Thursday, October 30, 2008
Exxon Mobil profit hits record $14.83-billion
JOHN PORRETTO
The Associated Press
October 30, 2008 at 8:25 AM EDT
HOUSTON — Exxon Mobil posts biggest US quarterly profit ever Exxon Mobil Corp., the world's largest publicly traded oil company, says it shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83-billion (U.S.) in the third quarter.
Bolstered by this summer's record crude prices, the Irving, Texas-based company said Thursday that net income jumped nearly 58 per cent, or $2.86 a share in the July-September. That compares with $9.41 billion, or $1.70 a share, a year ago.
The previous record for U.S. corporate profit was set earlier this year, when Exxon Mobil earned $11.68-billion in the second quarter.
Revenue rose 35 per cent to $137.7-billion.
Exxon Mobil profit hit a new record in the third quarter
Exxon Mobil
On average, analysts expected the company to earn $2.39 per share in the latest quarter on revenue of $131.4-billion
Source
The Associated Press
October 30, 2008 at 8:25 AM EDT
HOUSTON — Exxon Mobil posts biggest US quarterly profit ever Exxon Mobil Corp., the world's largest publicly traded oil company, says it shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83-billion (U.S.) in the third quarter.
Bolstered by this summer's record crude prices, the Irving, Texas-based company said Thursday that net income jumped nearly 58 per cent, or $2.86 a share in the July-September. That compares with $9.41 billion, or $1.70 a share, a year ago.
The previous record for U.S. corporate profit was set earlier this year, when Exxon Mobil earned $11.68-billion in the second quarter.
Revenue rose 35 per cent to $137.7-billion.
Exxon Mobil profit hit a new record in the third quarter
Exxon Mobil
On average, analysts expected the company to earn $2.39 per share in the latest quarter on revenue of $131.4-billion
Source
Wednesday, October 29, 2008
BNN Are More Market Crashes Ahead?
2:45 PM
Campbell HarveyProfessor of FinanceDuke UniversityFocus: Why bailouts are a bad idea. BNN interviews Campbell Harvey, Professor of Financie, Duke University.
Oil prices bounce off 17-month low
Oil prices bounce off 17-month low
ALEX KENNEDY
Wednesday, October 29, 2008
SINGAPORE — Oil prices bounced off a 17-month low Wednesday in Asia as a rally in global stock markets boosted investor confidence that the worst of a global economic slowdown and its impact on crude demand has been priced in.
Oil investors have been closely tracking equity indexes for signs of market sentiment about how deep and widespread the global downturn will be. They took heart from a rally in stocks that began Tuesday in Asia, followed through to Europe and the U.S. and continued Wednesday in Asia.
“Everybody is looking to Wall Street for guidance,” said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. “The positive momentum in stock markets has had an impact on commodities.”
Light, sweet crude for December delivery was up $1.95 to $64.68 (U.S.) a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract overnight fell 49 cents to settle at $62.73, the lowest closing price since May 15, 2007.
Oil prices have fallen by about 57 per cent since peaking at nearly $150 a barrel in mid-July.
Japan's benchmark Nikkei index jumped 7.7 per cent on Wednesday while Australia's key stock index rose 1.3 per cent. The Dow Jones industrial average soared nearly 900 points, or nearly 11 per cent, its second-largest point gain ever.
The U.S. Federal Reserve is expected to cut its target fed funds rate by half a point to one per cent on Wednesday and investors are speculating the Bank of Japan may trim interest rates when it meets Friday.
Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report has shown larger than expected increases in oil, gasoline and distillate stocks during the last few weeks, suggesting U.S. motorists reduced driving after oil surged to a record high in July.
OPEC members warned Tuesday that lower oil prices threaten to make unprofitable key oil infrastructure investment, which could undermine future production.
At an annual oil and money conference in London, United Arab Emirates Energy Minister Mohammed Bin Dhaen al-Hamli said the current crude prices were “very dangerous for the world's economy.”
“OPEC would like to protect the $80 price level,” Mr. Wendt said. “Many OPEC members haven't made the proper investments in their aging infrastructure.”
In other Nymex trading, gasoline futures rose 3.7 cents to $1.49 a gallon, while heating oil gained 3.8 cents to $1.95 a gallon. Natural gas for November delivery increased 12.4 cents to $6.31 per 1,000 cubic feet.
In London, December Brent crude rose $1.96 to $62.25 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail
ALEX KENNEDY
Wednesday, October 29, 2008
SINGAPORE — Oil prices bounced off a 17-month low Wednesday in Asia as a rally in global stock markets boosted investor confidence that the worst of a global economic slowdown and its impact on crude demand has been priced in.
Oil investors have been closely tracking equity indexes for signs of market sentiment about how deep and widespread the global downturn will be. They took heart from a rally in stocks that began Tuesday in Asia, followed through to Europe and the U.S. and continued Wednesday in Asia.
“Everybody is looking to Wall Street for guidance,” said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. “The positive momentum in stock markets has had an impact on commodities.”
Light, sweet crude for December delivery was up $1.95 to $64.68 (U.S.) a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract overnight fell 49 cents to settle at $62.73, the lowest closing price since May 15, 2007.
Oil prices have fallen by about 57 per cent since peaking at nearly $150 a barrel in mid-July.
Japan's benchmark Nikkei index jumped 7.7 per cent on Wednesday while Australia's key stock index rose 1.3 per cent. The Dow Jones industrial average soared nearly 900 points, or nearly 11 per cent, its second-largest point gain ever.
The U.S. Federal Reserve is expected to cut its target fed funds rate by half a point to one per cent on Wednesday and investors are speculating the Bank of Japan may trim interest rates when it meets Friday.
Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report has shown larger than expected increases in oil, gasoline and distillate stocks during the last few weeks, suggesting U.S. motorists reduced driving after oil surged to a record high in July.
OPEC members warned Tuesday that lower oil prices threaten to make unprofitable key oil infrastructure investment, which could undermine future production.
At an annual oil and money conference in London, United Arab Emirates Energy Minister Mohammed Bin Dhaen al-Hamli said the current crude prices were “very dangerous for the world's economy.”
“OPEC would like to protect the $80 price level,” Mr. Wendt said. “Many OPEC members haven't made the proper investments in their aging infrastructure.”
In other Nymex trading, gasoline futures rose 3.7 cents to $1.49 a gallon, while heating oil gained 3.8 cents to $1.95 a gallon. Natural gas for November delivery increased 12.4 cents to $6.31 per 1,000 cubic feet.
In London, December Brent crude rose $1.96 to $62.25 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail
Tuesday, October 28, 2008
Oil predictions: Drop From $200 to $50
Oil predictions: From $200 to $50
Tuesday, October 28, 2008
Say goodbye to predictions for crude oil hitting $200 (U.S.) a barrel. Say hello to $50 oil.
Okay, Merrill Lynch was never the most bullish on oil, but the commodities strategist there nonetheless ratcheted down his expectations for oil prices this year, and noted that his prediction for 2009 could take a beating.
Francisco Blanch, commodity strategist at Merrill Lynch, lowered his forecast in the fourth quarter to $78 a barrel from $107 previously – a sign that observers are beginning to throw in the towel for[amp]nbsp;expectations of an imminent energy rebound.
“Demand for physical commodities is tanking in many parts of the world, with U.S. oil consumption contracting at the sharpest rate since 1980,” he said in a note written last Friday but only released to the media on Tuesday. “More importantly, we are starting to see signs of oil demand slowing in emerging markets.”
For 2009, he believes oil will rise to $90 a barrel. But he acknowledges that there are downside risks to this prediction: “If we do indeed embark on a global recession next year, oil prices will likely drop to $50 a barrel,” Mr. Blanch said.
On Tuesday, oil traded at $63.21 a barrel, relatively unchanged after an earlier rally.
© Copyright The Globe and Mail
Housing market ‘alarms' Merrill
LORI McLEOD
Tuesday, October 28, 2008
Merrill Lynch & Co. economists are becoming more “alarmed” about the Canadian housing market every day as their data suggest it is tracking the United States with a two-year lag.
Falling prices, overbuilding and too much unsold inventory in Canada are creating a trend similar to that in the United States a couple of years ago, Merrill economists David Wolf and Carolyn Kwan said in a research note Tuesday.
“Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day,” Mr. Wolf and Ms. Kwan said in their report.
Many other economists believe Canada is in for a moderate downturn next year, but is differentiated from the U.S. experience by more prudent lending practices for both home buyers and developers.
There are a number of reasons the risk of lower house prices is not as magnified in Canada as in the United States, said Derek Holt, economist at Scotia Capital Inc.
“I still agree that Canadian housing markets have been in correction mode all year long, and that further downsides lie ahead. But the macroeconomic implications are not as stark in Canada given a lower degree of leverage on household balance sheets, on bank balance sheets through a much healthier banking system, and through the avoidance of heavily leveraged off-balance-sheet instruments that caused much of the troubles in the U.S.,” Mr. Holt said.
Merrill has a more bearish view, and made headlines recently with a report suggesting Canada's high household deficit level could make it vulnerable to a U.S.-style housing collapse.
“In our ‘tipping point' piece a month ago, we presented a chart showing the ominously high correlation between the price action in the Canadian housing market and that of the U.S. market two years earlier ... Evidence from the supply side further reinforces that Canada's housing market seems to be tracking the U.S.' with a two-year lag,” Tuesday's report said.
The earlier report raised hackles in the real estate community, and questions during the election campaign even prompted Prime Minister Stephen Harper to say Canada's housing and construction markets remain stronger than those in the U.S.
The same two-year lag idea was raised this summer by Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., who called the apparent trend “unnerving” in a report in July.
At the time, Mr. Porter said there were many reasons why the two markets were different, but said even a pale version of what had happened in the United States would be bad news for Canada.
House prices posted a record 16.6 per cent year-over-year decline in the United States in August, according to the benchmark S&P/Case-Shiller Home Price Index report, also released Tuesday. The index has now shown year-over-year declines for 20 months.
Taking into account the two-year lag, Merrill's data suggests the ramp-up in construction of housing units in Canada may be even larger than it was in the United States.
The number of units under construction currently is just off the peak hit in May, which was the highest recorded in 36 years of available data and 97 per cent above the long-term average, the report said.
By contrast at its peak in 2006, U.S. housing construction was 54 per cent above the long-term average, it added.
As of August, there were more condos under construction in both Toronto and Vancouver separately than there were in all Canadian cities combined a decade ago, Mr. Wolf and Ms. Kwan said.
“And as in the U.S. two years ago, we are now seeing completed units pile up unsold in Canada, a clear sign of overbuilding and an ominous sign given the voluminous supply still in the pipeline,” they said.
Inventories of unsold new single-family homes in Canada rose by 56 per cent year over year as of last month, close to the maximum increase in July 1990, which marked the last housing market downturn, the report said.
At the peak in April 2006, inventories of unsold new single-family homes in the United States were up 26.5 per cent over a year earlier, the report said.
The two-year lag could be the result of Canada having more room to run up because its recovery started later than that of the United States. Strong commodity prices and looser lending standards initiated in 2006 may also have contributed to the lag, the report said.
© Copyright The Globe and Mail
Tuesday, October 28, 2008
Say goodbye to predictions for crude oil hitting $200 (U.S.) a barrel. Say hello to $50 oil.
Okay, Merrill Lynch was never the most bullish on oil, but the commodities strategist there nonetheless ratcheted down his expectations for oil prices this year, and noted that his prediction for 2009 could take a beating.
Francisco Blanch, commodity strategist at Merrill Lynch, lowered his forecast in the fourth quarter to $78 a barrel from $107 previously – a sign that observers are beginning to throw in the towel for[amp]nbsp;expectations of an imminent energy rebound.
“Demand for physical commodities is tanking in many parts of the world, with U.S. oil consumption contracting at the sharpest rate since 1980,” he said in a note written last Friday but only released to the media on Tuesday. “More importantly, we are starting to see signs of oil demand slowing in emerging markets.”
