TSX racks up modest loss as energy stocks improve; N.Y. markets surge
· TSX -53.88pts after a late-day rally that saw investors buy beaten up energy stocks despite a big drop in oil prices
· Dow +401.35pts also pulled off a late day comeback as investors examined mixed economic and earnings data for clues about the health of the economy.
· Dollar +.45cto $84.63US
· Oil -$4.69to $69.85US per barrel Oil prices that looked like they just would keep rising fell to a level less than half the record high of US$147.27 they reached this summer-to a 14 mth low
· Gold -$34.00 to $801.50US per ounce The volatility extended to the precious metals sector as investors looking for safety dumped gold in favour of cash.(reuters)
Bank of Canada set to cut interest rates another half-point next week: RBC
By The Canadian Press TORONTO - The Bank of Canada will likely lower its policy interest rate by half a percentage point next week, the Royal Bank of Canada's economics department said Thursday.
Citing "a deteriorating outlook for the U.S. economy, falling commodity prices and persistent financial market volatility," RBC said downside risks are increasing for Canada's economic outlook.
An Update on the first CMHC auction…
----------------------------------------------------
Banks sell $5-billion of mortgages BOYD ERMAN Globe and Mail Update
Canadian banks sold $5-billion of mortgages to Canada Mortgage and Housing Corp. at a price that indicates the government will indeed make a big profit on its program to help banks jump-start lending.
CMHC will earn an average yield of 4.24 per cent on the mortgages it bought from banks Thursday. At the same time, the government sold $3-billion of five-year bonds to finance the purchase at a yield of 3.24 per cent. The 1 percentage point spread means the government will make $50-million a year in profit from the interest-rate differential on this batch of loans.
The federal government designed the program to help banks raise money for new loans, by taking old home loans off the balance sheet. The government plans more purchases totalling $20-billion, though many bankers would like Ottawa to ratchet up the program.
The loans the federal government is purchasing are insured, meaning the government shouldn't be putting taxpayer money at risk.
For the banks, getting funds at an interest rate of 4.24 per cent will be a big relief, given that interest rates from other methods of raising money are much higher in the credit squeeze.
Friday, October 17, 2008
Thursday, October 16, 2008
Financial Update
Don't panic: a market meltdown survival guide Financial Post Article below
· TSX -631.83pts
· Dow -733.08 pts –
· Dollar +1.91cto $84.18US.
· Oil -$4.09to $74.54US per barrel
· Gold -$.80 to $835.50US per ounce
Ottawa may make millions on CMHC plan for banks TARA PERKINS AND BOYD ERMAN
Globe and Mail
The federal government stands to make hundreds of millions of dollars off of its new program to buy mortgages from banks.
The government today is launching the first purchase of $5-billion of mortgages from Canada's banks as part of a program to buy $25-billion of home loans from banks to give them cash to make new loans.
It is taking advantage of its ability to borrow cheaply to buy the mortgages, which will pay a higher rate of interest. The difference will be the government's profit.
Ottawa doesn't have a forecast of its likely take, but given current market prices and the guidance that the Finance Department has provided to bankers on the prices to be paid, the federal government may expect to earn about $250-million a year. That could rise to $1-billion if the government increases the size of the mortgage purchases to $100-billion, as some in the banking sector suggest could be done.
Those potential profits are significant at a time when Ottawa projects its surplus will fall to $1.3-billion for the year ended March, 2010.
While government officials say any profit isn't the point, earning money on the program does drive home the message that Ottawa has been sending: The program isn't a bailout at taxpayers' expense.
“The goal is not to make money for the government,” said a Finance Department official who spoke on condition of anonymity. While the program is an efficient way to support lending in Canada by providing reliable funding to banks, it is important that the banks pay a competitive rate to tap into the funds, the official said.
“This is not a subsidy for banks.”
The credit crunch, which first erupted more than a year ago, has made it more expensive for banks to raise long-term funding to finance mortgages.
Finance Minister Jim Flaherty announced the initiative last Friday to have government-owned Canada Mortgage and Housing Corp. buy up loans from banks. The loans are solid, but by taking them off bank balance sheets in return for cash, the banks will theoretically be able to make new loans.
Ottawa has committed to buy up to $25-billion in total, but has not yet set the dates for the remaining purchases. Participants expect the government to carry out four more purchases of $5-billion each.
