Rising financials limit losses on TSX; N.Y. surges on mixed data
· TSX -30.85pts (Reuters) a burst in financial stocks helped offset political events in Canada which kept the TSX from tagging along with a rise in U.S. stock markets along with sliding energy shares
· DOW +172.80pts after investors weighed projections of big job losses and some decent retail news. Traders were pleased at news from market research that online retail spending came in at $846m, 2days ago on so-called Cyber Monday, up 15%from a year ago
· Dollar -.16c to $79.78US.
· Oil -$.17 to $46.69US per barrel.
· Gold -12.80 to $770.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Stimulus coming in January budget: Flaherty
Paul Vieira, Financial Post
OTTAWA -- The Finance Minister, Jim Flaherty, said Wednesday night there would be additional fiscal stimuli in the government's Jan. 27 budget because economic conditions are "deteriorating."
This marks the first confirmation from the Finance Minister that there will be stimuli in the coming budget. Canada, along with other Group of 20 nations, had agreed last month to spend 2% of its GDP to help pull the developed world out of a potentially protracted economic slowdown.
"There will be some additional stimulus, inevitably, in the budget given that we are seeing deteriorating fiscal conditions around the world," Mr. Flaherty said during a broadcast interview.
"It is quite clear the [economic] situation is getting worse. That is the reality and we are going to have to deal with that."
His comments emerged after news that the Prime Minister, Stephen Harper, will visit the Governor-General to ask that the current session of Parliament be terminated, or prorogued. If granted, the House of Commons would return Jan. 26, with a budget to follow the next day.
But more important, it would temporarily end a bid by the Opposition parties to bring down the government, on the basis that it failed to provide a fiscal stimulus package in last week's economic update.
Before Mr. Flaherty's interview, the Prime Minister, Stephen Harper, suggested in his address to the nation that additional measures aimed at stoking domestic demand would be part of the Jan. 27 budget.
Mr. Flaherty has been under the gun since the release of his fiscal update, which provided no new fiscal stimuli and said Canada - through previously legislated tax measures and scheduled infrastructure spending - would already be injecting roughly $30-billion into the economy next year.
But in his interview, Mr. Flaherty talked about possible measures he may introduce in the budget, such as: tax cuts; further liquidity injections into the financial system to spark more lending; new money toward infrastructure, on top of the $33-billion already allocated in the Building Canada fund; and help for the automotive sector.
The Liberal-NDP coalition that threatens to take down the Conservatives said its first priority would be a two-year fiscal stimulus package that would focus on infrastructure, housing construction and aid for ailing manufacturers.
The stimuli he is promising may add to the size of Ottawa's deficit next year. While the fiscal update projected a $100-million surplus for the 2009-10 fiscal year, most economists believe the shortfall will be in the $7-billion to $10-billion range.
Recession threat weighs on housing markets
BRENDA BOUW The Canadian Press
VANCOUVER — Housing prices will fall about 5 per cent across Canada by the end of 2009 as a slumping economy takes a bite out of consumer confidence, says the ReMax realtor company.
The biggest drops are expected to come in major cities in British Columbia, where prices have run up the most across Canada in recent years, and in manufacturing centres in southwestern Ontario hit with automotive and manufacturing job losses.
In a report released Wednesday, ReMax said Canada's average house price has retreated from 2007's record high and will fall three per cent this year to $300,000 and another 2 per cent next year to $293,000.
About 440,000 homes are expected to change hands in 2008, a drop of 15 per cent compared to 520,747 last year. ReMax predicts 2009 sales to be flat.
“The reason for that is purely consumer confidence, it's shaken terribly right now,” said Elton Ash, a ReMax regional vice-president located in Western Canada.
“There are a lot of questions over job prospects right now.”
The 3 per cent overall drop in prices predicted for 2008 comes despite gains in 22 major centres across Canada, with the exception of Calgary and Edmonton, where prices are expected to fall one per cent.
