• TSX -107.82 as investors continued to take profits from the strong rally of 2009 amid worries about the strength of the global economic recovery and sovereign debt issues in Europe. Concerns are growing that some European countries, including Greece, Portugal and Spain, might not be able to handle their mounting levels of debt
• DOW -103.84 falling below the 10,000 pt threshold to 9,908
• Dollar +0.39c to 93.07cUS
• Oil +$.70 to $71.89US per barrel.
• Gold +13.40 to $1,065.10 USD per ounce
CREA forecasts record home market this year
Garry Marr, Financial Post
Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.
The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.
The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.
Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.
"One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.
There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.
Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act.
Mr. Klump's group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.
That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.
"There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months," said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.
Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.
"It's a factor fuelling a higher level of activity in Ontario and British Columbia," Mr. Klump said. "What's more Canadian than avoiding taxes?"
Elton Ash, vice-president of Re/Max of Western Canada, said he thinks the forecast put out Monday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. "But I also think the market will be better in 2011 [than CREA]."
Mr. Ash is actually in favour of some measures to cool the market, like reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.
"I think leaving it at 5% would be okay," Mr. Ash said.
Tuesday, February 9, 2010
Wednesday, February 3, 2010
Financial Update For Feb. 3, 2010
• TSX +90.79 to 11,408.34 Rising commodity prices drive up shares of metals, mining and energy stocks
• DOW +111.21 to 10,296.85
• Dollar +0.12c to 94.63cUS
• Oil +0.40 to $77.73US per barrel.
• Gold +13.20 to $1,118.20USD per ounce
'Good and boring:' Canadian banks win praise
Janet Whitman, Financial Post Published: Tuesday, February 02, 2010
NEW YORK -- Paul Volcker, the former U.S. Federal Reserve Board chairman who's now a key economic advisor to the White House, told U.S. lawmakers Tuesday they ought to learn from Canada's banking system as they seek to overhaul rules governing the biggest U.S. banks.
Speaking at a hearing to tout his proposal to rein in risky investing activities by large U.S. commercial banks, Mr. Volcker said the life's work of Canadian banks is retail banking: "That's no longer true of great big American banks."
With just five or six banks dominating the industry, Canada's banks benefit from having less competition, Mr. Volcker said. "It's a stable oligopoly."
Canada's banking system also has been shielded by the fact that it has less government interference in its mortgage market, unlike in the United States, where banks have been pressured by the government to make low-cost loans to the economically disadvantaged, he said.
Mr. Volcker's endorsement of Canada's banking system - the only Group of Seven nation that didn't need taxpayers to bail out its banks - came two days after The New York Times published a piece by Nobel Prize-winning economist and columnist Paul Krugman that said the United States should emulate Canada's financial regulatory regime.
After its publication, the article, entitled "Good and Boring," became the most emailed on the Times website.
Mr. Volcker made his positive comments about Canada toward the end of Tuesday's Capital Hill hearing after Charles Schumer, a Democrat from New York, asked whether the United States should form a consumer protection agency similar to Canada's to fix the banking system.
Mr. Volcker declined to comment directly on the consumer agency question, but said Canada's mortgage market is more privately owned than in the United States, which has government-sponsored Fannie Mae and Freddie Mac backing home mortgages.
Canada has much less securitization - the practice of banks bundling off loans and selling them off to investors -than the United States, which might give Canada an incentive to stay with more conservative practices, he said.
Mr.. Volcker, widely credited with taming inflation as Federal Reserve Bank chairman under U.S. presidents Jimmy Carter and Ronald Reagan, said Canada hasn't been completely immune to fallout in its banking sector
He noted a couple of its regional banks went bankrupt some years ago after getting into trouble, an apparent reference to the collapse of Northland Bank and the Canadian Commercial Bank in 1985.
"At that point, people were not so proud of the regulatory system in Canada," he said.
U.S. lawmakers didn't seem impressed Tuesday by the case Mr. Volcker tried to make that big U.S. commercial banks should be barred from high-risk trading in a bid to curb the problem of financial firms that are "too big to fail" without putting the entire financial system at risk.
The Volcker Rule would ban large commercial banks from "proprietary trading," in which they use their private-equity arms or hedge funds to rack up their own profits.
