Flaherty says government, banks working to ensure people get loans
· TSX +186.58pts to 9,472 (Reuters) The strong start to 2009 trading continued for a 6th straight session, buoyed by strength across its three biggest sectors -- financials, energy, and materials. You're seeing confidence return back into the market. You're seeing an ability to shake off economic news that continues to be quite dismal," said Elvis Picardo, an analyst and strategist at Global Securities in Vancouver. "These gains are promising, but one still needs to be cautious."
· DOW +62.21pts on the increased likelihood of a government stimulus package
· Dollar +.52c to $.84.55US.
· Oil -$.23to $48.58US per barrel. as weak U.S. economic data triggered a bout of profit-taking.
· Gold +$8.20 to $866US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The financial group shot up 3.6% today as Royal Bank of Canada became the third bank this week to launch a preferred share offering to bolster its capital ratios. Canada's biggest bank, announced a C$200 million preferred share offering, following offerings on Monday from Toronto-Dominion Bank and National Bank of Canada .
Budget will address credit concerns: Flaherty Paul Vieira, Eoin Callan and John Greenwood, Financial Post
The federal Finance Minister, Jim Flaherty, said Tuesday the coming Jan. 27 budget is expected to address concerns regarding access to credit, through measures analysts say could see taxpayers exposed to new market risks.
He made the acknowledgment after consultations with chief executives from Canada's big banks, indicating Ottawa has recognized lenders require additional support to make credit more freely available.
Mr. Flaherty said access to credit has emerged as the No. 1 concern after meetings with stakeholders as part of his cross-country budget consultation tour, which stopped in Montreal on Tuesday.
The measures are designed to juice a flagging economy through a combination of state loans and support for private sector lenders, and drew a grudging welcome from opposition leaders who see the budget as a make-or-break moment for the minority Conservative government.
"It was about time," said John McCallum, the Liberal party chief of economic strategy, who said government's "moves to date have been timid and cautious."
The Finance Minister said a working group of government, central bank and Bay Street representatives was being created to develop "policy options," some of which are expected to be finalized in the coming budget.
While the membership of the working group will be fluid, it will begin with a top-tier meeting in the coming weeks of bank chief executives and senior government officials accompanied by the heads of Crown corporations with the authority to make state loans.
That meeting will start a process of identifying businesses sectors where companies are being starved of loans and intervention may be required by entities like the Businesses Development Corporation, Export Development Corporation and Farm Credit Corporation.
For example, executives and officials might single out struggling companies in the forestry sector where they felt it might make sense for the state to step in and make a loan instead of a bank, people briefed on the plans said.
The work of the joint industry-government group will quickly be passed to less senior figures, and is seen as a way to overcome gaps in information and allow policymakers and the financial sector to respond quickly to pinch points across the country where lack of credit could aggravate the economic downturn.
Ottawa is also looking to intervene in the moribund market for securitized credit such as commercial paper to get funds flowing again.
"We have had discussions about ways in which we can accomplish the goal of making sure the commercial paper works and functions. Those discussions are ongoing and there are a number of policy options there," Mr. Flaherty said, adding he expected the budget to "address" these matters.
Mark Carney, Governor of the Bank of Canada, is expected to take the lead in shaping further state intervention in this sphere.
Finn Poschmann, vice-president of research at the C.D. Howe Institute, said Ottawa's options are straightforward: it could guarantee short-term commercial paper; or buy it up directly from issuers who are having trouble otherwise placing their paper.
"We have not gone down this route before," Mr. Poschmann said. "Either way, this would involve taxpayer exposure to new credit market risks."
Maintaining a functioning market where banks and companies can turn to investors to back fresh loans -- fueling credit card spending, auto financing and small businesses -- is seen as crucial to determining the severity and duration of the economic downturn underway.
Securitized debt, such as credit card loans, typically gets turned into asset-backed commercial and term paper -- a substantial market in Canada valued at over $50-billion. But since the beginning of the credit crunch, demand for these assets has plummeted, causing the market to shrink and raising the cost of financing for consumers and businesses.
Particularly squeezed are non-financial companies, most notably car leasing firms, which rely on commercial paper to fund operations.
There is also concern on Bay Street that if the market continues to erode, some banks could be forced to take the assets back onto their balance sheets, potentially requiring them to raise more capital.