For 2009, he believes oil will rise to $90 a barrel. But he acknowledges that there are downside risks to this prediction: “If we do indeed embark on a global recession next year, oil prices will likely drop to $50 a barrel,” Mr. Blanch said.
On Tuesday, oil traded at $63.21 a barrel, relatively unchanged after an earlier rally.
© Copyright The Globe and Mail
Housing market ‘alarms' Merrill
LORI McLEOD
Tuesday, October 28, 2008
Merrill Lynch & Co. economists are becoming more “alarmed” about the Canadian housing market every day as their data suggest it is tracking the United States with a two-year lag.
Falling prices, overbuilding and too much unsold inventory in Canada are creating a trend similar to that in the United States a couple of years ago, Merrill economists David Wolf and Carolyn Kwan said in a research note Tuesday.
“Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day,” Mr. Wolf and Ms. Kwan said in their report.
Many other economists believe Canada is in for a moderate downturn next year, but is differentiated from the U.S. experience by more prudent lending practices for both home buyers and developers.
There are a number of reasons the risk of lower house prices is not as magnified in Canada as in the United States, said Derek Holt, economist at Scotia Capital Inc.
“I still agree that Canadian housing markets have been in correction mode all year long, and that further downsides lie ahead. But the macroeconomic implications are not as stark in Canada given a lower degree of leverage on household balance sheets, on bank balance sheets through a much healthier banking system, and through the avoidance of heavily leveraged off-balance-sheet instruments that caused much of the troubles in the U.S.,” Mr. Holt said.
Merrill has a more bearish view, and made headlines recently with a report suggesting Canada's high household deficit level could make it vulnerable to a U.S.-style housing collapse.
“In our ‘tipping point' piece a month ago, we presented a chart showing the ominously high correlation between the price action in the Canadian housing market and that of the U.S. market two years earlier ... Evidence from the supply side further reinforces that Canada's housing market seems to be tracking the U.S.' with a two-year lag,” Tuesday's report said.
The earlier report raised hackles in the real estate community, and questions during the election campaign even prompted Prime Minister Stephen Harper to say Canada's housing and construction markets remain stronger than those in the U.S.
The same two-year lag idea was raised this summer by Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., who called the apparent trend “unnerving” in a report in July.
At the time, Mr. Porter said there were many reasons why the two markets were different, but said even a pale version of what had happened in the United States would be bad news for Canada.
House prices posted a record 16.6 per cent year-over-year decline in the United States in August, according to the benchmark S&P/Case-Shiller Home Price Index report, also released Tuesday. The index has now shown year-over-year declines for 20 months.
Taking into account the two-year lag, Merrill's data suggests the ramp-up in construction of housing units in Canada may be even larger than it was in the United States.
The number of units under construction currently is just off the peak hit in May, which was the highest recorded in 36 years of available data and 97 per cent above the long-term average, the report said.
By contrast at its peak in 2006, U.S. housing construction was 54 per cent above the long-term average, it added.
As of August, there were more condos under construction in both Toronto and Vancouver separately than there were in all Canadian cities combined a decade ago, Mr. Wolf and Ms. Kwan said.
“And as in the U.S. two years ago, we are now seeing completed units pile up unsold in Canada, a clear sign of overbuilding and an ominous sign given the voluminous supply still in the pipeline,” they said.
Inventories of unsold new single-family homes in Canada rose by 56 per cent year over year as of last month, close to the maximum increase in July 1990, which marked the last housing market downturn, the report said.
At the peak in April 2006, inventories of unsold new single-family homes in the United States were up 26.5 per cent over a year earlier, the report said.
The two-year lag could be the result of Canada having more room to run up because its recovery started later than that of the United States. Strong commodity prices and looser lending standards initiated in 2006 may also have contributed to the lag, the report said.
© Copyright The Globe and Mail
QEC Flows at 1600+ Barrels Per Day Target=6000+per day
QEC should hit a TARGET of $63.00/sh based on USA Shale Gas land valued at $35,000 per acre (Joseph Schachter) . (BNN-TV [ROB-TV) .
http://watch.bnn.ca/the-close/september-2008/the-close-september-12-2008/#clip92209
Questerre Energy Corporation is engaged in the exploration for, and the development, production and acquisition of scalable natural gas projects. Its major properties include St. Lawrence Lowlands, Quebec; Greater Sierra and Beaver River Field, British Columbia; Antler, Saskatchewan, and Vulcan and Westlock, Southern & Central Alberta.
The St. Lawrence Lowlands area is prospective for natural gas in multiple horizons with targets in the Ordovician Trenton Black-River and the Lorraine and Utica. Its landholdings of over one million gross acres consist of three separate blocks.
The largest block of 711,000 acres is subject to a farm-in and participation agreement with Talisman Energy. The primary zone of interest in the Greater Sierra region is the Devonian Jean Marie.
The region is also prospective for shallower zones, including the Mississippian Debolt and Slave Point formations. In November 2007, it acquired Magnus Energy Inc. In April 2008, the Company acquired Terrenex Ltd.
The St. Lawrence Lowlands area is prospective for natural gas in multiple horizons with targets in the Ordovician Trenton Black-River and the Lorraine and Utica. Its landholdings of over one million gross acres consist of three separate blocks.
The largest block of 711,000 acres is subject to a farm-in and participation agreement with Talisman Energy. The primary zone of interest in the Greater Sierra region is the Devonian Jean Marie.
The region is also prospective for shallower zones, including the Mississippian Debolt and Slave Point formations. In November 2007, it acquired Magnus Energy Inc. In April 2008, the Company acquired Terrenex Ltd.
Share Capitalization
Issued & Outstanding:
Common Shares:
179,127,088 (as at May 14, 2008)
Stock Options:
16,769,170 (avg exercise price $0.61)
Insider Position:
17,126,231 (9.57%)
Issued & Outstanding:
Common Shares:
179,127,088 (as at May 14, 2008)
Stock Options:
16,769,170 (avg exercise price $0.61)
Insider Position:
17,126,231 (9.57%)
House 111 has accumulated huge in October
This Shows 1 Month Of Buy And Sells By Brokerages
This is the most current Corporate Presentation
Questerre Energy Corporation ("Questerre" or the "Company") (OSE,TSX:QEC) is pleased to announce that Talisman Energy Canada (“Talisman”) has elected to drill the remaining three option wells under its farm-in agreement with Questerre and its minority partner in the St. Lawrence Lowlands, Quebec.
The three wells will complete the work program allowing Talisman to earn about a 75% interest in the original 719,000 acre farm-out block. Questerre also retains about a 4¼% gross overriding royalty on production from Talisman.
Michael Binnion, President and Chief Executive Officer of Questerre, commented, “We were one of the first companies to recognize the potential of the Quebec Lowlands for unconventional gas and have worked for almost ten years to get to this point. We are thrilled that Talisman, which also saw the potential early on, has decided to accelerate the exploration and appraisal program. Our joint land lies right in the heart of the Lowlands between the Yamaska growth fault and Logan’s Line and runs from Quebec City to south of Lac Saint Pierre. We continue to believe this land position proximate to the market has significant natural gas potential.”
The three-well program is expected to commence in the latter half of 2008. The wells will test multiple horizons including the Trenton Black-River and the Utica and Lorraine shale sequences.
Questerre Energy Corporation is a Calgary-based independent resource company actively engaged in the exploration, development and acquisition of high-impact exploration and development oil and gas projects in Canada.
This news release contains forward-looking information. Implicit in this information are assumptions regarding commodity pricing, production, royalties and expenses, that, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in the Company’s plans, commodity prices, equipment availability, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee made by the Company that the actual results achieved will be the same as those forecasted herein.
For further information, please contact:
Questerre Energy Corporation - Jason D’Silva, VP Finance
Tel: (403) 777-1185
Fax: (403) 777-1578
Email: info@questerre.com
Web: www.questerre.com
This is the most current Corporate Presentation
Questerre Energy Corporation ("Questerre" or the "Company") (OSE,TSX:QEC) is pleased to announce that Talisman Energy Canada (“Talisman”) has elected to drill the remaining three option wells under its farm-in agreement with Questerre and its minority partner in the St. Lawrence Lowlands, Quebec.
The three wells will complete the work program allowing Talisman to earn about a 75% interest in the original 719,000 acre farm-out block. Questerre also retains about a 4¼% gross overriding royalty on production from Talisman.
Michael Binnion, President and Chief Executive Officer of Questerre, commented, “We were one of the first companies to recognize the potential of the Quebec Lowlands for unconventional gas and have worked for almost ten years to get to this point. We are thrilled that Talisman, which also saw the potential early on, has decided to accelerate the exploration and appraisal program. Our joint land lies right in the heart of the Lowlands between the Yamaska growth fault and Logan’s Line and runs from Quebec City to south of Lac Saint Pierre. We continue to believe this land position proximate to the market has significant natural gas potential.”
The three-well program is expected to commence in the latter half of 2008. The wells will test multiple horizons including the Trenton Black-River and the Utica and Lorraine shale sequences.
Questerre Energy Corporation is a Calgary-based independent resource company actively engaged in the exploration, development and acquisition of high-impact exploration and development oil and gas projects in Canada.
This news release contains forward-looking information. Implicit in this information are assumptions regarding commodity pricing, production, royalties and expenses, that, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in the Company’s plans, commodity prices, equipment availability, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee made by the Company that the actual results achieved will be the same as those forecasted herein.
For further information, please contact:
Questerre Energy Corporation - Jason D’Silva, VP Finance
Tel: (403) 777-1185
Fax: (403) 777-1578
Email: info@questerre.com
Web: www.questerre.com
"It feels a little like we've all woken up in the Twilight Zone," said Jason Goff, head of treasury sales at Emirates NBD
"People are scared. Nobody in a million years predicted this would happen here," he added.
A kick in the shins for Gulf states
SONIA VERMA
Tuesday, October 28, 2008
DUBAI — For British soccer fans, it seemed too good to be true: Zabeel Investments, a Dubai-based sovereign wealth fund, was looking to buy Charlton Athletic, a struggling soccer club mired in more than $30-million (U.S.) of debt.
But late last week, Zabeel suddenly pulled out, blaming the toxic economic climate in the West. The company had decided to focus on "domestic opportunities" instead.
If soccer fans in Britain were shattered, the mood in Dubai was shock. The deal's collapse was one of the most striking signs the party in this oil-rich region was over: State-owned investment vehicles had sobered up, suddenly shunning trophy assets like Charlton.
In the past few weeks, Persian Gulf states have been jolted by the realization that they are not immune to the financial turmoil gripping the globe. Oil-fuelled wealth proved to be only thin insulation against the effects of the credit crunch.
More than $50-billion of foreign deposits has fled the region's banks in recent weeks as investors pulled back.
The price of oil - this region's main export and source of income - plunged, and local stock markets sank to new lows.
Gulf states have had to retrench, with Kuwait moving to prop up its central bank and Saudi Arabia extending special credit to its neediest citizens over the weekend.
The United Arab Emirates has already acted to guarantee bank deposits, and injected billions of dollars into its domestic money markets to encourage interbank lending. Qatar and Kuwait have used their sovereign wealth to buy up stakes in ailing banks and slumping stock.
"It feels a little like we've all woken up in the Twilight Zone," said Jason Goff, head of treasury sales at Emirates NBD.
"People are scared. Nobody in a million years predicted this would happen here," he added.
Economists are scaling back growth forecasts, and the Gulf's once-giddy property market is showing signs of shakiness, with developers now openly talking about construction delays and cancellations as fear spreads, paralyzing buyers.
Property developers have scaled back recruitment, with some companies imposing unprecedented hiring freezes until the economy stabilizes. Credit Suisse said market turmoil and negative sentiment would likely dent property demand in Dubai and Abu Dhabi, while Morgan Stanley predicts a market downturn of at least 10 per cent by 2010.
