that the price goes up,'' he added.
The interest rates on mortgages and other short-term borrowing are set based on the price of bonds. With lower demand for bonds and fears of inflation, rates have to rise to lure investors willing to part with their money.
Other interest rates in the economy -- from consumer and car loans to mortgage rates tied to the prime rate -- are affected by the Bank of Canada trend-setting rate, which is expected to fall or remain stable over the next few months at least.
A bailout is expected to push up inflation and force the U.S. Federal Reserve Board to raise rates in the future.
Thursday, September 25, 2008
Financial Update
(Reuters) - The TSE's main index ended slightly lower, plagued by uncertainty over the U.S. bailout plan. If this thing came out and was passed today, I think the market would take off," said Rick Hutcheon, president and COO at RKH Investments, of the U.S. bailout. "But the market is getting worried that something is going to happen to derail this thing, or that it's going to take so long that it's going to be ineffective by the time it actually gets (passed),"
· TSX -19.27pts Warren Buffett's $5 billion investment in Goldman Sachs is something the markets would love to react to but can't because they're fixated on these other issues
· Dow -29.00pts
· Dollar -.04c to $96.46US.
· Oil -$.88 to $105.73US per barrel.
· Gold +3.50 to $889.00US per ounce
George Bush painted a frightening picture for Americans last night on prime time television. He positioned supporting his proposal to Americans as protecting their own retirement fund instead of bailing out Wall Street.
Below is an article on the Merrill Lynch report which challenges every other economist’s prevailing view of a positive Canadian economy, saying Canadians are more overextended than Americans or Britains, and its only a matter of time before our housing and credit markets crack.
Bush issues dire economic warning WASHINGTON, (AFP) - Warning "our entire economy is in danger," US President George W. Bush called unprecedented crisis talks for Thursday with White House rivals John McCain and Barack Obama and congressional leaders.
Bush announced the summit in a prime-time televised speech Wednesday seeking public support for his 700-billion-dollar Wall Street rescue plan and to pile pressure on angry lawmakers who declared the shock proposal dead on arrival.
"We're in the midst of a serious financial crisis," Bush said in his 13-minute speech from the White House.
"Without immediate action by Congress , America could slip into a financial panic," the vastly unpopular president said. "Ultimately, our country could experience a long and painful recession."
Six weeks before US elections and four months before he hands the battered US economy to a new steward, Bush said inaction could wipe out banks, threaten retirement nest eggs, send home values into freefall, foreclosures skyrocketing and create millions of new jobless.
"We must not let this happen," urged the president, who said a rare "spirit of cooperation" in Washington in the face of the crisis had led him to invite McCain, Obama, and top House and Senate leaders of both parties to the White House.
Bush had invited Obama in a personal telephone call 90 minutes before his speech, the White House said. The Democrat's chief spokesman, Bill Burton, confirmed in a statement that the Illinois senator would attend.
Obama has worked all week with top lawmakers, Treasury Secretary Henry Paulson, and Federal Reserve chairman Ben Bernanke and "will continue to work in a bipartisan spirit and do whatever is necessary to come up with a final solution," said Burton.
"We will discuss the progress we have made to improve the administration's deeply flawed plan to address this unprecedented crisis," Democratic Senate Majority Leader Harry Reid said in a statement.
"As I have said throughout, tomorrow's meeting and future deliberations must be focused on solutions, not photo ops," Reid said, after other Democrats mocked McCain's decision to suspend his campaign over the crisis as a gimmick.
Opinion polls show the US public is angry at Wall Street but deeply divided about a remedy, with many ready to blame Bush and his Republican party -- which itself has fissured over the plan amid fierce objections from conservatives.
They have expressed dismay over the massive government involvement in the economy, while Bush's Democratic foes have pushed for more government oversight and stronger consumer protections, and both sides have balked at the price tag.
Speaking to his angry allies, Bush explained: "I faced a choice, to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all."
Addressing suspicious Democrats, he promised that the plan must ensure that reckless executives do not reap a "windfall" from taxpayer funds.
He also said he recognized the package would "present a tough vote for many members of Congress," acknowledging "it is difficult to pass a bill that commits so much of the taxpayers' hard-earned money."
But lawmakers "must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow," he warned.
It was not clear how much impact what is arguably the president's most potent political weapons -- the ability to command national attention -- would have with just four months left in his term.
"At this point, there are real doubts about the president's ability to be seen as a trusted and credible source on the economy by the American public," a conservative Republican congressional aide told AFP on condition of anonymity.
But public remarks from all sides suggested that Bush could count on a consensus that inaction could trigger a global financial meltdown.
"Now is a time to come together -- Democrats and Republicans -- in a spirit of cooperation for the sake of the American people," McCain and Obama said in an unusual joint statement.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said.
Merrill Lynch bearish on housing
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September 25, 2008 Eric Shackleton The Canadian Press
Merrill Lynch is challenging the prevailing view that Canada's housing and mortgage markets are more stable than their U.S. counterparts, warning that households in this country are so indebted that it's only a matter of time before we see a major downturn here as well.
In a report issued yesterday, Merrill Lynch Canada economists said many Canadian households are more financially overextended than their counterparts in the United States or Britain.
They said it's only a matter of time before the "tipping point'' is reached and the housing and credit markets crack in Canada.
The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view.
Prime Minister Stephen Harper, in British Columbia for the federal election, responded to the investment firm's warnings by repeating his assurances that Canada's economy is in good shape.
"I think our housing market is in a strong position (and) consumer markets, as well, are stronger in Canada than the U.S. and the position taken by our financial institutions.''
"Of course, we have seen that this market has somewhat weakened in the last 12 months but we will not see such a situation here as in the U.S.''
The National Association of Realtors reported yesterday that the U.S. median sales price in August fell 9.5 per cent to $203,100 US, the largest decline on records dating to 1999.
Many economists have said repeatedly that Canada's housing and banking sector is much more stable than its American counterparts and unlikely to crash -- since it didn't spike in recent years because of many differences between the two countries.
Benjamin Tal, an economist with CIBC who has been closely following the ups and downs of the housing industry, said yesterday he sees no "trigger'' threatening Canada's housing and mortgage market.
"To see a crash in the housing market you need a trigger.
"The trigger in 1989-1990 was extremely high interest rates.
"The trigger in the U.S. was subprime mortgages. We're still missing the trigger for Canada,'' Tal said.
However, Merrill Lynch -- whose U.S. parent is one of the biggest victims of a crisis in financial markets that is rooted in the American housing and mortgage meltdown -- said Canadians should be wary.
Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 -- meaning they're carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 -- just before the subprime mortgage crisis erupted.
Gregory Klump, chief economist with the Canada Mortgage and Housing Corp., said there would need to be a spike in interest rates or massive layoffs before the housing market would take a tumble.
Right now, Klump said, "we have a stable labour market'' and interest rates are low.
"There's no distress sales in Canada, not like in the States.''
The Merrill report says housing prices are now falling and inventories of unsold homes are rising sharply.
· TSX -19.27pts Warren Buffett's $5 billion investment in Goldman Sachs is something the markets would love to react to but can't because they're fixated on these other issues
· Dow -29.00pts
· Dollar -.04c to $96.46US.
· Oil -$.88 to $105.73US per barrel.
· Gold +3.50 to $889.00US per ounce
George Bush painted a frightening picture for Americans last night on prime time television. He positioned supporting his proposal to Americans as protecting their own retirement fund instead of bailing out Wall Street.
Below is an article on the Merrill Lynch report which challenges every other economist’s prevailing view of a positive Canadian economy, saying Canadians are more overextended than Americans or Britains, and its only a matter of time before our housing and credit markets crack.
Bush issues dire economic warning WASHINGTON, (AFP) - Warning "our entire economy is in danger," US President George W. Bush called unprecedented crisis talks for Thursday with White House rivals John McCain and Barack Obama and congressional leaders.
Bush announced the summit in a prime-time televised speech Wednesday seeking public support for his 700-billion-dollar Wall Street rescue plan and to pile pressure on angry lawmakers who declared the shock proposal dead on arrival.
"We're in the midst of a serious financial crisis," Bush said in his 13-minute speech from the White House.
"Without immediate action by Congress , America could slip into a financial panic," the vastly unpopular president said. "Ultimately, our country could experience a long and painful recession."
Six weeks before US elections and four months before he hands the battered US economy to a new steward, Bush said inaction could wipe out banks, threaten retirement nest eggs, send home values into freefall, foreclosures skyrocketing and create millions of new jobless.
"We must not let this happen," urged the president, who said a rare "spirit of cooperation" in Washington in the face of the crisis had led him to invite McCain, Obama, and top House and Senate leaders of both parties to the White House.
Bush had invited Obama in a personal telephone call 90 minutes before his speech, the White House said. The Democrat's chief spokesman, Bill Burton, confirmed in a statement that the Illinois senator would attend.
Obama has worked all week with top lawmakers, Treasury Secretary Henry Paulson, and Federal Reserve chairman Ben Bernanke and "will continue to work in a bipartisan spirit and do whatever is necessary to come up with a final solution," said Burton.
"We will discuss the progress we have made to improve the administration's deeply flawed plan to address this unprecedented crisis," Democratic Senate Majority Leader Harry Reid said in a statement.
"As I have said throughout, tomorrow's meeting and future deliberations must be focused on solutions, not photo ops," Reid said, after other Democrats mocked McCain's decision to suspend his campaign over the crisis as a gimmick.
