Financial Update for April 29, 2009

Stock markets close lower amid bullish consumer sentiment data, banking worries
We started quite negative this morning based on the swine flu and the news down in the States that Citigroup and Bank of America may need some more cash. Then the confidence numbers came out and they were much better than expected and people started to rally around those," said Lex Kerkovius, senior research analyst at McLean and Partners Wealth Management Ltd., in Calgary, Alberta.

• TSX -46.77
• DOW -8.05
• Dollar -.07c to 81.93USD
• Oil -$.22to $49.92US per barrel partly because of worries the flu outbreak could cut back on air travel, lowering demand.
• Gold -14.60 to $893.60USD per ounce
• Canadian 5 yr bond yields +.04bps to 1.97. Four weeks ago it was 1.74.
. http://www.financialpost.com/markets/market_data/money-yields-can_us.htm

*The yield, which is the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch over the next week or so. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise (with all lenders).

U.S. housing bottoming says analyst

Financial Post by David Pett

US housing is at the bottom according to a recent Lombard Street Research daily note. Some crumbs of good news may offer hope the housing market is finally bottoming, but this is the hardly the meal investors might be looking for. Investors should wait for clearer signs of recovery before considering investing in U.S. homebuilders.

Signs of recovery for US housing presented by Gabriel Stein at Lombard Street don't amount to much. New home sales for March were less negative than for February, for example, which these days seem to be as good as a rise. The encouraging interpretation is that new home sales might have actually bottomed when looking at the three month trend. Since supply of new homes is so low, the lowest since 2002, at some point, inventories will clear, and "residential housing will pick up again" says Stein.

The only problem with this thesis is that delinquency rates are in a clear rising trend, according to a recent report from Zelman & Associates and will continue to add to the supply of existing homes. Modification of mortgages is only "scratching the surface" with only 4.4% of delinquent mortgages modified in January 2009 according to Zelman; therefore, the quarterly foreclosure rate is not expected to decline until the fourth quarter of 2010.

Finally, two different house price measures offer conflicting signals. The Federal Housing Finance Administration's price index rose in January and February, but data today for the S&P Case/Shiller index for March shows an uninterrupted decline.

Homebuilder stocks have nearly doubled from March lows suggesting that the fire is finally out for this industry, but the data suggests there are still burning embers suggesting investors might get burned.