The purchases will be conducted by so-called reverse auction, where banks will essentially have to tell the government how much they will pay in the form of interest to move the loans off their balance sheets. The government will accept the most profitable bids.
Mortgage lenders can submit up to three bids for various amounts, but no one lender can sell more than $1.25-billion of loans to the government.
The government will establish a minimum acceptable yield, or interest rate. That minimum is expected to be above the yield on comparable five-year Canada Mortgage Bonds that CMHC sells to investors.
Banks are expected to place bids somewhere above the minimum, with more-stressed banks giving the government a better deal as they try to ensure they can raise cash.
John Manley, a former deputy prime minister and finance minister, said he was surprised Ottawa didn't pick up the program earlier.
“They make money on it, it increases liquidity in the system – why don't you answer the phone when people suggest things?” he said, pointing out that banks had been suggesting the program for some time.
One bank chief executive officer said that, even as the financial crisis worsens, Canada is in a unique position where it can establish programs to ease the flow of funds that don't put taxpayers on the hook. A shortage of government bonds and an excess of mortgages sitting on the banks' books make this an easy program to increase if necessary, he said.
Don't panic: a market meltdown survival guide
Joshua Zumbrun, Forbes Financial Post
Washington, D.C. -- It's been a bad week on Wall Street. The Dow has been avalanching downward, and the July to September summary of 401(k) statements in people's mailboxes look like black diamond ski slopes. It's a lousy time to be an investment banker, or a hedge fund manager, or planning a December retirement.
So Forbes.com asked some of the nation's foremost experts in financial crisis what people should do in a moment like this. Their message (and picture this in large, friendly letters): DON'T PANIC.
"Sit still," says Robert Aliber, a professor of international economics and finance at the University of Chicago. Mr. Aliber helped write the book on manias, panics and crashes. Literally. He co-authored the most recent edition of Charles Kindleberger's classic Manias, Panics and Crashes which chronicles and anatomizes crashes from tulip mania to the Great Depression to the dot-com bubble.
"By and large what we have is a liquidity crisis," says Mr. Aliber. Banks depend more than anyone on the constant availability of credit, and they're in a much worse position than they were a year ago. But should a freezing of liquidity cause a 40% drop for all stocks? A recession would cut into firms' profits but not by that much, says Mr. Aliber. That means there are a lot of cheap stocks out there.
In the long term, economists agree. Markets have always recovered in the past. But a famous bit of dismal science wisdom is that in the long term we are all dead. What about in the here and now?
"I would worry about a crash on Monday, but it could also be a huge buying opportunity," says Robert Shiller, the Yale economics professor who wrote Irrational Exuberance and The Subprime Solution and has made much of his career studying bubbles. Even if the majority of businesses are fundamentally OK, that doesn't stop people from overreacting. Irrational exuberance on the way up and irrational panic on the way down are all part of market psychology.
"One question is how big a role patriotism pays in their thinking. You don't want to be part of a market panic," says Mr. Shiller. "There's a moral issue in not pulling out."
There's also the issue of not being the sucker who sells at the very bottom of a market.
Stefan Nagel, an assistant professor of finance at Stanford recently co-wrote a paper on this very topic titled "Inexperienced Investors and Bubbles." Harvard's Robin Greenwood and Nagel found that inexperienced investors, in terms of age, are particularly likely to focus too heavily on recent returns.
After the lousy returns of the 1970s, inexperienced investors were more reluctant to invest in stocks. They missed out when stocks returned. After the boom years of the '90s, inexperienced investors were more likely to increase their stock exposure. When the dot-com bubble burst, they got burned.
"We don't have the latest numbers on the current situation yet, but, based on the historical experience, it seems likely that it is particularly inexperienced investors who are rushing for the exit at the moment," says Mr. Nagel.
It's another old market maxim, and it's as true on the way down as it is on the way up: Past performance is no guarantee of future results.
In the past four weeks, the Dow Jones industrial average has lost 26% of its value. In the past year, it's lost 40%. And despite comparisons to the Great Depression, the economists who talked to Forbes.com see nothing nearly that severe.
People don't panic forever. And compared with watching CNBC all day, the economists are optimists. That's the pain of being an academic, always the Cassandra: pessimistic when times are good (because there's always a fall coming) and optimistic when times are bad (because things always recover).
But they're not just optimistic because a crisis boosts book sales. "I borrowed money to buy stocks," confides Mr. Aliber, with a hint of excitement. "They've lost money since earlier in the week, but I'm going to make a bundle."