"These economies are no longer islands unto themselves," said Dr. Henry Azzam, chief executive officer of Deutsche Bank, Middle East and North Africa, and a former economics professor at Beirut University.
"Economic integration with the West brings with it a level of exposure. It forces a certain degree of reflection on how to move forward."
For the region's rulers, the need to take drastic steps to stabilize markets is unprecedented. Gulf leaders tend to view themselves as mavericks, building skyscrapers in the middle of the desert and man-made islands in the middle of the ocean, all in an effort to attract foreign investment and diversify their economies away from oil wealth.
The strategy has so far worked in countries like the United Arab Emirates, which has boasted double-digit growth in the past five years. Only in the past month have the hidden costs of that progress been revealed.
As Gulf states refocus their resources domestically, there is dwindling interest in acquiring assets in the West, even at fire sale prices.
"Anything in the West is seen as toxic," Dr. Azzam said. "They are not going to be the ones to bail out the banks any more. It's just not worth it," he said.
Foreign assets of Gulf Co-operation Council states were estimated to top $1-trillion last year. Some funds have seen their existing investments suffer massive losses.
The Kuwait Investment Authority's investment in Citigroup last January shows a $270-million loss.
To be sure, Gulf states are in a far better position to survive financial turbulence than the West.
Even though oil prices have dropped, countries including Saudi Arabia, Abu Dhabi and gas-rich Qatar have deep reserves of savings to cushion their countries from any real devastation.
Dubai is still viewed as a refuge for worried professionals, whose jobs are quickly evaporating in Western financial capitals. Some recruitment companies have reported a tenfold jump in applications in the past two months with bankers and estate agents leading the charge.
Gulf leaders and central bankers remain self-assured, arguing that their economies are fundamentally sound and able to withstand the current turmoil.
Echoing the optimistic outlook of other leaders, Sultan Nasser al-Suweidi, the UAE's central bank governor, said yesterday that the liquidity crunch in the region's banking system was easing and soon the region's economies would return to normal. "Things are getting better and stabilizing," he said.
But confidence alone won't calm markets, analysts say, and some suggest a co-ordinated action plan among Gulf states is needed to address the region's problems.
For now, leaders appear to be waiting to see if things get worse.
"If there is a need, we will do more," Mr. al-Suweidi said.
Special to The Globe and Mail
*****
Gimme shelter
As the financial crisis creeps into the Middle East, here's what others countries did yesterday to shore up battered markets.
The U.S. Treasury Department started moving $125-billion (U.S.) to nine major banks by buying ownership stakes, the first big transfer since the $700-billion bailout was passed this month.
Australia's central bank took the rare step of buying Australian dollars twice in the past few days to limit their plunge.
Crisis-hit Iceland said it needs another $4-billion in loans on top of the $2-billion it wants from the IMF .
Japan's Prime Minister Taro Aso told senior officials to draw up steps to calm volatile markets and to fend off further fallout.
News services
© Copyright The Globe and Mail
A kick in the shins for Gulf states
SONIA VERMA
Tuesday, October 28, 2008
DUBAI — For British soccer fans, it seemed too good to be true: Zabeel Investments, a Dubai-based sovereign wealth fund, was looking to buy Charlton Athletic, a struggling soccer club mired in more than $30-million (U.S.) of debt.
But late last week, Zabeel suddenly pulled out, blaming the toxic economic climate in the West. The company had decided to focus on "domestic opportunities" instead.
If soccer fans in Britain were shattered, the mood in Dubai was shock. The deal's collapse was one of the most striking signs the party in this oil-rich region was over: State-owned investment vehicles had sobered up, suddenly shunning trophy assets like Charlton.
In the past few weeks, Persian Gulf states have been jolted by the realization that they are not immune to the financial turmoil gripping the globe. Oil-fuelled wealth proved to be only thin insulation against the effects of the credit crunch.
More than $50-billion of foreign deposits has fled the region's banks in recent weeks as investors pulled back.
The price of oil - this region's main export and source of income - plunged, and local stock markets sank to new lows.
Gulf states have had to retrench, with Kuwait moving to prop up its central bank and Saudi Arabia extending special credit to its neediest citizens over the weekend.
The United Arab Emirates has already acted to guarantee bank deposits, and injected billions of dollars into its domestic money markets to encourage interbank lending. Qatar and Kuwait have used their sovereign wealth to buy up stakes in ailing banks and slumping stock.
"It feels a little like we've all woken up in the Twilight Zone," said Jason Goff, head of treasury sales at Emirates NBD.
"People are scared. Nobody in a million years predicted this would happen here," he added.
Economists are scaling back growth forecasts, and the Gulf's once-giddy property market is showing signs of shakiness, with developers now openly talking about construction delays and cancellations as fear spreads, paralyzing buyers.
Property developers have scaled back recruitment, with some companies imposing unprecedented hiring freezes until the economy stabilizes. Credit Suisse said market turmoil and negative sentiment would likely dent property demand in Dubai and Abu Dhabi, while Morgan Stanley predicts a market downturn of at least 10 per cent by 2010.
"These economies are no longer islands unto themselves," said Dr. Henry Azzam, chief executive officer of Deutsche Bank, Middle East and North Africa, and a former economics professor at Beirut University.
"Economic integration with the West brings with it a level of exposure. It forces a certain degree of reflection on how to move forward."
For the region's rulers, the need to take drastic steps to stabilize markets is unprecedented. Gulf leaders tend to view themselves as mavericks, building skyscrapers in the middle of the desert and man-made islands in the middle of the ocean, all in an effort to attract foreign investment and diversify their economies away from oil wealth.
The strategy has so far worked in countries like the United Arab Emirates, which has boasted double-digit growth in the past five years. Only in the past month have the hidden costs of that progress been revealed.
As Gulf states refocus their resources domestically, there is dwindling interest in acquiring assets in the West, even at fire sale prices.
"Anything in the West is seen as toxic," Dr. Azzam said. "They are not going to be the ones to bail out the banks any more. It's just not worth it," he said.
Foreign assets of Gulf Co-operation Council states were estimated to top $1-trillion last year. Some funds have seen their existing investments suffer massive losses.
The Kuwait Investment Authority's investment in Citigroup last January shows a $270-million loss.
To be sure, Gulf states are in a far better position to survive financial turbulence than the West.
Even though oil prices have dropped, countries including Saudi Arabia, Abu Dhabi and gas-rich Qatar have deep reserves of savings to cushion their countries from any real devastation.
Dubai is still viewed as a refuge for worried professionals, whose jobs are quickly evaporating in Western financial capitals. Some recruitment companies have reported a tenfold jump in applications in the past two months with bankers and estate agents leading the charge.
Gulf leaders and central bankers remain self-assured, arguing that their economies are fundamentally sound and able to withstand the current turmoil.
Echoing the optimistic outlook of other leaders, Sultan Nasser al-Suweidi, the UAE's central bank governor, said yesterday that the liquidity crunch in the region's banking system was easing and soon the region's economies would return to normal. "Things are getting better and stabilizing," he said.
But confidence alone won't calm markets, analysts say, and some suggest a co-ordinated action plan among Gulf states is needed to address the region's problems.
For now, leaders appear to be waiting to see if things get worse.
"If there is a need, we will do more," Mr. al-Suweidi said.
Special to The Globe and Mail
*****
Gimme shelter
As the financial crisis creeps into the Middle East, here's what others countries did yesterday to shore up battered markets.
The U.S. Treasury Department started moving $125-billion (U.S.) to nine major banks by buying ownership stakes, the first big transfer since the $700-billion bailout was passed this month.
Australia's central bank took the rare step of buying Australian dollars twice in the past few days to limit their plunge.
Crisis-hit Iceland said it needs another $4-billion in loans on top of the $2-billion it wants from the IMF .
Japan's Prime Minister Taro Aso told senior officials to draw up steps to calm volatile markets and to fend off further fallout.
News services
© Copyright The Globe and Mail
Monday, October 27, 2008
Global stock market indexes fell on Monday, continuing the sharp selloff
It continuesRTGAM
Global stock market indexes fell on Monday, continuing the sharp selloff that alarmed investors around the world on Friday, when fears of a long recession sent major indexes to new lows.U.S. stock index futures were sharply lower with about an hour before markets open, suggesting stocks will fall at the start of trading. Futures for the Dow Jones industrial average fell 195 points, to 8066. Futures for the broader S&P 500 fell 25 points, to 841.
In Europe, the U.K.'s FTSE 100 fell 3.2 per cent and Germany's DAX index fell 3.6 per cent in afternoon trading. In Asia, Japan's Nikkei 225 fell 6.4 per cent in overnight trading.There wasn't a lot of negative news to send the markets lower. Indeed, Verizon Communications reported quarterly earnings that matched analysts' expectations.Crude oil continued its decline, falling to $61.87 (U.S.) a barrel, down $2.28. With oil down more than 50 per cent since the summer,
The Wall Street Journal reported that even oil-rich Persian Gulf states are beginning to suffer from the financial crisis that has claimed victims around the world. On Sunday, Kuwait guaranteed bank deposits and bailed out one of its largest banks.At the same time, Saudi Arabia announced plans to help low-income borrowers with $2.3-billion in loans.
And Dubai, which is attempting to transform itself into the cultural and financial hub of the region, real estate brokers are apparently seeing softer real estate prices and a lack of financing.Copyright 2001 The Globe and Mail
Global stock market indexes fell on Monday, continuing the sharp selloff that alarmed investors around the world on Friday, when fears of a long recession sent major indexes to new lows.U.S. stock index futures were sharply lower with about an hour before markets open, suggesting stocks will fall at the start of trading. Futures for the Dow Jones industrial average fell 195 points, to 8066. Futures for the broader S&P 500 fell 25 points, to 841.
In Europe, the U.K.'s FTSE 100 fell 3.2 per cent and Germany's DAX index fell 3.6 per cent in afternoon trading. In Asia, Japan's Nikkei 225 fell 6.4 per cent in overnight trading.There wasn't a lot of negative news to send the markets lower. Indeed, Verizon Communications reported quarterly earnings that matched analysts' expectations.Crude oil continued its decline, falling to $61.87 (U.S.) a barrel, down $2.28. With oil down more than 50 per cent since the summer,
The Wall Street Journal reported that even oil-rich Persian Gulf states are beginning to suffer from the financial crisis that has claimed victims around the world. On Sunday, Kuwait guaranteed bank deposits and bailed out one of its largest banks.At the same time, Saudi Arabia announced plans to help low-income borrowers with $2.3-billion in loans.
And Dubai, which is attempting to transform itself into the cultural and financial hub of the region, real estate brokers are apparently seeing softer real estate prices and a lack of financing.Copyright 2001 The Globe and Mail
Sunday, October 26, 2008
Retirement Planning
Retirement Planning
If you had purchased $1000.00 of Nortel stock one year ago, it would now be worth $49.00. With Enron, you would have had $16.50 left of the original $1000.00. With WorldCom, you would have had less than $5.00 left. If you had purchased $1000 of Delta Air Lines stock you would have $49.00 left. But, if you had purchased $1,000.00 worth of wine one year ago, drank all the wine, then turned in the bottles for the recycling REFUND, you would have had $214.00. Based on the above, the best current investment advice is to Drink heavily and recycle.
Let people you care about know...
and tell them to Start Now!!!
If you had purchased $1000.00 of Nortel stock one year ago, it would now be worth $49.00. With Enron, you would have had $16.50 left of the original $1000.00. With WorldCom, you would have had less than $5.00 left. If you had purchased $1000 of Delta Air Lines stock you would have $49.00 left. But, if you had purchased $1,000.00 worth of wine one year ago, drank all the wine, then turned in the bottles for the recycling REFUND, you would have had $214.00. Based on the above, the best current investment advice is to Drink heavily and recycle.