Christopher Dodd, a senator from Connecticut heading up the proposed revamp of the U.S. financial system, said at the end of the hearing he would need more specific details on how such a ban would work before making its part of the draft overhaul plan he introduced last year..
Financial Post
Barack Obama, the U.S. president, unveiled the Volcker Rule proposal after a stunning U.S. Senate seat upset in Massachusetts.
Mr. Volcker said Tuesday the announcement was in the works weeks before the seat long held by Democrat Ted Kennedy went to a Republican..
"I want the American public to know that," he said.
• DOW +111.21 to 10,296.85
• Dollar +0.12c to 94.63cUS
• Oil +0.40 to $77.73US per barrel.
• Gold +13.20 to $1,118.20USD per ounce
'Good and boring:' Canadian banks win praise
Janet Whitman, Financial Post Published: Tuesday, February 02, 2010
NEW YORK -- Paul Volcker, the former U.S. Federal Reserve Board chairman who's now a key economic advisor to the White House, told U.S. lawmakers Tuesday they ought to learn from Canada's banking system as they seek to overhaul rules governing the biggest U.S. banks.
Speaking at a hearing to tout his proposal to rein in risky investing activities by large U.S. commercial banks, Mr. Volcker said the life's work of Canadian banks is retail banking: "That's no longer true of great big American banks."
With just five or six banks dominating the industry, Canada's banks benefit from having less competition, Mr. Volcker said. "It's a stable oligopoly."
Canada's banking system also has been shielded by the fact that it has less government interference in its mortgage market, unlike in the United States, where banks have been pressured by the government to make low-cost loans to the economically disadvantaged, he said.
Mr. Volcker's endorsement of Canada's banking system - the only Group of Seven nation that didn't need taxpayers to bail out its banks - came two days after The New York Times published a piece by Nobel Prize-winning economist and columnist Paul Krugman that said the United States should emulate Canada's financial regulatory regime.
After its publication, the article, entitled "Good and Boring," became the most emailed on the Times website.
Mr. Volcker made his positive comments about Canada toward the end of Tuesday's Capital Hill hearing after Charles Schumer, a Democrat from New York, asked whether the United States should form a consumer protection agency similar to Canada's to fix the banking system.
Mr. Volcker declined to comment directly on the consumer agency question, but said Canada's mortgage market is more privately owned than in the United States, which has government-sponsored Fannie Mae and Freddie Mac backing home mortgages.
Canada has much less securitization - the practice of banks bundling off loans and selling them off to investors -than the United States, which might give Canada an incentive to stay with more conservative practices, he said.
Mr.. Volcker, widely credited with taming inflation as Federal Reserve Bank chairman under U.S. presidents Jimmy Carter and Ronald Reagan, said Canada hasn't been completely immune to fallout in its banking sector
He noted a couple of its regional banks went bankrupt some years ago after getting into trouble, an apparent reference to the collapse of Northland Bank and the Canadian Commercial Bank in 1985.
"At that point, people were not so proud of the regulatory system in Canada," he said.
U.S. lawmakers didn't seem impressed Tuesday by the case Mr. Volcker tried to make that big U.S. commercial banks should be barred from high-risk trading in a bid to curb the problem of financial firms that are "too big to fail" without putting the entire financial system at risk.
The Volcker Rule would ban large commercial banks from "proprietary trading," in which they use their private-equity arms or hedge funds to rack up their own profits.
Christopher Dodd, a senator from Connecticut heading up the proposed revamp of the U.S. financial system, said at the end of the hearing he would need more specific details on how such a ban would work before making its part of the draft overhaul plan he introduced last year..
Financial Post
Barack Obama, the U.S. president, unveiled the Volcker Rule proposal after a stunning U.S. Senate seat upset in Massachusetts.
Mr. Volcker said Tuesday the announcement was in the works weeks before the seat long held by Democrat Ted Kennedy went to a Republican..
"I want the American public to know that," he said.
Tuesday, February 2, 2010
Financial Update For Feb. 2, 2010
• TSX +223.34 to 11,327.55 closed at its lowest level in 3 months, pressured by weak commodity prices after stronger than expected U.S. economic data sparked a rally in the greenback.