Opinion polls show the US public is angry at Wall Street but deeply divided about a remedy, with many ready to blame Bush and his Republican party -- which itself has fissured over the plan amid fierce objections from conservatives.
They have expressed dismay over the massive government involvement in the economy, while Bush's Democratic foes have pushed for more government oversight and stronger consumer protections, and both sides have balked at the price tag.
Speaking to his angry allies, Bush explained: "I faced a choice, to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all."
Addressing suspicious Democrats, he promised that the plan must ensure that reckless executives do not reap a "windfall" from taxpayer funds.
He also said he recognized the package would "present a tough vote for many members of Congress," acknowledging "it is difficult to pass a bill that commits so much of the taxpayers' hard-earned money."
But lawmakers "must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow," he warned.
It was not clear how much impact what is arguably the president's most potent political weapons -- the ability to command national attention -- would have with just four months left in his term.
"At this point, there are real doubts about the president's ability to be seen as a trusted and credible source on the economy by the American public," a conservative Republican congressional aide told AFP on condition of anonymity.
But public remarks from all sides suggested that Bush could count on a consensus that inaction could trigger a global financial meltdown.
"Now is a time to come together -- Democrats and Republicans -- in a spirit of cooperation for the sake of the American people," McCain and Obama said in an unusual joint statement.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said.
Merrill Lynch bearish on housing
Email the author
September 25, 2008 Eric Shackleton The Canadian Press
Merrill Lynch is challenging the prevailing view that Canada's housing and mortgage markets are more stable than their U.S. counterparts, warning that households in this country are so indebted that it's only a matter of time before we see a major downturn here as well.
In a report issued yesterday, Merrill Lynch Canada economists said many Canadian households are more financially overextended than their counterparts in the United States or Britain.
They said it's only a matter of time before the "tipping point'' is reached and the housing and credit markets crack in Canada.
The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view.
Prime Minister Stephen Harper, in British Columbia for the federal election, responded to the investment firm's warnings by repeating his assurances that Canada's economy is in good shape.
"I think our housing market is in a strong position (and) consumer markets, as well, are stronger in Canada than the U.S. and the position taken by our financial institutions.''
"Of course, we have seen that this market has somewhat weakened in the last 12 months but we will not see such a situation here as in the U.S.''
The National Association of Realtors reported yesterday that the U.S. median sales price in August fell 9.5 per cent to $203,100 US, the largest decline on records dating to 1999.
Many economists have said repeatedly that Canada's housing and banking sector is much more stable than its American counterparts and unlikely to crash -- since it didn't spike in recent years because of many differences between the two countries.
Benjamin Tal, an economist with CIBC who has been closely following the ups and downs of the housing industry, said yesterday he sees no "trigger'' threatening Canada's housing and mortgage market.
"To see a crash in the housing market you need a trigger.
"The trigger in 1989-1990 was extremely high interest rates.
"The trigger in the U.S. was subprime mortgages. We're still missing the trigger for Canada,'' Tal said.
However, Merrill Lynch -- whose U.S. parent is one of the biggest victims of a crisis in financial markets that is rooted in the American housing and mortgage meltdown -- said Canadians should be wary.
Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 -- meaning they're carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 -- just before the subprime mortgage crisis erupted.
Gregory Klump, chief economist with the Canada Mortgage and Housing Corp., said there would need to be a spike in interest rates or massive layoffs before the housing market would take a tumble.
Right now, Klump said, "we have a stable labour market'' and interest rates are low.
"There's no distress sales in Canada, not like in the States.''
The Merrill report says housing prices are now falling and inventories of unsold homes are rising sharply.
Wednesday, September 24, 2008
Financial Update
· TSX -105.44pts
· Dow -161.52pts
· Dollar -.27c to $96.50US.
· Oil -$2.76 to $106.61US per barrel pressured partly by falls in demand in the United States, the world's top energy consumer. Fears the crisis in the financial sector could tip the global economy into recession has also weighed on the market
· Gold +43.30 to $903.90US per ounce
Further to discussions about cost of funds increasing and the banks saving room on their balance sheet for only their own business and not for non bank lenders as was previous practice…from CBC news today, the BOC has made available $2B to chartered banks to encourage them to lend money and help improve liquidity in the credit markets.
An interesting comment is found about halfway down:
"But in Canada it really is a function that the (chartered) banks are being unusually cautious and the Bank of Canada is looking to grease the wheel a little bit."
Lascelles said Canadians have enjoyed reasonable access to credit in the past year in the wake of the meltdown in the U.S. subprime mortgage business.
------------------------------------------------
Canadian central bank antes up $2 billion in liquidity to loosen credit markets
Published: Tuesday, September 23, 2008 12:08 PM ET
Canadian Press: Julian Beltrame, THE CANADIAN PRESS
OTTAWA - The Bank of Canada said Tuesday it will make another $2-billion available this week to commercial banks, the second special injection of funds that it has made into the financial system in recent days.
In essence, the central bank is making a total of $4 billion in extra money available to the system in the short term in order to keep commercial lending flowing in difficult times.
The central bank said Tuesday it will relax credit conditions to allow the chartered banks to borrow up to an additional $2 billion for 84 days starting Sept. 24. That injection matures Dec. 18.
At the same time, it announced that last week's $2-billion purchase and resale agreement - which expires Oct. 17 - will be extended for an additional 27 days, until Nov. 13.
Global financial markets were in danger of seizing up last week following the rapid collapse of several large Wall Street titans that had became overexposed to the U.S. subprime mortgage crisis.
The Bush administration has proposed a US$700 billion rescue package from the U.S. government to prevent more failures and restore confidence in the American financial system.
By those standards, says TD Bank economist Eric Lascelles, what Canada is doing is small potatoes.
"To the extent that the U.S. is effected, Canada always gets painted with the same brush," he said.
"But in Canada it really is a function that the (chartered) banks are being unusually cautious and the Bank of Canada is looking to grease the wheel a little bit."
Lascelles said Canadians have enjoyed reasonable access to credit in the past year in the wake of the meltdown in the U.S. subprime mortgage business.
Meanwhile, Finance Minister Jim Flaherty and Prime Minister Stephen Harper have sought to reassure Canadians in the past few days that Canada's banks are fundamentally sound, saying they are better financed than their U.S. counterparts.
In a conference call with reporters Monday, the finance minister said Canada would not be following the same route as the U.S. in trying to buy up toxic assets to ensure the stability of its financial institutions. Nor is there need, Flaherty said.
"We do not see that type of risk with Canadian financial institutions in banking or insurance," Flaherty said.
The central bank's two-page announcement Tuesday included a long list of collateral it will accept from financial institutions seeking to dip into the short-term loan fund.
These include:
-Securities issued by the federal or provincial governments;
-Government of Canada stripped coupons and residuals;
-Bankers' acceptances and promissory notes;
-Commercial paper and short-term municipal paper;
-Corporate, municipal and foreign-issuer bonds subject to specified credit ratings;
-Asset-backed commercial paper (ABCP) of eligible programs,
-And marketable securities issued by the U.S. Treasury.
The bank said the measures are needed to support the efficient functioning of financial markets, and it will continue to provide liquidity as long as required.
· Dow -161.52pts
· Dollar -.27c to $96.50US.
· Oil -$2.76 to $106.61US per barrel pressured partly by falls in demand in the United States, the world's top energy consumer. Fears the crisis in the financial sector could tip the global economy into recession has also weighed on the market
· Gold +43.30 to $903.90US per ounce
Further to discussions about cost of funds increasing and the banks saving room on their balance sheet for only their own business and not for non bank lenders as was previous practice…from CBC news today, the BOC has made available $2B to chartered banks to encourage them to lend money and help improve liquidity in the credit markets.
An interesting comment is found about halfway down:
"But in Canada it really is a function that the (chartered) banks are being unusually cautious and the Bank of Canada is looking to grease the wheel a little bit."
Lascelles said Canadians have enjoyed reasonable access to credit in the past year in the wake of the meltdown in the U.S. subprime mortgage business.
------------------------------------------------
Canadian central bank antes up $2 billion in liquidity to loosen credit markets
Published: Tuesday, September 23, 2008 12:08 PM ET
Canadian Press: Julian Beltrame, THE CANADIAN PRESS
OTTAWA - The Bank of Canada said Tuesday it will make another $2-billion available this week to commercial banks, the second special injection of funds that it has made into the financial system in recent days.
In essence, the central bank is making a total of $4 billion in extra money available to the system in the short term in order to keep commercial lending flowing in difficult times.
The central bank said Tuesday it will relax credit conditions to allow the chartered banks to borrow up to an additional $2 billion for 84 days starting Sept. 24. That injection matures Dec. 18.
At the same time, it announced that last week's $2-billion purchase and resale agreement - which expires Oct. 17 - will be extended for an additional 27 days, until Nov. 13.
Global financial markets were in danger of seizing up last week following the rapid collapse of several large Wall Street titans that had became overexposed to the U.S. subprime mortgage crisis.
The Bush administration has proposed a US$700 billion rescue package from the U.S. government to prevent more failures and restore confidence in the American financial system.
By those standards, says TD Bank economist Eric Lascelles, what Canada is doing is small potatoes.
"To the extent that the U.S. is effected, Canada always gets painted with the same brush," he said.