CNW :Correction, not crash for Canadian real estate market in 2009; Average house prices forecast to fall 3.0 per cent
- Historically low interest rates, stable local economies and increasing affordability should support Canada's residential real estate market during transitioning period -
>> TORONTO, Jan. 6 /CNW/ - After experiencing a significant reset in 2008 -a reaction to continuous dire news surrounding the health of the globaleconomy combined with a cooling from the previous years' fervid activitylevels - Canada's resale real estate market should see only modest price andunit sales corrections take place across the country during 2009. Bothnational average house prices and the number of homes sold is expected todecline this year, according to the Royal LePage 2009 Market Survey Forecastreleased today.
Nationally, average house prices are forecast to dip by 3.0 per cent fromlast year to $295,000, while transactions are projected to fall to 416,000(-3.5 %) unit sales in 2009. In spite of this cooling trend on a nationallevel, price and activity gains are anticipated in some provinces.
Emotional reaction to recent economic and political instability did muchto dampen consumer confidence during the latter part of 2008, causing a markedslowdown in house sales activity. However, as a more rational understanding ofthe issues gains ground, together with a wide range of announced correctivemeasures, consumer confidence is anticipated to recover, prompting real estateactivity to pick up once again in the latter half of 2009. Further, Canada in2009 enjoys a stronger economic foundation than most countries and that shouldtemper the housing market correction. The combination of low inflation,reasonable employment levels and improving housing affordability, driven inpart by low mortgage rates, are anticipated to stimulate demand in the comingmonths.
"While Canada's housing market is anticipated to continue to move througha period of adjustment over the next six months, we should expect modestlylower home prices, not a U.S.-style collapse, which was brought on by astructural failure of the entire American credit system," said Phil Soper,president and chief executive of Royal LePage Real Estate Services. "Mostconsumers are not aware that nationally, Canadian housing market activitypeaked in 2007 and has been adjusting lower since. We are well into thisinevitable cyclical correction."
Added Soper: "While a grey cloud hangs over some markets, the sky is notfalling. In recent years, Canada has been a difficult place to be a purchaserof real estate, particularly for first-time buyers. When real estate marketscorrect, inventory levels rise, providing buyers choices instead offrustrating bidding wars. In 2009, appropriately-priced homes will still sellfor fair value."
The housing market is expected to perform quite differently from regionto region across the country. In many mid-sized cities where home pricesremain below the national average, such as Regina and Winnipeg, prices areexpected to increase moderately through 2009, as home ownership remainsparticularly affordable. The most significant price decreases are forecast forCanada's most expensive city, Vancouver, which has experienced above averageprice increases for most of the decade. The correction is a natural cyclicalreaction to an extended period of high price appreciation. Vancouver'sfundamentals, including growing population figures and the positive economicspinoffs expected from the 2010 Olympics, remain very positive.
Observed Soper: "For several years, Vancouver experienced aggressiveprice run-ups in response to overwhelming levels of demand - conditions, whicheventually reached a tipping point. While buyers will be acquiring propertiesfor less in 2009, it is important to note that prices are coming down fromall-time record levels."
Secondary Ontario markets heavily populated by people working in themanufacturing sectors are also anticipated to experience greater than averagedeclines in house prices and activity levels in 2009. In contrast, real estatein Montreal and Ottawa is poised to remain stable, with average house pricesrelatively flat through 2009.
After moving through a period of correction that started in 2007, wellbefore other regions in the country, both Calgary and Edmonton's housingmarkets are anticipated to return to a growth state later in 2009,characterized by stable average house prices and increased unit sales. Despiteslowdowns and delay with some major energy projects, Alberta's economy remainsone of the strongest in Canada.
Looking east, Halifax's real estate market is expected to experience verymodest price appreciation through 2009. After experiencing strong priceincreases over the last year and a half, the market has hit its capacity forabsorbing rising prices and activity levels. The city's diversified array ofindustries is expected to bolster the economy and continue to create solidemployment opportunities, stabilizing home values.
Canadians have been confused and justifiably skeptical of the efforts ofthe worlds' central banks and governments to combat the global economiccrisis. There is broad belief, however, that Canada's financial house is inbetter shape than many peer countries, particularly the U.S. While the federaland most provincial governments have been slow to implement economic stimuluspackages, they enjoy broad public support in principle. Together with theactions taken by the Bank of Canada, the positive impact on consumerconfidence stemming from infrastructure spending announcements and otherstimulus programs is expected to be significant.