• DOW +118.30 to 10,185.53
• Dollar -.35c to 94.53cUS
• Oil +0.88 to $75.31US per barrel.
• Gold +21.50 to $1,105.30.USD per ounce
Finally, Canada's financial system gets some respect
Posted: February 01, 2010, 7:44 PM by Pamela Heaven
While Canada's ability to sidestep the banking crisis has earned a slow drip of respect from the rest of world over the past year and half, it turned into a flood over the weekend.
On Monday, the most e-mailed story on the entire New York Times website was an economist advocating that the United States emulate Canada’s financial regulatory regime. It helps that the economist/columnist was Paul Krugman, Nobel prize winner and one of the most ardent critics of the way the U.S. government bailed out its big banks.
Mr. Krugman concludes that the U.S. will likely do very little to fix its banking system but “it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.”
He writes that Canada was better at protecting consumers from predatory lending and that may, along with our supposedly more conservative nature, be a big contributor to our financial stability.
In the Financial Times, Chrystia Freeland, the paper’s U.S. managing editor, hit on some of the same points as Mr. Krugman including repeating the commonly held assumption that we are too collectively dull as a nation to even create a bubble worth bursting.
Ms. Freeland, a Canadian, does add more depth than Mr. Krugman and actually talks to many of the leaders of Canada’s financial system. She runs through several of the possible reasons for our good fortune: a more prudent culture, better rules, regulators that talk to each other and a cozy, conservative mortgage market.
All of these topics have been covered extensively by reporters like John Greenwood, Paul Vieira and Theresa Tedesco in the Financial Post, but it’s nice to see two other prominent papers taking notice.
Grant Ellis, associate editor, Financial Post
Flaherty urged to keep spending taps open
Jeremy Torobin and Tavia Grant
Ottawa, Toronto — Globe and Mail Update Published on Monday, Feb. 01, 2010 8:15PM EST Last updated on Tuesday, Feb. 02, 2010 6:40AM EST
Canada's leading private economists are urging Finance Minister Jim Flaherty to tread a cautious path in his March budget and keep spending flowing in a fragile recovery.
At a meeting in Ottawa on Tuesday, the economists will suggest Mr. Flaherty look past some of the better-than-expected data in Canada and the United States and resist moving too quickly to rein in the deficit.
The economists have boosted their projections for the economy, which Mr. Flaherty uses to shape his own assessments. They now see average economic growth of 2.7 per cent this year, according to a Bloomberg survey. That's higher than the 2.3 per cent Mr. Flaherty projected in his September fiscal update, but still well below the 5 per cent to 6 per cent that typically follows a deep slump.
“The dominant theme here is that unlike recoveries from previous recessions this one's going to be fairly slow and drawn out,” said Craig Alexander, deputy chief economist at Toronto-Dominion Bank. “I don't think the government should be tightening fiscal policy before the recovery has gained greater traction.”
In the U.S., President Barack Obama is facing intense political pressure to start taming a deficit on track to reach a record $1.6-trillion (U.S.), even as a stubbornly high unemployment rate forced him to ask Congress on Monday for another $100-billion to create jobs.
Canada, by comparison, is in a better position to carefully talk about a plan for tackling the budget shortfall that the global downturn spawned. Mr. Flaherty and newly minted Treasury Board President Stockwell Day have said the budget will include a road map to bring the budget back into balance within five years.
Most Canadian economists say outlining such a strategy is a good idea, but caution against being too aggressive.
“Unless economic growth turns out to be significantly stronger than economists like myself are projecting, the recovery won't do enough to get back into a balanced budget,” TD's Mr. Alexander said. “The budget is an opportunity to lay out a framework for what you try to do over a five-year horizon, and in that context there's a perfectly good opportunity to outline how you intend to, after the economy's gained significant momentum, get back into a balanced budget.”
At the same time, some economists are so cautious in their outlook that they say it's premature to even talk about spending restraint. Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce , said that even if the Parliamentary Budget Officer's recent warnings come true and Canada faces a so-called structural deficit of up to $19-billion (Canadian) five years from now, the country's debt load wouldn't be rising at a pace that increases the ratio of debt to gross domestic product.