Let people you care about know...
and tell them to Start Now!!!
Wednesday, October 22, 2008
Buy American. I Am- W. Buffet
Buy American. I Am.
By WARREN E. BUFFETT
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
By WARREN E. BUFFETT
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Tuesday, October 21, 2008
Monday, October 20, 2008
Bust to boom? Not so fast!
Bust to boom? Not so fast!
Monday, October 20, 2008
Gordon Pape
TORONTO (GlobeinvestorGOLD) --There was certainly nothing in the news to send stock prices higher last week. But investors, who just a few days earlier had been selling at the slightest excuse, suddenly decided to ignore the drumbeat of dismal reports and went on a buying spree.
As a result, the TSX/S&P composite index recorded its first weekly gain since the middle of September and it was a pretty impressive one – almost 500 points (5.5 per cent). Anything on the upside is a welcome change these days but this was better than we might have expected thanks to Friday's surge.
There was no obvious reason for Friday's 292-point jump, other than a modest recovery in the price of oil.
If anything, we might have expected another sharp sell-off after the latest consumer confidence numbers showed that both Americans and Canadians are scared to death about what's going on and what it all means for the economy and to their lives.
The Conference Board of Canada said on Friday that its confidence index has dropped to the lowest level in 26 years. That would take us back to 1982, a time when the economy was in recession while interest rates were near record highs.
Things are even worse in the United States, where the University of Michigan reported its consumer sentiment index recorded its biggest monthly drop in history, falling to 57.5 per cent from 70.3 per cent in September.
If that wasn't enough to discourage investors, we learned that the U.S. housing slump isn't going to end any time soon with a report from the Commerce Department that showed a 6.3-per-cent decline in new home construction in September.
Home building is now at its lowest level since the recession of 1991.
Okay, that's all bad but your pension is safe, right? Not so fast! Another report on Friday revealed that the value of major Canadian pension plans fell 8.6 per cent in the third quarter.
That brought the total decline for the year to more than 10 per cent. And pension fund managers are supposed to be the most cautious and conservative money experts around. If they're getting hammered, it's no wonder people are worried about their registered retirement savings plans.
About the only motivator for investors was Warren Buffett's article in The New York Times in which he wrote that the time has come to buy stocks. In a column titled "Buy America. I Am." the Oracle of Omaha said that selling shares in sound, well-run companies makes no sense.
"These businesses will indeed suffer earnings hiccups, as they always have," he wrote. "But most major companies will be setting new profit records five, 10 and 20 years from now." For his part, he has been selling bonds and buying stocks.
Ironically, U.S. investors seemed to ignore Mr. Buffett as the Dow dropped 127 points on the day, although it produced an overall gain for the week. But Canadians went to their phones and starting placing buy orders. Suddenly, we went from bust to boom. Or did we?
Actually, we've seen this story before – just a few days ago, in fact. On Tuesday, the TSX leaped more than 900 points as Canadians caught up with the global rally they had missed while they were enjoying their Thanksgiving holiday. Then on Wednesday, buyer's regret set in to the tune of a 631- point drop. So before we get too excited, let's see what Monday brings.
While it's nice to go into the weekend on a high note, I'm not convinced we've seen the market bottom yet. There are early signs that the international banking bailout is having an impact and that the credit freeze is easing. That's good news but we are still faced with the reality that we're about to move into a recession, if in fact we aren't already there.
The next several months will bring a litany of gloomy economic numbers and weak earnings reports. Investors will react accordingly and there will be more days of triple-digit declines.
So we're not out of the woods yet, not by a long shot. As I've said in the past, market rallies offer an opportunity to review your portfolio and, if appropriate, to reduce risk by selling some equity positions. If you need to sell, do it at a time when prices are moving higher, not in a market plunge.
If you decide you want to buy at these levels, pay attention to Mr. Buffett's sage words. Focus on industry leaders that generate strong cash flow and have good balance sheets. Those are the stocks that will pay off big-time in a year or two.
Gordon Pape is one of Canada's best respected financial authors and the nation's leading expert on mutual funds.
Copyright ©
Monday, October 20, 2008
Gordon Pape
TORONTO (GlobeinvestorGOLD) --There was certainly nothing in the news to send stock prices higher last week. But investors, who just a few days earlier had been selling at the slightest excuse, suddenly decided to ignore the drumbeat of dismal reports and went on a buying spree.
As a result, the TSX/S&P composite index recorded its first weekly gain since the middle of September and it was a pretty impressive one – almost 500 points (5.5 per cent). Anything on the upside is a welcome change these days but this was better than we might have expected thanks to Friday's surge.
There was no obvious reason for Friday's 292-point jump, other than a modest recovery in the price of oil.
If anything, we might have expected another sharp sell-off after the latest consumer confidence numbers showed that both Americans and Canadians are scared to death about what's going on and what it all means for the economy and to their lives.
The Conference Board of Canada said on Friday that its confidence index has dropped to the lowest level in 26 years. That would take us back to 1982, a time when the economy was in recession while interest rates were near record highs.
Things are even worse in the United States, where the University of Michigan reported its consumer sentiment index recorded its biggest monthly drop in history, falling to 57.5 per cent from 70.3 per cent in September.
If that wasn't enough to discourage investors, we learned that the U.S. housing slump isn't going to end any time soon with a report from the Commerce Department that showed a 6.3-per-cent decline in new home construction in September.
Home building is now at its lowest level since the recession of 1991.
Okay, that's all bad but your pension is safe, right? Not so fast! Another report on Friday revealed that the value of major Canadian pension plans fell 8.6 per cent in the third quarter.
That brought the total decline for the year to more than 10 per cent. And pension fund managers are supposed to be the most cautious and conservative money experts around. If they're getting hammered, it's no wonder people are worried about their registered retirement savings plans.
About the only motivator for investors was Warren Buffett's article in The New York Times in which he wrote that the time has come to buy stocks. In a column titled "Buy America. I Am." the Oracle of Omaha said that selling shares in sound, well-run companies makes no sense.
"These businesses will indeed suffer earnings hiccups, as they always have," he wrote. "But most major companies will be setting new profit records five, 10 and 20 years from now." For his part, he has been selling bonds and buying stocks.
Ironically, U.S. investors seemed to ignore Mr. Buffett as the Dow dropped 127 points on the day, although it produced an overall gain for the week. But Canadians went to their phones and starting placing buy orders. Suddenly, we went from bust to boom. Or did we?
Actually, we've seen this story before – just a few days ago, in fact. On Tuesday, the TSX leaped more than 900 points as Canadians caught up with the global rally they had missed while they were enjoying their Thanksgiving holiday. Then on Wednesday, buyer's regret set in to the tune of a 631- point drop. So before we get too excited, let's see what Monday brings.
While it's nice to go into the weekend on a high note, I'm not convinced we've seen the market bottom yet. There are early signs that the international banking bailout is having an impact and that the credit freeze is easing. That's good news but we are still faced with the reality that we're about to move into a recession, if in fact we aren't already there.
The next several months will bring a litany of gloomy economic numbers and weak earnings reports. Investors will react accordingly and there will be more days of triple-digit declines.
So we're not out of the woods yet, not by a long shot. As I've said in the past, market rallies offer an opportunity to review your portfolio and, if appropriate, to reduce risk by selling some equity positions. If you need to sell, do it at a time when prices are moving higher, not in a market plunge.
If you decide you want to buy at these levels, pay attention to Mr. Buffett's sage words. Focus on industry leaders that generate strong cash flow and have good balance sheets. Those are the stocks that will pay off big-time in a year or two.
Gordon Pape is one of Canada's best respected financial authors and the nation's leading expert on mutual funds.
Copyright ©
Canadian Arrow Mines Ltd. - Exploration Update
Canadian Arrow Mines Ltd. - Exploration Update
08:30 EDT Monday, October 20, 2008
SUDBURY, ON, Oct. 20 /CNW/ - Canadian Arrow Mines, Ltd. (CRO: TSX-V) (the "Company") is pleased to provide an update on exploration activities conducted on the Company's Turtlepond Lake properties Atikokan properties and Denmark Lake properties. Claim staking, line cutting, geological mapping, prospecting, ground geophysics, mechanical trenching, and diamond drilling have been ongoing throughout the summer exploration season. Exploration programs are focused on identifying and evaluating nickel-copper sulphide and platinum group element (PGE), exploration targets.
Turtlepond Lake - Mechanical trenching and ground geophysical surveys on the Glatz showing have delineated two parallel zones of mineralization which extend for 900m and 700m in length. Widespread disseminated and blebby nickel-copper-iron sulphide mineralization has been exposed and channel sampled along both trends. Both anomalies are coincident with airborne geophysical anomalies and have not yet been drill tested. The geology and geophysical surveys at Emmons Lake showing indicates a well defined northern plunge to the surface mineralization, which is defined along a 250m trend.
Three newly discovered targets; North Glatz, Night Danger, and Double E, have coincident ground and airborne geophysical anomalies situated within favorable host rock assemblages.
Atikokan Properties - Sixteen holes (2,354 metres) have been completed on the Eva/Kawene project to evaluate a number of surface PGE showings, untested airborne anomalies and newly exposed areas of sulphide mineralization. The drill program has been completed and samples are currently in the lab for analysis.
Denmark Lake Area - The Company staked 73 claims covering 14,368 hectares to cover the majority of the Denmark Lake Intrusion. Staking was initiated following the Caribou Lodge discovery intersection of 4.58% Ni, 0.44% Cu, and 0.15% Co over a core length of 0.75 metres during the winter 2008 drill program. Mineralization consists of massive, blebby and disseminated nickel-copper-iron sulphides positioned near the base of a large ultramafic intrusion, an environment typical of magmatic nickel deposits.
The exploration program is being carried out under the direction of The Company's Vice President of Exploration, Todd Keast P. Geo., a qualified person as defined by National Instrument 43-101. The information in this release was prepared under the direction of Kim Tyler, P. Geo., President of the Company, a qualified person as defined by National Instrument 43-101.
About Canadian Arrow Mines, Ltd:
Canadian Arrow Mines, Ltd. is an established Canadian exploration and development Company committed to developing and advancing base metal deposits close to existing infrastructure through exploration, development and acquisition. Shares of Canadian Arrow Mines trade on the TSX Venture Exchange under the symbol "CRO".
Investors are invited to visit Canadian Arrow's IR hub at http://www.agoracom/IR/CanadianArrow where they can post questions and receive answers within the same day, or simply review questions and answers posted by other investors. Alternately, investors are able to e-mail all questions and correspondence to CRO@agoracom.com where they can also request addition to the investor e-mail list to receive future press releases and updates in real time.
<<
If you would like to receive press releases via email please contact:
Mirna@chfir.com
THIS PRESS RELEASE WAS PREPARED BY MANAGEMENT WHO TAKES FULL
RESPONSIBILITY FOR ITS CONTENTS.
THE TSX VENTURE EXCHANGE NEITHER APPROVES NOR DISAPPROVES OF THIS
PRESS RELEASE.
>>
%SEDAR: 00008534E
For further information: visit the website at www.canadianarrowmines.ca, call toll free at 1-877-262-6354, or contact: Canadian Arrow Mines, Ltd., R. Kim Tyler, P. Geo, President, Tel: (705) 673-8259, E-mail: kim@canadianarrowmines.ca; CHF Investor Relations, Barry Leung, Director Business Development, Tel: (416) 868-1079 ext. 222, E-mail: barry@chfir.com or Alison Tullis, Senior Account Manager, Tel: (416) 868-1079 ext. 233, E-mail: alison@chfir.com;
08:30 EDT Monday, October 20, 2008
SUDBURY, ON, Oct. 20 /CNW/ - Canadian Arrow Mines, Ltd. (CRO: TSX-V) (the "Company") is pleased to provide an update on exploration activities conducted on the Company's Turtlepond Lake properties Atikokan properties and Denmark Lake properties. Claim staking, line cutting, geological mapping, prospecting, ground geophysics, mechanical trenching, and diamond drilling have been ongoing throughout the summer exploration season. Exploration programs are focused on identifying and evaluating nickel-copper sulphide and platinum group element (PGE), exploration targets.
