August 2010 Canadian Economic Fundamentals

[Ally]

Canada could face inflation problem by next year, economist warns

Sheryl King, head of Canada economics at Bank of America Merrill Lynch, said the central bank may have an "inflation problem" next year as concerns the U.S. recovery may falter will keep it from raising interest rates as quickly as needed.

Ms. King, who recommends investors purchase inflation-protected bonds, said the Bank of Canada may be putting a "higher-than-merited" probability of a double-dip recession in the U.S. That will keep the central bank from raising interest rates at its last two rate announcements this year, Ms. King said in an interview at Bloomberg`s Ottawa office.

"They`re very sang-froid about how much spare capacity there is and how well-anchored inflation expectations are," Ms. King said. "They`re probably going to be dealing with an inflation problem in 2011."

While Bank of Canada Governor Mark Carney has raised interest rates twice since June 1 to 0.75%, the central bank has said further action would be "weighed carefully against domestic and global economic developments." The bank`s policy makers next meet on Sept. 8.

Bank of America Merrill Lynch predicts inflation will accelerate to as high as 3.5% in the last quarter of 2011, which would be the fastest quarterly rate since 2003. Excluding volatile items, core inflation will accelerate to as high as 2.5% in the third quarter next year.

Read the full article here.

 

[Ally]

Canada-U.S. savings rates reach widest gap since early 1970s: BMO Capital Markets

Tally this up to another sign of the diverging directions Canada and the United States are taking on the economic front.

Whereas the U.S. personal savings rate is headed upward, to 6.2% for the second quarter, the comparable Canadian measure is actually headed down, to 2.8% as of the first quarter of 2010. As a result, the gap between the U.S. and Canadian savings rates is at its widest since the early 1970s and is poised to hit levels not seen since the 1960s.

"The tables have completely turned," said Douglas Porter, deputy chief economist at BMO Capital Markets, who highlighted the trend in a Tuesday afternoon note to clients.

Read the full article here.

 

[Ally]

The U.S. is bankrupt

Let`s get real. The United States is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: "Directors welcomed the authorities` commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP."

Read the full article here.

 

[Ally]

Is this a solution to the problem?

Western economies are in long-term decline and neither money printing, low interest rates nor bailouts are the real answer. That one lies elsewhere and so far does not seem to have been mentioned in the agora.

The current Western problem is how to avoid foreclosure as private debt is excessive, especially in North America and public debts are rising to extreme levels in an attempt to maintain jobs and consumer spending. Encouraged by governments, consumer spending has outpaced an already too high standard of living. Fed by the communication revolution, it has reached "doomed" heights and exceeds safe consumer debt levels, even in an age of far too low interest rates.

Western salaries and wages, amplified by a large, non-productive group (read swollen civil service) as well as corporate profits diluted by excessive and toxic compensation (it places selfishness ahead of true long-term corporate achievement) do not help. On top of that, politician-buying by pressure groups has led to inadequate laws to restrain the likes of Goldman Sachs and other non-productive financial gamblers. Inadequate enforcement of weak laws discourages people from saving, as do the low interest rates.

Meanwhile, societies with low wages have now gained more and more of world manufacturing and capital. In U.S. dollars, the average Chinese wage in one-10th that of the average Canadian or American. For India, the figure is one-20th.

These Asiatic and other countries send their children to the best Western universities where because of disciplined habits they are among the best students. They are in a position to favourably compete with us in all productive human activities, not only raw factory labour.

Read the full article here.

 

[Ally]

Housing market continues to cool down

Global real estate prices slowed in the second quarter of 2010, but Canada had the most "dramatic" cooling off of all countries, says a report by the Bank of Nova Scotia.

Australia and Canada led the pack in housing price appreciation at the beginning of the year, followed by Sweden and the U.K. The U.S., Japan and Spain all saw declines.

But Canada has had the most severe decline in pricing in the second quarter, says the bank in a report released Tuesday.

"Demand and prices have softened alongside moderating global growth, heightened financial volatility and sluggish job creation," said economist Adrienne Warren. "The slowdown has been the most dramatic in Canada."

