'The sky is not falling,' says BOC governor

Declines in housing market and commodities more rapid than expected

Jacqueline Thorpe, Financial Post

The Bank of Canada continues to believe Canada can avoid a recession this year and next, despite the protracted three-quarter recession it forecasts for the U.S. economy into 2009, a "mild" global recession, and "the deepest, broadest and most persistent financial crisis" the world has faced in decades.

The central bank forecasts real gross domestic product will expand 0.8% in the third quarter, followed by a contraction of 0.4% in the fourth quarter. Growth is expected to be flat in the first quarter of 2009 and to pick up to 0.8% in the second quarter.

Two successive quarters of contracting activity is technically considered a recession.

The bank believes Canada is starting from a better position of strength than many other countries going into the downturn, with a stronger labour market and better household and corporate balance sheets providing some support.

The "sky is not falling," bank governor Mark Carney said at a news conference after the document's release.

Still, it forecasts the economy will not do much better than flatline over the next couple of quarters as the global credit crisis will resolve slowly, putting the economy under strain.

Despite of the "healthy" position of Canadian financial institutions, the intensification of the global financial crisis has led to a "substantial" tightening of credit conditions in Canada, the bank said.

"Given the high degree of volatility and risk aversion in recent weeks, there is considerable uncertainty around any assessment of current credit conditions in Canada," the bank said. "In particular, it is difficult to measure the non-price factors that may limit the availability of credit."

Credit spreads between borrowing rates for financial institutions across curve and the expected overnight Bank of Canada interest rate spiked to around 200 basis points in early October.

While strong actions taken by central banks and governments to support financial institutions have lowered those spreads, the bank said they are likely only to recede slowly as confidence is gradually rebuilt.

Effective borrowing rates for financial institutions have, in fact, eased somewhat since August, thanks to the 225 basis points of cumulative interest rate cuts the bank has already implemented, the bank said.

"These indicative borrowing costs likely do not, however, adequately take account of the decreased availability coming from illiquid and risk-averse interbank markets," the bank admitted.

Non-financial firms, meanwhile, have had difficulty getting access to both short-term and long-term markets.

"Indeed, corporate debt and equity issuance have effectively stopped," the bank said.

The bank pointed out, however, that credit growth for Canadian households has slowed only slightly in recent months and there was little evidence terms or conditions have tightened significantly for household borrowers.

Still it sees growth of consumer spending receding after robust gains in recent years as real income declines with commodity prices, and household net worth takes a hit from sliding equity markets and a projected "modest" decline in house prices.

While it has been predicting a slowdown in housing activity and price gains for some time, the bank now says housing investment is declining more rapidly than it had expected. But it does not anticipate the same type of sharp housing contraction experienced by the United States.

The sharp decline in commodity prices has, like many, caught the Bank of Canada off-guard, and it is basing its projections on oil futures prices of US$81 to US$88 per barrel, though it projects a further 10% drop in non-energy commodity prices from current levels.

The bank has also revised down its estimate of Canada's potential output -- or the rate the economy can grow without generating inflation -- to 2.3% for 2008 and 2.4% in 2009.

The bank said it was encouraged by the loosening in global financial conditions in recent days. While one of the main risks to its outlook was that full recovery would take longer than expected, there is now the chance that measures governments and central banks have taken to restore liquidity and confidence will improve prospects more rapidly.

For the year as a whole, the bank repeated its Tuesday forecast that growth will average just 0.6% in 2008 and 0.6% in 2009 before picking up speed to 3.4% in 2010.

While the big jump in growth forecast for 2010 might seem sharp, it is not unusual by historical standards to see economies start to gain steam quickly once the worst of a crisis has past.

Weakness in Canadian economy helping homebuyers

Garry Marr, Financial Post

There is some good news in the falling housing market, affordability is improving.

Desjardins Economic Studies says that after eight years of rising prices, housing costs are going down. "For the second quarter in a row we have had an increase in affordability," said Hélène Bégin, senior economist with Desjardins.

However, she warned consumers should not get too excited about the market conditions because affordability is still very close to the all-time low reached in 1990.

The Desjardins Affordability Index is calculated by determining the ratio between average household disposable income and the income needed to obtain a mortgage on an average-priced home, known as the qualifying income.

The report from Desjardins said its affordability index climbed to 110.7 last quarter after dropping close to 100 at the end of 2007. In the early 1990s, the affordability index was as low as 93.6. Desjardins says that affordability has increased by about 10% in the past two quarters because of falling home prices and lower mortgage rates.

The Canadian Real Estate Association said last week that the average price of a home sold in the country's major markets was $327,020, a 3.6% increase from a year ago. It was the second consecutive month prices had dropped on a year-over year basis.

Statistics Canada also said last month new homes prices grew only by 3.5% in June from a year earlier. It was the slowest rate of growth since March, 2002.