Concluded Soper: "We believe that the Canadian economy will struggleearly in 2009, but that conditions will progress continually throughout theyear. Improving credit markets, the stimulative impact from a weaker Canadiandollar, together with the implementation of large fiscal stimulus initiatives,set the stage for a return to growth in the second half of 2009."
<<>>
Global Economic Woes
No country is impervious to the current economic woes being felt aroundthe world. The poor performance of the equity markets and the constant streamof pessimistic economic news had a very negative impact on housing activity inCanada in 2008. Consumer confidence is expected to slowly recover during 2009as the impact of the many corrective actions introduced and announced takesroot.
Tempered, but continued growth in emerging economies, particularly China,India and Brazil, should mitigate the downside risk to Canadian commodityexporters.
Foreclosure Figures in Canada
Foreclosure rates in Canada are expected to increase, but remain verylimited, especially when compared to the U.S. experience, where a broadstructural failure of the credit system occurred. Canada's relativelyinsignificant subprime market, and in turn, the low number of Canadianscontractually committed to very risky mortgages, should result in aforeclosure rate of insufficient volume to impact house prices or transactionactivity.
Employment Rates
Across the country, employment rates are expected to erode somewhat in2009, but remain at long-term healthy levels. Some areas in Ontario, and to alesser extent Quebec, that have high levels of manufacturing jobs, mayexperience greater than national average unemployment. Areas in Alberta tiedto the energy sector may see short-term employment declines, but theprovince's tight overall labour market is expected to mitigate the downside.
Interest Rates
The Bank of Canada's overnight target-lending rate, already at very lowlevels, is expected to be reduced again early in 2009. This should bode wellfor home buyers in 2009 as loosening credit spreads allow banks to offer moreaggressively priced mortgages.
<< 2009 Market Survey Forecast - Average House Prices
------------------------------------------------------------------------- 2009 2008 Market 09/08% Forecast Projected 2008/2007 2007 2006 -------------------------------------------------------------------------
Halifax 1.0% $234,300 $232,000 7.2% $216,339 $203,178
-------------------------------------------------------------------------
Montreal -1.0% $254,400 $257,000 4.3% $246,500 $215,659
-------------------------------------------------------------------------
Ottawa 0.0% $291,000 $291,000 6.6% $273,058 $257,481
-------------------------------------------------------------------------
Toronto -4.0% $364,800 $380,000 0.8% $377,029 $352,388
-------------------------------------------------------------------------
Winnipeg 4.0% $204,900 $197,000 20.5% $163,500 $151,983
-------------------------------------------------------------------------
Regina 6.0% $243,300 $229,500 38.6% $165,613 $131,851
-------------------------------------------------------------------------
Calgary -1.0% $402,000 $406,000 -1.9% $414,066 $346,675
-------------------------------------------------------------------------
Edmonton 0.0% $333,000 $333,000 -1.7% $338,636 $250,915
-------------------------------------------------------------------------
Vancouver -9.0% $540,100 $593,500 4.0% $570,795 $509,876
-------------------------------------------------------------------------
Canada -3.0% $295,000 $304,000 -1.1% $307,265 $276,974
------------------------------------------------------------------------- >>
Wednesday, January 7, 2009
Monday, January 5, 2009
Financial Update
· TSX +246.41pts (Reuters)
· DOW +258.30pts investors feeling optimistic about 2009 snapped up stocks on the first trading day of the new year
· Dollar +.16c to $.82.26US. also surged despite data showing further slumps in US manufacturing sectors
· Oil +$1.74to $46.34US per barrel. Trading began the year with oil prices at half the levels of one year ago
· Gold -$4.80 to $878.80US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Below is an interesting article for your clients purchasing new homes. The assumption would be that buying new means buying perfection, however stats from this article say 88% of new homes have defects found by home inspectors.
Inspections: If these walls could talk
Jan 03, 2009 Tracy Hanes Toronto Star
After almost a year of living in their new townhouse in Uxbridge, Libby McCready and her husband figured there was little wrong with their home. But Libby's parents, who had bought several new houses over the years, urged them to take the time to fill out the Tarion new home warranty program's one-year report listing any issues.
As neither Libby nor her husband had much knowledge or experience with home building or repairs, they hired home inspector Brian Daley to have a look.