"But in Canada it really is a function that the (chartered) banks are being unusually cautious and the Bank of Canada is looking to grease the wheel a little bit."
Lascelles said Canadians have enjoyed reasonable access to credit in the past year in the wake of the meltdown in the U.S. subprime mortgage business.
Meanwhile, Finance Minister Jim Flaherty and Prime Minister Stephen Harper have sought to reassure Canadians in the past few days that Canada's banks are fundamentally sound, saying they are better financed than their U.S. counterparts.
In a conference call with reporters Monday, the finance minister said Canada would not be following the same route as the U.S. in trying to buy up toxic assets to ensure the stability of its financial institutions. Nor is there need, Flaherty said.
"We do not see that type of risk with Canadian financial institutions in banking or insurance," Flaherty said.
The central bank's two-page announcement Tuesday included a long list of collateral it will accept from financial institutions seeking to dip into the short-term loan fund.
These include:
-Securities issued by the federal or provincial governments;
-Government of Canada stripped coupons and residuals;
-Bankers' acceptances and promissory notes;
-Commercial paper and short-term municipal paper;
-Corporate, municipal and foreign-issuer bonds subject to specified credit ratings;
-Asset-backed commercial paper (ABCP) of eligible programs,
-And marketable securities issued by the U.S. Treasury.
The bank said the measures are needed to support the efficient functioning of financial markets, and it will continue to provide liquidity as long as required.
Tuesday, September 23, 2008
Financial Update
It's the only time in history that this has happenedIt’s the ONLY time in HISTORY this has happened!
Oil spikes US$25 a barrel on anxiety over U.S. bailout, short covering Oil prices briefly spiked more than US$25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the government's $700 billion bailout plan pummeled the U.S. dollar and spurred investors to buy safe-haven assets. The rally came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation
· TSX -274.92pts Anxiety over the plan also sent stocks sharply lower; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness. Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
· Dow -372.75pts
· Dollar +1.53c to $96.71US. They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the US dollar is going to suffer," said Matt Zeman, head trader at LaSalle Futures in Chicago. Clearly, financial markets decided today was the day to be spooked about the U.S. dollar and we’ve had a flight to other currencies as well as commodities," said Avery Shenfeld, senior economist at CIBC World Markets as the loonie hit a 7 week high. George Davis, chief technical strategist at RBC Capital Markets said the Canadian dollar has a 65 to 70% chance of rising above the U.S. dollar in the next 4 weeks
· Oil +16.37 to $120.92US per barrel There is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations.
· Gold +43.30 to $903.90US per ounce Gold is benefiting from renewed interest as a haven from risk because jitters in the financial system spook investors
Where can you track potential interest rate movements?
You can track 30 day Banker’s Acceptance rates and watch the spread between Prime and 30 day BA's at http://www.bank-banque-canada.ca/en/rates/interest-look.html
If that spread narrows from the historical average of 170pts, then there is pressure on ARM rates to move. The other indicator, but harder to find, is swap rates. Below is a chart showing the past weeks spread narrowing daily from the desired 170 pts, indicating impending increases in ARM rates.
Prime rate
4.75
less Bankers Acceptance
Definition: banker's acceptance
A short-term credit investment created by a non-financial firm and guaranteed by a bank. Acceptances are traded at discounts from face value in the secondary market.
Bankers' acceptance are very similar to T-bills and are often used in money market funds.
Oil spikes US$25 a barrel on anxiety over U.S. bailout, short covering Oil prices briefly spiked more than US$25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the government's $700 billion bailout plan pummeled the U.S. dollar and spurred investors to buy safe-haven assets. The rally came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation
· TSX -274.92pts Anxiety over the plan also sent stocks sharply lower; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness. Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
· Dow -372.75pts
· Dollar +1.53c to $96.71US. They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the US dollar is going to suffer," said Matt Zeman, head trader at LaSalle Futures in Chicago. Clearly, financial markets decided today was the day to be spooked about the U.S. dollar and we’ve had a flight to other currencies as well as commodities," said Avery Shenfeld, senior economist at CIBC World Markets as the loonie hit a 7 week high. George Davis, chief technical strategist at RBC Capital Markets said the Canadian dollar has a 65 to 70% chance of rising above the U.S. dollar in the next 4 weeks
· Oil +16.37 to $120.92US per barrel There is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations.
· Gold +43.30 to $903.90US per ounce Gold is benefiting from renewed interest as a haven from risk because jitters in the financial system spook investors
Where can you track potential interest rate movements?
You can track 30 day Banker’s Acceptance rates and watch the spread between Prime and 30 day BA's at http://www.bank-banque-canada.ca/en/rates/interest-look.html
If that spread narrows from the historical average of 170pts, then there is pressure on ARM rates to move. The other indicator, but harder to find, is swap rates. Below is a chart showing the past weeks spread narrowing daily from the desired 170 pts, indicating impending increases in ARM rates.
Prime rate
4.75
less Bankers Acceptance
Definition: banker's acceptance
A short-term credit investment created by a non-financial firm and guaranteed by a bank. Acceptances are traded at discounts from face value in the secondary market.
Bankers' acceptance are very similar to T-bills and are often used in money market funds.
Friday, September 12, 2008
Financial Update
· TSX +115.61pts as a bargain-hunting rally took hold in hard-hit resource shares.
· Dow +164.79pts
· Dollar -.59c to $92.89US.
· Oil -$1.71 to $100.87US per barrel
· Gold -$16.60to $741.30US per ounce marking its longest streak of losing sessions in eight years.
New home prices rise — but not by much
Jamie Sturgeon, Financial Post
Price increases on new homes eased for the sixth month in a row in July, increasing by a meagre 0.1% as the national market continues to soften, Statistics Canada reported on Thursday.
Contractors' selling prices were up 2.7% from July of last year but below the year-over-year rise of 3.5% seen between 2007 and 2006. The tapering off in the growth of home prices continues a two-year trend dating to September 2006, the federal agency said.
Slowing demand in Western Canada is leading the country-wide slowdown StatsCan said. The latest evidence came from Edmonton, where prices dipped by 5.3% on an annual basis in July - the sharpest drop in 23 years. In Calgary, prices declined 0.3% annualized - a 12-year low.
"Markets in these cities continue to adjust after experiencing record price increases in the last two and a half years," Statscan said.
Yet further east in booming Saskatchewan, prices grew by a sizable 29.6% in Regina, while Saskatoon saw an annual increase of 13.1%, as a result of higher material and labour costs.
In contrast, Vancouver saw prices tick up a modest 1.6% in July. Canada's largest city, Toronto, saw an increase of 3.7% while Montreal recorded a rise of 5.7%, StatsCan said.
"This is yet further evidence that the housing market in Canada continues to cool," said Charmaine Buskas, economic strategist with TD Securities in a research note
· Dow +164.79pts
· Dollar -.59c to $92.89US.
· Oil -$1.71 to $100.87US per barrel
· Gold -$16.60to $741.30US per ounce marking its longest streak of losing sessions in eight years.
New home prices rise — but not by much
Jamie Sturgeon, Financial Post
Price increases on new homes eased for the sixth month in a row in July, increasing by a meagre 0.1% as the national market continues to soften, Statistics Canada reported on Thursday.
Contractors' selling prices were up 2.7% from July of last year but below the year-over-year rise of 3.5% seen between 2007 and 2006. The tapering off in the growth of home prices continues a two-year trend dating to September 2006, the federal agency said.
Slowing demand in Western Canada is leading the country-wide slowdown StatsCan said. The latest evidence came from Edmonton, where prices dipped by 5.3% on an annual basis in July - the sharpest drop in 23 years. In Calgary, prices declined 0.3% annualized - a 12-year low.
"Markets in these cities continue to adjust after experiencing record price increases in the last two and a half years," Statscan said.
Yet further east in booming Saskatchewan, prices grew by a sizable 29.6% in Regina, while Saskatoon saw an annual increase of 13.1%, as a result of higher material and labour costs.
In contrast, Vancouver saw prices tick up a modest 1.6% in July. Canada's largest city, Toronto, saw an increase of 3.7% while Montreal recorded a rise of 5.7%, StatsCan said.
"This is yet further evidence that the housing market in Canada continues to cool," said Charmaine Buskas, economic strategist with TD Securities in a research note
Thursday, September 11, 2008
Financial Update
TSX breaks losing streak
the Bank of Canada has an unofficial rule of thumb that says for every $10 decrease in the price of oil, the inflation rate drops 0.2 percentage points. With oil down more than $40 from its peak in July, the implication is for inflation falling roughly 0.8 percentage points. HEATHER SCOFFIELD , Globe and Mail
· TSX +350.39pts as investors shopped for bargains after days of losses on the TSX amid a sharp move away from commodities.
· Dow +38.19pts after U.S. investment bank Lehman Brothers said it will sell a majority stake in its investment management unit after losing $3.9 billion US in the third quarter
· Dollar +.07c to $93.48US.
· Oil -$.68 to $102.58US per barrel The price of oil, one of the most influential determinants on the TSX, closed slightly lower in jittery trading, as the strengthening U.S. dollar and signs of a slowing U.S. economy outweighed inventory drops and word that OPEC would cut production.