Desjardins noted that in the first half of the year, existing home prices rose by 4.4% compared to 10% a year earlier. The posted rate on a one-year mortgage also fell from 7.25% in March to 6.3% by the end of June. The posted rate on a five-year mortgage fell from 7.15% to 7.1% during the same period.

"House prices are just not going up as strongly as before and in some places in Western Canada, like Calgary, we have had some price drops. With the kind of return we have in Calgary, it has a big impact on affordability," said Ms. Bégin.

Prices in Calgary fell 7.8% in July from a year earlier, according to CREA. They were off 5.8% in Edmonton during the same period. Desjardins says affordability in Calgary improved by 7.5% over the last three months.

Even with the improved conditions, affordability is still off almost 30% from the peak reached in late in 2001. Long-term Desjardins thinks affordability will continue to improve. "Prices are going to go up slowly," said Ms. Bégin. "Out west we've seen a turning point where prices are going down."

The drop in prices is good news for home builders, according to the chief operating officer of the Canadian Home Builders' Association.

"If you were sitting in my chair what you would be experiencing is one very busy housing industry from coast to coast," said John Kenward. "There has been a slowing down in certain markets and builders in those market say it's a return to a more normal market place."

Canadian consumer confidence hits lowest level in 26 years

JOHN PARTRIDGE

Globe and Mail Update

October 17, 2008 at 10:51 AM EDT

Canadian consumer confidence plunged to its lowest level in 26 years this month, the Conference Board of Canada said Friday, adding to a string of ever more gloomy readings on the popular mood in the midst of the global financial meltdown.

The index dropped by 11.9 points to 73.9, after climbing for three months in a row, the Ottawa-based organization said in a news release.

The gloomy tune is just as evident in the United States: the University of Michigan consumer sentiment index fell to 57.5 points for October from 70.3 per cent in September, the largest monthly drop yet and well below the 65.0 level forecast by economists.

The Conference Board findings are based on a survey of 2,000 Canadians, conducted between Oct. 2 and Oct. 8.

Consumer confidence is sagging in Canada

“The global credit crunch and major stock market declines clearly had an effect on consumer confidence in October,” Pedro Antunes, the board's director of national and provincial forecasting, said in the release. “In addition, consumers felt that they would be worse off in six months, indicating concerns that the financial crisis would not be resolved quickly.”

The board's consumer confidence index has not plumbed these depths since the third quarter of 1982, when Canada was mired in a recession.

A growing number of economists, including those at Bank of Montreal, Bank of Nova Scotia and the University of Toronto are now predicting that Canada is again headed for recession, along with the United States.

However, the board is not among them. Its chief economist Paul Darby forecast Wednesday that although the country faces tough challenges, especially because of falling exports, it will avoid recession, which is technically defined as two consecutive quarters in which the economy contracts.

As for the October consumer confidence readings, the board also said that there have been “indications” over the past couple of days that global credit markets are beginning to loosen – although it could take months before lending conditions return to normal.

Spokesman Brent Dowdall said this was a reference to “marginal” improvements in interbank lending rates.

The survey showed that all the index's components decline.

“Respondents said it was not a good time to make a major purchase and their view about their current and future financial situations also deteriorated,” the board said.

As well, consumers were less optimistic about future employment prospects for the fifth time in six months, and the October decline was the largest this year.

Ontarians' view of the economic universe took the biggest hit, with the confidence index plunging more than ever before, to 67.9 points from 94.5 in September.

In Quebec, it lost 10.2 points, marking the seventh dip in 8 months, while in British Columbia, the index fell British Columbia tumbled by 12.5.

The reading for the Prairie provinces dropped by 6.1 points while that for the Atlantic provinces was least hard hit, falling 4.9 percentage point, the board said.

Bush defends bailout

President explains intervention in financial system as necessary to prevent a wider crisis.

NEW YORK (CNNMoney.com) -- President Bush on Friday d

efended recent federal intervention in the financial system as necessary to ward off a wider economic crisis and said the actions were not just a Wall Street bailout.

"People look at the crisis and say, 'Oh, it's only Wall Street,' " said Bush, addressing the U.S. Chamber of Commerce. "I don't think so. In fact, I know that if we had not acted, it would have affected the American people directly."

"If the government had not acted, the hole in our financial system would have gotten larger," he added.

Bush's comments - his 34th public statement on the economic crisis since the collapse of Lehman Brothers in mid-September - came just minutes after the Commerce Department reported that initial construction of U.S. homes fell to a fresh 17-year low in September. Housing starts fell to 817,000 residential units, down 6.3% from 872,000 housing starts the prior month.

Wall Street got off to another rough start on Friday, with the Dow falling more than 200 points. Stock prices have been highly volatile. This week alone, the Dow Jones had its second biggest daily point gain and second biggest drop ever.