Mr. Ash said the national drop is driven by smaller centres, such as forestry, oil and gas, mining and manufacturing towns hard hit by a downturn in the economy that has resulted in layoffs and stalled project development.
“It's the smaller markets that have seen larger decreases as a result of economic performance,” said Mr. Ash.
In 2009, the largest drops are expected in both Victoria and Kelowna, B.C., where prices are predicted to fall 10 per cent in 2009 to an average of $440,000 and $378,000 respectively.
Prices in Vancouver, Canada's most expensive housing market, are predicted to slump seven per cent to $545,000 next year.
“B.C. had the biggest runup in prices nationally in recent years,” Mr. Ash said. “When you have that happen there is going to be a greater down cycle.”
Kitchener-Waterloo, Ont. is also expected to see a seven-per-cent price drop in housing in 2009, to an average of $250,000, followed by a four-per-cent drop in the nearby Hamilton-Burlington, Ont. region, to $268,000. Both are impacted by a downturn in the automotive and manufacturing sectors, which had laid off thousands of employees in recent months.
The Greater Toronto area, which includes manufacturing and the struggling financial services sector, is predicted to see a drop in house prices of two per cent to $376,000 next year.
On the upswing is St. John's, N.L., which is expected to see a 12-per-cent jump in house prices in 2009, which ReMax says is due to the “(Newfoundland Premier Danny) Williams effect on the overall economy.”
House prices in Regina are expected to rise nine per cent next year, while cities such as Ottawa, Edmonton, Calgary, Sudbury and Halifax are predicted to see prices remain flat next year.
Adrienne Warren, a senior economist at Scotiabank, said the ReMax estimates mirror her forecasts, although the bank's economists are predicting prices to end flat across the country this year compared to 2007 and by five-to-10 per cent in 2009.
“The big risk to the Canadian housing market right now is a more significant recession and more significant job losses as opposed to mortgage-specific related problems we are seeing in the U.S.,” Ms. Warren said.
“The price declines are driven by more supply and fewer buyers.”
The U.S. housing market crashed last year as a result of reckless lending practices that covered about one-third of mortgages. They eventually defaulted, which led to the toppling of the housing market and several financial institutions who backed the risky investments.
Merrill Lynch said recently that Canada's housing market is following the same troubled path that eventually led the US. market into a major downturn, but with a two-year lag. It said Canadian households are so deeply in debt that a “tipping point” is approaching for the overall real estate market.
Many economists, as well as the Canadian real estate industry, disagree the market here will be as bad as in the U.S., where prices have fallen 20 per cent since the peak in mid-2006, and are expected to fall another five per cent next year.
It its outlook released this week, the Canadian Association of Accredited Mortgage Professionals predicts mortgage approval activity (including new mortgages, transfers and refinancings) to fall nearly 12 per cent to $193-billion in 2008, compared to $218-billion in 2007.
Approvals are forecast to fall another 10 per cent to $174-billion in 2009 and another 1.6 per cent in 2010 to $171-billion. That follows a growth rate of about 11.5 per cent annually for the three years ended August 2008.
Putting a positive spin on its report Wednesday, ReMax said the drop in prices is good news for new home buyers.
“The depreciation of prices is certainly good news from a first-time home buyers perspective to bring affordability to the picture,” Mr. Ash said.
“For people moving from home A to home B, it doesn't matter as much.”
Thursday, December 4, 2008
Wednesday, December 3, 2008
Financial Update
· TSX -78.40pts (Reuters) Manulife's drag on the heavily weighted financial group kept the broader index from tagging along with a rally in U.S. stock markets, after it said it would report a 4th-quarter loss of C$1.5 billion due to sliding markets and issue $2.1 billion in common equity to bolster its capital position. Additionally, "We have this whole political issue going on that is certainly not going to entice foreigners to invest in Canada right now," said Julie Brough, vice president at Morgan Meighen & Associates.