· Gold -$29.20 to $757.90US per ounce
Productivity down for third consecutive quarter The Canadian Press OTTAWA The labour productivity of Canadian businesses fell for a 3rd straight quarter, highlighting a marked deterioration in the country's competitiveness and a signal that growth is slowing and inflation becoming more of a risk, economists say. Statistics Canada reported yesterday that the 0.2% drop in the second quarter of the year came primarily from the mining and oil and gas extraction industries, as well as construction. It followed a drop-off of 0.6% in each of the previous 2 quarters, the most consecutive quarterly declines since 1990.
Another “BANK” to compete against you! Not mentioned in the article, and contributing to profit, is the Canadian Tire Mortgage that Manulife finances. Although the article says they “don’t want the challenges of bricks and mortar” they no longer do business in the mortgage broker channel… And below….. House prices overvalued in Canada
Banking revenues beef up Manulife financial picture
Michael Hammond RECORD STAFF WATERLOO
Don't expect Manulife Financial to open a bank branch anytime soon, but the insurance company's banking division has become a major source of revenue growth, Manulife Canada's chief executive said yesterday.
Paul Rooney said Manulife Bank of Canada loaned out $1 billion in the company's second quarter ended June 30, and that volume is growing by $1 billion a quarter.
Despite the surging fortunes of the banking unit, Rooney said he doesn't see it moving more toward a traditional banking model.
"I think the opportunity for us is to be the adviser's bank," he said at a financial services conference in Toronto yesterday. "I don't want the challenges of the bricks and mortar."
Manulife Bank, established in 1993, is geared toward the insurance company's clients who want to simplify their investments into a single account. Rooney, who works out of Manulife Canada's head office in Waterloo, said the concept has caught on in Australia, but is still in its infancy in Canada. The banking division's growth has been driven by the Manulife One product, which is billed as a flexible mortgage account. The product also serves as an everyday banking account. Whenever income is added into the account, the interest helps pay down a client's mortgage.
Rooney and Sun Life Financial Canada president Dean Connor spoke of another emerging growth opportunity at the conference -- serving the needs of the growing pool of baby boomers. Connor said his Waterloo-based company has developed an "aggressive" growth plan that is focused on the needs of aging boomers, especially their health-care requirements. He pointed out that this will be a key area of focus for insurers given that governments in developed countries have been shifting the cost of health care to individuals.
Rooney said a number of these boomers own their own small businesses, which will help create another big opportunity in the coming years. There are 2.4 million small businesses registered in Canada, he said, many of which are owned by people nearing retirement age. This means there are about $1.2 trillion in business assets that are set to change hands by 2010, he added.
"It's another area where we're going to be focusing," he said.
House prices overvalued in Canada
Eric Beauchesne, Canwest News Service
OTTAWA -- Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25%.
With the exception of Toronto and Edmonton, houses in Canada's major cities are overvalued by anywhere from $32,000 to $87,000, says the study of prices in nine cities by researchers at the Sauder School of Business at the University of British Columbia.
The study, released Monday, looked at prices for single-family homes in the second quarter of this year in nine major Canadian cities, and compared prices in those cities with what they would be in a balanced market based on the relationship between house prices and rents.
Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20% to be in balance and in Calgary by 7% and in Vancouver by 11%.
In contrast, Edmonton prices are actually below equilibrium, and would have to rise by 8% to be in balance, it said.
"The decade long boom in Canadian markets is over," Tsur Somerville, the study's lead author.
Housing affordability is a severe problem in some Canadian cities, limiting the ability of markets to continue to rise, says the report titled "Are Canadian Housing Markets Overpriced?"
The rapid price increases in many Canadian cities since 2001 along with the downturn in the U.S. housing market has raised concerns about the future of housing markets here, it noted.
"There are parallels between the path of house prices in Canadian and U.S. markets," it said.
During the U.S. housing boom, which ran from 1997 to 2006, prices rose 132%, while in Canada over the 2001-08 boom prices in the nine cities rose by an average of 87%.
While Canada's more conservative lending practices have prevented the speculative excess and severe downturn experienced in U.S. markets, they haven't prevented homes from becoming overpriced, it said.
The assessment of whether a housing market is in balance or equilibrium takes into account the ratio of rent to prices, mortgage rates and the cost of owning a house, and the expected long-term price appreciation.
In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary $32,000, Halifax $58,000, Montreal $68,000, Ottawa $81,000, Regina $87,000, Vancouver $85,000 and Winnipeg $74,000.
That houses are overpriced doesn't, however, guarantee that they will fall, it said.
"Instead the market could return to equilibrium through an extended period of housing price appreciation that is above zero, but below the long run rate," it said.
The potential for price declines is greatest in cities that have a large supply of unsold inventory or a mismatch between the number of units and the number of households ready to occupy them, it says, adding that by that criteria Vancouver is the most at risk of a housing price correction, though compared with most of the other cities the decline would be relatively moderate.
While the study looked at prices for single-family homes, it noted that a concern in some housing markets is that the buyers of units are not living in them, it added.
"If markets turn, these investor-buyers might behave in a manner akin to other asset markets, dumping their units to avoid future greater perceived price declines," it said. "In contrast, owner occupiers, unless forced to sell, can remain in their units and wait out a weak market."
In contrast, prices in Edmonton would have to rise by $32,000 to bring them back into balance, and that's despite what has been an annual increase in prices of 13.4% during the 2001-08 housing boom.
Annual price increases during the 2001-08 housing boom for the other cities studied were 14.5% in Regina, 12.4% in Calgary, 10.6% in Vancouver, 10.2% in Winnipeg, 8.1% in Montreal, 5.7% in Halifax, 5.7% in Ottawa, and 7.2% in Toronto
the Bank of Canada has an unofficial rule of thumb that says for every $10 decrease in the price of oil, the inflation rate drops 0.2 percentage points. With oil down more than $40 from its peak in July, the implication is for inflation falling roughly 0.8 percentage points. HEATHER SCOFFIELD , Globe and Mail
· TSX +350.39pts as investors shopped for bargains after days of losses on the TSX amid a sharp move away from commodities.
· Dow +38.19pts after U.S. investment bank Lehman Brothers said it will sell a majority stake in its investment management unit after losing $3.9 billion US in the third quarter
· Dollar +.07c to $93.48US.
· Oil -$.68 to $102.58US per barrel The price of oil, one of the most influential determinants on the TSX, closed slightly lower in jittery trading, as the strengthening U.S. dollar and signs of a slowing U.S. economy outweighed inventory drops and word that OPEC would cut production.
· Gold -$29.20 to $757.90US per ounce
Productivity down for third consecutive quarter The Canadian Press OTTAWA The labour productivity of Canadian businesses fell for a 3rd straight quarter, highlighting a marked deterioration in the country's competitiveness and a signal that growth is slowing and inflation becoming more of a risk, economists say. Statistics Canada reported yesterday that the 0.2% drop in the second quarter of the year came primarily from the mining and oil and gas extraction industries, as well as construction. It followed a drop-off of 0.6% in each of the previous 2 quarters, the most consecutive quarterly declines since 1990.
Another “BANK” to compete against you! Not mentioned in the article, and contributing to profit, is the Canadian Tire Mortgage that Manulife finances. Although the article says they “don’t want the challenges of bricks and mortar” they no longer do business in the mortgage broker channel… And below….. House prices overvalued in Canada
Banking revenues beef up Manulife financial picture
Michael Hammond RECORD STAFF WATERLOO
Don't expect Manulife Financial to open a bank branch anytime soon, but the insurance company's banking division has become a major source of revenue growth, Manulife Canada's chief executive said yesterday.
Paul Rooney said Manulife Bank of Canada loaned out $1 billion in the company's second quarter ended June 30, and that volume is growing by $1 billion a quarter.
Despite the surging fortunes of the banking unit, Rooney said he doesn't see it moving more toward a traditional banking model.
"I think the opportunity for us is to be the adviser's bank," he said at a financial services conference in Toronto yesterday. "I don't want the challenges of the bricks and mortar."
Manulife Bank, established in 1993, is geared toward the insurance company's clients who want to simplify their investments into a single account. Rooney, who works out of Manulife Canada's head office in Waterloo, said the concept has caught on in Australia, but is still in its infancy in Canada. The banking division's growth has been driven by the Manulife One product, which is billed as a flexible mortgage account. The product also serves as an everyday banking account. Whenever income is added into the account, the interest helps pay down a client's mortgage.
Rooney and Sun Life Financial Canada president Dean Connor spoke of another emerging growth opportunity at the conference -- serving the needs of the growing pool of baby boomers. Connor said his Waterloo-based company has developed an "aggressive" growth plan that is focused on the needs of aging boomers, especially their health-care requirements. He pointed out that this will be a key area of focus for insurers given that governments in developed countries have been shifting the cost of health care to individuals.
Rooney said a number of these boomers own their own small businesses, which will help create another big opportunity in the coming years. There are 2.4 million small businesses registered in Canada, he said, many of which are owned by people nearing retirement age. This means there are about $1.2 trillion in business assets that are set to change hands by 2010, he added.
"It's another area where we're going to be focusing," he said.
House prices overvalued in Canada
Eric Beauchesne, Canwest News Service
OTTAWA -- Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25%.
With the exception of Toronto and Edmonton, houses in Canada's major cities are overvalued by anywhere from $32,000 to $87,000, says the study of prices in nine cities by researchers at the Sauder School of Business at the University of British Columbia.