Of the many recent measures that the U.S. government has taken to address the ongoing economic crisis - and the credit freeze in particular - the most sweeping is the $700 billion in newly approved funding that will be used, in part, to invest in banks and buy bad mortgage assets. The aim is to free up the major banks to lend once again.

Bush said the government would limit its intervention in size and scope, and did not intend to nationalize the banking system. "The government intervention is not a government takeover," he said.

Nevertheless, the government has taken a 79.9% stake in battered insurance giant American International Group (AIG, Fortune 500), in exchange for its initial $85 billion credit line granted on Sept. 16. On Oct. 8, the Federal Reserve extended an additional credit line of $37.8 billion to the company, for a total of $122.8 billion. So far, AIG has tapped $82.9 billion of the emergency funding.

The first big government intervention occurred on Sept. 7, when Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, extended as much as $200 billion to save Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

This action, essentially a taxpayer-funded government takeover, was intended to prevent the collapse of these spiraling mortgage giants, which own or back more than $5 trillion worth of mortgage debt, or about half the mortgage debt in the country.

First Published: October 17, 2008: 9:16 AM ET

By Aaron Smith, CNNMoney.com staff writer

Last Updated: October 17, 2008: 10:35 AM ET

Buffett: I'm buying stocks

Berkshire Hathaway CEO gives advice on how to invest during America's money crisis in a New York Times op-ed.

NEW YORK (CNNMoney.com) -- Billionaire investor Warren Buffett used a guest commentary article in the New York Times on Friday to announce that he's sticking with stocks.

Buffett, the so-called Oracle of Omaha for his ability to buy up the right companies at the right time for his holding company Berkshire Hathaway (BRK.A), said the worst may not be over for the faltering economy.

"In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary," Buffett wrote.

But for that reason, the Berkshire CEO said, he has converted his personal portfolio almost entirely to U.S. stocks. Previously, he said he owned nothing but Treasury bonds.

Buffett said the fear surrounding the disastrous credit crisis, which has dropped stocks about 36% from their all-time highs set around this time last year, has left equities with attractive purchasing prices.

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," said Buffett. "And most certainly, fear is now widespread, gripping even seasoned investors."

Stock prices have been volatile, to say the least. Consider what happened this week alone: The Dow Jones gained 976 points on Monday; fell 76 points on Tuesday; dropped 733 points on Wednesday and then gained 401 points Thursday. But Buffett says the future is much brighter for stocks.

"Fears regarding the long-term prosperity of the nation's many sound companies make no sense," wrote Buffett. "Most major companies will be setting new profit records 5, 10 and 20 years from now."

Still, many nervous investors have been ditching the up-and-down stock market and pouring their funds into physical assets like gold or cash equivalents. Though they may feel safe now, Buffett said those investors are holding "terrible long-term assets" that will not come close to matching the future gains of stocks.

"The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy," Buffett added.

So if strong companies are destined for long-term success, bad news is good news when you're looking to invest in the stock market.

"Bad news is an investor's best friend," Buffett said. "It lets you buy a slice of America's future at a marked-down price."

First Published: October 17, 2008: 8:27 AM ET

Don't panic: a market meltdown survival guide

Joshua Zumbrun, Forbes Financial Post

Washington, D.C. -- It's been a bad week on Wall Street. The Dow has been avalanching downward, and the July to September summary of 401(k) statements in people's mailboxes look like black diamond ski slopes. It's a lousy time to be an investment banker, or a hedge fund manager, or planning a December retirement.

So Forbes.com asked some of the nation's foremost experts in financial crisis what people should do in a moment like this. Their message (and picture this in large, friendly letters): DON'T PANIC.

"Sit still," says Robert Aliber, a professor of international economics and finance at the University of Chicago. Mr. Aliber helped write the book on manias, panics and crashes. Literally. He co-authored the most recent edition of Charles Kindleberger's classic Manias, Panics and Crashes which chronicles and anatomizes crashes from tulip mania to the Great Depression to the dot-com bubble.

"By and large what we have is a liquidity crisis," says Mr. Aliber. Banks depend more than anyone on the constant availability of credit, and they're in a much worse position than they were a year ago. But should a freezing of liquidity cause a 40% drop for all stocks? A recession would cut into firms' profits but not by that much, says Mr. Aliber. That means there are a lot of cheap stocks out there.

In the long term, economists agree. Markets have always recovered in the past. But a famous bit of dismal science wisdom is that in the long term we are all dead. What about in the here and now?

"I would worry about a crash on Monday, but it could also be a huge buying opportunity," says Robert Shiller, the Yale economics professor who wrote Irrational Exuberance and The Subprime Solution and has made much of his career studying bubbles. Even if the majority of businesses are fundamentally OK, that doesn't stop people from overreacting. Irrational exuberance on the way up and irrational panic on the way down are all part of market psychology.