“We're not Greece, so we don't have to impose an austerity program while the economy's still weak, or even talk about it,” Mr. Shenfeld said. “There's lots of time to adjust fiscal policy if it turns out three or four years from now we're still running a modest deficit.”
The deficit spending, and when and how to refill the hole, will be the front-and-centre topic at today's meeting, said Michael Gregory, senior economist at BMO Nesbitt Burns, not least because of nagging concerns about the effect that an aging population and health-care costs will have on long-term growth, regardless of the economic slump.
Reports late last week on both sides of the border showed Canada's economy grew at a faster-than-anticipated 0.4-per-cent pace in November and that the U.S. economy expanded at an impressive 5.7-per-cent annual pace in the final three months of 2009. Still, although both numbers caused some forecasters to increase their estimates of Canada's growth in the fourth quarter, many economists are skeptical the U.S. can keep growing at anywhere near its October-through-December pace, most of which was attributed to companies replenishing depleted inventories.
In any case, growth in both Canada and the U.S. this year will be on the strength of billions in government stimulus measures, not to mention rock-bottom interest rates, so fiscal policy makers face the crucial task of timing their belt-tightening just right because it remains unclear when the private sector will see self-sustaining demand.
Deficit reduction is important, but governments will have to walk a tightrope in the next year, said Jay Myers president and chief executive officer of Canadian Manufacturers & Exporters, which is hosting Mr. Flaherty at a conference later Tuesday in Ottawa.
“The year of recovery is going to be much more challenging for federal and provincial governments than the year of recession,” Mr. Myers said. “They basically knew what they had to do in recession. It's much more challenging now, to make the right choices.”
The balance hinges on beginning to unwind the extraordinary spending while also encouraging investments in new technology, innovation, skills development and market diversification that help growth over the long haul, he said.
Other topics that might be raised Tuesday range from new housing regulations to learning to live with the strong dollar, said Sheryl King, head of economics at Merrill Lynch (Canada).
The Finance Minister warned last month he will step in if the white-hot home resale market continues to push prices higher by tightening the rules for borrowers, such as increasing minimum down payments and shortening the maximum length of mortgages.
• DOW +118.30 to 10,185.53
• Dollar -.35c to 94.53cUS
• Oil +0.88 to $75.31US per barrel.
• Gold +21.50 to $1,105.30.USD per ounce
Finally, Canada's financial system gets some respect
Posted: February 01, 2010, 7:44 PM by Pamela Heaven
While Canada's ability to sidestep the banking crisis has earned a slow drip of respect from the rest of world over the past year and half, it turned into a flood over the weekend.
On Monday, the most e-mailed story on the entire New York Times website was an economist advocating that the United States emulate Canada’s financial regulatory regime. It helps that the economist/columnist was Paul Krugman, Nobel prize winner and one of the most ardent critics of the way the U.S. government bailed out its big banks.
Mr. Krugman concludes that the U.S. will likely do very little to fix its banking system but “it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.”
He writes that Canada was better at protecting consumers from predatory lending and that may, along with our supposedly more conservative nature, be a big contributor to our financial stability.
In the Financial Times, Chrystia Freeland, the paper’s U.S. managing editor, hit on some of the same points as Mr. Krugman including repeating the commonly held assumption that we are too collectively dull as a nation to even create a bubble worth bursting.
Ms. Freeland, a Canadian, does add more depth than Mr. Krugman and actually talks to many of the leaders of Canada’s financial system. She runs through several of the possible reasons for our good fortune: a more prudent culture, better rules, regulators that talk to each other and a cozy, conservative mortgage market.
All of these topics have been covered extensively by reporters like John Greenwood, Paul Vieira and Theresa Tedesco in the Financial Post, but it’s nice to see two other prominent papers taking notice.
Grant Ellis, associate editor, Financial Post
Flaherty urged to keep spending taps open
Jeremy Torobin and Tavia Grant
Ottawa, Toronto — Globe and Mail Update Published on Monday, Feb. 01, 2010 8:15PM EST Last updated on Tuesday, Feb. 02, 2010 6:40AM EST
Canada's leading private economists are urging Finance Minister Jim Flaherty to tread a cautious path in his March budget and keep spending flowing in a fragile recovery.