The study, released Monday, looked at prices for single-family homes in the second quarter of this year in nine major Canadian cities, and compared prices in those cities with what they would be in a balanced market based on the relationship between house prices and rents.
Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20% to be in balance and in Calgary by 7% and in Vancouver by 11%.
In contrast, Edmonton prices are actually below equilibrium, and would have to rise by 8% to be in balance, it said.
"The decade long boom in Canadian markets is over," Tsur Somerville, the study's lead author.
Housing affordability is a severe problem in some Canadian cities, limiting the ability of markets to continue to rise, says the report titled "Are Canadian Housing Markets Overpriced?"
The rapid price increases in many Canadian cities since 2001 along with the downturn in the U.S. housing market has raised concerns about the future of housing markets here, it noted.
"There are parallels between the path of house prices in Canadian and U.S. markets," it said.
During the U.S. housing boom, which ran from 1997 to 2006, prices rose 132%, while in Canada over the 2001-08 boom prices in the nine cities rose by an average of 87%.
While Canada's more conservative lending practices have prevented the speculative excess and severe downturn experienced in U.S. markets, they haven't prevented homes from becoming overpriced, it said.
The assessment of whether a housing market is in balance or equilibrium takes into account the ratio of rent to prices, mortgage rates and the cost of owning a house, and the expected long-term price appreciation.
In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary $32,000, Halifax $58,000, Montreal $68,000, Ottawa $81,000, Regina $87,000, Vancouver $85,000 and Winnipeg $74,000.
That houses are overpriced doesn't, however, guarantee that they will fall, it said.
"Instead the market could return to equilibrium through an extended period of housing price appreciation that is above zero, but below the long run rate," it said.
The potential for price declines is greatest in cities that have a large supply of unsold inventory or a mismatch between the number of units and the number of households ready to occupy them, it says, adding that by that criteria Vancouver is the most at risk of a housing price correction, though compared with most of the other cities the decline would be relatively moderate.
While the study looked at prices for single-family homes, it noted that a concern in some housing markets is that the buyers of units are not living in them, it added.
"If markets turn, these investor-buyers might behave in a manner akin to other asset markets, dumping their units to avoid future greater perceived price declines," it said. "In contrast, owner occupiers, unless forced to sell, can remain in their units and wait out a weak market."
In contrast, prices in Edmonton would have to rise by $32,000 to bring them back into balance, and that's despite what has been an annual increase in prices of 13.4% during the 2001-08 housing boom.
Annual price increases during the 2001-08 housing boom for the other cities studied were 14.5% in Regina, 12.4% in Calgary, 10.6% in Vancouver, 10.2% in Winnipeg, 8.1% in Montreal, 5.7% in Halifax, 5.7% in Ottawa, and 7.2% in Toronto
Wednesday, September 10, 2008
Financial Update
· TSX -487.88pts plunging more than 3%, weighed down by falling commodity prices and closing in on January's 2008 low. Since last Tuesday, the index has fallen more than 11 %.
· Dow -280.01pts In New York, stocks slumped also as worries about the ability of U.S. investment bank Lehman Brothers to raise capital, fueled concern about the broader banking sector, sending the Dow Jones industrial average down 2.42%
· Dollar -.51c to $93.92US.
· Oil -$3.08 to $103.26US per barrel Oil prices tumbled on expectations OPEC would leave output targets unchanged and as the hurricane threat to U.S oil operations in the Gulf of Mexico eased.
· Gold -$10.40 to $787.10US per ounce
Many people have “conspiracy theories” regarding the government and the economy. Below is an editorial with an interesting perspective on the recent market fluctuations.
The real reason commodities are tumbling
JOHN HEINZL Globe and Mail
To hear Donald Coxe tell it, the commodity selloff ripping through Canada's stock market is no accident. It is the result of a deliberate, brilliantly executed plan hatched at the highest levels of the U.S. Federal Reserve and Treasury.
Mr. Coxe is no paranoid conspiracy theorist. As the chairman and chief strategist of Harris Investment Management in Chicago, he is one of the most respected investment authorities in North America. He also happens to have lost about 10 per cent of his personal wealth in the commodity rout, which came at the worst possible time for his Coxe Commodity Strategy Fund that started trading in June.
“This has done more damage to my personal wealth than anything in the last 20 years,” he said in an interview yesterday. But he has too much respect for how the U.S. authorities engineered the collapse in commodities – a move he said was necessary to shore up the global financial system – to be bitter.
“My attitude is, goddamn it, they're good … it was brilliant.”
To understand why commodities are plunging now – the S&P/TSX plummeted another 488 points yesterday – you have to go back to mid-July, when the U.S. Federal Reserve and Treasury first announced steps to support mortgage giants Fannie Mae and Freddie Mac.
The move, which ultimately led to the Treasury taking control of Fannie and Freddie this week, touched off a chain-reaction of market events that culminated with the wrenching decline in commodities.
According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets. To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets.
Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions.
At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished. The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains and other commodities.
The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 per cent. “Leverage was being unwound dramatically,” Mr. Coxe said on a conference call last week. “We had a true panic.”
As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed's wishes, because lower commodity prices would help quell fears about inflation.
Mr. Coxe has no proof that the Fed and Treasury acted in concert to boost financials and sink commodities. He is basing his assertions on conversations with hedge fund managers and on years of watching financial markets. “There's no doubt whatever in my mind” about what happened, he says.
The future is less certain, however. Now that Freddie and Fannie have been nationalized, the credit crisis is still very much alive and financial stocks are looking as shaky as ever. As for commodities, once the current storm passes, Mr. Coxe is confident they will recover.
· Dow -280.01pts In New York, stocks slumped also as worries about the ability of U.S. investment bank Lehman Brothers to raise capital, fueled concern about the broader banking sector, sending the Dow Jones industrial average down 2.42%
· Dollar -.51c to $93.92US.
· Oil -$3.08 to $103.26US per barrel Oil prices tumbled on expectations OPEC would leave output targets unchanged and as the hurricane threat to U.S oil operations in the Gulf of Mexico eased.
· Gold -$10.40 to $787.10US per ounce
Many people have “conspiracy theories” regarding the government and the economy. Below is an editorial with an interesting perspective on the recent market fluctuations.
The real reason commodities are tumbling
JOHN HEINZL Globe and Mail
To hear Donald Coxe tell it, the commodity selloff ripping through Canada's stock market is no accident. It is the result of a deliberate, brilliantly executed plan hatched at the highest levels of the U.S. Federal Reserve and Treasury.
Mr. Coxe is no paranoid conspiracy theorist. As the chairman and chief strategist of Harris Investment Management in Chicago, he is one of the most respected investment authorities in North America. He also happens to have lost about 10 per cent of his personal wealth in the commodity rout, which came at the worst possible time for his Coxe Commodity Strategy Fund that started trading in June.
“This has done more damage to my personal wealth than anything in the last 20 years,” he said in an interview yesterday. But he has too much respect for how the U.S. authorities engineered the collapse in commodities – a move he said was necessary to shore up the global financial system – to be bitter.
“My attitude is, goddamn it, they're good … it was brilliant.”
To understand why commodities are plunging now – the S&P/TSX plummeted another 488 points yesterday – you have to go back to mid-July, when the U.S. Federal Reserve and Treasury first announced steps to support mortgage giants Fannie Mae and Freddie Mac.
The move, which ultimately led to the Treasury taking control of Fannie and Freddie this week, touched off a chain-reaction of market events that culminated with the wrenching decline in commodities.
According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets. To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets.
Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions.
At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished. The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains and other commodities.
The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 per cent. “Leverage was being unwound dramatically,” Mr. Coxe said on a conference call last week. “We had a true panic.”
As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed's wishes, because lower commodity prices would help quell fears about inflation.
Mr. Coxe has no proof that the Fed and Treasury acted in concert to boost financials and sink commodities. He is basing his assertions on conversations with hedge fund managers and on years of watching financial markets. “There's no doubt whatever in my mind” about what happened, he says.
The future is less certain, however. Now that Freddie and Fannie have been nationalized, the credit crisis is still very much alive and financial stocks are looking as shaky as ever. As for commodities, once the current storm passes, Mr. Coxe is confident they will recover.
Tuesday, September 9, 2008
Financial Update
U.S. bailout no cure-all for Canada's banks
· TSX -181.78pts another triple digit loss as a continuing sell-off of commodity stocks more than offset a boost from the U.S. government's takeover of mortgage giants Fannie Mae and Freddie Mac
· Dow +290.43pts
· Dollar -.13c to $93.92US. Reuters)The Canadian dollar dipped against the U.S. dollar as renewed confidence in the U.S. financial sector following the U.S. government's takeover of the two biggest U.S. mortgage finance companies convinced investors to buy the greenback
· Oil +$.11 to $106.34US per barrel The main driver today and through the rest of this week will be Hurricane Ike. The market is going to zig and zag in response to each development," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
· Gold -$1.60 to $797.60US per ounce
Financial Post
TORONTO -- Canadian bank stocks made some big gains on Monday after the U.S. government bailed out mortgage lenders Fannie Mae and Freddie Mac but a reversal of fortune could come quickly due to nagging economic concerns.
The bailout package is widely expected to improve the battered U.S. housing market, which has dragged down Canadian bank stocks due to fears of exposure, but the banks are not out of the woods yet as a slowing Canadian economy could force them to take on higher loan-loss provisions as people struggle to pay back loans.