"One question is how big a role patriotism pays in their thinking. You don't want to be part of a market panic," says Mr. Shiller. "There's a moral issue in not pulling out."

There's also the issue of not being the sucker who sells at the very bottom of a market.

Stefan Nagel, an assistant professor of finance at Stanford recently co-wrote a paper on this very topic titled "Inexperienced Investors and Bubbles." Harvard's Robin Greenwood and Nagel found that inexperienced investors, in terms of age, are particularly likely to focus too heavily on recent returns.

After the lousy returns of the 1970s, inexperienced investors were more reluctant to invest in stocks. They missed out when stocks returned. After the boom years of the '90s, inexperienced investors were more likely to increase their stock exposure. When the dot-com bubble burst, they got burned.

"We don't have the latest numbers on the current situation yet, but, based on the historical experience, it seems likely that it is particularly inexperienced investors who are rushing for the exit at the moment," says Mr. Nagel.

It's another old market maxim, and it's as true on the way down as it is on the way up: Past performance is no guarantee of future results.

In the past four weeks, the Dow Jones industrial average has lost 26% of its value. In the past year, it's lost 40%. And despite comparisons to the Great Depression, the economists who talked to Forbes.com see nothing nearly that severe.

People don't panic forever. And compared with watching CNBC all day, the economists are optimists. That's the pain of being an academic, always the Cassandra: pessimistic when times are good (because there's always a fall coming) and optimistic when times are bad (because things always recover).

But they're not just optimistic because a crisis boosts book sales. "I borrowed money to buy stocks," confides Mr. Aliber, with a hint of excitement. "They've lost money since earlier in the week, but I'm going to make a bundle."

Ottawa may make millions on CMHC plan for banks

TARA PERKINS AND BOYD ERMAN Globe and Mail

The federal government stands to make hundreds of millions of dollars off of its new program to buy mortgages from banks.

The government today is launching the first purchase of $5-billion of mortgages from Canada's banks as part of a program to buy $25-billion of home loans from banks to give them cash to make new loans.

It is taking advantage of its ability to borrow cheaply to buy the mortgages, which will pay a higher rate of interest. The difference will be the government's profit.

Ottawa doesn't have a forecast of its likely take, but given current market prices and the guidance that the Finance Department has provided to bankers on the prices to be paid, the federal government may expect to earn about $250-million a year. That could rise to $1-billion if the government increases the size of the mortgage purchases to $100-billion, as some in the banking sector suggest could be done.

Those potential profits are significant at a time when Ottawa projects its surplus will fall to $1.3-billion for the year ended March, 2010.

While government officials say any profit isn't the point, earning money on the program does drive home the message that Ottawa has been sending: The program isn't a bailout at taxpayers' expense.

“The goal is not to make money for the government,” said a Finance Department official who spoke on condition of anonymity. While the program is an efficient way to support lending in Canada by providing reliable funding to banks, it is important that the banks pay a competitive rate to tap into the funds, the official said.

“This is not a subsidy for banks.”

The credit crunch, which first erupted more than a year ago, has made it more expensive for banks to raise long-term funding to finance mortgages.

Finance Minister Jim Flaherty announced the initiative last Friday to have government-owned Canada Mortgage and Housing Corp. buy up loans from banks. The loans are solid, but by taking them off bank balance sheets in return for cash, the banks will theoretically be able to make new loans.

Ottawa has committed to buy up to $25-billion in total, but has not yet set the dates for the remaining purchases. Participants expect the government to carry out four more purchases of $5-billion each.

The purchases will be conducted by so-called reverse auction, where banks will essentially have to tell the government how much they will pay in the form of interest to move the loans off their balance sheets. The government will accept the most profitable bids.

Mortgage lenders can submit up to three bids for various amounts, but no one lender can sell more than $1.25-billion of loans to the government.

The government will establish a minimum acceptable yield, or interest rate. That minimum is expected to be above the yield on comparable five-year Canada Mortgage Bonds that CMHC sells to investors.

Banks are expected to place bids somewhere above the minimum, with more-stressed banks giving the government a better deal as they try to ensure they can raise cash.

John Manley, a former deputy prime minister and finance minister, said he was surprised Ottawa didn't pick up the program earlier.

“They make money on it, it increases liquidity in the system – why don't you answer the phone when people suggest things?” he said, pointing out that banks had been suggesting the program for some time.

One bank chief executive officer said that, even as the financial crisis worsens, Canada is in a unique position where it can establish programs to ease the flow of funds that don't put taxpayers on the hook. A shortage of government bonds and an excess of mortgages sitting on the banks' books make this an easy program to increase if necessary, he said.

