The big thaw from Ottawa
Wednesday, November 12th, 2008Mr. Flaherty steps up
Finance minister Jim Flaherty announced a series of changes today that Ottawa is implementing to further ease tight credit conditions faced by Canadian businesses and consumers. The Globe and Mail reported that the government is adding $50-billion to its mortgage purchase program while Flaherty also agreed to cut the price the government is charging Canadian Banks to insure their wholesale lending. The Bank of Canada also announced it is injecting an additional $8-billion into the money markets over the next couple of weeks in the form of one-month money.
The news was hugely welcomed by the Canadian banks (”…we got what we asked for…” see The Globe and Mail report, link above). The moves by the government are meant to bolster consumer confidence at a time of economic uncertainty, while at the same time are meant to enable the Canadian banks to lower the spreads between prime and what they charge to borrow. Again, this will be great not only for Real Estate (via mortgages), but for all consumers and businesses needing credit.
Further gloom
Speaking of economic uncertainty… there was more gloom on the financial markets today stemming from some economic numbers. Higher than expected job losses in the U.S. combined with further forecasts of decreasing global demand for oil sent the spot price of crude to $56.16, down approximately 5% on the day. Lower oil, and other resource commodities, means bad news for the TSX composite (down 512 points) and bad news for the Canadian Dollar (down approximately 2.25 cents). It appears Ottawa’s announcements earlier today were very well timed! Stand-by, I will boldly predict more up and down volatility in the commodity and financial markets in the near future.
The good news
While we do need to acknowledge the bad news every so often (too often lately!), I prefer to look for the good news these days. CIBC chief economist Jeff Rubin released a report yesterday stating his case about why he thinks the markets are close to “the bottom”. The high points of Mr. Rubin’s article are that the markets have already appeared to price-in the grim economic outlook facing the world right now, and he provides some trading ranges for consideration. That same article quotes some other Bay Street regulars who also back this notion up, at least a little bit, including further references to the LIBOR (which I have blogged about a few times in the last 10 days).
The LIBOR has been falling for 17 consecutive days now, which when added to Ottawa’s latest push to keep the credit markets moving is further good news for the mortgage and loan markets as well as the financial markets at the same time.
Unfortunately the financial markets were down quite a bit after these reports were filed, however, the reports were stating that we were close to the bottom, not necessarily at the bottom. Volatility will likely remain the theme for the time being, that said, there continues to be evidence that the financial markets will turn, it’s not a matter of “if” but “when”. We would all love it if the “when” could come as rapidly as the current meltdown happened, but realistically many analysts, Mr. Rubin included, see this happening later in 2009. Chin-up everyone!
Parting thought
I had a good laugh today when I came across a reader’s comment left in response to an article at CBC.CA today. That reader posted “What if there were a recession and nobody paid attention to it. Would it still happen?”. I laughed partly because I imagined this was a tounge-in-cheek commentary from the reader, and in part because I believe the answer is ”no!”.
Okay, I’ll admit that’s making things a bit too black and white, however, that reader’s comment is another great segueway to remind everyone to be careful to read (or watch) past the headlines in all the media you consume these days, and every day for that matter. The world is often in far better shape than the headlines report, but if everyone allows themselves to get too caught up in those headlines, then many will start to make decisions that can make the worst headlines a reality.
Thanks for reading, enjoy the day.
Sean