The Toronto Stock Exchange's financial index jumped as much as 4% early on Monday to its highest in more than two months before retreating in the late afternoon.
"At this stage it's good news that parts of the credit market that have been struggling may get some relief. But I don't think that this is the end of the troubles we've seen in the credit market," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis.
"The Canadian financials have been less exposed to some of the mortgage woes in the U.S. marketplace. As a result, this change in terms of how the mortgage market works in the U.S. has less of a positive."
Perhaps that is why the shares of Toronto-Dominion Bank, Royal Bank of Canada and Bank of Montreal all backed off the highs they reached earlier in the session.
On Sunday, the U.S. government decided to take control of the mortgage finance firms Fannie Mae and Freddie Mac in the latest of a series of emergency steps to help put a floor under troubled financial markets.
But it still may be too early to gobble up shares of Canadian banks given the continued pressure on profitability in the sector amid a slowing economy and credit markets that remain in turmoil.
The Canadian economy narrowly avoided a recession in the second quarter and the Bank of Canada took on a slightly more dovish tone last week when it highlighted concern that the U.S.
economy will not meet the 1.5% growth next year that the bank had forecast for it.
Still, signs of stability in financial markets have managed to provide a boost to shares of Canadian banks, most notably those that have U.S. investments.
"Signs of improvement in the housing market are positive for bank shares, in our view, especially those with exposure to the U.S.," RBC Capital Markets analyst Andre-Philippe Hardy wrote in a note to clients.
Of the Canadian banks with U.S. banking operations, TD Bank said in April that it had US$7.8-billion of mortgage-backed securities. Disclosure at other banks is not clear but Mr. Hardy suggests their holdings would be much smaller.
"The U.S. government's actions have positive implications for the valuation of those assets but we do not believe that the Canadian banks had taken meaningful earnings hit related to those earnings," he said.
Shares of BMO closed up 2% at $48.50 in Toronto, TD Bank shares were up 2.3% at $62.37, and Royal Bank shares were up 0.33% at $48.60.
© Thomson Reuters 2008
· TSX -181.78pts another triple digit loss as a continuing sell-off of commodity stocks more than offset a boost from the U.S. government's takeover of mortgage giants Fannie Mae and Freddie Mac
· Dow +290.43pts
· Dollar -.13c to $93.92US. Reuters)The Canadian dollar dipped against the U.S. dollar as renewed confidence in the U.S. financial sector following the U.S. government's takeover of the two biggest U.S. mortgage finance companies convinced investors to buy the greenback
· Oil +$.11 to $106.34US per barrel The main driver today and through the rest of this week will be Hurricane Ike. The market is going to zig and zag in response to each development," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
· Gold -$1.60 to $797.60US per ounce
Financial Post
TORONTO -- Canadian bank stocks made some big gains on Monday after the U.S. government bailed out mortgage lenders Fannie Mae and Freddie Mac but a reversal of fortune could come quickly due to nagging economic concerns.
The bailout package is widely expected to improve the battered U.S. housing market, which has dragged down Canadian bank stocks due to fears of exposure, but the banks are not out of the woods yet as a slowing Canadian economy could force them to take on higher loan-loss provisions as people struggle to pay back loans.
The Toronto Stock Exchange's financial index jumped as much as 4% early on Monday to its highest in more than two months before retreating in the late afternoon.
"At this stage it's good news that parts of the credit market that have been struggling may get some relief. But I don't think that this is the end of the troubles we've seen in the credit market," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis.
"The Canadian financials have been less exposed to some of the mortgage woes in the U.S. marketplace. As a result, this change in terms of how the mortgage market works in the U.S. has less of a positive."
Perhaps that is why the shares of Toronto-Dominion Bank, Royal Bank of Canada and Bank of Montreal all backed off the highs they reached earlier in the session.
On Sunday, the U.S. government decided to take control of the mortgage finance firms Fannie Mae and Freddie Mac in the latest of a series of emergency steps to help put a floor under troubled financial markets.
But it still may be too early to gobble up shares of Canadian banks given the continued pressure on profitability in the sector amid a slowing economy and credit markets that remain in turmoil.
The Canadian economy narrowly avoided a recession in the second quarter and the Bank of Canada took on a slightly more dovish tone last week when it highlighted concern that the U.S.
economy will not meet the 1.5% growth next year that the bank had forecast for it.
Still, signs of stability in financial markets have managed to provide a boost to shares of Canadian banks, most notably those that have U.S. investments.
"Signs of improvement in the housing market are positive for bank shares, in our view, especially those with exposure to the U.S.," RBC Capital Markets analyst Andre-Philippe Hardy wrote in a note to clients.
Of the Canadian banks with U.S. banking operations, TD Bank said in April that it had US$7.8-billion of mortgage-backed securities. Disclosure at other banks is not clear but Mr. Hardy suggests their holdings would be much smaller.
"The U.S. government's actions have positive implications for the valuation of those assets but we do not believe that the Canadian banks had taken meaningful earnings hit related to those earnings," he said.
Shares of BMO closed up 2% at $48.50 in Toronto, TD Bank shares were up 2.3% at $62.37, and Royal Bank shares were up 0.33% at $48.60.
© Thomson Reuters 2008
Monday, September 8, 2008
Financial Update
U.S. government seizes mortgage giants
· TSX +2.28pts last week's abrupt drop-off of more than 950 points speaks to more than just weakening commodities, analysts say. Worries over declining demand for resources, slowing global growth and the tight credit situation have converged to knock the confidence out of the market
· Dow +32.73pts
· Dollar +.55c to $94.06US .
· Oil -$1.86 to $106.23US per barrel
· Gold -$.30 to $797.60US per ounce
Email the author
To avert potential financial turmoil, U.S. administration says it's forced to take control of Fannie Mae and Freddie Mac
Alan Zibel and Martin Crutsinger The Associated Press
WASHINGTON
The U.S. administration, acting to avert the potential for major financial turmoil, announced yesterday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials also announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice-chair of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice-chair of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.''
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,'' Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement yesterday that "a limited number of smaller institutions'' have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans.''
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.
"There is a consensus today . . . that they cannot continue in their current form,'' he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
The companies own or guarantee about $5 trillion in home loans, about half the country's total.
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.
Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
· TSX +2.28pts last week's abrupt drop-off of more than 950 points speaks to more than just weakening commodities, analysts say. Worries over declining demand for resources, slowing global growth and the tight credit situation have converged to knock the confidence out of the market
· Dow +32.73pts
· Dollar +.55c to $94.06US .
· Oil -$1.86 to $106.23US per barrel
· Gold -$.30 to $797.60US per ounce
Email the author
To avert potential financial turmoil, U.S. administration says it's forced to take control of Fannie Mae and Freddie Mac
Alan Zibel and Martin Crutsinger The Associated Press
WASHINGTON
The U.S. administration, acting to avert the potential for major financial turmoil, announced yesterday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials also announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice-chair of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice-chair of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.''
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,'' Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement yesterday that "a limited number of smaller institutions'' have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans.''
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.
"There is a consensus today . . . that they cannot continue in their current form,'' he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
The companies own or guarantee about $5 trillion in home loans, about half the country's total.
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.
Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
Friday, September 5, 2008
Financial Update
TSX falls below 13,000 in commodities sell-off-its worst 3 day drop in almost 8 years
· TSX -323.58pts to 12,814.14 as a massive sell-off spearheaded by commodity stocks sent the TSX to a steep triple-digit plunge
· Dow -344.65pts as glum economic and retail data further discouraged investors looking for a rally in the second half of 2008 (CP)
· Dollar -.75c to $93.50US .
· Oil -$1.46 to $107.89US per barrel
· Gold -$4.80 to $797.90US per ounce
Toronto stocks dive for third day on growth woes
Alia McMullen, Financial Post
TORONTO - The TSX slid to its lowest level in almost six months on Thursday after smashing through the 13,000 level to cap its worst three-day point drop in almost eight years.
Strategists said the market was beginning to fear the worst for the global economy ahead of the U.S. payrolls figures due Friday morning, with preliminary data on Thursday pointing to an eighth straight drop in U.S. employment.
"The idea that the rest of the world's growth is going to be slowing is sinking in and that's why we're seeing a more broad-based slowdown as opposed to just the financials versus commodities type trade," said George Vasic, strategist at UBS.
The S&P/TSX composite index dropped 323.58 points, or 2.5%, to close at 12,814.14.
Since traders returned from the Labour Day holiday on Monday, the index has lost about 7% of its value, or 957.11 points, to close below the 13,000 level for the first time since March 20.
It was the biggest three-day percentage drop since Jan. 19 this year and the largest three-day point decline since Oct. 27, 2000.
Mr. Vasic said that the drop in the Toronto market was largely in line with an unwinding of the run-up in oil prices that followed the collapse of investment bank Bear Stearns Cos. Inc. in March.
He said the run-up in oil appeared to have more to do with a flight to safety from financial stocks rather than a reflection of global oil supply and demand conditions.
Light crude fell US$1.46 to close at US$107.89 on the New York Mercantile Exchange yesterday, while gold was also down US$5 to US$799.30. The Canadian dollar also weakened, slipping three-quarters of a cent to US93.5¢. Meanwhile, the S&P 500 composite index fell 38.15 points, or 3%, to 1,236.83 and the Dow Jones Industrial Average dropped 344.65 points, or 3%, to 11,188.23.