Turtlepond Lake - Mechanical trenching and ground geophysical surveys on the Glatz showing have delineated two parallel zones of mineralization which extend for 900m and 700m in length. Widespread disseminated and blebby nickel-copper-iron sulphide mineralization has been exposed and channel sampled along both trends. Both anomalies are coincident with airborne geophysical anomalies and have not yet been drill tested. The geology and geophysical surveys at Emmons Lake showing indicates a well defined northern plunge to the surface mineralization, which is defined along a 250m trend.
Three newly discovered targets; North Glatz, Night Danger, and Double E, have coincident ground and airborne geophysical anomalies situated within favorable host rock assemblages.
Atikokan Properties - Sixteen holes (2,354 metres) have been completed on the Eva/Kawene project to evaluate a number of surface PGE showings, untested airborne anomalies and newly exposed areas of sulphide mineralization. The drill program has been completed and samples are currently in the lab for analysis.
Denmark Lake Area - The Company staked 73 claims covering 14,368 hectares to cover the majority of the Denmark Lake Intrusion. Staking was initiated following the Caribou Lodge discovery intersection of 4.58% Ni, 0.44% Cu, and 0.15% Co over a core length of 0.75 metres during the winter 2008 drill program. Mineralization consists of massive, blebby and disseminated nickel-copper-iron sulphides positioned near the base of a large ultramafic intrusion, an environment typical of magmatic nickel deposits.
The exploration program is being carried out under the direction of The Company's Vice President of Exploration, Todd Keast P. Geo., a qualified person as defined by National Instrument 43-101. The information in this release was prepared under the direction of Kim Tyler, P. Geo., President of the Company, a qualified person as defined by National Instrument 43-101.
About Canadian Arrow Mines, Ltd:
Canadian Arrow Mines, Ltd. is an established Canadian exploration and development Company committed to developing and advancing base metal deposits close to existing infrastructure through exploration, development and acquisition. Shares of Canadian Arrow Mines trade on the TSX Venture Exchange under the symbol "CRO".
Investors are invited to visit Canadian Arrow's IR hub at http://www.agoracom/IR/CanadianArrow where they can post questions and receive answers within the same day, or simply review questions and answers posted by other investors. Alternately, investors are able to e-mail all questions and correspondence to CRO@agoracom.com where they can also request addition to the investor e-mail list to receive future press releases and updates in real time.
<<
If you would like to receive press releases via email please contact:
Mirna@chfir.com
THIS PRESS RELEASE WAS PREPARED BY MANAGEMENT WHO TAKES FULL
RESPONSIBILITY FOR ITS CONTENTS.
THE TSX VENTURE EXCHANGE NEITHER APPROVES NOR DISAPPROVES OF THIS
PRESS RELEASE.
>>
%SEDAR: 00008534E
For further information: visit the website at www.canadianarrowmines.ca, call toll free at 1-877-262-6354, or contact: Canadian Arrow Mines, Ltd., R. Kim Tyler, P. Geo, President, Tel: (705) 673-8259, E-mail: kim@canadianarrowmines.ca; CHF Investor Relations, Barry Leung, Director Business Development, Tel: (416) 868-1079 ext. 222, E-mail: barry@chfir.com or Alison Tullis, Senior Account Manager, Tel: (416) 868-1079 ext. 233, E-mail: alison@chfir.com;
Sunday, October 19, 2008
QEC Flows at 1600+ Barrels Per Day Target=6000+per day
At the 9:00 video mark BNN discusses the successful well drilled in BC.
BUYQuesterre EnergyQEC-T2.340A fabulous story. Shale gas has just recently been able to be accessed because of new technology. Have great partners including Talisman (TLM-T) and Forest Oil (FST-N).
BUYQuesterre EnergyQEC-T2.450Company is waiting to see the next phase of drilling. 2 going on right now by the partners, one by Talisman (TLM-T) and one by Forest Oil (FST-N). As they start getting comfort that they can crack the 3 shales and that they are productive after fracking, it then becomes a manufacturing operation
BUYQuesterre EnergyQEC-T3.200Key for them is the million gross acres in Quebec. Has about 30% and partners are Talisman (TLM-T), which knows shale plays and Forest Oil (FST-N). Forest is drilling right now and starting in the fall Talisman will drill their other 3 plays.
http://watch.bnn.ca/the-business-news/october-2008/the-business-news-october-14-2008/#clip102634
Questerre Energy Corporation ("Questerre" or the "Company") (OSE,TSX:QEC) is pleased to announce that Talisman Energy Canada (“Talisman”) has elected to drill the remaining three option wells under its farm-in agreement with Questerre and its minority partner in the St. Lawrence Lowlands, Quebec. The three wells will complete the work program allowing Talisman to earn about a 75% interest in the original 719,000 acre farm-out block. Questerre also retains about a 4¼% gross overriding royalty on production from Talisman. Michael Binnion, President and Chief Executive Officer of Questerre, commented,
“We were one of the first companies to recognize the potential of the Quebec Lowlands for unconventional gas and have worked for almost ten years to get to this point. We are thrilled that Talisman, which also saw the potential early on, has decided to accelerate the exploration and appraisal program. Our joint land lies right in the heart of the Lowlands between the Yamaska growth fault and Logan’s Line and runs from Quebec City to south of Lac Saint Pierre. We continue to believe this land position proximate to the market has significant natural gas potential.”
The three-well program is expected to commence in the latter half of 2008. The wells will test multiple horizons including the Trenton Black-River and the Utica and Lorraine shale sequences. Questerre Energy Corporation is a Calgary-based independent resource company actively engaged in the exploration, development and acquisition of high-impact exploration and development oil and gas projects in Canada. This news release contains forward-looking information. Implicit in this information are assumptions regarding commodity pricing, production, royalties and expenses, that, although considered reasonable by the Company at the time of preparation, may prove to be incorrect.
These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in the Company’s plans, commodity prices, equipment availability, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee made by the Company that the actual results achieved will be the same as those forecasted herein. For further information, please contact: Questerre Energy Corporation - Jason D’Silva, VP FinanceTel: (403) 777-1185Fax: (403) 777-1578Email:
info@questerre.comWeb: http://www.questerre.com/
Questerre Energy Corporation is engaged in the exploration for, and the development, production and acquisition of scalable natural gas projects. Its major properties include St. Lawrence Lowlands, Quebec; Greater Sierra and Beaver River Field, British Columbia; Antler, Saskatchewan, and Vulcan and Westlock, Southern & Central Alberta.
The St. Lawrence Lowlands area is prospective for natural gas in multiple horizons with targets in the Ordovician Trenton Black-River and the Lorraine and Utica. Its landholdings of over one million gross acres consist of three separate blocks.
The largest block of 711,000 acres is subject to a farm-in and participation agreement with Talisman Energy. The primary zone of interest in the Greater Sierra region is the Devonian Jean Marie.
The region is also prospective for shallower zones, including the Mississippian Debolt and Slave Point formations. In November 2007, it acquired Magnus Energy Inc. In April 2008, the Company acquired Terrenex Ltd.
Share Capitalization
Issued & Outstanding:
Issued & Outstanding:
Common Shares:179,127,088 (as at May 14, 2008)
Stock Options:16,769,170 (avg exercise price $0.61)
Insider Position:17,126,231 (9.57%)
This is the most current Corporate Presentation
Saturday, October 18, 2008
QEC 8-12 Wells To Be Reported By Year End
Jean Francois Tardiff on Market Call at the 5.55 min second clip.
1) QEC has best land package
2)Over next 3-4 months = results from 8-12 wells drilled
3)QEC Lowest risk of Jr's in the area
Business - Good time to buy stocks, Buffett says
Good time to buy stocks, Buffett says TheStar.com -
October 17, 2008 The Associated Press
NEW YORK–Warren Buffett has been moving his personal investments from safe Treasuries into U.S. stocks, he wrote in an opinion piece in Friday's New York Times.
"If prices keep looking attractive, my non-Berkshire net worth will soon be 100 per cent in United States equities," he wrote.
The piece, titled "Buy American. I am," reiterated one of the legendary investor's favourite maxims: Be fearful when others are greedy; be greedy when others are fearful.
"To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions," he wrote. "But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.''
Since stocks began to tumble in September, Buffett, and his investment company, Berkshire Hathaway Inc., have made large bets on U.S. companies, exacting rich dividend payments in the process. Berkshire Hathaway agreed on Oct. 1 to invest $3 billion in General Electric Co.'s preferred shares, which carry a hefty 10 per cent dividend. In late September, Berkshire Hathaway also bought $5 billion in preferred shares of Goldman Sachs Group Inc., which also pay a 10 per cent dividend. He also bought warrants to purchase another $5 billion common shares at about $115 each.
"Let me be clear on one point: I can't predict the short-term movements of the stock market," he wrote. "I haven't the faintest idea as to whether stocks will be higher or lower a month – or a year – from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.''
Friday, October 17, 2008
Financial FAQs Worth Reading
As the global financial crisis deepens, Report on Business writers examine and explain the turmoil in credit and stock markets. Here, we answer your questions daily, with the most recent at the top.
CENTRAL BANKS
What is a liquidity injection?
Central banks can use their financial clout to try to get money flowing to the banks and their customers. In a liquidity injection, they make money available for banks to borrow, although the financial institutions have to post securities as collateral to get it. Last week the Bank of Canada said it would make $20-billion available to Canadian banks, and on Monday it said it would let banks pledge their troubled asset-backed commercial paper assets as collateral. This will give some banks more flexibility. One problem, said TD Bank chief economist Don Drummond, is that the central bank's injection is just for the short term - Bank of Canada loans usually have to be repaid within 90 days. But the demand from customers is trending towards longer-term loans - especially from corporations who can't get money any other way - so the central bank money won't help much on that score.
Where do central banks get the money for a liquidity injection?
The Bank of Canada has billions of dollars in assets - about $56-billion at last count - mostly held in very safe securities such as bonds and treasury bills. In essence, when it makes money available to commercial banks, it is temporarily swapping its safe securities for the riskier ones the banks are putting up as collateral.
Do interest rate cuts actually help boost the stock market?
In theory, they should. If an investor is trying to make a decision between putting money into a bond or a stock, he or she will look at the difference between the yield on the bond and the possible return on the stock. Bond yields should fall when interest rates go down, making stocks more attractive. Essentially, for a stock to compete for an investor's money, it doesn't need to offer as high a rate of return. However, bond yields do not always follow central bank interest rate cuts, and they haven't this time. Some very high-quality corporate bonds, for example, are offering huge yields compared with the stock market. While lower interest rates should also make corporate borrowing easier and thus lower costs and finance growth, that hasn't been happening either in the current credit crunch. On top of all this, worries over a recession or panic over falling stocks can trump any minor tweaking of interest rates.
What will the co-ordinated rate cuts achieve?
Central banks around the world moved Wednesday morning to cut their benchmark interest rates by half a percentage point, marking the first co-ordinated action since the terrorist attacks of September, 2001. It was an extraordinary move to bolster markets and help ease clogged credit markets. Among the central banks were the Federal Reserve, the Bank of Canada, the European Central Bank and the central banks of Britain, Switzerland and Sweden. The Bank of Canada's key overnight rate falls to 2.5 per cent, while the Federal funds rate moves to 1.5 per cent.Economists cited the action as a positive and necessary step, but said there's still more to do. London-based Capital Economics, for example, said the move would provide "at least a temporary boost to confidence." Derek Holt, vice-president of economics at Scotia Capital Inc., cited the risk of 50 basis points not being enough and possibly not passing through to consumers and businesses. So far in Canada, major banks have cut their prime rates by just one-quarter of a percentage point. The Bank of Canada itself said the move does not preclude another rate cut at its next scheduled policy meeting on Oct. 21. Indeed, Toronto-Dominion Bank deputy chief economist Craig Alexander said the bank expects both the Federal Reserve and the Bank of Canada to cut another half-point at their next meetings, and the ECB and Bank of England to cut even deeper in the months ahead.