"We wanted to make sure we caught everything but we're not handy," says McCready. "Brian found a number of things we never would have noticed. The stuff he found came as a surprise."
The most significant defect Daley found was that the clothes dryer hadn't been vented properly, thus was not blowing outdoors but into insulation, which could have eventually caused a moisture and mould issue. He also noted that the plumbing to a toilet in a seldom-used second bathroom wasn't on the right angle for flushing, that a promised rough-in for an electrical fan for the fireplace was not completed and that attic insulation had been flattened in places.
Armed with Daley's report and digital photos, the McCreadys filled out the Tarion Warranty Corp. forms by the one-year deadline and as a result, those issues are covered. If they hadn't submitted the report in time, their builder would not have been obligated to repair the defects.
"Although everything turned out fine, I'd never move in to a brand-new house again without having a home inspection done right away," says McCready. "I would have rather had a comprehensive list of the problems from the start, as we'd lived here for almost a year and some of the issues could have caused problems. The inspection was totally worthwhile."
Unfortunately, most new homebuyers mistakenly "believe their new house is perfect," says Daley, when that's seldom the case. That's why Daley and Charters Kenny, both registered home inspectors (RHI), have launched New Home Inspections , a company that specializes exclusively in new home warranty inspections in the GTA and beyond.
Other home inspectors, such as Milton RHI and engineering technologist Martin Sweeney of A Home Inspection Company Inc. have also started offering warranty inspections in addition to their regular inspections of resale homes. Sweeney began doing new home inspections and preparing Tarion documents for homeowners as new development boomed in Halton Region.
New homes in Ontario are covered by the Tarion warranty for deposit insurance, protection against defects in work and materials, against unauthorized substitutions and against delayed closings and occupancies without proper notice. The most common claims relate to defects in work and materials, which require homeowners to submit a list of deficiencies at 30-day and one-year deadlines.
While builders provide a pre-delivery inspection (PDI) for buyers to note defects, Daley and Sweeney say these are more geared to cosmetic issues, such as nicks in drywall and whether the right flooring, cabinetry, etc. are provided. Those inspections usually don't include checks of the attic, of heating and cooling systems or an in-depth exploration of the house's structure and systems. And while independent third-party inspections take about three hours, PDI inspections are usually far briefer.
Daley says outside a new home, his company checks drainage and grading, looks for foundation defects, checks installation of siding and brickwork, roof installation and venting. Inside, they inspect walls, windows, floors, ceilings and doors for structural issues, check that stairs are properly supported, plumbing fixtures and fittings properly installed, that insulation in attics, basements, etc. is sufficient and will see if the heating system is distributing air properly.
"I often find insulation is insufficient or missing in attics," says Sweeney. "Sometimes, vapour barrier hasn't been installed, and on the roof I might find that nail heads haven't been caulked and sealed, which will eventually cause moisture to seep in."
He says it's difficult for the average homeowner to have knowledge of the systems and techniques used to build a house. For example, the new tankless hot water heaters and heat recovery ventilators are "really sophisticated pieces of equipment." He often finds HRV units haven't been correctly installed.
Daley says his company finds an average of 30 defect items during a warranty inspection and Sweeney says his list usually includes 20 to 30. J.D. Power and Associates' 2008 survey of GTA new home buyers found that the proportion of homes delivered "defect-free" in the GTA market was 12 per cent in 2008 (which means 88 per cent had defects). The total number of construction problems noted by buyers was down to 21 per home in 2008 from 23 per home in the previous year, according to the J.D. Power study, which includes only large volume GTA builders.
"It's not because most builders aren't doing a good job or are taking shortcuts," says Daley, but because homebuilding involves numerous complex systems.
Most large builders rely on sub-trades and as many as 30 different trades can be involved in the building of a home, says Daley – and it's unlikely all were supervised during the building process. Because they are piece workers, saving time and money is their No. 1 goal, says Daley, which may compromise quality.
Municipal building inspectors are responsible for checking every aspect of a house as it is being built, but it's virtually impossible to do this effectively in a subdivision, says Daley.
"What generally happens is they check a small percentage of homes in hopes the builders will follow their requirements for the rest of the homes."
While a builder may offer to provide one of his own reps for a warranty inspection, "it is not in the builders' interest to find fault in their own work." Daley says some builders have the best intentions, but it's more likely that their inspector will find fewer defects than a third-party professional.
