A "Santa Claus" rally has become a Toronto Stock Exchange tradition, however it remains to been seen if the economic "Grinch" will steal Christmas this season.
· TSX+126.55pts (Reuters)
· DOW -25.88pts
· Dollar -1.11c to $81.77US.
· Oil -$2.35 to $33.87US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$23.20 to $836.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Restructuring plan approved for asset-based commercial paper Gary NorrisThe Canadian Press The 16-month-long nightmare in Canada's asset-backed commercial paper market appears finally to be at an end, thanks to a multibillion-dollar taxpayer guarantee.
The federal government and the governments of Ontario, Quebec and Alberta have agreed to "partner'' in supporting a restructuring of $32 billion worth of ABCP not issued by Canada's big banks.
Federal Finance Minister Jim Flaherty announced yesterday that Ontario and Quebec had agreed to help, and an Alberta Finance Ministry spokesperson said a few hours later that the province "has decided to do its part to support this agreement.''
The governments did not specify the size of the "senior funding facility'' they will provide to backstop what has become known as the Montreal accord.
But Flaherty said the deal will enable investors and commercial-paper issuers to "achieve a stable and effective restructuring agreement'' which "will protect financial stability and the health of Canada's financial markets.''
A Finance Department spokesperson said the size of the public support and other details would be released "later.''
The government had been approached for a guarantee of $9.5 billion.
"Unless someone does something totally irrational, there should be a deal,'' Colin Kilgour, an independent consultant to corporate holders of the frozen paper, said after Flaherty's announcement.
He added that the taxpayer commitment is probably close to the $9.5 billion proposed by a blue-ribbon committee toiling to untangle the mess.
Banks are trying, but can't do it all, association says The Canadian Press Big banks can't reignite the lending market on their own, despite government suggestions to the contrary, the head of the association for Canada's financial institutions said yesterday.
Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association, agreed that many sources for lending have been pulling back in the wake of the global credit crunch that has rocked financial markets around the world.
"Banks are working to fill the gap,'' she wrote in a statement, as Finance Minister Jim Flaherty stepped up the pressure on the banks to loosen up their lending practices to help revive the battered economy.
"But banks don't have the capacity to do it all.''
Bank of Canada governor Mark Carney and Flaherty are scheduled to meet with chief executives from the country's big banks in January to get an update on their lending practices.
"I expect (the banks) to make it evident to us that they are taking steps to make that more available in Canada,'' Flaherty said at a news conference yesterday in Saskatoon, where he was holding pre-budget meetings.
On Wednesday, Carney also urged the banks to pump more credit into the economy and he called on financial institutions to build up capital in good times and draw on it in bad -- the opposite of what is now occurring as bankers become more risk-averse in a shrinking economy.
The two sides are increasingly clashing over how much responsibility the banks should have toward the broader economy.
While the recession is worsening because of mounting plant closures and workers' rising job insecurities across the country, credit is also drying up, preventing companies from raising capital to invest and expand and consumers from buying cars, houses and other big-ticket items.
"It's a real tug of war that's going on,'' said Patricia Croft, chief economist and vice-president of Phillips Hager and North, a Vancouver-based money manager acquired by the Royal Bank earlier this year.
Croft said that banks and businesses are stuck in a "negative feedback loop,'' which might be more commonly known as a vicious circle: banks are reluctant to lend, which means that businesses cut back on capital spending, resulting in job cuts. That makes consumers spend less and default on credit payments, which in turn causes the banks to become even more reluctant lenders.
Happy Holidays!
Monday, December 22, 2008
Friday, December 19, 2008
Financial Update
Harper eyes stimulus worth $30-billion “We're going to do whatever it takes to get our economy through this recession and on to a long-term recovery”
But even as he put a price tag on the planned aid, Mr. Harper said he's prepared to go further if necessary. “It will be scalable. We will be able to move it up if we need to move it up,” he said.
· TSX -298.76pts(Reuters) led by a drop in energy and gold stocks as the price of oil continued to drop despite a massive production cut by OPEC and economic worries sent bank stocks lower.
· DOW -219.35pts paced by slumping energy-related shares, after the price of crude fell to 4 year lows and 2 of the nation's Big Three automakers said they would halt production
· Dollar -.93c to $82.93US.