· DOW +270.00pts fuelled by reassuring words from Ford Motor Co. chief executive Alan Mulally, who said the automaker has enough cash to make it through 2009 and might not need government help
· Dollar -.37c to $79.84US. "
· Oil -$2.32 to $46.96US per barrel.
· Gold +$6.50 to $783.30US per ounce the biggest percentage advancer, up 7.4%
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Bank of Nova Scotia pulls back on lending
Eoin Callan, Financial Post
Bank of Nova Scotia is pulling back on lending to consumers and warning investors to brace for softer earnings next year as the economy slides into recession.
The third-largest bank in the country provided the clearest signal yet of any major Canadian financial institution that it is reining in offers of loans to customers for big-ticket items like homes.
Rick Waugh, chief executive, said the bank was becoming increasingly cautious amid profound economic uncertainty and worsening credit conditions.
Senior executives said the bank had stopped competing with Bay Street rivals to increase the bank's share of mortgages issued to Canadians.
"We lost a little bit of market share, and we've done that consciously," said Chris Hodgson, head of Canadian banking.
The disclosures indicate the bank has made a major strategic decision that separates it from Toronto-Dominion Bank in particular, where Chief Executive Ed Clark has promised investors he will dramatically increase the bank's share of the retail market.
The retreat by Scotia could leave the field open for TD and BMO to compete most aggressively to offer Canadians new loans, if RBC and CIBC follow Scotia's lead and ease back next year.
Rob Pitfield, the head of international banking at Scotia, said managers were also becoming "very circumspect" in providing consumer loans in Latin America and had "taken alot of action to tighten up."
In some respects, Scotia's executive team are putting into words what many bank executives around the world have been reluctant to say publicly, for fear of drawing political ire at a time when policymakers are encouraging financial institutions to ease the supply of credit.
The chief executive said interference from politicians was emerging as a major headache for international banks that had been compelled to turn to their governments for capital injections amid one of the worst financial crises of the century.
"I don't think government capital comes cheap," said Mr. Waugh, citing pressure on banks to make more loans to mitigate the impact of a recession.
"Politically, it comes with a true cost," he added, saying some foreign banks had been forced by governments to take capital they "didn't want" to guard against potential future losses.
Yet despite the warnings about the after-effects of state interventions, Scotia appears likely to be a beneficiary of moves by the Federal Reserve and United States Treasury to supply extra liqudity to the auto finance industry.
Scotia has more than $20-billion in exposures to the auto finance industry, mainly in the form of loans to consumers to buy cars and to auto dealers to keep their lots filled with vehicles.
The bank has extended about $5.2-billion in loans to consumers, parts manufacturers and dealers, plus exposures of $7.8-billion in off-balance sheet vehicles and another $7.8-billion in an on-balance sheet portfolios made up of securitized credit.
The exposures are a source of "comcern" but have so far been managed without unexpected losses, said Peter Routledge, a senior credit officer at Moody's, the ratings agency. "If we have a normal turn in the credit cycle tied to a recessionary period, then that would suggest they would not have diffculties managing credit losses. If it is an unusually bad cycle and credit losses are much higher, than conceivably it might put some negative pressure on the [credit] rating," said Mr. Routledge.
Brian Porter, Scotia's chief risk officer and a rising force within the bank, said the next year "is going to be a focus on credit, credit and credit."
But he said while there would be a rise in loan losses across the board, he did not anticipate any nasty surprises.
The chief executive said Scotia would not raise capital by issuing common equity, but had ample scope to take advantage of new looser capital rules by selling preferred shares.
Analysts said they expected the bank to act soon to pad its capital base in this way, as its reserves appeared set to dip below the level of 9% of risk-weighted assets, a trigger for other institutions to raise cash.
Scotia Tuesday said profit fell 66% due to a worse-than-expected charge of $642-million incurred amid turbulent markets. The said net income for the year-end quarter ended Oct. 31 was $315-million (28 cents) compared with $954-million (95 cents) in the year-earlier quarter.