Daley's company charges $375 per inspection and Sweeney charges $340 to $400, depending on the size of the house. Inspectors from both companies can help fill out Tarion warranty forms.
Anyone considering hiring a home inspector should call at least three different companies before making a decision, Daley suggests. Those with RHI designation have extensive training and are insured. A good place to start a search for a home inspector is with the Ontario Association of Home Inspectors.
· DOW +258.30pts investors feeling optimistic about 2009 snapped up stocks on the first trading day of the new year
· Dollar +.16c to $.82.26US. also surged despite data showing further slumps in US manufacturing sectors
· Oil +$1.74to $46.34US per barrel. Trading began the year with oil prices at half the levels of one year ago
· Gold -$4.80 to $878.80US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Below is an interesting article for your clients purchasing new homes. The assumption would be that buying new means buying perfection, however stats from this article say 88% of new homes have defects found by home inspectors.
Inspections: If these walls could talk
Jan 03, 2009 Tracy Hanes Toronto Star
After almost a year of living in their new townhouse in Uxbridge, Libby McCready and her husband figured there was little wrong with their home. But Libby's parents, who had bought several new houses over the years, urged them to take the time to fill out the Tarion new home warranty program's one-year report listing any issues.
As neither Libby nor her husband had much knowledge or experience with home building or repairs, they hired home inspector Brian Daley to have a look.
"We wanted to make sure we caught everything but we're not handy," says McCready. "Brian found a number of things we never would have noticed. The stuff he found came as a surprise."
The most significant defect Daley found was that the clothes dryer hadn't been vented properly, thus was not blowing outdoors but into insulation, which could have eventually caused a moisture and mould issue. He also noted that the plumbing to a toilet in a seldom-used second bathroom wasn't on the right angle for flushing, that a promised rough-in for an electrical fan for the fireplace was not completed and that attic insulation had been flattened in places.
Armed with Daley's report and digital photos, the McCreadys filled out the Tarion Warranty Corp. forms by the one-year deadline and as a result, those issues are covered. If they hadn't submitted the report in time, their builder would not have been obligated to repair the defects.
"Although everything turned out fine, I'd never move in to a brand-new house again without having a home inspection done right away," says McCready. "I would have rather had a comprehensive list of the problems from the start, as we'd lived here for almost a year and some of the issues could have caused problems. The inspection was totally worthwhile."
Unfortunately, most new homebuyers mistakenly "believe their new house is perfect," says Daley, when that's seldom the case. That's why Daley and Charters Kenny, both registered home inspectors (RHI), have launched New Home Inspections , a company that specializes exclusively in new home warranty inspections in the GTA and beyond.
Other home inspectors, such as Milton RHI and engineering technologist Martin Sweeney of A Home Inspection Company Inc. have also started offering warranty inspections in addition to their regular inspections of resale homes. Sweeney began doing new home inspections and preparing Tarion documents for homeowners as new development boomed in Halton Region.
New homes in Ontario are covered by the Tarion warranty for deposit insurance, protection against defects in work and materials, against unauthorized substitutions and against delayed closings and occupancies without proper notice. The most common claims relate to defects in work and materials, which require homeowners to submit a list of deficiencies at 30-day and one-year deadlines.
While builders provide a pre-delivery inspection (PDI) for buyers to note defects, Daley and Sweeney say these are more geared to cosmetic issues, such as nicks in drywall and whether the right flooring, cabinetry, etc. are provided. Those inspections usually don't include checks of the attic, of heating and cooling systems or an in-depth exploration of the house's structure and systems. And while independent third-party inspections take about three hours, PDI inspections are usually far briefer.
Daley says outside a new home, his company checks drainage and grading, looks for foundation defects, checks installation of siding and brickwork, roof installation and venting. Inside, they inspect walls, windows, floors, ceilings and doors for structural issues, check that stairs are properly supported, plumbing fixtures and fittings properly installed, that insulation in attics, basements, etc. is sufficient and will see if the heating system is distributing air properly.
"I often find insulation is insufficient or missing in attics," says Sweeney. "Sometimes, vapour barrier hasn't been installed, and on the roof I might find that nail heads haven't been caulked and sealed, which will eventually cause moisture to seep in."