· Oil -$3.54 to $40.06US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$7.90 to $860.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Flaherty picks team to help shape budget
RICHARD BLACKWELL From Friday's Globe and Mail
Finance Minister Jim Flaherty has reached out beyond his usual coterie of advisers to get help in crafting the crucial January budget that will spell out how Ottawa plans to get the economy back on track.
On Thursday, he announced a special 11-member advisory committee that will consult with him and suggest measures to be included in the budget. But the Economic Advisory Council will live beyond the budget and continue to provide advice in the future.
The group is devoid of bank economists or central bankers. In that sense it contrasts with U.S. president-elect Barack Obama's Economic Recovery Advisory Board, which is headed by a former chairman of the Federal Reserve Board and includes economists in addition to business leaders, labour officials and academics.
Mr. Flaherty's panel is also non-partisan. It will be chaired by Carole Taylor, the former minister of finance in British Columbia's Liberal government. And Power Corp. of Canada chairman Paul Desmarais Jr., a long-time Liberal supporter, will also be at the table.
Business luminaries on the committee include Vancouver entrepreneur Jimmy Pattison, James D. Irving, president of the forest products arm of the Irving family empire, Research In Motion Ltd. president Mike Lazaridis, and Geoff Beattie, president of the Thomson family holding company Woodbridge Co. Ltd.
Mr. Flaherty told reporters in Saskatoon Thursday he talked individually to each member and asked them to participate. “I called them all personally and said: ‘Your advice is needed for your country,' and all of them said: ‘Yes.'”
The group will meet for the first time in Toronto on Tuesday, then reconvene after Christmas.
Ms. Taylor said in an interview Thursday that Mr. Flaherty is attempting to “reach out” and gather views on what action to take. The new council's mandate “is to put together some sort of structure around private sector advice, ideas and opinions,” she said.
It's important to get broad input from experienced business people who are “on the ground,” she said, “because there is no solution we can pull off the shelf here that will deal with this.”
Ms. Taylor, who was dropped from the B.C. cabinet last summer after she announced she would not run again for the provincial legislature, said she is very happy to be back in a key role on a crucial public policy issue. “This is such an important moment in history that I was anxious to participate in some way.”
Another member of the committee is University of Calgary professor Jack Mintz, who has advised the government on tax issues in the past.
Mr. Mintz said it is too early to say how the committee will be organized, or in what form it will provide advice to the government. The group might want to warn Ottawa off some possible measures that could cause more harm than good, he said, in addition to recommending others.
In a recent commentary in The Globe and Mail, Mr. Mintz cautioned against bailing out weak companies. Retraining displaced workers is more effective than “keeping inefficient businesses operating,” he wrote.
Infrastructure spending can help, he added, but only if it is in support of projects that are ready to proceed. And a cut in income taxes is preferable to trimming the GST, he wrote.
Another committee member, Ajit Someshwar, who owns a number of small companies including information technology advisory firm CSI Consulting Inc., said it is a wise move to consult people with different skills when “we are sailing in uncharted waters.”
Mr. Pattison, who will bring another West Coast perspective to the committee along with Ms. Taylor, would not say what he will recommend to Mr. Flaherty. But he noted that “the U.S. is definitely worse off than we are,” and that, at the moment, “things are pretty good out here in B.C.”
But even as he put a price tag on the planned aid, Mr. Harper said he's prepared to go further if necessary. “It will be scalable. We will be able to move it up if we need to move it up,” he said.
· TSX -298.76pts(Reuters) led by a drop in energy and gold stocks as the price of oil continued to drop despite a massive production cut by OPEC and economic worries sent bank stocks lower.
· DOW -219.35pts paced by slumping energy-related shares, after the price of crude fell to 4 year lows and 2 of the nation's Big Three automakers said they would halt production
· Dollar -.93c to $82.93US.
· Oil -$3.54 to $40.06US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$7.90 to $860.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Flaherty picks team to help shape budget
RICHARD BLACKWELL From Friday's Globe and Mail
Finance Minister Jim Flaherty has reached out beyond his usual coterie of advisers to get help in crafting the crucial January budget that will spell out how Ottawa plans to get the economy back on track.
On Thursday, he announced a special 11-member advisory committee that will consult with him and suggest measures to be included in the budget. But the Economic Advisory Council will live beyond the budget and continue to provide advice in the future.
