America stares recession in the face
Alia McMullen, Financial Post A "catastrophic" drop in U.S. manufacturing activity in September left no doubt in the minds of stunned economists Wednesday that the U.S. recession had well and truly arrived, and it could be severe.
The sharp contraction in activity was the starkest example yet that the credit crisis was having a devastating effect on business amid other evidence that limited access to credit and high debt financing costs were killing merger and acquisition activity and potentially damaging company profits. Mike Englund, chief economist at Action Economics in Boulder, Colo., said the figures reinforced his view that the National Bureau of Economic Research would eventually deem all of 2008 as a period of recession.
· TSX -38.39pts
· Dow -19.59pts. a disappointing economic report on the manufacturing sector and more troubles in the battered auto industry, weighed on the markets most of Wednesday, suggesting the United States has slipped into a recession that could last some time
· Dollar +.19c to $94.16US.
· Oil -2.11 to $98.53US per barrel
· Gold +$6.50 to $880.70US per ounce
More voices join chorus calling for rate cuts
Julian Beltrame The Canadian Press OTTAWA
The Bank of Canada is being urged to jump into the fray of the financial market meltdown by aggressively cutting interest rates.
The tight credit environment, due to upheaval in the U.S. financial industry, has fundamentally altered the outlook for both the global and Canadian economies, analysts say.
They add that the key issue now is not whether Canada's central bank should lower rates, but if it should take the rare step of acting before its scheduled announcement date of Oct. 21.
It's been nearly half a year since the Bank of Canada adjusted its overnight lending rate, which has been set at three per cent since April 22, when it made an aggressive half-point cut.
"I think under normal circumstances, if we didn't have the political (election campaign) and we didn't have this bailout package going through the U.S. Congress, we might be in a situation where the central banks would already be cutting now,'' said Douglas Porter, deputy chief economist for BMO Capital Markets.
In the U.S., a $700-billion financial rescue plan was approved by the Senate last night and expected to go to the House for approval before week's end.
The vast majority of economists backed Bank of Canada governor Mark Carney last month when he held firm on interest rates, although Scotiabank's Derek Holt called for a half-point cut.
Regardless of the relative health of auto industry sales in Canada, the downturn south of the border is worrisome for Ontario-based car, truck and parts makers that export most of their volume across the border to the United States.
Economists are expecting to see real blood on the floor tomorrow when the next U.S. employment report is released, forecasting upward of 150,000 job losses for September.
A big danger, say economists, is that lenders may be so spooked that they totally freeze credit, depriving businesses of funds needed to carry on operations or expand, and also depriving consumers of loans for such things as mortgages or cars.
In a speech last week, Carney warned that Canada would be impacted by a U.S. slump, particularly the auto and forestry sectors that depend on exporting to American consumers
Thursday, October 2, 2008
Wednesday, October 1, 2008
Financial Update
To quote the infamous Bette Davis, … "hang on to your hats, boys, it’s going to be a bumpy ride."
· TSX +467.83ptssome of the bounce is attributed to bargain hunters rushing in for quality stocks, and also to buying associated with fund managers rebalancing their portfolios ahead of the end of the quarter
· Dow +485.21pts. U.S. stocks also reversed course sharply, as the Dow Jones industrial average leaped 4.68%
· Dollar -1.82c to $93.97US.
· Oil +4.27 to $100.64US per barrel with a growing consensus among investors that the U.S. Congress will resurrect a failed financial bailout plan. The Senate is set to vote Wednesday on a $700-billion US financial bailout plan that was narrowly defeated Monday in the House of Representatives.
· Gold -$14.00 to $874.20US per ounce Gold retreated sharply as a rally in stocks and a higher dollar erased the previous session's gains, but gold should rise in the near term because of its safe-haven appeal amid financial turmoil, traders said.
September, 2008: 30 days that rocked the world "Now what?" asked Carl Weinberg, chief economist at High Frequency Economics. "Analysis eludes us. We have no prior experience to fall back on that might possibly help us frame the consequences of Congress's inaction on either the economy or financial markets."
What's the best strategy as mortgage rates rise?
ROB CARRICK
Globe and Mail Update
September 30, 2008 at 12:15 PM EDT
The credit crunch has hit home with yet another move by the big banks to jack up the cost of mortgages.
Mortgage brokers report that the big banks and other lenders have stopped offering variable-rate mortgages with a discount off the prime rate.
It was common in the first half of 2007 to get a variable-rate mortgage at prime minus a full percentage point, said Jim Tourloukis of Advent Mortgages in Markham, Ont. Since then, the discount had gradually fallen to 0.4 of a percentage point as of last week.
“As of yesterday, virtually everybody was offering variable-rate mortgages at prime,” Mr. Tourloukis said. “In other words, no more discounting.”
Forced to pay more to raise the money they lend out to customers, the banks have set fixed mortgage rates far higher than they would be under normal circumstances. Now, variable-rate mortgages have been affected as well. What's the right strategy for borrowers?