Average home prices in Canada in the first quarter were up 16.6 per cent year over year in the first quarter, but just 6.6 per cent in the second quarter, says Warren. Australian home prices on the other hand fell moderately to 15.3 per cent year over year in the second quarter compared with 16.8 per cent in the first.

Read the full aritcle here.

 

[Ally]

As traffic congestion grows, are peak-hour fees the only answer?

It`s known as "accurate transport pricing," and Canadian drivers are going to hate the concept.

The idea is to start charging drivers a fee for using roads in the core area of Canada`s larger cities during peak-traffic periods.

The initiative, which already is in place in several European cities and has been considered (but not implemented) by New York and San Francisco, was recommended for Canada this week by a western Canadian think-tank.

The Winnipeg-based Frontier Centre for Public Policy this week released a report, titled Winning the Battle with Traffic Congestion.

Noting that traffic congestion is costing the Canadian economy billions, the report asserts that building more road capacity is not the answer, often promoting more traffic.

"Accurate transport pricing aims to ensure that people face the true costs of their travel decisions."

Transport Canada, in 2006, estimated the cost of traffic congestion at between $2.3 billion and $3.7 billion annually.

Read the full article here.

 

[Ally]

Book to help investors make smart decisions

A real estate expert has written a book aimed at helping Canadians recognize opportunity in the midst of housing bubbles and changing regulations.

Don Campbell co-wrote 81 Financial and Tax Tips for the Canadian Real Estate Investor to help people maximize revenue and reduce taxes.

The book offers insights into the limitations, requirements and benefits of the Canadian tax system.

"It`s not about how much you make, which is for your ego," says Campbell, who is president of the Real Estate Investment Network (REIN). "It`s about how much you keep for wealth creation."

As tip No. 53 in his new book says: "Capital gain and income are not the same thing."

The advice comes with a warning.

Read the full article here.

 

[Ally]

Homebuyers shouldn`t expect hot deals as housing market cools: Experts

Canadian sellers are facing more empty open houses and fewer bids on their homes, but experts say buyers shouldn`t expect to see a retreat from record-high home prices when July housing data is released Monday.

Home sales have fallen 25 per cent since reaching a peak at the beginning of the year as demand slows and more houses come onto the market.

But it will take much longer for sky-high home prices to fall and the market to enter buyer-friendly territory. And history is on the side of the seller.

"Over time, if you were to look at the last 40 years, it`s much more common to see sellers` markets than buyers` markets," said Phil Soper, president of Royal LePage.

"It comes down to the different psychology that exists between buyers and sellers. Buyers are very quick to adjust to a down market and sellers are very slow to adjust to a down market. Sellers stubbornly hold onto their perception of what their home is worth, whereas buyers turn on a dime."

Read the full article here.

 

[Ally]

Canadian home sales sink 30%

Canada`s housing market stalled in July as sales sank 30 per cent from the same month a year earlier, the Canadian Real Estate Association said Monday.

Prices edged up 1 per cent from July 2009, though slipped 3.5 per cent from June, with sellers finding far fewer buyers willing to step into the market.

The average resale price nationally was $330,351, according to the Canadian Real Estate Association. In June, the price was $342,662.

"We expect a downward correction of nearly 10 per cent in the monthly average prices, followed by several years of stagnation of price growth at the rate of inflation, in order to bring Canadian house prices back to balance," TD Bank economist Grant Bishop said.
Read the full article here

 

[Ally]

Canada`s `more humane society` saved economy: Krugman

NIAGARA FALLS, ONT. — More stringent banking regulations and a "basically more humane society" have helped Canada weather the economic storm better than most countries but a complete recovery is "by no means a sure thing," says Princeton University economist Paul Krugman.

Krugman, a 2008 Nobel laureate, told lawyers at the Canadian Bar Association`s annual meeting here Sunday that while it is "amazing" Canada was not sucked into the vortex of economic collapse like the United States and much of the European Union, certain aspects of its economy are, if not exactly scary, a "little disturbing."

One is that Canadians, he said, spend and borrow "a lot like the Americans."

The other is that we are saving less.

The latest figures show the personal savings rate of Canadians in the first quarter of 2010 was 3 per cent of income. In the U.S., the savings rate rose to 6.4 per cent.

It is the first time since the 1970s that Canadians are saving less than their neighbours to the south.