Don't interest rate cuts tend to fuel inflation?
In normal circumstances this is true, and that is one of the reasons the Fed has held rates steady for several months. But with oil prices dropping sharply, and commodity prices falling as well, the threat of inflation is taking a back seat to worries about credit and the functioning of the economy.
What was behind the Federal Reserve's Oct. 7 plan to buy up commercial paper?
The central bank is stepping in as a buyer of last resort in the $100-billion market for commercial paper. This is a form of short-term debt that thousands of companies use to finance their daily operations, including paying employees and buying supplies. The Fed hopes to kickstart this market and free up funds for corporations. The central bank said it was taking the action because money market mutual funds and other investors were loathe to buy commercial paper. Ian Stannard, a currency strategist at BNP Paribas in London, described the move as "probably the first piece of news we've had that starts to address the underlying problem in the financial system. This is a very proactive step and will be a huge help to getting things moving again.
What are the specifics of the plan?
Using Depression-era powers, the Fed will create a new temporary lending vehicle that eligible companies can tap for short-term cash (IOUs of less than three months). In return, the Fed will collect fees and interest, assuming the role of private investors, such as pension and money market funds, that have become too nervous to buy the paper.
How effective will the Fed's new measure be?
The historic move should unclog the market for these business IOUs, helping to insulate the real economy from the credit crunch. The hope is that, over time, private investors will feel confident enough to return to the market, allowing the Fed to withdraw. The catch is that the commercial paper market is just one piece of a massive and interconnected credit system that is no longer functioning, and the Fed can't possibly nationalize it all. Credit markets saw some slight easing Tuesday after the announcement, described by some observers as the most effective measure to date. Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said the central bank is putting itself even more into the "credit creation process" and taking on more risk as a result. Will it work? "This welcome step should alleviate some of the pressure on companies which were finding even day-to-day operations difficult to manage ... Still the problems besetting the credit markets are so multi-dimensional that no move will be a single fix," Mr. Porter said, noting the Fed wants to use every measure possible before cutting its benchmark Federal funds rate.
CREDIT MARKETS AND CRISIS
What is the "money market," and why does it matter if it freezes?
The money market is made up short-term loans (generally of less than one year), such as certificates of deposit, commercial paper, banker's acceptances, and 30-day treasury bills. If the money market freezes up - in other words, no one wants to make short-term loans because they are worried about borrowers defaulting - companies cannot get the cash they need to pay staff, buy supplies or pay rent. Often companies need to borrow this money because they are waiting for revenue that may not arrive for a few days or weeks. But if they can't get short-term cash from the money markets, it can make day-to-day operations very difficult.
What is a credit default swap?
These were originally set up as a kind of insurance against bad debts. A holder would pay a series of "premiums," and in return would get a payout if a specified organization failed. It's the same idea as paying a life insurance premium, where the beneficiary gets a payout only if the specified person dies. Like life insurance, everything is in balance unless there is an epidemic and people start dying left and right. With more companies going under, or threatening to do so, firms that issued swaps are themselves in trouble. That's what happened to insurer AIG, which sold credit default swaps that protected investors against bond defaults. When bonds started defaulting, AIG itself was left vulnerable.
What is counterparty risk?
When you lend $20 to a friend, the counterparty risk is the chance that he or she won't pay you back. And it works the same way with corporations or financial institutions, although their measurement of risk is a little more sophisticated. If the counterparty risk is high, traders and banks won't lend money unless they get some solid collateral or loan guarantees, or they might just say "forget it."
Commercial paper is normally issued only by the most credit-worthy companies, providing them with short-term cash to run their day-to-day operations. Issuers almost always need to have a credit rating on their commercial paper, because the buyers want assurance that their money is very safe, and will be paid back quickly. But getting a credit rating is an expensive and time-consuming process that is conducted by bond-rating agencies. As a result, most commercial paper is issued only by large, stable companies, or entities such as utilities.
What other measures could the U.S. take if the bailout package and interest rate cuts don't stabilize markets and the economy?
The U.S. government and Federal Reserve have used two of the key tools in its toolkit to try to stem panic and stabilize the financial system: The $700-billion bailout of the problem assets at the big banks, and an interest rate cut. But there are other tools as well that have not come into play yet. They could try to stimulate the weak economy by cutting taxes to individuals, they could beef up spending on federal infrastructure to create jobs, or they could give specific tax incentives, for home purchases for example. And while the U.S. government has already boosted insurance on bank deposits to $250,000 from $100,000, it could follow the lead of some European countries and move to unlimited insurance. And if things get even worse at any of the major financial institutions, the government could take direct equity stakes. That seems an unlikely move, but the current situation is unprecedented.
Where will the $700-billion (U.S.) in the Wall Street bailout package go and how will prices be determined?
The money will be paid to Wall Street firms, banks, pension funds and other companies that hold bad mortgages and other toxic assets. The values aren't known at this point, and the amount paid will be decided in a reverse auction, in which the sellers of the assets compete with each other and decide how cheaply they will sell the toxic debts. The government, through the newly appointed Office of Financial Stability, then pays the lowest price offered.
Will the money ever be recovered?
The U.S. Treasury Department has said there is a good chance it will recover some if not all of the money, although observers are not so certain. Previous rescue efforts have actually turned a profit, although others have cost billions.
Who wins and who loses?
While it's theoretical at this point, financial institutions could win out by having their toxic assets bought by the government at what is effectively a premium. While banks can dispose of some of these assets now, they would be doing so at firesale prices if buyers are found. In an ideal world, the U.S. government would hold on to the troubled assets until maturity, when hopefully the real estate market will have recovered, and then dispose of them at at least breakeven. But it is a long-term process, and thus it is too early to tell how the taxpayer makes out.
ECONOMY
Everybody keeps talking about a recession, but when will we know if we're really in one?
The classic definition of a recession is a period when the economy shrinks for two consecutive quarters. But that is considered very rough and imprecise by most economists.
By that measure we won't know whether Canada or the United States is in recession now until well into next year. The third-quarter gross domestic product (GDP) numbers are due at the end of November, and the fourth-quarter stats will be out at the end of February. In the second quarter, both economies grew.
One of the problems with the simple definition of recession is that it doesn't take into account swings in the economy. If GDP shrinks in one quarter by 2 per cent, rises in the next by 0.5 per cent, then shrinks in the third by another 2 per cent, then the country is not in recession under the definition, although it very likely is, in reality.
On the other hand, two consecutive 0.2-per-cent drops would mean we're in recession, even if there was strong growth in earlier quarters. That's not very realistic either.
GDP numbers can also be skewed by population growth, which can disguise a possible recession. And they are often revised months after the fact, so that what initially looked like a recession might not actually have been one.
"We've had situations in history where a recession has been revised away, two years later," says Dale Orr, chief economist at Global Insight Canada.
Is there a better way to define recession?
Many economists prefer to do a much more complex analysis to determine whether a country is in a recession. What needs to be added into the equation, says Mr. Orr, is data on industrial production, consumer spending and labour markets.
In the United States, the National Bureau of Economic Research (NBER) takes these and other numbers into account to officially declare whether a recession has happened.
The NBER (or more specifically, the NBER's "business cycle dating committee") says that a recession is the period that begins just after the economy reaches a peak of activity, and ends as the economy reaches its trough. Sometimes NBER data show there is a recession, even if GDP hasn't declined for two quarters. That was the case in 2001, when the U.S. was deemed to be in recession even though there were no successive quarterly GDP declines. (Later revisions showed there were GDP declines in the first three quarters of 2001.)
So is Canada in recession? Is the U.S. in recession?
Mr. Orr says Global Insight's view is that Canada is not in a recession. While the economy is pretty much stalled, with little or no GDP growth expected this year, "the labour market is moving along at a pretty good pace."
At the same time, consumer spending appears to be holding up, although some analysts are projecting a very weak fourth quarter.
The Conference Board of Canada weighed in yesterday, saying it thinks Canada will likely avoid a recession.
In the United States, however, all the signs suggest a recession is already under way. Estimates indicate the U.S. economy shrank in the third quarter, and will fall again sharply in the fourth, and again in the first quarter of 2009. Employment also has been falling since the start of the year and there is a definite decline in consumer spending. "There is a wide range of people who are feeling a lot of pain; a lot more than in Canada," Mr. Orr said.
If I lose my job, that puts me personally in a recession, doesn't it?
There is an old joke (recently retold in the Economist) that says that when your neighbour loses her job, it is called an economic slowdown. When you lose your job, it is a recession. But when an economist loses his job, it becomes a depression.
What is a depression, anyway?
There doesn't seem to be any formal definition of a depression. But economists say it would involve a sharp drop in economic activity, as measured by GDP, over a prolonged period of more than two years. That shrinkage would also be accompanied by a rapidly rising unemployment rate and a severe drop in personal consumption. During the most bleak stretch of the Great Depression between August, 1929, and March, 1933, the U.S. economy shrank by 27 per cent, about 10 times as much as during the worst postwar recession.
EUROPE
Why are European banks having more trouble than those in Canada?
European banks are in trouble because their leverage - their assets to equity ratio - is typically much higher than those of their Canadian and U.S. counterparts. In North America, the average leverage ratio is about 20. In Europe, it's close to 40. At the end of June, the top dozen European banks had a leverage range from, at the low end, 18.8 (Royal Bank of Scotland) to, at the high end, 61.3 (Barclays). The European banks' sheer size makes them vulnerable too, in the sense that they may be too big to save. For example, the total assets of Deutsche Bank, Germany's biggest lender, are almost €2-trillion. That's more than 85 per cent of the country's GDP. Political squabbling also has the potential to hurt the European banks. If a big bank with operations scattered across the continent, like Italy's UniCredit or ING of the Netherlands, needs a bailout, who pays? The home country or all the countries where the bank has major subisidiaries?
What did the British government do to bolster the banking sector?
The British government partially nationalized its financial institutions by offering to buy up to £50-billion in preference shares from at least eight of the country's biggest banks and building societies. These include HBOS PLC, Barclays and Royal Bank of Scotland. The move by the Treasury would give taxpayers a stake in Britain's major banks. Treasury chief Alistair Darling stressed Britain was not trying to take control of the banks or attempt to run them. But the government also warned it would not be hands off, saying it would look at the dividend policies and executive compensation schemes of the banks and also wanted a firm commitment to support lending to small business and home buyers.The government also promised to guarantee £250-billion of bank loans. British bank stocks surged on the announcement.
Why is Britain taking a leading role?
As the world's foremost banking centre, Britain has more than most at stake in repairing a system that has so rapidly disintegrated.
"We regard ourselves as leaders in global finance and I think government has really sought to protect that, to protect the city as a global leader in finance," said Charles Davis, economist at the Centre for Economics and Business Research Ltd.
Much of the motivation stems from the role of the country's financial services sector, which represents a higher-than-average chunk of the country's economic activity. Britain was the first country in the world to put together a policy package that addressed the different dimensions of the banking crisis, says economist Margaret Bray at the London School of Economics. Other countries have tackled those problems on a piecemeal basis, but Britain was the first to tackle the issues comprehensively, she said.
Will recent measures fix things?
British policy responses, in conjunction with global efforts to repair the financial crisis, are giving investors reason for optimism.
"It's premature to argue that this is the end of the credit crunch but certainly the pervasive lack of confidence and fraught atmosphere is starting to dissipate somewhat," said Mr. Davis of the Centre for Economics and Business Research.