· TSX -631.83pts
· Dow -733.08 pts –
· Dollar +1.91cto $84.18US.
· Oil -$4.09to $74.54US per barrel
· Gold -$.80 to $835.50US per ounce
Ottawa may make millions on CMHC plan for banks TARA PERKINS AND BOYD ERMAN
Globe and Mail
The federal government stands to make hundreds of millions of dollars off of its new program to buy mortgages from banks.
The government today is launching the first purchase of $5-billion of mortgages from Canada's banks as part of a program to buy $25-billion of home loans from banks to give them cash to make new loans.
It is taking advantage of its ability to borrow cheaply to buy the mortgages, which will pay a higher rate of interest. The difference will be the government's profit.
Ottawa doesn't have a forecast of its likely take, but given current market prices and the guidance that the Finance Department has provided to bankers on the prices to be paid, the federal government may expect to earn about $250-million a year. That could rise to $1-billion if the government increases the size of the mortgage purchases to $100-billion, as some in the banking sector suggest could be done.
Those potential profits are significant at a time when Ottawa projects its surplus will fall to $1.3-billion for the year ended March, 2010.
While government officials say any profit isn't the point, earning money on the program does drive home the message that Ottawa has been sending: The program isn't a bailout at taxpayers' expense.
“The goal is not to make money for the government,” said a Finance Department official who spoke on condition of anonymity. While the program is an efficient way to support lending in Canada by providing reliable funding to banks, it is important that the banks pay a competitive rate to tap into the funds, the official said.
“This is not a subsidy for banks.”
The credit crunch, which first erupted more than a year ago, has made it more expensive for banks to raise long-term funding to finance mortgages.
Finance Minister Jim Flaherty announced the initiative last Friday to have government-owned Canada Mortgage and Housing Corp. buy up loans from banks. The loans are solid, but by taking them off bank balance sheets in return for cash, the banks will theoretically be able to make new loans.
Ottawa has committed to buy up to $25-billion in total, but has not yet set the dates for the remaining purchases. Participants expect the government to carry out four more purchases of $5-billion each.
The purchases will be conducted by so-called reverse auction, where banks will essentially have to tell the government how much they will pay in the form of interest to move the loans off their balance sheets. The government will accept the most profitable bids.
Mortgage lenders can submit up to three bids for various amounts, but no one lender can sell more than $1.25-billion of loans to the government.
The government will establish a minimum acceptable yield, or interest rate. That minimum is expected to be above the yield on comparable five-year Canada Mortgage Bonds that CMHC sells to investors.
Banks are expected to place bids somewhere above the minimum, with more-stressed banks giving the government a better deal as they try to ensure they can raise cash.
John Manley, a former deputy prime minister and finance minister, said he was surprised Ottawa didn't pick up the program earlier.
“They make money on it, it increases liquidity in the system – why don't you answer the phone when people suggest things?” he said, pointing out that banks had been suggesting the program for some time.
One bank chief executive officer said that, even as the financial crisis worsens, Canada is in a unique position where it can establish programs to ease the flow of funds that don't put taxpayers on the hook. A shortage of government bonds and an excess of mortgages sitting on the banks' books make this an easy program to increase if necessary, he said.
Don't panic: a market meltdown survival guide
Joshua Zumbrun, Forbes Financial Post
Washington, D.C. -- It's been a bad week on Wall Street. The Dow has been avalanching downward, and the July to September summary of 401(k) statements in people's mailboxes look like black diamond ski slopes. It's a lousy time to be an investment banker, or a hedge fund manager, or planning a December retirement.
So Forbes.com asked some of the nation's foremost experts in financial crisis what people should do in a moment like this. Their message (and picture this in large, friendly letters): DON'T PANIC.
"Sit still," says Robert Aliber, a professor of international economics and finance at the University of Chicago. Mr. Aliber helped write the book on manias, panics and crashes. Literally. He co-authored the most recent edition of Charles Kindleberger's classic Manias, Panics and Crashes which chronicles and anatomizes crashes from tulip mania to the Great Depression to the dot-com bubble.
"By and large what we have is a liquidity crisis," says Mr. Aliber. Banks depend more than anyone on the constant availability of credit, and they're in a much worse position than they were a year ago. But should a freezing of liquidity cause a 40% drop for all stocks? A recession would cut into firms' profits but not by that much, says Mr. Aliber. That means there are a lot of cheap stocks out there.
