Financial Update For June 22, 2010

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

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