Government assurances Monday were "exactly what was needed because clearly the markets weren't going to come up with a solution to the systemic problems that the credit crunch created," he added.
The spectacular bounce in stock markets Monday was "encouraging," though it will take more time to see whether interbank lending recovers. Recapitalizing banks and guaranteeing debt will go a long way toward restoring confidence.
Economic challenges remain, though. "We may be getting past the worst of the financial crisis but you still have the economic crisis to deal with next year in terms of the effects on the real economy," Mr. Davis said.
What is Mr. Brown proposing now?
British Prime Minister Gordon Brown wants reforms to the international financial system. His London speech Monday outlined five principles that should govern any overhaul.
First, transparency and the adoption of internationally agreed-upon accounting standards. Second, integrity and closer focus on conflicts of interest. "This includes a system of remuneration founded on long-term success, not short-term irresponsibility," he said.
Third, responsibility and ensuring boards are effectively managing risks. Fourth, closer regulations and supervision of banks. This should also help to "prevent speculative bubbles when markets are rising and to cushion the impact of shocks when they are falling."
Fifth, a new Bretton Woods agreement (established in 1944 and which set up the International Monetary Fund and the World Bank) that would build a new global financial framework for the years ahead. "Sometimes it takes a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed."
Iceland's president said his country could face "national bankruptcy" because of the credit crisis. Can a country actually go bankrupt?
Countries can't go bankrupt in the same way that companies do - closing their doors, sending everyone home, and having their remaining assets seized. But they can become insolvent if they default on their loans and don't repay the interest or principal.This has happened many times over the years, particularly among small developing nations. But in those cases the creditors were not able to seize assets - that would have meant an invasion and takeover of the country. In most cases, world bodies such as the International Monetary Fund work to reschedule or restructure debt so that creditors get some of their money back eventually. At the depths of Latin American debt crisis in 1990, more than four dozen countries were close to bankruptcy because they were unable to pay what they owed. Some were brought back from the brink by the creation of "Brady bonds" - a repackaging of defaulted loans that were backed by U.S. collateral.
FINANCIAL SYSTEM
Are bank deposits safe?
Bank deposits in this country - GICs or other deposits that mature in five years or less - are insured by the Canada Deposit Insurance Corp., a government agency. But the limit is $100,000 per person per institution. and not all financial institutions are members. Depending on the type of account in question, more than one account may be covered to $100,000 at a given bank. In Europe, some countries have recently removed any limits, to make sure that there is no rush of worried customers taking their money out and stuffing it under their mattresses. In Canada there has been no move to change the limit. The CDIC points out on its web site that banks in Canada don't fail often, but "it has happened and it could happen again." In fact, 43 CDIC members - mostly small ones - have collapsed since it was formed in 1967.
What is interbank lending?
Banks normally lend each other cash and short-term securities to help balance out their everyday activities. But lately, banks around the world have been extraordinarily cautious about this lending - partly because they are worried about getting repaid - and this is driving up the interest they have to pay when they want to borrow. This also makes the banks much more cautious about lending out the money they receive in deposits, thus making it harder - and more expensive - for homeowners, small businesses or corporations to borrow. The standard interest rate for interbank loans is Libor, an acronym for the London Interbank Offered Rate. Libor is an average of interbank rates offered by more than a dozen banks, and is calculated every day. The difference between Libor and government bond yields has been growing recently, and that's important because corporate loans, mortgages and student loans are all based on Libor.
Don't banks usually get the money they loan from deposits?
That is usually the case, but the balance is never perfect, and that's why banks lend money to each other. Currently, there is a lot of demand for loans from corporations, which until recently haven't needed much money because they've been so profitable. With little cash available, rates have increased.
Where is the U.S. government getting the money to buy shares in the country's financial firms?
The $250-billion will be part of the $700-billion set aside to help bail out the financial sector. That bigger pot of money, authorized by the U.S. Congress, is likely to be borrowed from the public, corporations and perhaps other national governments, by issuing bonds and Treasury bills.
Of the $250-billion, about half will be used to buy preferred shares and common stock warrants from several of the country's largest banks. Those banks have also agreed to place some limits on executive pay, including a ban on "golden parachutes" during the period that the government holds its stake. The other half will go to thousands of small and mid-sized banks.
The U.S. government will earn an annual dividend of 5 per cent for the first five years and 9 per cent after that. But Washington's holdings will be non-voting.
The banks will be able to buy back the shares from the government when volatility has cooled down and they can raise capital from private investors.
President George Bush also said the government will insure all deposits in non-interest bearing bank accounts, to help businesses worried because their payroll and checking accounts exceed the limits backed by the Federal Deposit Insurance Corp. The government will also back most new bank debt, a change designed to spur more lending between banks.
Why is the U.S. government investing in healthy banks as well as struggling ones?
The government said it didn't want there to be a stigma in accepting the government cash, so it is giving it to both strong banks and weak ones. President Bush said the new capital will help healthy banks continue to make loans to consumers and businesses, while it will help struggling ones "fill the hole created by losses during the financial crisis, so they can resume lending and help spur job creation and economic growth."
Is this the first time the U.S. government has taken equity stakes in private companies?
By no means. Despite the free-enterprise culture of the United States, Washington has often intervened to take ownership of private business. During the First World War the U.S. government took over the railways to make sure that arms and troops were efficiently transported. The trains were returned to private ownership in the 1920s.
The railways were nationalized again during World War II, along with coal mines. The government has also taken direct ownership of banks before. In 1984, when Continental Illinois National Bank and Trust was on the verge of failure after a run on its deposits, a huge rescue package was put in place that resulted in Washington owning an 80-per-cent stake for a decade. In 1994 Continental was finally sold to Bank of America.
Has the Canadian government ever owned shares in our commercial banks?
The Canadian government has avoided any direct investments in Canadian banks, and has tried not to get directly involved in rescuing troubled financial institutions, says Duncan McDowall, a historian at Ottawa's Carleton University.
"The pattern in Canada has consistently been that when commercial banks got in trouble, the federal government allowed them to collapse, or more likely, to fall into the arms of another bank that took its assets and its employees," Prof. McDowall said.
An example: In 1906, the Ontario Bank collapsed, but the federal and provincial governments and other commercial banks arranged to have Bank of Montreal take over its assets and operations.
The only active federal government involvement in banking, Prof. McDowall said, was Canada Post's ownership of the mainly rural Post Office Savings Bank, which had almost 1,500 branches but was shut down in the late 1960s after 100 years in existence.
Aside from that, "there's always been a complete arm's length relationship" between the federal government and the banks, he said. It also helps that the Bank Act is updated every decade or so, "which allows it to be attuned to changes in the market."
Interestingly, the federal government didn't even own the Bank of Canada when it was first established in 1935. For the first few years it was held by private investors, including the commercial banks. But in 1938 the central bank was nationalized and has been in Ottawa's hands since then.
What should be done differently in a new Bretton Woods?
Bretton Woods was formulated more than half a century ago when the world was a different place. Mr. Brown's proposal calls for more co-ordination among national regulators and a focus on global money flows. A new agreement would need to be much more inclusive, said Peter Chowla, London-based policy officer at the Bretton Woods Project, which monitors the World Bank and International Monetary Fund. "We need to involve more people in the discussion. We shouldn't presume one country from a region is going to represent the whole region."
What is Tier 1 capital and what does it tell you about a bank's health?
Tier 1 capital includes a bank's common equity - the value of the shares it has sold to the public - plus the value of its non-cumulative preferred shares, and its retained earnings. These are instruments that can't easily be redeemed by holders, so they are considered permanent.
Tier 1 capital, as a proportion of a bank's overall assets, is a key measure of its financial strength. There are international standards, set by the Swiss-based Bank for International Settlements, for this Tier 1 capital ratio. In Canada, the Office of the Superintendent for Financial Institutions sets the minimums.
Most Canadian banks have Tier 1 capital ratios of around 10 per cent (meaning that Tier 1 capital represents about one-10th of overall assets), well above the OSFI minimum of 7 per cent. The banks also measure second level, or Tier 2, capital which includes not-quite-so-permanent items such as reserves, loan loss provisions, and subordinated debt.
What is the TED spread?
The TED spread is a measure of how much premium banks have to pay when they borrow from each other, and it is a reflection of worries over possible defaults.
Originally, the TED spread was the difference in interest rates between three-month U.S. treasury bill contracts (the "T") and three-month Eurodollar contracts (the "ED").
Now, it usually represents the spread between risk-free three month T-bills and not-so-risk-free three-month LIBOR (the London inter-bank offered rate that banks use for interbank borrowing).
When the TED spread goes up, that suggests bank lenders are worried their counterparties on interbank loans might default. In today's paranoid environment, the TED spread has increased to more than 400 basis points (a basis point is one-hundredth of a percentage point) from "normal" levels of around 30 basis points.
How exactly is the American taxpayer going to pay, directly or indirectly, for the $700-billion bailout package?
The U.S. government's treasury will likely borrow the $700-billion from the public, corporations and perhaps other national governments, by issuing bonds and treasury bills. They will then use this money to buy, at a discount, the distressed assets from the financial institutions that are in trouble. The hope is that when these assets are eventually sold, they could bring in a substantial return to the government, and possibly even make a profit. If it works out as planned, the process should not cost the taxpayer anywhere near $700-billion. Because the process of selling the assets will take time, there should be no impact on the U.S. budget deficit in the short term. If the government eventually takes a loss on the assets it is buying, then it will deepen the deficit down the road.
MORTGAGES AND MORTGAGE INSTITUTIONS
This whole downward spiral seemed to start with U.S. subprime mortgages. What exactly are they?
Subprime mortgages are home loans made to people who would not, under normal circumstances, be ideal candidates to get a mortgage - thus they are "subprime." These are individuals who have a higher risk of defaulting on their loan, such as those who have been delinquent in making payments in the past, or people with a bankruptcy on their credit record, or those who simply don't have a credit history.
Starting around 2005, U.S. lenders loosened their rules and began granting mortgages to borrowers who provided very little evidence of their income and ability to repay. Many of these mortgages had very low initial interest rates, for the first six months to three years, but when that period ended the payments jumped sharply. Borrowers were led to believe that they would be able to refinance their homes at this point because the value of the property would have increased. But the slump in the housing market meant that didn't happen. As a result many people - especially those who had not been completely frank about their income levels - defaulted on their mortgages and lost their homes.
What are Fannie Mae and Freddie Mac? Why the cute names?
Fannie Mae is the nickname of the Federal National Mortgage Association, while Freddie Mac is the Federal Home Loan Mortgage Corp. Fannie Mae is the older of the two. It was created as a government agency in 1938 under U.S. president Franklin Roosevelt's New Deal. The idea was to give local banks federal money to finance home mortgages, since private lenders were leery of lending money. The government wanted to help more people buy homes, and encourage the building of affordable housing. In 1968 it became a private company. Freddie Mac was set up in 1970 to expand the secondary mortgage market, and ensure there was competition with Fannie Mae's monopoly. Both companies buy loans from banks or mortgage firms, and re-sell these as mortgage-backed securities. Together they own or guarantee about half of U.S. mortgages. The two were put under "conservatorship" by the U.S. Federal Housing Finance Agency on Sept. 7 - essentially a takeover by the government.
Who owns Canada Mortgage and Housing Corp. and can it go under?
CMHC was set up by the federal government just after the Second World War to help deal with a housing shortage exacerbated by the huge number of soldiers returning home. It helped finance home construction and provided funds for low-income housing. In the 1950s, when banks got into mortgage lending, CMHC started insuring "high-ratio" mortgages where home buyers initially made only a small down payment. This summer CMHC stopped insuring mortgages with zero down payment or 40 year amortizations.
CMHC also subsidizes aboriginal housing, provides loans and grants for certain kinds of renovations, and gathers statistics on the housing market. It also buys mortgages from financial institutions, and repackages them as mortgage-backed securities, which it sells to investors.