At a meeting in Ottawa on Tuesday, the economists will suggest Mr. Flaherty look past some of the better-than-expected data in Canada and the United States and resist moving too quickly to rein in the deficit.
The economists have boosted their projections for the economy, which Mr. Flaherty uses to shape his own assessments. They now see average economic growth of 2.7 per cent this year, according to a Bloomberg survey. That's higher than the 2.3 per cent Mr. Flaherty projected in his September fiscal update, but still well below the 5 per cent to 6 per cent that typically follows a deep slump.
“The dominant theme here is that unlike recoveries from previous recessions this one's going to be fairly slow and drawn out,” said Craig Alexander, deputy chief economist at Toronto-Dominion Bank. “I don't think the government should be tightening fiscal policy before the recovery has gained greater traction.”
In the U.S., President Barack Obama is facing intense political pressure to start taming a deficit on track to reach a record $1.6-trillion (U.S.), even as a stubbornly high unemployment rate forced him to ask Congress on Monday for another $100-billion to create jobs.
Canada, by comparison, is in a better position to carefully talk about a plan for tackling the budget shortfall that the global downturn spawned. Mr. Flaherty and newly minted Treasury Board President Stockwell Day have said the budget will include a road map to bring the budget back into balance within five years.
Most Canadian economists say outlining such a strategy is a good idea, but caution against being too aggressive.
“Unless economic growth turns out to be significantly stronger than economists like myself are projecting, the recovery won't do enough to get back into a balanced budget,” TD's Mr. Alexander said. “The budget is an opportunity to lay out a framework for what you try to do over a five-year horizon, and in that context there's a perfectly good opportunity to outline how you intend to, after the economy's gained significant momentum, get back into a balanced budget.”
At the same time, some economists are so cautious in their outlook that they say it's premature to even talk about spending restraint. Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce , said that even if the Parliamentary Budget Officer's recent warnings come true and Canada faces a so-called structural deficit of up to $19-billion (Canadian) five years from now, the country's debt load wouldn't be rising at a pace that increases the ratio of debt to gross domestic product.
“We're not Greece, so we don't have to impose an austerity program while the economy's still weak, or even talk about it,” Mr. Shenfeld said. “There's lots of time to adjust fiscal policy if it turns out three or four years from now we're still running a modest deficit.”
The deficit spending, and when and how to refill the hole, will be the front-and-centre topic at today's meeting, said Michael Gregory, senior economist at BMO Nesbitt Burns, not least because of nagging concerns about the effect that an aging population and health-care costs will have on long-term growth, regardless of the economic slump.
Reports late last week on both sides of the border showed Canada's economy grew at a faster-than-anticipated 0.4-per-cent pace in November and that the U.S. economy expanded at an impressive 5.7-per-cent annual pace in the final three months of 2009. Still, although both numbers caused some forecasters to increase their estimates of Canada's growth in the fourth quarter, many economists are skeptical the U.S. can keep growing at anywhere near its October-through-December pace, most of which was attributed to companies replenishing depleted inventories.
In any case, growth in both Canada and the U.S. this year will be on the strength of billions in government stimulus measures, not to mention rock-bottom interest rates, so fiscal policy makers face the crucial task of timing their belt-tightening just right because it remains unclear when the private sector will see self-sustaining demand.
Deficit reduction is important, but governments will have to walk a tightrope in the next year, said Jay Myers president and chief executive officer of Canadian Manufacturers & Exporters, which is hosting Mr. Flaherty at a conference later Tuesday in Ottawa.
“The year of recovery is going to be much more challenging for federal and provincial governments than the year of recession,” Mr. Myers said. “They basically knew what they had to do in recession. It's much more challenging now, to make the right choices.”
The balance hinges on beginning to unwind the extraordinary spending while also encouraging investments in new technology, innovation, skills development and market diversification that help growth over the long haul, he said.
Other topics that might be raised Tuesday range from new housing regulations to learning to live with the strong dollar, said Sheryl King, head of economics at Merrill Lynch (Canada).
The Finance Minister warned last month he will step in if the white-hot home resale market continues to push prices higher by tightening the rules for borrowers, such as increasing minimum down payments and shortening the maximum length of mortgages.
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