Read the full article here.

 

[Ally]

Making sense of housing statistics

As the old saying goes, there are lies, damned lies, and then there`re statistics. Preparing for a BNN interview earlier this week where I was to provide instant reaction to the monthly release of the housing starts data by Canada Mortgage and Housing Corp., it occurred to me that homebuyers face a continuous barrage of statistical information which can be downright confusing.

CMHC releases national, provincial and local reports on housing starts each month. At a different point each month, Statistics Canada issues data on building permits. Figures on resale home transactions are released twice a month by the Toronto Real Estate Board and monthly by the Canadian Real Estate Association.

As for new home sales, RealNet Canada Inc. provides a complete database of low and highrise new home sales for the Greater Toronto Area on a monthly basis while Urbanation releases stats on the GTA condo market quarterly.

That`s six potential housing market information sources you could be hearing about or reading about on any given day, not including the one-off type reports that emanate from the larger resale brokerages or major financial institutions such as the Scotiabank Global Real Estate Market Trends report which came out on the same day as the CMHC stats last Tuesday.

Read the full article here.

 

[Ally]

Remedies for economic inertia prove elusive

Some economy watchers are predicting a lost decade in the United States -- periods of weak growth interrupted by intermittent recessions. It`s not the worst-case scenario, which would be a deflationary spiral, but it is not exactly good news either.

The U.S. story is beginning to sound uncomfortably similar to the sorry saga of Japan, which has struggled with stagnation for 20 years following a real-estate collapse and subsequent financial crisis.

Such an unhappy future would take a heavy toll on Canada. While it`s true that exports are not as important a driver of the economy as they once were, they still represent 30 per cent of gross domestic product.

Statistics Canada reported this week that merchandise exports fell 2.5 per cent in June, widening the trade deficit to $1.1 billion from $695 million in May,

About two-thirds of Canada`s exports go to the U.S. Moreover, Canadian manufacturing, particularly in Ontario, is highly integrated with the U.S. The latest numbers tell a depressing tale of recovery in retreat. Not only did the U.S. lose 131,000 jobs last month, but the Department of Labor revised its June figures from a loss of 125,000 to a loss of 221,000 jobs.

Read the full article here.

 

[Ally]

Boardwalk Trust reports leap in quarterly earnings

CALGARY - Calgary- based property manager Boardwalk Real Estate Investment Trust saw net earnings increase by 56.7 per cent in the second quarter of this year compared with 2009 as they jumped to $23.5 million from $15.0 million.

During the second quarter, its funds from operations dropped to $34.6 million or 66 cents per unit compared with $36.8 million and 70 cents per unit in the same quarter a year ago - down 5.7 per cent, said the trust in releasing its second quarter 2010 financial results.

Read the full article here.

 

[Ally]

Data Release: Housing on downward pitch in July`s Dog Days

• Reflecting a continued moderation in Canadian homebuying, seasonally-adjusted sales of resale housing were down 6.8% M/M and 30% Y/Y in July.
• While average house prices have still gained 1% since July 2010, these year-over-year increases have rapidly decelerated and house prices fell on the month, by our seasonally-adjustment, experiencing a 1.5% M/M contraction. This is the third consecutive month of declines and, although the Canadian housing market experienced some unique downward pressure in July, the seasonally-adjusted monthly pull-back is accelerating.
• Much of the declines in sales were focused in Ontario and B.C., which while generally accounting for 60% of nation-wide sales were the source of 85% of the month`s pull-back. When house prices are adjusted for constant geographic weighting, removing the distortion from regional swings in home sales, the weighted national home price in Canada`s major markets showed a 7.4 Y/Y gain, compared with a 2.9% Y/Y advance in the standard average price across those same cities.
Read the full article here.

 

[Ally]

Commercial real estate deals soar

Canada`s commercial real estate market rebounded sharply in the first half of 2010, with the value of deals increasing by 60 per cent as the debt markets recovered from the recession.

Commercial real estate company CB Richard Ellis said in its midyear national investment report that $7.8-billion worth of deals were done from January to June, compared with $4.9-billion during the same period in 2009.

There were a total of 2,243 commercial deals done, compared with 1,565 at last year`s halfway point.