· DOW +270.00pts fuelled by reassuring words from Ford Motor Co. chief executive Alan Mulally, who said the automaker has enough cash to make it through 2009 and might not need government help
· Dollar -.37c to $79.84US. "
· Oil -$2.32 to $46.96US per barrel.
· Gold +$6.50 to $783.30US per ounce the biggest percentage advancer, up 7.4%
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Bank of Nova Scotia pulls back on lending
Eoin Callan, Financial Post
Bank of Nova Scotia is pulling back on lending to consumers and warning investors to brace for softer earnings next year as the economy slides into recession.
The third-largest bank in the country provided the clearest signal yet of any major Canadian financial institution that it is reining in offers of loans to customers for big-ticket items like homes.
Rick Waugh, chief executive, said the bank was becoming increasingly cautious amid profound economic uncertainty and worsening credit conditions.
Senior executives said the bank had stopped competing with Bay Street rivals to increase the bank's share of mortgages issued to Canadians.
"We lost a little bit of market share, and we've done that consciously," said Chris Hodgson, head of Canadian banking.
The disclosures indicate the bank has made a major strategic decision that separates it from Toronto-Dominion Bank in particular, where Chief Executive Ed Clark has promised investors he will dramatically increase the bank's share of the retail market.
The retreat by Scotia could leave the field open for TD and BMO to compete most aggressively to offer Canadians new loans, if RBC and CIBC follow Scotia's lead and ease back next year.
Rob Pitfield, the head of international banking at Scotia, said managers were also becoming "very circumspect" in providing consumer loans in Latin America and had "taken alot of action to tighten up."
In some respects, Scotia's executive team are putting into words what many bank executives around the world have been reluctant to say publicly, for fear of drawing political ire at a time when policymakers are encouraging financial institutions to ease the supply of credit.
The chief executive said interference from politicians was emerging as a major headache for international banks that had been compelled to turn to their governments for capital injections amid one of the worst financial crises of the century.
"I don't think government capital comes cheap," said Mr. Waugh, citing pressure on banks to make more loans to mitigate the impact of a recession.
"Politically, it comes with a true cost," he added, saying some foreign banks had been forced by governments to take capital they "didn't want" to guard against potential future losses.
Yet despite the warnings about the after-effects of state interventions, Scotia appears likely to be a beneficiary of moves by the Federal Reserve and United States Treasury to supply extra liqudity to the auto finance industry.
Scotia has more than $20-billion in exposures to the auto finance industry, mainly in the form of loans to consumers to buy cars and to auto dealers to keep their lots filled with vehicles.
The bank has extended about $5.2-billion in loans to consumers, parts manufacturers and dealers, plus exposures of $7.8-billion in off-balance sheet vehicles and another $7.8-billion in an on-balance sheet portfolios made up of securitized credit.
The exposures are a source of "comcern" but have so far been managed without unexpected losses, said Peter Routledge, a senior credit officer at Moody's, the ratings agency. "If we have a normal turn in the credit cycle tied to a recessionary period, then that would suggest they would not have diffculties managing credit losses. If it is an unusually bad cycle and credit losses are much higher, than conceivably it might put some negative pressure on the [credit] rating," said Mr. Routledge.
Brian Porter, Scotia's chief risk officer and a rising force within the bank, said the next year "is going to be a focus on credit, credit and credit."
But he said while there would be a rise in loan losses across the board, he did not anticipate any nasty surprises.
The chief executive said Scotia would not raise capital by issuing common equity, but had ample scope to take advantage of new looser capital rules by selling preferred shares.
Analysts said they expected the bank to act soon to pad its capital base in this way, as its reserves appeared set to dip below the level of 9% of risk-weighted assets, a trigger for other institutions to raise cash.