Canadian government unlikely to follow U.S. lead and buy financial shares

By David Friend, The Canadian Press

TORONTO - Canada's government is unlikely to buy shares in the country's domestic banks because they are in much better shape than their American and European counterparts, which have required massive assistance from their governments, market observers say.

National Bank analyst Robert Sedran said Tuesday that Canadian banks have emerged relatively unscathed by the U.S. subprime problems because of more conservative lending practices.

"The banks in Canada have strong balance sheets and are doing fine," he said Tuesday in a phone interview.

However, Sedran said there is a need to ensure that Canadian banks aren't put at a disadvantage by other countries injecting capital into their local institutions, such as the $250-billion share purchase plan unveiled by George W. Bush.

On Tuesday, Bush said the U.S. government would buy shares in the big American banks as part of the $700-billion bailout package designed to jolt the economy back into growth.

The decision raised some concern that capital would flow towards government-backed banks because they appear more secure, and possibly away from institutions that don't have that guarantee. Sedran said government-backed risk has an appeal over corporate risk and could ultimately steal some confidence from the Canadian banking system.

"Capital is mobile in this global market," Sedran said. "You need to protect the Canadian banks from a competitive positioning perspective so that they're not unnecessarily disadvantaged."

However Laurence Booth, a professor at the Rotman School of Management, says Canadian banks are already better capitalized than the American and British banks.

And the federal government in Ottawa has made efforts to aid Canada's financial system without fully putting its hands into their operations.

On Friday, the Canadian government announced it will buy up to C$25 billion in residential mortgages to give the chartered banks more cash for loans. The first round of purchases is scheduled to be $5 billion on Thursday, two days after the federal election.

Finance Minister Jim Flaherty also said last week that the government is prepared to do "whatever we have to do" to protect Canada's financial system, though he declined to outline any plans.

However, some observers say Flaherty has only provided a vague outline of a plan, compared to other countries that have provided significant disclosure.

"Everyone else had all these details, specific plans - even numbers - and all we got from the Canadian side was that we'd make sure our banks aren't disadvantaged," said Chris Blumas, an analyst at Morningstar.

Prime Minister Stephen Harper has defended the way that the Conservative government handled the economic crisis and their insistence that the domestic economy is relatively stable compared to the United States.

"The No. 1 job of the next prime minister of Canada is to protect this country's economy - our earnings, savings, and jobs, at a time of global economic uncertainty," he told supporters on Monday at a rally in P.E.I.

Liberal party leader Stephane Dion has announced a 30-day plan to address the Canadian economy, and boost the struggling manufacturing sector in Ontario.

NDP Leader Jack Layton has suggested that Canadian banking regulations undergo a comprehensive review.

End of financial crisis is in sight

End of financial crisis is in sight, Tal says; U.S. house prices
falling at a diminishing rate



Tuesday, October 7, 2008

Investment Executive



By Megan Harman



The Canadian economy will no doubt experience a downturn going forward,
but signals indicate that the end of the financial turmoil is in sight,
CIBC World Markets senior economist Benjamin Tal said on Tuesday.



The problem at the core of the U.S. financial crisis is house prices,
Tal said in a keynote speech at CIBC World Markets' annual income fund
conference. He showed figures indicating that although house prices
continue to fall, they are falling at a diminishing rate.



"We are starting to see the end of this game," he said.



Since Canada has a much healthier housing market, prices in this country
will not fall nearly as severely as the plunge experienced south of the
border, according to Tal. He expects house prices in this country to
fall between 5% and 10%, with markets in the west experiencing the
biggest drops, since massive growth in those cities have pushed house
prices artificially high in recent years.



The Canadian economy in general will witness a slowdown of its own in
the months to come, though Tal said a healthier housing market will
shield it from some of the turmoil facing the U.S. economy.



The U.S. housing market was a major factor supporting the U.S. economy,
and it fueled what Tal calls the 'housing wealth effect'-- a phenomenon
that drives homeowners to spend more in general when they feel their
house is highly valued. The deterioration of this value has hurt
consumer spending --and the economy -- all around, Tal said.



"The consumer in the U.S. is really struggling," he said.



But Canada's energy-heavy economy won't escape a downturn either,
especially as commodity prices continue to fall. Tal pointed to figures
showing that by the first quarter of this year, Canada's GDP growth rate
had already dropped below that in the United States, despite a seemingly
better economic environment in this country.



"Clearly it's about commodity prices," Tal said. "They are falling big
time."



But it doesn't necessarily mean this is the end of the commodity cycle,
he added. The U.S. comprises just 12% of global GDP growth, whereas
Brazil, Russia, India, China and Middle East oil producing countries
together comprise almost 40% of global growth. He expects demand from
such key emerging markets to fuel a rebound in commodity prices.



"We believe this is a correction within a bull market for the commodity
market," he said.