"It is important to note that midyear figures from last year were far lower than the historical average, due to the global economic crisis that characterized much of 2008 and 2009," the report said.

"When comparing the current national midyear figure to midyear 2005 – a year more reflective of the country`s normal commercial real estate activity levels – volume is up by 22.8 per cent."

Read the full article here.

 

[Ally]

Bedbug remedy not just hot air

As Toronto`s battle of the bedbug intensifies, an unusual extermination technique has emerged: bug baking, or death by heat. And with it, two approaches have developed.

On one hand, there are pest control professionals like Dan McCabe.

On Monday, he stood in an infested Etobicoke apartment, the room temperature a scorching 50C. Sweat poured off his face as he held up a clear container holding a dozen test-case bugs and flicked it with his index finger.

"Dead," he said with a satisfied grin. "They`re all dead."

The decreasing effectiveness of pesticides has meant that, while Toronto is experiencing a surge in bedbug infestations, the apple seed-sized pest is harder than ever to kill. But as a California company called ThermaPureHeat discovered, heat kills bugs and their eggs, often in one go.

"At about 110 degrees (Fahrenheit, 43C), they start coming out of the woodwork," said Mark Joseph, owner of Magical Pest Control, a Toronto business recently certified to use the technique. "Then they start doing the death dance, just going crazy."

Read the full article here.

 

[Ally]

BMO`s Porter debunks stimulus myths

One of Canada`s top economists is tired of all the misconceptions surrounding what the hundreds of billions of taxpayer dollars is actually doing to stimulate the Canadian and U.S. economies.

In a note on Friday by BMO Capital Markets, Douglas Porter lists three he considers most commonly believed:

Myth #1 Deficit spending is hurting financial markets

While a few countries such as Greece, Portugal and Spain underwent severe equity corrections in the wake of the recent European sovereign debt crisis, he says most government bond markets have shown "no such concern" in the past year.

Myth #2: Washington`s US$787-billion federal stimulus package has not worked

Read the full article here.

 

[Ally]

TD forecasts 10% drop in home prices

Canada`s real estate market is due for a "moderate correction" with homes that are anywhere from 10 to 15 per cent overvalued, says the TD Bank.

"The excessive pricing of Canadian housing in relation to fundamentals is now clearly correcting," TD Bank economist Grant Bishop said in an economic note Monday. "We expect a moderate correction in prices over the coming year."

The bank is forecasting a "downward correction of 10 per cent in monthly average prices, followed by several years of stagnation of price growth," according to Bishop.

TD says affordability was steadily eroded during the house price surge of late 2009 and early 2010, with carrying costs rising relative to average household incomes.

"The current level of household debt flags the need for households to slow their borrowing," said the bank.

Read the full article here.

 

[Ally]

Be realistic about long-term stock returns

Two of America`s leading authorities on stock market returns have disagreed over the past several months.

Wharton finance professor Jeremy Siegel, author of Stocks for the Long Run, argues we should be optimistic about the coming decade, while Yale University economist Robert Shiller, author of Irrational Exuberance, suggests not.

"My analysis suggests the stock market is 25 per cent, maybe even 30 per cent, undervalued based on the long-term trend," Siegel told Dan Richards, president of Clientinsights, during an interview filmed for his website earlier this year.

"Based on our forecasting regressions... I would say it`s a tough call whether stocks or bonds will pay more over the next ten years," Shiller told Richards a day later. "We forecast positive returns, but not terrific (returns)."

Six months later North American stock markets have neither gained nor lost much ground. Investors have, instead, bid up the price of government bonds, driving interests rates lower.

But both of these academic analysts agree on certain things that savers and retirees should consider.

Do not base your expectations on the double-digit returns of the 1980s and 1990s. They were an historical oddity.

Read the full article here.

 

[Ally]

Manufacturing sales edge higher

Manufacturing sales edged up 0.1 per cent to $44.8-billion in June.

Statistics Canada reports constant-dollar manufacturing sales rose 0.7 per cent to $41.7-billion in June, 15.3 per cent higher than in May, 2009. Sales gains were reported in nine of 21 industries, representing 50.1 per cent of total sales.

Source: http://www.theglobeandmail.com/report-on-b...article1675470/