Compounding the impact of the pull-back in oil were the expectations of slower U.S. and global economic growth. Weekly U.S. initial unemployment claims yesterday rose more than expected ahead of this morning's official U.S. non-farm payrolls numbers. The market expects the economy to lose a further 75,000 jobs in August.
Mr. Vasic said a better than expected result would likely give only a temporary boost to stocks. However, he expects the longer-term picture for the TSX to improve and likely break above recent highs next year.
Dan Hallett, president of Dan Hallett & Associates said the number of cheap stocks available in the market had risen in recent weeks, providing good long-term buying opportunities. But in the meantime, he said fears of a recession in the U.S. and the possible collapse of another financial institution were plaguing the market.
"The fact is, the worse the U.S. economy gets, the worse it is for Canada, you can't disconnect the two," Mr. Hallett said. He said there also appeared to be a number of hedge funds having to dump stocks to either cover short positions or make redemptions, adding to the large daily stock market declines.
The steep drop in commodities has put pressure on some financial managers, such as Ospraie Management LLC, which was forced to close its biggest hedge fund after it slumped almost 39% this year.
· TSX -323.58pts to 12,814.14 as a massive sell-off spearheaded by commodity stocks sent the TSX to a steep triple-digit plunge
· Dow -344.65pts as glum economic and retail data further discouraged investors looking for a rally in the second half of 2008 (CP)
· Dollar -.75c to $93.50US .
· Oil -$1.46 to $107.89US per barrel
· Gold -$4.80 to $797.90US per ounce
Toronto stocks dive for third day on growth woes
Alia McMullen, Financial Post
TORONTO - The TSX slid to its lowest level in almost six months on Thursday after smashing through the 13,000 level to cap its worst three-day point drop in almost eight years.
Strategists said the market was beginning to fear the worst for the global economy ahead of the U.S. payrolls figures due Friday morning, with preliminary data on Thursday pointing to an eighth straight drop in U.S. employment.
"The idea that the rest of the world's growth is going to be slowing is sinking in and that's why we're seeing a more broad-based slowdown as opposed to just the financials versus commodities type trade," said George Vasic, strategist at UBS.
The S&P/TSX composite index dropped 323.58 points, or 2.5%, to close at 12,814.14.
Since traders returned from the Labour Day holiday on Monday, the index has lost about 7% of its value, or 957.11 points, to close below the 13,000 level for the first time since March 20.
It was the biggest three-day percentage drop since Jan. 19 this year and the largest three-day point decline since Oct. 27, 2000.
Mr. Vasic said that the drop in the Toronto market was largely in line with an unwinding of the run-up in oil prices that followed the collapse of investment bank Bear Stearns Cos. Inc. in March.
He said the run-up in oil appeared to have more to do with a flight to safety from financial stocks rather than a reflection of global oil supply and demand conditions.
Light crude fell US$1.46 to close at US$107.89 on the New York Mercantile Exchange yesterday, while gold was also down US$5 to US$799.30. The Canadian dollar also weakened, slipping three-quarters of a cent to US93.5¢. Meanwhile, the S&P 500 composite index fell 38.15 points, or 3%, to 1,236.83 and the Dow Jones Industrial Average dropped 344.65 points, or 3%, to 11,188.23.
Compounding the impact of the pull-back in oil were the expectations of slower U.S. and global economic growth. Weekly U.S. initial unemployment claims yesterday rose more than expected ahead of this morning's official U.S. non-farm payrolls numbers. The market expects the economy to lose a further 75,000 jobs in August.
Mr. Vasic said a better than expected result would likely give only a temporary boost to stocks. However, he expects the longer-term picture for the TSX to improve and likely break above recent highs next year.
Dan Hallett, president of Dan Hallett & Associates said the number of cheap stocks available in the market had risen in recent weeks, providing good long-term buying opportunities. But in the meantime, he said fears of a recession in the U.S. and the possible collapse of another financial institution were plaguing the market.
"The fact is, the worse the U.S. economy gets, the worse it is for Canada, you can't disconnect the two," Mr. Hallett said. He said there also appeared to be a number of hedge funds having to dump stocks to either cover short positions or make redemptions, adding to the large daily stock market declines.
The steep drop in commodities has put pressure on some financial managers, such as Ospraie Management LLC, which was forced to close its biggest hedge fund after it slumped almost 39% this year.
Thursday, September 4, 2008
Financial Update
· TSX -161.82pts (CP)A move away from commodities sent the Toronto stock market tumbling, pushed down by a retreat from oil and mining stocks and jitters about the health of the global economy. With 47% of the TSX related to commodities like oil and mining, this is a 6% drop in 2 days
· Dow +15.96pts
· Dollar +.67c to $94.25US .
· Oil -$.36 to $109.35US per barrel
· Gold -$2.30 to $802.70US per ounce
By Julian Beltrame, The Canadian Press OTTAWA - The Bank of Canada stuck to its guns on interest rates Wednesday, holding the overnight rate at 3% despite acknowledging that both inflation and the economy are weaker than previously projected. The central bank's decision to stay on the sidelines for the third consecutive announcement date had been widely predicted, but many economists were surprised governor Mark Carney didn't have a more "dovish" tone in his accompanying statement.
"He gave only the barest of scraps to the doves ... given the fact we've had one of the weakest half years for the economy since the (early) 1990s," said Douglas Porter, deputy chief economist with BMO Capital Markets. "There is absolutely no signal here whatsoever they are preparing to cut rates (in the future)."
GMAC to cut 5,000 jobs at mortgage unit
The Globe and Mail
NEW YORK — — GMAC LLC [GOM-N] said Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 per cent of that work force, and shut its 200 GMAC Mortgage retail offices to combat persistently weak housing and credit markets.
GMAC also plans to stop offering home loans through its Homecomings broker channel, and is evaluating strategic alternatives for its GMAC Home Services and non-core mortgage servicing businesses. It said it keep offering mortgages “where there is a secondary market to sell the loans.”
The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP bought a 51 per cent stake from General Motors Corp [GM-N] in 2006. The automaker owns the remaining 49 per cent.
ResCap was the seventh-largest U.S. mortgage lender from January to June, making $35.7-billion (U.S.) of loans, according to the newsletter Inside Mortgage Finance. It said the latest job cuts will leave it with roughly 3,000 employees, down from a reported 14,000 at the beginning of 2007.
“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” ResCap chief executive Tom Marano said in a statement. “We need to respond aggressively by further reducing both operating costs and business risk.”
GMAC is based in Detroit, and ResCap in Minneapolis.
ResCap has had seven straight unprofitable quarters, losing $7.2-billion over that time. In the April-June period, it lost $1.86-billion, while GMAC overall lost $2.48-billion.
ResCap expects 3,000 of the job cuts to take place this month, and a majority of the remainder by year end. It expects a $90-million to $120-million charge, and an additional charge for the other job cuts.
· Dow +15.96pts
· Dollar +.67c to $94.25US .
· Oil -$.36 to $109.35US per barrel
· Gold -$2.30 to $802.70US per ounce
By Julian Beltrame, The Canadian Press OTTAWA - The Bank of Canada stuck to its guns on interest rates Wednesday, holding the overnight rate at 3% despite acknowledging that both inflation and the economy are weaker than previously projected. The central bank's decision to stay on the sidelines for the third consecutive announcement date had been widely predicted, but many economists were surprised governor Mark Carney didn't have a more "dovish" tone in his accompanying statement.
"He gave only the barest of scraps to the doves ... given the fact we've had one of the weakest half years for the economy since the (early) 1990s," said Douglas Porter, deputy chief economist with BMO Capital Markets. "There is absolutely no signal here whatsoever they are preparing to cut rates (in the future)."
GMAC to cut 5,000 jobs at mortgage unit
The Globe and Mail
NEW YORK — — GMAC LLC [GOM-N] said Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 per cent of that work force, and shut its 200 GMAC Mortgage retail offices to combat persistently weak housing and credit markets.
GMAC also plans to stop offering home loans through its Homecomings broker channel, and is evaluating strategic alternatives for its GMAC Home Services and non-core mortgage servicing businesses. It said it keep offering mortgages “where there is a secondary market to sell the loans.”
The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP bought a 51 per cent stake from General Motors Corp [GM-N] in 2006. The automaker owns the remaining 49 per cent.
ResCap was the seventh-largest U.S. mortgage lender from January to June, making $35.7-billion (U.S.) of loans, according to the newsletter Inside Mortgage Finance. It said the latest job cuts will leave it with roughly 3,000 employees, down from a reported 14,000 at the beginning of 2007.
“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” ResCap chief executive Tom Marano said in a statement. “We need to respond aggressively by further reducing both operating costs and business risk.”
GMAC is based in Detroit, and ResCap in Minneapolis.
ResCap has had seven straight unprofitable quarters, losing $7.2-billion over that time. In the April-June period, it lost $1.86-billion, while GMAC overall lost $2.48-billion.
ResCap expects 3,000 of the job cuts to take place this month, and a majority of the remainder by year end. It expects a $90-million to $120-million charge, and an additional charge for the other job cuts.
Wednesday, September 3, 2008
Financial Update
· TSX -471.71pts The main reason the market has washed out so quickly this morning is because when Gustav hit and passed, it was during a holiday weekend so we didn't have the markets to kind of ease into this situation," said Bob Tebbutt, vice-president of risk management at Peregrine Financial Group Canada.