In the long term, economists agree. Markets have always recovered in the past. But a famous bit of dismal science wisdom is that in the long term we are all dead. What about in the here and now?
"I would worry about a crash on Monday, but it could also be a huge buying opportunity," says Robert Shiller, the Yale economics professor who wrote Irrational Exuberance and The Subprime Solution and has made much of his career studying bubbles. Even if the majority of businesses are fundamentally OK, that doesn't stop people from overreacting. Irrational exuberance on the way up and irrational panic on the way down are all part of market psychology.
"One question is how big a role patriotism pays in their thinking. You don't want to be part of a market panic," says Mr. Shiller. "There's a moral issue in not pulling out."
There's also the issue of not being the sucker who sells at the very bottom of a market.
Stefan Nagel, an assistant professor of finance at Stanford recently co-wrote a paper on this very topic titled "Inexperienced Investors and Bubbles." Harvard's Robin Greenwood and Nagel found that inexperienced investors, in terms of age, are particularly likely to focus too heavily on recent returns.
After the lousy returns of the 1970s, inexperienced investors were more reluctant to invest in stocks. They missed out when stocks returned. After the boom years of the '90s, inexperienced investors were more likely to increase their stock exposure. When the dot-com bubble burst, they got burned.
"We don't have the latest numbers on the current situation yet, but, based on the historical experience, it seems likely that it is particularly inexperienced investors who are rushing for the exit at the moment," says Mr. Nagel.
It's another old market maxim, and it's as true on the way down as it is on the way up: Past performance is no guarantee of future results.
In the past four weeks, the Dow Jones industrial average has lost 26% of its value. In the past year, it's lost 40%. And despite comparisons to the Great Depression, the economists who talked to Forbes.com see nothing nearly that severe.
People don't panic forever. And compared with watching CNBC all day, the economists are optimists. That's the pain of being an academic, always the Cassandra: pessimistic when times are good (because there's always a fall coming) and optimistic when times are bad (because things always recover).
But they're not just optimistic because a crisis boosts book sales. "I borrowed money to buy stocks," confides Mr. Aliber, with a hint of excitement. "They've lost money since earlier in the week, but I'm going to make a bundle."
Wednesday, October 15, 2008
Financial Update
TSX +890.50pts The benchmark index soared more than 1,600 points, or 18%, to its biggest gain ever shortly after markets opened, following big rises on world stock markets Monday as investor jitters about the stability of the financial system eased.
· Dow -76.62 pts – Initially up, markets cheered a U.S. plan to inject $250b into banks, following similar measures in Europe, a move designed to get banks lending to each other again.-ending down as investors focused on a dismal outlook for earnings and the economy
· Dollar +1.40to $86.09US. Strengthening prices for some commodities, such as copper, and a softening U.S. dollar energized the staggering loonie
· Oil -2.56to $78.63US per barrel
· Gold -$2.60 to $836.30US per ounce
Canadian government unlikely to follow U.S. lead and buy financial shares
By David Friend, The Canadian Press
TORONTO - Canada's government is unlikely to buy shares in the country's domestic banks because they are in much better shape than their American and European counterparts, which have required massive assistance from their governments, market observers say.
National Bank analyst Robert Sedran said Tuesday that Canadian banks have emerged relatively unscathed by the U.S. subprime problems because of more conservative lending practices.
"The banks in Canada have strong balance sheets and are doing fine," he said Tuesday in a phone interview.
However, Sedran said there is a need to ensure that Canadian banks aren't put at a disadvantage by other countries injecting capital into their local institutions, such as the $250-billion share purchase plan unveiled by George W. Bush.
On Tuesday, Bush said the U.S. government would buy shares in the big American banks as part of the $700-billion bailout package designed to jolt the economy back into growth.
The decision raised some concern that capital would flow towards government-backed banks because they appear more secure, and possibly away from institutions that don't have that guarantee. Sedran said government-backed risk has an appeal over corporate risk and could ultimately steal some confidence from the Canadian banking system.
"Capital is mobile in this global market," Sedran said. "You need to protect the Canadian banks from a competitive positioning perspective so that they're not unnecessarily disadvantaged."
However Laurence Booth, a professor at the Rotman School of Management, says Canadian banks are already better capitalized than the American and British banks.
And the federal government in Ottawa has made efforts to aid Canada's financial system without fully putting its hands into their operations.