Scotia Tuesday said profit fell 66% due to a worse-than-expected charge of $642-million incurred amid turbulent markets. The said net income for the year-end quarter ended Oct. 31 was $315-million (28 cents) compared with $954-million (95 cents) in the year-earlier quarter.
Tuesday, December 2, 2008
Financial Update
TSX has its worst one-day percentage loss since 1987
Markets post big losses as U.S. recession now official
· TSX -864.41pts (Reuters) after gaining over 1,100 points last week, the TSX plunged 9.3% led by the energy and financial sectors. The prospect that the Conservative minority government could be ousted also had some impact on the sell-off. In Ottawa, opposition parties have reached a tentative deal to bring down the Tory government and form a coalition government that would pump billions of dollars into the economy
· DOW -679.95pts as the National Bureau of Economic Research said the United States is in recession and has been for a year.
· Dollar -.53c to $80.31US. "If anything will suffer from political uncertainty, it's the Canadian dollar, and I think we saw that notably on Friday, when the dollar failed to rally despite the strength in the stock market,'' said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp.
· Oil -$5.15 to $49.28US per barrel.
· Gold-42.20 to $776.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Manulife Financial is moving to shore up its capital base after falling into a loss for the first time in its history as a public company. Canada's largest insurer will issue $2.125-billion in common equity at a discount after seeing its capital base eroded amid extreme volatility in financial markets.
A recession by another definition
RICHARD BLACKWELL TAKES QUESTIONS ON THE FINANCIAL CRISIS
RICHARD BLACKWELL December 2, 2008
How did the National Bureau of Economic Research (NBER) figure out that the United States has officially been in a recession for a year?
The NBER doesn't use the usual definition of a recession - two consecutive quarters of decline in gross domestic product (GDP). It instead looks for the peak of economic activity by considering GDP and several other factors, such as production, employment, consumption and real income.
When the peak is reached and the economy begins to decline significantly, that's when the recession has started, according to the NBER.
This often means that an official recession is not declared by the NBER until it is well under way, or is even over. And it means that there can sometimes be an official recession under way when there aren't two consecutive quarters of GDP decline. So far, that's the case this time. (U.S. GDP fell in the third quarter, but was up in the second.)
The recession will not be considered finished until the economy reaches its trough. But that, too, won't be determined until much later.
What is the NBER anyway?
The NBER was founded in 1920 by a group of economists who wanted to understand business cycles. It is a non-profit research organization with more than 1,000 university professors and researchers functioning as "associates" who study how the U.S. economy works. Since the 1960s, it has been considered the official arbiter of when the United States is in recession.
An NBER subgroup, the business-cycle-dating committee, actually makes the decision to declare a recession. That key committee is currently composed of economists from Harvard, Stanford, the Massachusetts Institute of Technology, Northwestern University, the University of California at Berkeley, and the U.S. Conference Board.
Has the NBER said when the recession will end?
The NBER refuses to make any forecasts, so they've given no public opinion on when the recession will end. They'll only tell us after the fact.
What's the point of declaring a recession a year after it has begun?
Economists, historians and bureaucrats study the NBER's analysis to help them figure out how recessions work, and what patterns are repeated. But to make short-term decisions, politicians usually use more immediate data such as the GDP figures or employment data.
When oil was about $50 (U.S.) a barrel a few years ago, what did a litre of gas cost? My recollection was that it was lower than it is now.
In fact, the last couple of times oil was at about current levels, the price of gas at the pump was pretty close to where it is now. Last week, with oil at just over $50 a barrel, the average price at the pump across Canada was about 83 cents (Canadian) a litre, according to figures compiled by Calgary company M.J. Ervin & Associates. The last time oil was about the $50 mark was in mid-January, 2007, and at that time the average price of gas was roughly 87 cents a litre.There's been talk about some companies' stock values going down to zero. What happens when a company gets to that point?