In fact, by 2010, supply restraints on food and energy will drive up
demand and create another dramatic rise in commodity prices, fueling
widespread new concerns about inflation, Tal said.



"By 2010 or late 2009, the story will not be subprime; the story will be
inflation."

Canada Has Biggest Job Increase in at Least 30 Years

By Alexandre Deslongchamps



Oct. 10 (Bloomberg) -- Canada recorded its biggest one-month employment
gain in at least 30 years as voters get ready for the Oct. 14 election,
adding more than 10 times as many jobs as expected in September.



Employers added 106,900 workers, Statistics Canada said today in Ottawa,
following an August gain of 15,200 jobs. The unemployment rate remained
at 6.1 percent as people entered the labor force. Economists forecast
10,000 new jobs and a jobless rate of 6.2 percent, according to the
median of 20 estimates in Bloomberg surveys.



The report may help Conservative Party Prime Minister Stephen Harper,
who has dropped to a virtual dead heat with Liberal opposition leader
Stephane Dion in some polls after leading for most of a campaign.
Harper's effort to depict his party as the best steward of the economy
initially gave him double-digit leads in polls, before the financial
crisis worsened and hurt his popularity.



``This was still much, much better than we would have thought given
what's been happening to the North American economy, and will have
interesting election implications as well,'' Avery Shenfeld, senior
economist at CIBC World Markets Inc. in Toronto, said today in a note to
clients.



A net 40,000 jobs were added in the health-care and social- assistance
industry in September, reversing drops in the previous three months.
Some 19,800 jobs were created in business services, such as maintenance,
and 16,300 positions in transportation and warehousing.



Manufacturers added 19,700 workers, or one percent of their workforce,
erasing their loss for the year. Payrolls are down by 42,600 from a year
earlier.



Part-Time Jobs



Canada added a net 96,600 part-time jobs and 10,300 full- time jobs, the
statistics agency said. The agency says it started using the current
methodology in 1976, making it impossible to compare September's gain to
earlier records.



Support for Harper's party fell to 33 percent on Oct. 8, the lowest
since the start of the campaign, according to Nanos Research, an
Ottawa-based pollster. The Liberals are within 4 percentage points at 29
percent, after trailing by 15 points last month. The margin of error is
2.8 percentage points.



Average hourly wages rose 4.6 percent in September from a year earlier,
trailing an 11-year high of 4.9 percent reached in February. Pay raises
are still outpacing inflation, with the consumer price index advancing
3.5 percent in August from a year earlier, the agency said.



Employers have added 276,800 workers since September 2007, a 1.6 percent
increase, Statistics Canada said.



The Bank of Canada said the economy will grow 1 percent this year, the
slowest since 1992, hobbled by an export slump. The central bank, which
unexpectedly cut its benchmark lending rate by half a percentage point
to 2.5 percent on Oct. 8, has a scheduled rate decision on Oct. 21 and
will revise its economic outlook on Oct. 23.

Rubin is still optimistic for a dramatic 30% turnaround in 2009.

Rubin still optimistic about a turnaround next year; Oil Will Rebound

Eric Lam
Financial Post
10/10/2008
National Post
National
FP6
(c) 2008 National Post . All Rights Reserved.

Despite predicting the benchmark TSX composite index to close out 2008
at 9,500 points, CIBC World Market's Jeff Rubin is still optimistic for
a dramatic 30% turnaround in 2009.

Expecting a big rebound in oil to lead a surge in commodities next year,
CIBC's chief economist projects a 2009 year-end total of 12,000 points
for the TSX.

"If US$90 [per barrel] is the price of oil during what is being
perceived as a deep global recession, what is the price of oil in the
recovery?" he said in a new strategy report released yesterday. "We
continue to believe that oil prices will average US$150/bbl over the
second half of next year on the back of even a modest recovery in global
economic growth."

But in the meantime, massive sell-offs in North American markets as
investors drop assets "tied to a strong economy" will take a big bite
out of the senior index in 2008.

This suggests a very real possibility the TSX will end the year at less
than 10,000 points after closing below the mark for the first time since
July, 2005 on Tuesday.

As well, repeated 800-point drops in the last few weeks have created an
atmosphere of fear for Canadian investors.

"That de-leveraging story is likely to hold sway for the balance of the
year," he said.

Mr. Rubin argues that this knee-jerk reaction from investors is actually
making a manageable problem worse, even if the most recent economic
figures for the United States and other members of the Organization for
Economic Cooperation and Development (OECD) show a firm recession.

"The recession is neither deep enough nor global enough to warrant the
massive haircut in energy and other resource stock valuations that have
taken place over the last several months," he said.

"While there is little to warrant near-term optimism, investors at the
same time should not lose sight of the fact that many of yesterday's
fundamentals have not changed."

Fuelled by commodities, worldwide economic growth will not slow as much
as nervous investors are expecting.