Your choices: a variable-rate mortgage at 4.75 per cent, which is the current prime rate at all major lenders, or a discounted five-year mortgage at rates in the low 5-per-cent range.
The lower variable rate means you'll save money in the near term, but it also opens you up to the risk that rising interest rates will boost your borrowing costs somewhere down the line.
“If I'm the average Joe, I would be taking the five-year rate right now because I don't know what's going on out there and I don't want to risk my house,” Mr. Tourloukis said. “I don't think rates are going to go up, but I don't want to worry about it.”
Mr. Tourloukis said about 90 per cent of his clients were going with variable-rate mortgages prior to this week, and he expects the same big majority to swing over to fixed-rate mortgages going forward.
The problem with fixed-rate mortgages – almost everyone picks the five-year term – is that you'll have to work hard to get a good deal. Posted five-year rates at major lenders are around 7.2 per cent, and some banks are posting “special” discounted rates of 6.14 per cent on their websites.
However, Mr. Tourloukis said he was able to get five-year mortgages as low as 4.99 per cent. Alternative banks and credit unions have been offering rates as low as 4.99 to 5.45 per cent.
Brian Matthey, a mortgage broker in Kingston, Ont., said five-year mortgages would be going for about 4.35 per cent today under normal circumstances in financial markets. He stressed the importance of shopping around for a mortgage right now and not settling for whatever discount your bank is willing to dole out.
“The banks are going to freewheel as they need to in terms of what they offer their clients,” Mr. Matthey said.
· TSX +467.83ptssome of the bounce is attributed to bargain hunters rushing in for quality stocks, and also to buying associated with fund managers rebalancing their portfolios ahead of the end of the quarter
· Dow +485.21pts. U.S. stocks also reversed course sharply, as the Dow Jones industrial average leaped 4.68%
· Dollar -1.82c to $93.97US.
· Oil +4.27 to $100.64US per barrel with a growing consensus among investors that the U.S. Congress will resurrect a failed financial bailout plan. The Senate is set to vote Wednesday on a $700-billion US financial bailout plan that was narrowly defeated Monday in the House of Representatives.
· Gold -$14.00 to $874.20US per ounce Gold retreated sharply as a rally in stocks and a higher dollar erased the previous session's gains, but gold should rise in the near term because of its safe-haven appeal amid financial turmoil, traders said.
September, 2008: 30 days that rocked the world "Now what?" asked Carl Weinberg, chief economist at High Frequency Economics. "Analysis eludes us. We have no prior experience to fall back on that might possibly help us frame the consequences of Congress's inaction on either the economy or financial markets."
What's the best strategy as mortgage rates rise?
ROB CARRICK
Globe and Mail Update
September 30, 2008 at 12:15 PM EDT
The credit crunch has hit home with yet another move by the big banks to jack up the cost of mortgages.
Mortgage brokers report that the big banks and other lenders have stopped offering variable-rate mortgages with a discount off the prime rate.
It was common in the first half of 2007 to get a variable-rate mortgage at prime minus a full percentage point, said Jim Tourloukis of Advent Mortgages in Markham, Ont. Since then, the discount had gradually fallen to 0.4 of a percentage point as of last week.
“As of yesterday, virtually everybody was offering variable-rate mortgages at prime,” Mr. Tourloukis said. “In other words, no more discounting.”
Forced to pay more to raise the money they lend out to customers, the banks have set fixed mortgage rates far higher than they would be under normal circumstances. Now, variable-rate mortgages have been affected as well. What's the right strategy for borrowers?
Your choices: a variable-rate mortgage at 4.75 per cent, which is the current prime rate at all major lenders, or a discounted five-year mortgage at rates in the low 5-per-cent range.
The lower variable rate means you'll save money in the near term, but it also opens you up to the risk that rising interest rates will boost your borrowing costs somewhere down the line.
“If I'm the average Joe, I would be taking the five-year rate right now because I don't know what's going on out there and I don't want to risk my house,” Mr. Tourloukis said. “I don't think rates are going to go up, but I don't want to worry about it.”
Mr. Tourloukis said about 90 per cent of his clients were going with variable-rate mortgages prior to this week, and he expects the same big majority to swing over to fixed-rate mortgages going forward.
The problem with fixed-rate mortgages – almost everyone picks the five-year term – is that you'll have to work hard to get a good deal. Posted five-year rates at major lenders are around 7.2 per cent, and some banks are posting “special” discounted rates of 6.14 per cent on their websites.
However, Mr. Tourloukis said he was able to get five-year mortgages as low as 4.99 per cent. Alternative banks and credit unions have been offering rates as low as 4.99 to 5.45 per cent.
Brian Matthey, a mortgage broker in Kingston, Ont., said five-year mortgages would be going for about 4.35 per cent today under normal circumstances in financial markets. He stressed the importance of shopping around for a mortgage right now and not settling for whatever discount your bank is willing to dole out.
“The banks are going to freewheel as they need to in terms of what they offer their clients,” Mr. Matthey said.
Tuesday, September 30, 2008
Financial Update
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
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
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