The Toronto Stock Exchange says a stock can never fall to zero, because for a trade to take place, there has to be a price set. Anybody bidding zero cents for a stock would have that bid rejected as invalid. But a stock can trade for as low as half a cent.
Markets post big losses as U.S. recession now official
· TSX -864.41pts (Reuters) after gaining over 1,100 points last week, the TSX plunged 9.3% led by the energy and financial sectors. The prospect that the Conservative minority government could be ousted also had some impact on the sell-off. In Ottawa, opposition parties have reached a tentative deal to bring down the Tory government and form a coalition government that would pump billions of dollars into the economy
· DOW -679.95pts as the National Bureau of Economic Research said the United States is in recession and has been for a year.
· Dollar -.53c to $80.31US. "If anything will suffer from political uncertainty, it's the Canadian dollar, and I think we saw that notably on Friday, when the dollar failed to rally despite the strength in the stock market,'' said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp.
· Oil -$5.15 to $49.28US per barrel.
· Gold-42.20 to $776.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Manulife Financial is moving to shore up its capital base after falling into a loss for the first time in its history as a public company. Canada's largest insurer will issue $2.125-billion in common equity at a discount after seeing its capital base eroded amid extreme volatility in financial markets.
A recession by another definition
RICHARD BLACKWELL TAKES QUESTIONS ON THE FINANCIAL CRISIS
RICHARD BLACKWELL December 2, 2008
How did the National Bureau of Economic Research (NBER) figure out that the United States has officially been in a recession for a year?
The NBER doesn't use the usual definition of a recession - two consecutive quarters of decline in gross domestic product (GDP). It instead looks for the peak of economic activity by considering GDP and several other factors, such as production, employment, consumption and real income.
When the peak is reached and the economy begins to decline significantly, that's when the recession has started, according to the NBER.
This often means that an official recession is not declared by the NBER until it is well under way, or is even over. And it means that there can sometimes be an official recession under way when there aren't two consecutive quarters of GDP decline. So far, that's the case this time. (U.S. GDP fell in the third quarter, but was up in the second.)
The recession will not be considered finished until the economy reaches its trough. But that, too, won't be determined until much later.
What is the NBER anyway?
The NBER was founded in 1920 by a group of economists who wanted to understand business cycles. It is a non-profit research organization with more than 1,000 university professors and researchers functioning as "associates" who study how the U.S. economy works. Since the 1960s, it has been considered the official arbiter of when the United States is in recession.
An NBER subgroup, the business-cycle-dating committee, actually makes the decision to declare a recession. That key committee is currently composed of economists from Harvard, Stanford, the Massachusetts Institute of Technology, Northwestern University, the University of California at Berkeley, and the U.S. Conference Board.
Has the NBER said when the recession will end?
The NBER refuses to make any forecasts, so they've given no public opinion on when the recession will end. They'll only tell us after the fact.
What's the point of declaring a recession a year after it has begun?
Economists, historians and bureaucrats study the NBER's analysis to help them figure out how recessions work, and what patterns are repeated. But to make short-term decisions, politicians usually use more immediate data such as the GDP figures or employment data.
When oil was about $50 (U.S.) a barrel a few years ago, what did a litre of gas cost? My recollection was that it was lower than it is now.
In fact, the last couple of times oil was at about current levels, the price of gas at the pump was pretty close to where it is now. Last week, with oil at just over $50 a barrel, the average price at the pump across Canada was about 83 cents (Canadian) a litre, according to figures compiled by Calgary company M.J. Ervin & Associates. The last time oil was about the $50 mark was in mid-January, 2007, and at that time the average price of gas was roughly 87 cents a litre.There's been talk about some companies' stock values going down to zero. What happens when a company gets to that point?
The Toronto Stock Exchange says a stock can never fall to zero, because for a trade to take place, there has to be a price set. Anybody bidding zero cents for a stock would have that bid rejected as invalid. But a stock can trade for as low as half a cent.
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