Mr. Rubin predicts the growth rate will not dip to less than 3.5% in the
rest of 2008 or all of 2009. This rate is a step down from recent years,
but still "a far cry" from figures historically associated with bear
markets, he said.

As for the roots of the U. S. subprime mortgage fiasco, Mr. Rubin
believes there is a light at the end of the tunnel for housing prices.
Within the next six months, he sees a "trough" in U. S. housing prices
and a price decline of an additional 5% at most.

Mr. Rubin's pessimistic readjustment of his 2008 yearend numbers for the
TSX is the latest in a series of downward projections he has made since
boldly predicting a 16,000-point close in December, 2007.

"Our year-end target for 2008, of 16,200 for the composite index,
implies a year of double-digit gains, including the dividend," he said
at the time.

Mr. Rubin also said he did not expect the fallout from the U. S.
subprime lending crisis to lead to a recession, or that it would last as
long as it did.

His most recent predictions, made in September, pegged the TSX to close
at 13,000 points by the end of 2008 and 14,000 at the same time in 2009.

Bank of Canada cut rate 50 bps

OTTAWA, Oct 8 (Reuters) - The Bank of Canada issued the following statement on Wednesday after it cut interest rates by 50 basis points to 2.50 percent.

Central Banks Announce Coordinated Interest Rate Reductions Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets. Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability. Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions. Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent. The intensification of the global financial crisis is having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly. As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions. Weaker growth in the United States and other important trading partners will increase the drag on the Canadian economy coming from net exports. The deterioration of our terms of trade will act to moderate the growth of domestic demand. While the recent depreciation of the Canadian dollar will help cushion the effects of the weaker global outlook on the domestic economy, it will not completely offset them. Below-potential growth in aggregate demand through 2009, combined with a lower profile for commodity prices, will significantly ease inflation pressures in Canada. Inflation expectations remain well anchored. In view of these developments, the Bank of Canada decided to join other major central banks and lower its target for the overnight rate by 50 basis points today. This action will provide timely and significant support to the Canadian economy. The Bank will continue to monitor carefully economic and financial developments, along with the evolution of risks, in judging whether any further action might be required to achieve its 2 per cent inflation target over the medium term. Information note: The Bank of Canada's next scheduled date for announcing the overnight rate target is 21 October 2008. A full update of the Bank's outlook for growth and inflation, including risks to the projection, will be set out in the Monetary Policy Report, to be published on 23 October 2008. Bank of England Bank of Japan European Central Bank Federal Reserve System Swiss National Bank Sveriges Riksbank

Central Bank around the world cut interest rate

By Keith Weir and Daniel Trotta LONDON/NEW YORK (Reuters) –

Central banks around the world cut interest rates in unison on Wednesday in a joint response to the global financial crisis, giving a boost to battered stock markets.

The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding. U.S. stock index futures leapt on the news and world stock markets trimmed their losses.

Fall 2008

Calmer housing market brings
opportunities for first-time buyers

The numbers are in, and they bring good news for Canadian homebuyers. Price growth is beginning to ease up across the nation, according to Genworth Financial Canada’s Metropolitan Housing Outlook report. For new and resale homes, price growth has quadrupled since 2001, but is expected to slow over the next five years, allowing potential homebuyers to feel a little breathing room.

Calmer market ahead

In 2008, the rate of price growth should drop about 50% from last year for both new and resale homes across Canada. The return to historically normal levels will give consumer incomes a chance to catch up and buyers should feel less pressure and more opportunity to explore all the choices and financing options available to them.

“Now we’re seeing a calmer market,” said Peter Vukanovich, president of Genworth Financial Canada. “That translates into better opportunities for first-time homebuyers to make an informed decision.”

For homebuyers, this more stable growth is a welcome change from the increases in recent years. Both 2006 and 2007 saw an 8.7% increase in the price of new homes, and there has been a 10.2% average jump in the price of resale homes each year since 2002.

“Rapid price increases, which were virtually unsustainable in regions like Alberta, had begun to erode affordability and put a lot of pressure on first-time homebuyers in terms of their decision-making process,” said Vukanovich.

Housing market still strong

Overall, Canada’s housing market is expected to remain strong, supported by steady demand and modest price increases across the country. This year’s national average new home price is forecast at $397,789 (a 3.8% increase) with the 2008 average resale home price expected to reach $322,424 (a 5.1% increase). Regionally, the strongest housing demand can be found in B.C., Manitoba, Alberta, and Saskatchewan, as a result of the commodity-fuelled economic growth in the West.

National housing starts, however, are expected to ease to just below 215,000 units this year and 194,000 units in 2009. This represents a 15% drop, after eight years of steady increases. The drop in single-unit starts is expected to be greater than for multiples, reflecting the number of empty nesters looking to downsize and the affordability of these properties for first-time buyers.