The group is devoid of bank economists or central bankers. In that sense it contrasts with U.S. president-elect Barack Obama's Economic Recovery Advisory Board, which is headed by a former chairman of the Federal Reserve Board and includes economists in addition to business leaders, labour officials and academics.
Mr. Flaherty's panel is also non-partisan. It will be chaired by Carole Taylor, the former minister of finance in British Columbia's Liberal government. And Power Corp. of Canada chairman Paul Desmarais Jr., a long-time Liberal supporter, will also be at the table.
Business luminaries on the committee include Vancouver entrepreneur Jimmy Pattison, James D. Irving, president of the forest products arm of the Irving family empire, Research In Motion Ltd. president Mike Lazaridis, and Geoff Beattie, president of the Thomson family holding company Woodbridge Co. Ltd.
Mr. Flaherty told reporters in Saskatoon Thursday he talked individually to each member and asked them to participate. “I called them all personally and said: ‘Your advice is needed for your country,' and all of them said: ‘Yes.'”
The group will meet for the first time in Toronto on Tuesday, then reconvene after Christmas.
Ms. Taylor said in an interview Thursday that Mr. Flaherty is attempting to “reach out” and gather views on what action to take. The new council's mandate “is to put together some sort of structure around private sector advice, ideas and opinions,” she said.
It's important to get broad input from experienced business people who are “on the ground,” she said, “because there is no solution we can pull off the shelf here that will deal with this.”
Ms. Taylor, who was dropped from the B.C. cabinet last summer after she announced she would not run again for the provincial legislature, said she is very happy to be back in a key role on a crucial public policy issue. “This is such an important moment in history that I was anxious to participate in some way.”
Another member of the committee is University of Calgary professor Jack Mintz, who has advised the government on tax issues in the past.
Mr. Mintz said it is too early to say how the committee will be organized, or in what form it will provide advice to the government. The group might want to warn Ottawa off some possible measures that could cause more harm than good, he said, in addition to recommending others.
In a recent commentary in The Globe and Mail, Mr. Mintz cautioned against bailing out weak companies. Retraining displaced workers is more effective than “keeping inefficient businesses operating,” he wrote.
Infrastructure spending can help, he added, but only if it is in support of projects that are ready to proceed. And a cut in income taxes is preferable to trimming the GST, he wrote.
Another committee member, Ajit Someshwar, who owns a number of small companies including information technology advisory firm CSI Consulting Inc., said it is a wise move to consult people with different skills when “we are sailing in uncharted waters.”
Mr. Pattison, who will bring another West Coast perspective to the committee along with Ms. Taylor, would not say what he will recommend to Mr. Flaherty. But he noted that “the U.S. is definitely worse off than we are,” and that, at the moment, “things are pretty good out here in B.C.”
Thursday, December 18, 2008
Financial Update
The Cupboard is almost bare
For the first time in its history, the U.S. Federal Reserve is effectively giving away money
· TSX +262.28pts (Reuters) TSX index surged more than 3% in a broad rally after the U.S. Federal Reserve cut its target for overnight interest rates to a record low range of zero to 0.25% and said it would do everything it can to chase away the economic gloom.
· DOW +359.61pts
· Dollar +2.02c to $83.21US. as sentiment toward the US dollar darkened with the Fed’s gloomy announcement that it will stop at nothing to flood the financial system with greenbacks
· Oil -$.91 to $44.51US per barrel.
· Gold +$6.30 to $841.70US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The net worth of Canadian households fell by about $191 billion in the third quarter, and it's likely to have gotten worse as stock prices tumbled in the current three-month period. Bank of Montreal economist Doug Porter said that, although people don't tend to adjust their consumer spending in direct relation to their net worth, a decline in net worth will negatively impact the economy as ordinary Canadians tighten their wallets.
"As the stock market continued to weaken, it became obvious that it would have an effect, not just on consumer behaviour but also on business behaviour,'' Porter said in an interview. "I do think it was the intense financial market turmoil we saw over the fall that really played a big role in tipping the global economy into a full-fledged recession.''
Fed tries to steer economy out of long recession
Alia McMullen, National Post For the first time in its history, the U.S. Federal Reserve is effectively giving away money.