He says it's difficult for the average homeowner to have knowledge of the systems and techniques used to build a house. For example, the new tankless hot water heaters and heat recovery ventilators are "really sophisticated pieces of equipment." He often finds HRV units haven't been correctly installed.
Daley says his company finds an average of 30 defect items during a warranty inspection and Sweeney says his list usually includes 20 to 30. J.D. Power and Associates' 2008 survey of GTA new home buyers found that the proportion of homes delivered "defect-free" in the GTA market was 12 per cent in 2008 (which means 88 per cent had defects). The total number of construction problems noted by buyers was down to 21 per home in 2008 from 23 per home in the previous year, according to the J.D. Power study, which includes only large volume GTA builders.
"It's not because most builders aren't doing a good job or are taking shortcuts," says Daley, but because homebuilding involves numerous complex systems.
Most large builders rely on sub-trades and as many as 30 different trades can be involved in the building of a home, says Daley – and it's unlikely all were supervised during the building process. Because they are piece workers, saving time and money is their No. 1 goal, says Daley, which may compromise quality.
Municipal building inspectors are responsible for checking every aspect of a house as it is being built, but it's virtually impossible to do this effectively in a subdivision, says Daley.
"What generally happens is they check a small percentage of homes in hopes the builders will follow their requirements for the rest of the homes."
While a builder may offer to provide one of his own reps for a warranty inspection, "it is not in the builders' interest to find fault in their own work." Daley says some builders have the best intentions, but it's more likely that their inspector will find fewer defects than a third-party professional.
Daley's company charges $375 per inspection and Sweeney charges $340 to $400, depending on the size of the house. Inspectors from both companies can help fill out Tarion warranty forms.
Anyone considering hiring a home inspector should call at least three different companies before making a decision, Daley suggests. Those with RHI designation have extensive training and are insured. A good place to start a search for a home inspector is with the Ontario Association of Home Inspectors.
Friday, January 2, 2009
Financial Update
· TSX +156.98pts (Reuters)
· DOW +108pts
· Dollar +.20c to $.82.10US.
· Oil +$5.57to $44.60US per barrel.
· Gold +$14.30 to $883.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Donald Coxe: 'I Have Seen Economy Worse' Wisdom Series David Pett, Financial Post
Donald Coxe is a 35-year veteran of the Canadian investment community with experience as an advisor, strategist and money manager.
Mr. Coxe announced this month that he will step down as global portfolio strategist of BMO Financial Group to establish his own independent firm, Coxe Advisors LLC. He maintains his role as portfolio consultant to BMO's Coxe Commodity Strategy Fund and will continue to publish his portfolio strategy journal, Basic Points.
A true "renaissance man," Mr. Coxe is also an historian and lawyer, who has served as an associate editor of National Review magazine in New York, and general counsel for the Canadian Federation of Agriculture.
He has been chief executive of a Canadian investment-counselling firm, a strategist on Wall Street and CEO of Harris Investment Management Inc.
Earlier this year, he received the National Post/StarMine lifetime achievement award for excellence in investment research. He spoke with Financial Post reporter David Pett.
Q Have you ever seen the global economy in worse shape?
AYes, I have seen the economy in worse shape. I got into this business in 1972 and I can tell you that the economy was in worse shape in 1974 and 1975. The early '80s, when [former U.S.
Federal Reserve governor] Paul Volcker had to end the inflation spiral and interest rates got to 20%, was also a very bad time. Those were two scary times, and I am a survivor of both. These days I find myself spending a great deal of time dealing with people who, coming into the business much later than I did, think the only comparison now is with the Great Depression.
Q How is this crisis different from other economic crises in the past?
A One of the reasons it is different is demographics. Back in '74-'75, we had millions of young people coming out of high schools, colleges and universities in the OECD countries looking for jobs and there simply were none. The crisis today is partly because we don't have young people coming out now. Starting in 1971, the birth rate collapsed across the OECD countries and so now we are faced with our first downturn that resembles a Japanese-style situation. Japan had that idiot run-up of real-estate prices in the '80s, and it was bound to be a big collapse because by the mid-'80s they were producing more morticians than obstetricians. That is the state that the OECD finds itself in. Each new generation is 60% the size of the previous generation, so we are not going to get enough new young workers and enough family formations. The idea that real-estate prices will continue to go up is unmitigated idiocy.
Q And the crisis in the early 1980s?