· Dow -26.63pts
· Dollar -.58c to $93.58US dropping briefly to its lowest level in more than a year given the sharp drop in oil prices after Hurricane Gustav faded and spared major U.S. Gulf oil facilities.
· Oil -$5.75 to $109.71US per barrel We've had a near collapse in oil prices since Friday as the initial reports seem to indicate that damage from Gustav was a lot less than expected
· Gold -$24.30to $805.00US per ounce even dipping below the $800 mark mid day
Bank of Canada is scheduled to meet at 9am to discuss possible interest rate cuts
· Dow -26.63pts
· Dollar -.58c to $93.58US dropping briefly to its lowest level in more than a year given the sharp drop in oil prices after Hurricane Gustav faded and spared major U.S. Gulf oil facilities.
· Oil -$5.75 to $109.71US per barrel We've had a near collapse in oil prices since Friday as the initial reports seem to indicate that damage from Gustav was a lot less than expected
· Gold -$24.30to $805.00US per ounce even dipping below the $800 mark mid day
Bank of Canada is scheduled to meet at 9am to discuss possible interest rate cuts
Tuesday, September 2, 2008
Financial Update
· TSX +20.77pts
· Dow -171.22pts
· Dollar -.91c to $94.16US
· Oil -$.13 to $115.46US per barrel
· Gold -$1.60 to $829.30US per ounce
British government plans housing market rescue: tax cuts, government fund
By Emily Flynn Vencat, The Associated Press
LONDON - The British government presented a package of tax cuts and spending moves Tuesday to try to reinvigorate a housing market suffering its worst crash since the early 1990s.
Treasury head Alistair Darling eliminated the 1% tax that buyers are required to pay for the next year on home purchases of less than 175,000 pounds (US$313,000) to encourage first-time buyers to jump on the property ladder.
Prime Minister Gordon Brown also unveiled plans to spend one billion pounds (US$1.8 billion) to help buyers hit by a cut in bank mortgage lending in the face of the global credit crunch.
Property prices have fallen 10.5 per cent in the last 12 months, according to Nationwide Building Society.
The billion-pound housing scheme targets first-time buyers and families at risk of having their homes repossessed.
Economic performance Canada's worst since 1991
Email the author
Julian Beltrame The Canadian Press OTTAWA
Canada's economy limped ahead in the second quarter barely enough to avoid the first recession in 17 years, recording the thinnest of gains after a much worse winter quarter than previously believed.
But with Statistics Canada sharply revising downward its first quarter tally on gross domestic product to a negative 0.8%, the modest 0.3% gain in the March-June period meant that the economy actually contracted during the first six months of 2008.
It constitutes the worst performance by the economy since 1991 and comes at a critical time for the Conservative government of Prime Minister Stephen Harper, who has hinted broadly he is close to seeking a second mandate.
Hoping to get ahead of the bad news, Finance Minister Jim Flaherty called an impromptu media scrum at the Toronto International Airport 15 minutes after the release of the figures to assure Canadians that economic fundamentals remain strong.
"Canada is better positioned than most to weather this period of global economic uncertainty,'' he told reporters. "For 2008 as a whole, I expect real gross domestic product to increase by about one per cent.''
But the Liberals were having none of that, accusing the government of mismanagement and not doing enough to help the embattled manufacturing sector.
"Stephen Harper and Jim Flaherty continue to talk about how good the 'fundamentals' are in Canada in spite of the fact that by any economic definition Canada is slumping,'' said Stephane Dion in a statement.
Liberal finance critic John McCallum said even more troubling to him was that Canada's economy struggled at the same time that the U.S. recorded an impressive 3.3 per cent growth, largely due to exports and a multibillion-dollar stimulus package.
Scotia Capital's Derek Holt said if Canada did avoid a mild recession -- assuming the second quarter GDP isn't revised downward at a later date -- it was mainly through a technicality.
The key point is that the Canadian economy contracted in the first half of 2008 and "more importantly it deteriorated at a faster pace than the Bank of Canada had expected,'' he said.
Holt said the miscalculation on the state of the economy has been large enough that Mark Carney, governor of Canada's central bank since February, should move quickly and cut interest rates next week by at least one-quarter of a point, and possibly by half a point.
"I think the bank misjudged the balance of risks in the summer and it's time to retract some of that,'' he said.
"Every single category of business declined and detracted from growth . . . residential structures, non-residential structures, business machinery and equipment. . . . and this is among the weakest pace of consumer spending we've had in years.''
But other economists questioned whether it was appropriate to talk about a recession when employment remains near record levels and incomes continue to grow.
"If it were a recession, Canadians should also see their incomes and spending power in decline,'' noted Avery Shenfeld, a senior economist with CIBC World Markets.
"Instead, real consumer spending advanced at a decent 2.5 per cent pace in the spring quarter. And both total wages and nominal after-tax incomes were climbing at a 4.5 per cent annualized pace, enough to cover the high gasoline bills without taking the savings rate below last year's average.''
The details of the growth results were no more comforting than the tepid overall numbers, with GDP edging up 0.1 per cent in the second quarter on a quarter-to-quarter basis. The monthly GDP advanced 0.1 per cent in June over May. Statistics Canada said the weakness was broad-based, encompassing exports, manufacturing -- particularly autos, forestry, and energy exports
· Dow -171.22pts
· Dollar -.91c to $94.16US
· Oil -$.13 to $115.46US per barrel
· Gold -$1.60 to $829.30US per ounce
British government plans housing market rescue: tax cuts, government fund
By Emily Flynn Vencat, The Associated Press
LONDON - The British government presented a package of tax cuts and spending moves Tuesday to try to reinvigorate a housing market suffering its worst crash since the early 1990s.
Treasury head Alistair Darling eliminated the 1% tax that buyers are required to pay for the next year on home purchases of less than 175,000 pounds (US$313,000) to encourage first-time buyers to jump on the property ladder.
Prime Minister Gordon Brown also unveiled plans to spend one billion pounds (US$1.8 billion) to help buyers hit by a cut in bank mortgage lending in the face of the global credit crunch.
Property prices have fallen 10.5 per cent in the last 12 months, according to Nationwide Building Society.
The billion-pound housing scheme targets first-time buyers and families at risk of having their homes repossessed.
Economic performance Canada's worst since 1991
Email the author
Julian Beltrame The Canadian Press OTTAWA
Canada's economy limped ahead in the second quarter barely enough to avoid the first recession in 17 years, recording the thinnest of gains after a much worse winter quarter than previously believed.
But with Statistics Canada sharply revising downward its first quarter tally on gross domestic product to a negative 0.8%, the modest 0.3% gain in the March-June period meant that the economy actually contracted during the first six months of 2008.
It constitutes the worst performance by the economy since 1991 and comes at a critical time for the Conservative government of Prime Minister Stephen Harper, who has hinted broadly he is close to seeking a second mandate.
Hoping to get ahead of the bad news, Finance Minister Jim Flaherty called an impromptu media scrum at the Toronto International Airport 15 minutes after the release of the figures to assure Canadians that economic fundamentals remain strong.
"Canada is better positioned than most to weather this period of global economic uncertainty,'' he told reporters. "For 2008 as a whole, I expect real gross domestic product to increase by about one per cent.''
But the Liberals were having none of that, accusing the government of mismanagement and not doing enough to help the embattled manufacturing sector.
"Stephen Harper and Jim Flaherty continue to talk about how good the 'fundamentals' are in Canada in spite of the fact that by any economic definition Canada is slumping,'' said Stephane Dion in a statement.
Liberal finance critic John McCallum said even more troubling to him was that Canada's economy struggled at the same time that the U.S. recorded an impressive 3.3 per cent growth, largely due to exports and a multibillion-dollar stimulus package.
Scotia Capital's Derek Holt said if Canada did avoid a mild recession -- assuming the second quarter GDP isn't revised downward at a later date -- it was mainly through a technicality.
The key point is that the Canadian economy contracted in the first half of 2008 and "more importantly it deteriorated at a faster pace than the Bank of Canada had expected,'' he said.
Holt said the miscalculation on the state of the economy has been large enough that Mark Carney, governor of Canada's central bank since February, should move quickly and cut interest rates next week by at least one-quarter of a point, and possibly by half a point.
"I think the bank misjudged the balance of risks in the summer and it's time to retract some of that,'' he said.
"Every single category of business declined and detracted from growth . . . residential structures, non-residential structures, business machinery and equipment. . . . and this is among the weakest pace of consumer spending we've had in years.''
But other economists questioned whether it was appropriate to talk about a recession when employment remains near record levels and incomes continue to grow.
"If it were a recession, Canadians should also see their incomes and spending power in decline,'' noted Avery Shenfeld, a senior economist with CIBC World Markets.
"Instead, real consumer spending advanced at a decent 2.5 per cent pace in the spring quarter. And both total wages and nominal after-tax incomes were climbing at a 4.5 per cent annualized pace, enough to cover the high gasoline bills without taking the savings rate below last year's average.''
The details of the growth results were no more comforting than the tepid overall numbers, with GDP edging up 0.1 per cent in the second quarter on a quarter-to-quarter basis. The monthly GDP advanced 0.1 per cent in June over May. Statistics Canada said the weakness was broad-based, encompassing exports, manufacturing -- particularly autos, forestry, and energy exports
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