The central bank took the unprecedented step yesterday of slashing its benchmark interest rate to an extraordinarily low range of zero to a quarter per cent on Tuesday in an attempt to prevent the world's largest economy from suffering a long and painful recession.
"This is an historic move and it will go down in the annals of Fed history as the most aggressive attempt ever to reverse a deep recession, prevent deflation and spur financial-market re-normalization," said Sherry Cooper, the chief economist at BMO Capital Markets.
Stock indexes surged on the Fed action, with the Dow Jones industrial average up 4.2% to 8,924.14 and the S&P500 up 5.1% at 913.18. This helped to boost the S&P/TSX Composite Index 3.1% to 8,724.11.
The move had immediate benefits for fixed mortgage rates, with the long-term bond rates on which they are set tumbling on the Fed's signal that it would keep interest rates at an exceptionally low level for some time.
The Fed cut the Federal Funds Rate, at which the banks lend to each other, from 1% to a range of 0% to 0.25%. The reduction surpasses the previous low of half a per cent set during the Second World War, a sign of just how serious the current U.S. recession is.
"With every layoff announcement and stock market decline, consumer confidence drops," Ms. Cooper said. "It will take a mighty effort by central banks and government authorities to drag the global economy out of this ditch, but with the stimulus we are likely to see in coming months [from central banks and governments], the economy will hopefully bottom around midyear 2009 followed by a sluggish recovery in the second half and moderate growth in 2010."
But with no more room to cut rates, the Fed will embark on a new strategy to stimulate the economy by pulling "all available tools" out of its box. For the first time in its 95-year history, the Fed plans to buy debt from mortgage insurers Fannie Mae and Freddie Mac as well as mortgage-backed securities to help reduce mortgage rates. It also plans to provide additional funds for households, homeowners and small businesses.
For now, the Fed's efforts appear to be working. Yields on Fannie Mae and Freddie Mac 30-year fixed mortgage bonds as well as government 10-year and 30-year Treasuries -- which have a direct impact on fixed mortgage rates -- declined to record lows on Tuesday. These rates had been surging, despite official interest rate cuts, because investors had been looking for a safe haven to park their money and ride out the financial crisis.
Michael Englund, the chief economist at Action Economics in Boulder, Colo., said the Fed's plan to purchase mortgage-backed securities and possibly government Treasuries as well as their pledge to keep interest rates low would continue to put downward pressure on fixed mortgage rates and eventually help to stimulate the U.S. housing market.
However, problems in the U.S. economy stretch further than the deep housing slump. Economists expect the Fed to also begin to print money in an effort to prevent consumer prices from falling into a dangerous downward spiral. This alternative method of boosting the flow of money in the economy is known as quantitative easing, a strategy developed by the Bank of Japan during its lost decade of zero interest rates and price deflation.
Joshua Shapiro, chief U.S. economist at MFR in New York, said the Fed was clearly trying to fight off deflation, which is a persistent decline in consumer prices that comes hand in hand with job losses, wage cuts and a devaluation of money.
"The action taken [Tuesday] and the quantitative easing moves to come speak volumes about just how petrified policymakers are that the economy is in danger of sliding into a deflationary spiral that would be disastrous considering the highly leveraged condition of the economy," said.
The risk of deflation was evident just hours before the Fed's announcement. The Bureau of Labor Statistics reported that consumer prices for November fell a record 1.7% from the previous month, taking the annual rate to the 43-year low of 1.1% equalled in 1986 and 2002.
Mr. Shapiro expects the Fed to ultimately beat inflation, but he had a very pessimistic outlook for the U.S. economy. He predicted the economy to remain in a recession that could possibly extend past 2010.
For the first time in its history, the U.S. Federal Reserve is effectively giving away money
· TSX +262.28pts (Reuters) TSX index surged more than 3% in a broad rally after the U.S. Federal Reserve cut its target for overnight interest rates to a record low range of zero to 0.25% and said it would do everything it can to chase away the economic gloom.
· DOW +359.61pts
· Dollar +2.02c to $83.21US. as sentiment toward the US dollar darkened with the Fed’s gloomy announcement that it will stop at nothing to flood the financial system with greenbacks
· Oil -$.91 to $44.51US per barrel.