A During the 1981-'82 cycle, interest rates were 20% compared to now where they are zero.
Obviously that's a dramatic difference.
Q How did we get here?
A We got here through the worst betrayal of capitalist principles by people with economic power in the history of capitalism. It was a very few people, all men on Wall Street and in London, who stopped being bankers to become promoters of structured products, which were based on bad mathematics. They thought they could sell them to greater fools without an impact to the greater economy. In doing so, they created a financial crisis that was entirely unnecessary. I'm not saying they committed crimes, but as far as I'm concerned, people like Stanley O'Neal, [former CEO of Mer-rill Lynch] and Jimmy Cayne, [former CEO] of Bear Stearns, should not be allowed to have memberships in good clubs hereafter and society should indicate to them that they are pariahs.
Q Is there any silver lining to the current crisis?
A One positive is that it might get rid of the shadow banking system, which worked with these Wall Street malefactors to come up with unrealistic prices for these "Jurassic Park" products that have attacked the whole global financial system.
Q Is the policy response to date the right one to get us back on track?
A This has achieved the impossible. The governments and central banks of the OECD countries are implementing the strategies recommended by the two greatest economists of the 20th century, both of whom didn't agree on anything. What you have are the monetary policies of Milton Friedman blended with budget deficits and pump-priming strategies of John Maynard Keynes. Everything being offered by the great economists is being tried at the same time, therefore, you have to assume we are going to get out of this mess. However, the fact that these two economists disagreed with each other, largely because of the implication of their theories on inflation, leads me to believe that when we get out of this current mess, we are going to be faced with another severe inflation challenge two or three years from now. Of course, we have to get out of this mess first. If you are running away from a bear but potentially running into the path of tigers, you must keep running away from the bear. That said, we are probably going to see some tigers.
Q If you were running the country what would you do?
AI commend the Canadian government on holding back on doing anything drastic because Canada was for a time avoiding the worst of this. But now it appears the real-estate cycle has moved into Canada, bringing with it a meaningful risk to the market. Central Canada is also faced with the possible bankruptcy of the Big Three auto-makers, so government will need to correlate their efforts with the U.S. government. One thing I would not do is assume the commodity industries in Canada are going to be in a recessionary condition forever. They are still the national treasures and if bids are made to take out the oil sands companies while they are depressed on US$40 oil, the government should not let them go because of the knock-down price. There are only a limited number of large world-class assets left in Canada.
Q What's been your leadership role as a well-respected member of the investment community?
A I think it's important for me to help investors keep their perspective. At some point, we switched from saying this is a downturn to the belief that things are worse now than at anytime since the Great Depression. That's a great leap, and I reject the analogy. For example, we had 40% unemployment in the Great Depression. Now it's 7%. So it is neither reasonable, nor sensible to tell people during a downturn like this that it could be the worst thing since the Great Depression. I do believe that it is important to use history, not abuse it.
Q Once the dust settles on the economic crisis, what other challenges lie ahead for us?
A I believe the next big challenge we have to face is the global food crisis. I'm working with the University of Guelph right now and in the spring we are organizing a colloquium, where we bring together scientists and investors to talk about solutions to the food shortage.
· DOW +108pts
· Dollar +.20c to $.82.10US.
· Oil +$5.57to $44.60US per barrel.
· Gold +$14.30 to $883.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Donald Coxe: 'I Have Seen Economy Worse' Wisdom Series David Pett, Financial Post
Donald Coxe is a 35-year veteran of the Canadian investment community with experience as an advisor, strategist and money manager.
Mr. Coxe announced this month that he will step down as global portfolio strategist of BMO Financial Group to establish his own independent firm, Coxe Advisors LLC. He maintains his role as portfolio consultant to BMO's Coxe Commodity Strategy Fund and will continue to publish his portfolio strategy journal, Basic Points.
A true "renaissance man," Mr. Coxe is also an historian and lawyer, who has served as an associate editor of National Review magazine in New York, and general counsel for the Canadian Federation of Agriculture.
He has been chief executive of a Canadian investment-counselling firm, a strategist on Wall Street and CEO of Harris Investment Management Inc.
Earlier this year, he received the National Post/StarMine lifetime achievement award for excellence in investment research. He spoke with Financial Post reporter David Pett.
Q Have you ever seen the global economy in worse shape?