On Friday, the Canadian government announced it will buy up to C$25 billion in residential mortgages to give the chartered banks more cash for loans. The first round of purchases is scheduled to be $5 billion on Thursday, two days after the federal election.
Finance Minister Jim Flaherty also said last week that the government is prepared to do "whatever we have to do" to protect Canada's financial system, though he declined to outline any plans.
However, some observers say Flaherty has only provided a vague outline of a plan, compared to other countries that have provided significant disclosure.
"Everyone else had all these details, specific plans - even numbers - and all we got from the Canadian side was that we'd make sure our banks aren't disadvantaged," said Chris Blumas, an analyst at Morningstar.
Prime Minister Stephen Harper has defended the way that the Conservative government handled the economic crisis and their insistence that the domestic economy is relatively stable compared to the United States.
"The No. 1 job of the next prime minister of Canada is to protect this country's economy - our earnings, savings, and jobs, at a time of global economic uncertainty," he told supporters on Monday at a rally in P.E.I.
Liberal party leader Stephane Dion has announced a 30-day plan to address the Canadian economy, and boost the struggling manufacturing sector in Ontario.
NDP Leader Jack Layton has suggested that Canadian banking regulations undergo a comprehensive review.
· Dow -76.62 pts – Initially up, markets cheered a U.S. plan to inject $250b into banks, following similar measures in Europe, a move designed to get banks lending to each other again.-ending down as investors focused on a dismal outlook for earnings and the economy
· Dollar +1.40to $86.09US. Strengthening prices for some commodities, such as copper, and a softening U.S. dollar energized the staggering loonie
· Oil -2.56to $78.63US per barrel
· Gold -$2.60 to $836.30US per ounce
Canadian government unlikely to follow U.S. lead and buy financial shares
By David Friend, The Canadian Press
TORONTO - Canada's government is unlikely to buy shares in the country's domestic banks because they are in much better shape than their American and European counterparts, which have required massive assistance from their governments, market observers say.
National Bank analyst Robert Sedran said Tuesday that Canadian banks have emerged relatively unscathed by the U.S. subprime problems because of more conservative lending practices.
"The banks in Canada have strong balance sheets and are doing fine," he said Tuesday in a phone interview.
However, Sedran said there is a need to ensure that Canadian banks aren't put at a disadvantage by other countries injecting capital into their local institutions, such as the $250-billion share purchase plan unveiled by George W. Bush.
On Tuesday, Bush said the U.S. government would buy shares in the big American banks as part of the $700-billion bailout package designed to jolt the economy back into growth.
The decision raised some concern that capital would flow towards government-backed banks because they appear more secure, and possibly away from institutions that don't have that guarantee. Sedran said government-backed risk has an appeal over corporate risk and could ultimately steal some confidence from the Canadian banking system.
"Capital is mobile in this global market," Sedran said. "You need to protect the Canadian banks from a competitive positioning perspective so that they're not unnecessarily disadvantaged."
However Laurence Booth, a professor at the Rotman School of Management, says Canadian banks are already better capitalized than the American and British banks.
And the federal government in Ottawa has made efforts to aid Canada's financial system without fully putting its hands into their operations.
On Friday, the Canadian government announced it will buy up to C$25 billion in residential mortgages to give the chartered banks more cash for loans. The first round of purchases is scheduled to be $5 billion on Thursday, two days after the federal election.
Finance Minister Jim Flaherty also said last week that the government is prepared to do "whatever we have to do" to protect Canada's financial system, though he declined to outline any plans.
However, some observers say Flaherty has only provided a vague outline of a plan, compared to other countries that have provided significant disclosure.
"Everyone else had all these details, specific plans - even numbers - and all we got from the Canadian side was that we'd make sure our banks aren't disadvantaged," said Chris Blumas, an analyst at Morningstar.
Prime Minister Stephen Harper has defended the way that the Conservative government handled the economic crisis and their insistence that the domestic economy is relatively stable compared to the United States.
"The No. 1 job of the next prime minister of Canada is to protect this country's economy - our earnings, savings, and jobs, at a time of global economic uncertainty," he told supporters on Monday at a rally in P.E.I.
Liberal party leader Stephane Dion has announced a 30-day plan to address the Canadian economy, and boost the struggling manufacturing sector in Ontario.
NDP Leader Jack Layton has suggested that Canadian banking regulations undergo a comprehensive review.
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