· Gold +$6.30 to $841.70US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The net worth of Canadian households fell by about $191 billion in the third quarter, and it's likely to have gotten worse as stock prices tumbled in the current three-month period. Bank of Montreal economist Doug Porter said that, although people don't tend to adjust their consumer spending in direct relation to their net worth, a decline in net worth will negatively impact the economy as ordinary Canadians tighten their wallets.
"As the stock market continued to weaken, it became obvious that it would have an effect, not just on consumer behaviour but also on business behaviour,'' Porter said in an interview. "I do think it was the intense financial market turmoil we saw over the fall that really played a big role in tipping the global economy into a full-fledged recession.''
Fed tries to steer economy out of long recession
Alia McMullen, National Post For the first time in its history, the U.S. Federal Reserve is effectively giving away money.
The central bank took the unprecedented step yesterday of slashing its benchmark interest rate to an extraordinarily low range of zero to a quarter per cent on Tuesday in an attempt to prevent the world's largest economy from suffering a long and painful recession.
"This is an historic move and it will go down in the annals of Fed history as the most aggressive attempt ever to reverse a deep recession, prevent deflation and spur financial-market re-normalization," said Sherry Cooper, the chief economist at BMO Capital Markets.
Stock indexes surged on the Fed action, with the Dow Jones industrial average up 4.2% to 8,924.14 and the S&P500 up 5.1% at 913.18. This helped to boost the S&P/TSX Composite Index 3.1% to 8,724.11.
The move had immediate benefits for fixed mortgage rates, with the long-term bond rates on which they are set tumbling on the Fed's signal that it would keep interest rates at an exceptionally low level for some time.
The Fed cut the Federal Funds Rate, at which the banks lend to each other, from 1% to a range of 0% to 0.25%. The reduction surpasses the previous low of half a per cent set during the Second World War, a sign of just how serious the current U.S. recession is.
"With every layoff announcement and stock market decline, consumer confidence drops," Ms. Cooper said. "It will take a mighty effort by central banks and government authorities to drag the global economy out of this ditch, but with the stimulus we are likely to see in coming months [from central banks and governments], the economy will hopefully bottom around midyear 2009 followed by a sluggish recovery in the second half and moderate growth in 2010."
But with no more room to cut rates, the Fed will embark on a new strategy to stimulate the economy by pulling "all available tools" out of its box. For the first time in its 95-year history, the Fed plans to buy debt from mortgage insurers Fannie Mae and Freddie Mac as well as mortgage-backed securities to help reduce mortgage rates. It also plans to provide additional funds for households, homeowners and small businesses.
For now, the Fed's efforts appear to be working. Yields on Fannie Mae and Freddie Mac 30-year fixed mortgage bonds as well as government 10-year and 30-year Treasuries -- which have a direct impact on fixed mortgage rates -- declined to record lows on Tuesday. These rates had been surging, despite official interest rate cuts, because investors had been looking for a safe haven to park their money and ride out the financial crisis.
Michael Englund, the chief economist at Action Economics in Boulder, Colo., said the Fed's plan to purchase mortgage-backed securities and possibly government Treasuries as well as their pledge to keep interest rates low would continue to put downward pressure on fixed mortgage rates and eventually help to stimulate the U.S. housing market.
However, problems in the U.S. economy stretch further than the deep housing slump. Economists expect the Fed to also begin to print money in an effort to prevent consumer prices from falling into a dangerous downward spiral. This alternative method of boosting the flow of money in the economy is known as quantitative easing, a strategy developed by the Bank of Japan during its lost decade of zero interest rates and price deflation.
Joshua Shapiro, chief U.S. economist at MFR in New York, said the Fed was clearly trying to fight off deflation, which is a persistent decline in consumer prices that comes hand in hand with job losses, wage cuts and a devaluation of money.
"The action taken [Tuesday] and the quantitative easing moves to come speak volumes about just how petrified policymakers are that the economy is in danger of sliding into a deflationary spiral that would be disastrous considering the highly leveraged condition of the economy," said.
The risk of deflation was evident just hours before the Fed's announcement. The Bureau of Labor Statistics reported that consumer prices for November fell a record 1.7% from the previous month, taking the annual rate to the 43-year low of 1.1% equalled in 1986 and 2002.
Mr. Shapiro expects the Fed to ultimately beat inflation, but he had a very pessimistic outlook for the U.S. economy. He predicted the economy to remain in a recession that could possibly extend past 2010.
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