AYes, I have seen the economy in worse shape. I got into this business in 1972 and I can tell you that the economy was in worse shape in 1974 and 1975. The early '80s, when [former U.S.
Federal Reserve governor] Paul Volcker had to end the inflation spiral and interest rates got to 20%, was also a very bad time. Those were two scary times, and I am a survivor of both. These days I find myself spending a great deal of time dealing with people who, coming into the business much later than I did, think the only comparison now is with the Great Depression.
Q How is this crisis different from other economic crises in the past?
A One of the reasons it is different is demographics. Back in '74-'75, we had millions of young people coming out of high schools, colleges and universities in the OECD countries looking for jobs and there simply were none. The crisis today is partly because we don't have young people coming out now. Starting in 1971, the birth rate collapsed across the OECD countries and so now we are faced with our first downturn that resembles a Japanese-style situation. Japan had that idiot run-up of real-estate prices in the '80s, and it was bound to be a big collapse because by the mid-'80s they were producing more morticians than obstetricians. That is the state that the OECD finds itself in. Each new generation is 60% the size of the previous generation, so we are not going to get enough new young workers and enough family formations. The idea that real-estate prices will continue to go up is unmitigated idiocy.
Q And the crisis in the early 1980s?
A During the 1981-'82 cycle, interest rates were 20% compared to now where they are zero.
Obviously that's a dramatic difference.
Q How did we get here?
A We got here through the worst betrayal of capitalist principles by people with economic power in the history of capitalism. It was a very few people, all men on Wall Street and in London, who stopped being bankers to become promoters of structured products, which were based on bad mathematics. They thought they could sell them to greater fools without an impact to the greater economy. In doing so, they created a financial crisis that was entirely unnecessary. I'm not saying they committed crimes, but as far as I'm concerned, people like Stanley O'Neal, [former CEO of Mer-rill Lynch] and Jimmy Cayne, [former CEO] of Bear Stearns, should not be allowed to have memberships in good clubs hereafter and society should indicate to them that they are pariahs.
Q Is there any silver lining to the current crisis?
A One positive is that it might get rid of the shadow banking system, which worked with these Wall Street malefactors to come up with unrealistic prices for these "Jurassic Park" products that have attacked the whole global financial system.
Q Is the policy response to date the right one to get us back on track?
A This has achieved the impossible. The governments and central banks of the OECD countries are implementing the strategies recommended by the two greatest economists of the 20th century, both of whom didn't agree on anything. What you have are the monetary policies of Milton Friedman blended with budget deficits and pump-priming strategies of John Maynard Keynes. Everything being offered by the great economists is being tried at the same time, therefore, you have to assume we are going to get out of this mess. However, the fact that these two economists disagreed with each other, largely because of the implication of their theories on inflation, leads me to believe that when we get out of this current mess, we are going to be faced with another severe inflation challenge two or three years from now. Of course, we have to get out of this mess first. If you are running away from a bear but potentially running into the path of tigers, you must keep running away from the bear. That said, we are probably going to see some tigers.
Q If you were running the country what would you do?
AI commend the Canadian government on holding back on doing anything drastic because Canada was for a time avoiding the worst of this. But now it appears the real-estate cycle has moved into Canada, bringing with it a meaningful risk to the market. Central Canada is also faced with the possible bankruptcy of the Big Three auto-makers, so government will need to correlate their efforts with the U.S. government. One thing I would not do is assume the commodity industries in Canada are going to be in a recessionary condition forever. They are still the national treasures and if bids are made to take out the oil sands companies while they are depressed on US$40 oil, the government should not let them go because of the knock-down price. There are only a limited number of large world-class assets left in Canada.
Q What's been your leadership role as a well-respected member of the investment community?
A I think it's important for me to help investors keep their perspective. At some point, we switched from saying this is a downturn to the belief that things are worse now than at anytime since the Great Depression. That's a great leap, and I reject the analogy. For example, we had 40% unemployment in the Great Depression. Now it's 7%. So it is neither reasonable, nor sensible to tell people during a downturn like this that it could be the worst thing since the Great Depression. I do believe that it is important to use history, not abuse it.
Q Once the dust settles on the economic crisis, what other challenges lie ahead for us?
A I believe the next big challenge we have to face is the global food crisis. I'm working with the University of Guelph right now and in the spring we are organizing a colloquium, where we bring together scientists and investors to talk about solutions to the food shortage.
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