Mortgage rates to drop

Mortgage rates will also see a drop this year as the lowered Bank of Canada interest rate flows through to the mortgage market. The average five-year conventional mortgage rate is expected to be 7.0% in 2008, dropping slightly to 6.7% in 2009.

For further report details, including regional numbers,

Bank rescues unravel

Eoin Callan, Financial Post

Carefully-woven government plans to rescue banks deemed too big to fail came apart at the seams yesterday as private institutions refused to back deals brokered by politicians.

Berlin admitted it had a "mess" on its hands as banks backed out of a deal to save one of the country's largest financial institutions.

In New York, a merger to create the biggest retail branch network in America descended deeper into chaos as Citigroup secured a court injunction blocking the takeover of Wachovia by Wells Fargo, pitting the largest banks in the country against each other.

The rifts further threaten the stability of the international banking network and came as world leaders struggled to divine a common approach to the unprecedented disaster unfolding in the financial system. European leaders emerged from crisis talks in Paris led by Nicholas Sarkozy with conflicting plans about how to save their country's banks as agreement on a continent-wide strategy eluded them.

Governments are widely intent on preventing further bank collapses after the failure of U.S. institutions caused shockwaves across the world. But they are divided and somewhat uncertain over how to achieve this goal as they confront corporate calamities for which no play book exists.

The discord comes as the deepening international crisis increasingly takes its toll on Canada, putting the country's banking system under strain and squeezing corporate loans.

The Bank of Canada has been forced to take escalating measures to improve liquidity by pumping billions into the country's financial network and agreeing to accept collateral from banks that no one else wants.

A freeze up in financing for securitized commercial lending threatens to make loans for businesses harder to get, while mortgage conditions begin to tighten and a risk develops that consumer loans could be curtailed.

The White House said it would act quickly to relieve pressure in the banking system through speedy implementation of a $700-billion bail-out package signed by U.S. President George W. Bush. But an earlier federally-brokered deal to rescue Wachovia remained in limbo as New-York Justice Charles Ramos granted a request from Citigroup to temporarily block the sale of Wachovia to Wells Fargo.

Citigroup has won the right to continue exclusive talks with Wachovia about a takeover that has already been signed off and financially backed by Washington, after the failing U.S. lender secretly made a conflicting agreement to be bought by Wells Fargo for 80 per cent more.

There were also fissures between banks in the effort to save Germany's Hypo Real Estate Holding, as a government-sponsored $49 billion rescue collapsed as banks withdrew their support in the face of a rising tab.

"We will see how we can clean up the mess that has been presented to us," said a German finance ministry official.

German Chancellor Angela Merkel was among the leaders who gathered in Paris for crisis talks also attended by Britain, Italy and the European Central Bank.

French President Nicolas Sarkozy indicated there was unanimity on the need to save banks from collapse.

"We are taking a solemn commitment to back banking and financial institutions," he said.

But there was no apparent agreement on a Europe-wide bail-out plan or how cross-border collapses would be handled.

More voices join chorus calling for rate cuts

Julian Beltrame The Canadian Press OTTAWA

The Bank of Canada is being urged to jump into the fray of the financial market meltdown by aggressively cutting interest rates.

The tight credit environment, due to upheaval in the U.S. financial industry, has fundamentally altered the outlook for both the global and Canadian economies, analysts say.

They add that the key issue now is not whether Canada's central bank should lower rates, but if it should take the rare step of acting before its scheduled announcement date of Oct. 21.

It's been nearly half a year since the Bank of Canada adjusted its overnight lending rate, which has been set at three per cent since April 22, when it made an aggressive half-point cut.

"I think under normal circumstances, if we didn't have the political (election campaign) and we didn't have this bailout package going through the U.S. Congress, we might be in a situation where the central banks would already be cutting now,'' said Douglas Porter, deputy chief economist for BMO Capital Markets.

In the U.S., a $700-billion financial rescue plan was approved by the Senate last night and expected to go to the House for approval before week's end.

The vast majority of economists backed Bank of Canada governor Mark Carney last month when he held firm on interest rates, although Scotiabank's Derek Holt called for a half-point cut.

Regardless of the relative health of auto industry sales in Canada, the downturn south of the border is worrisome for Ontario-based car, truck and parts makers that export most of their volume across the border to the United States.

Economists are expecting to see real blood on the floor tomorrow when the next U.S. employment report is released, forecasting upward of 150,000 job losses for September.

A big danger, say economists, is that lenders may be so spooked that they totally freeze credit, depriving businesses of funds needed to carry on operations or expand, and also depriving consumers of loans for such things as mortgages or cars.

In a speech last week, Carney warned that Canada would be impacted by a U.S. slump, particularly the auto and forestry sectors that depend on exporting to American consumers