Because CMHC is a Crown corporation - unlike Fannie Mae and Freddie Mac which were private companies - it is backed by Ottawa and could not really "go under."
PERSONAL FINANCE
Do the interest rate cuts mean my mortgage rate or credit card interest rate will go down?
On Wednesday several banks lowered their prime rates by just a quarter of a percentage point, instead of matching the half-point cut in the Bank of Canada's benchmark overnight rate. One bank said it couldn't afford a steeper cut because it is paying so much these days to fund its own borrowing through global credit markets. You will see that quarter-point cut in interest rates if you have a variable-rate mortgage that is tied directly to prime. Other short-term loan rates - certain car loans, for example - that are measured off prime will also go down. But other rates - for five year mortgages, for example - are set based on bond yields, which have been rising sharply, so don't expect any relief. Credit card rates are a function of credit risk, and won't likely see any decline because of the drop in the prime rate.
Why are Saudi Arabia and other OPEC countries allowing the price of crude oil to fall so dramatically? Can they not control the price of oil by adjusting production?
OPEC (the Organization of Petroleum Exporting Countries) does have significant control over production, but it is not an instantaneous process and changes don't always have an immediate effect. In early September the cartel said it would cut production by about 520,000 barrels a day, and OPEC is set to meet Oct. 24 to talk about possible further action. (On Thursday it shifted the meeting forward from Nov. 18.)
Still, as University of Alberta business professor Joseph Doucet points out, OPEC has no direct control over prices, but can merely control the quantity of its production, which has an indirect influence on prices. Other factors - such as the level of crude and gasoline supplies in the United States - can have a greater impact. In addition, Prof. Doucet says, oil prices have been shifting quickly in the past few weeks and production changes take some time to put into place.
The internal politics of OPEC account for yet another complicating factor. "Saudi Arabia has the largest reserves of any OPEC country and is the 'patient' one - the country with the longest view," Prof. Doucet said. "They have an interest in a moderate oil price [because] they want to be able to sell oil for a long time. Countries with shorter views, say Nigeria, have more pressing needs for cash flow ... and thus worry less about long term oil substitution."
And even when OPEC sets quotas, not every country in the organization always respects them.
© Copyright The Globe and Mail
CENTRAL BANKS
What is a liquidity injection?
Central banks can use their financial clout to try to get money flowing to the banks and their customers. In a liquidity injection, they make money available for banks to borrow, although the financial institutions have to post securities as collateral to get it. Last week the Bank of Canada said it would make $20-billion available to Canadian banks, and on Monday it said it would let banks pledge their troubled asset-backed commercial paper assets as collateral. This will give some banks more flexibility. One problem, said TD Bank chief economist Don Drummond, is that the central bank's injection is just for the short term - Bank of Canada loans usually have to be repaid within 90 days. But the demand from customers is trending towards longer-term loans - especially from corporations who can't get money any other way - so the central bank money won't help much on that score.
Where do central banks get the money for a liquidity injection?
The Bank of Canada has billions of dollars in assets - about $56-billion at last count - mostly held in very safe securities such as bonds and treasury bills. In essence, when it makes money available to commercial banks, it is temporarily swapping its safe securities for the riskier ones the banks are putting up as collateral.
Do interest rate cuts actually help boost the stock market?
In theory, they should. If an investor is trying to make a decision between putting money into a bond or a stock, he or she will look at the difference between the yield on the bond and the possible return on the stock. Bond yields should fall when interest rates go down, making stocks more attractive. Essentially, for a stock to compete for an investor's money, it doesn't need to offer as high a rate of return. However, bond yields do not always follow central bank interest rate cuts, and they haven't this time. Some very high-quality corporate bonds, for example, are offering huge yields compared with the stock market. While lower interest rates should also make corporate borrowing easier and thus lower costs and finance growth, that hasn't been happening either in the current credit crunch. On top of all this, worries over a recession or panic over falling stocks can trump any minor tweaking of interest rates.
What will the co-ordinated rate cuts achieve?
Central banks around the world moved Wednesday morning to cut their benchmark interest rates by half a percentage point, marking the first co-ordinated action since the terrorist attacks of September, 2001. It was an extraordinary move to bolster markets and help ease clogged credit markets. Among the central banks were the Federal Reserve, the Bank of Canada, the European Central Bank and the central banks of Britain, Switzerland and Sweden. The Bank of Canada's key overnight rate falls to 2.5 per cent, while the Federal funds rate moves to 1.5 per cent.Economists cited the action as a positive and necessary step, but said there's still more to do. London-based Capital Economics, for example, said the move would provide "at least a temporary boost to confidence." Derek Holt, vice-president of economics at Scotia Capital Inc., cited the risk of 50 basis points not being enough and possibly not passing through to consumers and businesses. So far in Canada, major banks have cut their prime rates by just one-quarter of a percentage point. The Bank of Canada itself said the move does not preclude another rate cut at its next scheduled policy meeting on Oct. 21. Indeed, Toronto-Dominion Bank deputy chief economist Craig Alexander said the bank expects both the Federal Reserve and the Bank of Canada to cut another half-point at their next meetings, and the ECB and Bank of England to cut even deeper in the months ahead.
Don't interest rate cuts tend to fuel inflation?
In normal circumstances this is true, and that is one of the reasons the Fed has held rates steady for several months. But with oil prices dropping sharply, and commodity prices falling as well, the threat of inflation is taking a back seat to worries about credit and the functioning of the economy.
What was behind the Federal Reserve's Oct. 7 plan to buy up commercial paper?
The central bank is stepping in as a buyer of last resort in the $100-billion market for commercial paper. This is a form of short-term debt that thousands of companies use to finance their daily operations, including paying employees and buying supplies. The Fed hopes to kickstart this market and free up funds for corporations. The central bank said it was taking the action because money market mutual funds and other investors were loathe to buy commercial paper. Ian Stannard, a currency strategist at BNP Paribas in London, described the move as "probably the first piece of news we've had that starts to address the underlying problem in the financial system. This is a very proactive step and will be a huge help to getting things moving again.
What are the specifics of the plan?
Using Depression-era powers, the Fed will create a new temporary lending vehicle that eligible companies can tap for short-term cash (IOUs of less than three months). In return, the Fed will collect fees and interest, assuming the role of private investors, such as pension and money market funds, that have become too nervous to buy the paper.
How effective will the Fed's new measure be?
The historic move should unclog the market for these business IOUs, helping to insulate the real economy from the credit crunch. The hope is that, over time, private investors will feel confident enough to return to the market, allowing the Fed to withdraw. The catch is that the commercial paper market is just one piece of a massive and interconnected credit system that is no longer functioning, and the Fed can't possibly nationalize it all. Credit markets saw some slight easing Tuesday after the announcement, described by some observers as the most effective measure to date. Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said the central bank is putting itself even more into the "credit creation process" and taking on more risk as a result. Will it work? "This welcome step should alleviate some of the pressure on companies which were finding even day-to-day operations difficult to manage ... Still the problems besetting the credit markets are so multi-dimensional that no move will be a single fix," Mr. Porter said, noting the Fed wants to use every measure possible before cutting its benchmark Federal funds rate.
CREDIT MARKETS AND CRISIS
What is the "money market," and why does it matter if it freezes?
The money market is made up short-term loans (generally of less than one year), such as certificates of deposit, commercial paper, banker's acceptances, and 30-day treasury bills. If the money market freezes up - in other words, no one wants to make short-term loans because they are worried about borrowers defaulting - companies cannot get the cash they need to pay staff, buy supplies or pay rent. Often companies need to borrow this money because they are waiting for revenue that may not arrive for a few days or weeks. But if they can't get short-term cash from the money markets, it can make day-to-day operations very difficult.
What is a credit default swap?
These were originally set up as a kind of insurance against bad debts. A holder would pay a series of "premiums," and in return would get a payout if a specified organization failed. It's the same idea as paying a life insurance premium, where the beneficiary gets a payout only if the specified person dies. Like life insurance, everything is in balance unless there is an epidemic and people start dying left and right. With more companies going under, or threatening to do so, firms that issued swaps are themselves in trouble. That's what happened to insurer AIG, which sold credit default swaps that protected investors against bond defaults. When bonds started defaulting, AIG itself was left vulnerable.
What is counterparty risk?
When you lend $20 to a friend, the counterparty risk is the chance that he or she won't pay you back. And it works the same way with corporations or financial institutions, although their measurement of risk is a little more sophisticated. If the counterparty risk is high, traders and banks won't lend money unless they get some solid collateral or loan guarantees, or they might just say "forget it."
Commercial paper is normally issued only by the most credit-worthy companies, providing them with short-term cash to run their day-to-day operations. Issuers almost always need to have a credit rating on their commercial paper, because the buyers want assurance that their money is very safe, and will be paid back quickly. But getting a credit rating is an expensive and time-consuming process that is conducted by bond-rating agencies. As a result, most commercial paper is issued only by large, stable companies, or entities such as utilities.
What other measures could the U.S. take if the bailout package and interest rate cuts don't stabilize markets and the economy?
The U.S. government and Federal Reserve have used two of the key tools in its toolkit to try to stem panic and stabilize the financial system: The $700-billion bailout of the problem assets at the big banks, and an interest rate cut. But there are other tools as well that have not come into play yet. They could try to stimulate the weak economy by cutting taxes to individuals, they could beef up spending on federal infrastructure to create jobs, or they could give specific tax incentives, for home purchases for example. And while the U.S. government has already boosted insurance on bank deposits to $250,000 from $100,000, it could follow the lead of some European countries and move to unlimited insurance. And if things get even worse at any of the major financial institutions, the government could take direct equity stakes. That seems an unlikely move, but the current situation is unprecedented.
Where will the $700-billion (U.S.) in the Wall Street bailout package go and how will prices be determined?
The money will be paid to Wall Street firms, banks, pension funds and other companies that hold bad mortgages and other toxic assets. The values aren't known at this point, and the amount paid will be decided in a reverse auction, in which the sellers of the assets compete with each other and decide how cheaply they will sell the toxic debts. The government, through the newly appointed Office of Financial Stability, then pays the lowest price offered.
Will the money ever be recovered?
The U.S. Treasury Department has said there is a good chance it will recover some if not all of the money, although observers are not so certain. Previous rescue efforts have actually turned a profit, although others have cost billions.
Who wins and who loses?
While it's theoretical at this point, financial institutions could win out by having their toxic assets bought by the government at what is effectively a premium. While banks can dispose of some of these assets now, they would be doing so at firesale prices if buyers are found. In an ideal world, the U.S. government would hold on to the troubled assets until maturity, when hopefully the real estate market will have recovered, and then dispose of them at at least breakeven. But it is a long-term process, and thus it is too early to tell how the taxpayer makes out.
ECONOMY
Everybody keeps talking about a recession, but when will we know if we're really in one?
The classic definition of a recession is a period when the economy shrinks for two consecutive quarters. But that is considered very rough and imprecise by most economists.
By that measure we won't know whether Canada or the United States is in recession now until well into next year. The third-quarter gross domestic product (GDP) numbers are due at the end of November, and the fourth-quarter stats will be out at the end of February. In the second quarter, both economies grew.
One of the problems with the simple definition of recession is that it doesn't take into account swings in the economy. If GDP shrinks in one quarter by 2 per cent, rises in the next by 0.5 per cent, then shrinks in the third by another 2 per cent, then the country is not in recession under the definition, although it very likely is, in reality.
On the other hand, two consecutive 0.2-per-cent drops would mean we're in recession, even if there was strong growth in earlier quarters. That's not very realistic either.
GDP numbers can also be skewed by population growth, which can disguise a possible recession. And they are often revised months after the fact, so that what initially looked like a recession might not actually have been one.
"We've had situations in history where a recession has been revised away, two years later," says Dale Orr, chief economist at Global Insight Canada.
Is there a better way to define recession?
Many economists prefer to do a much more complex analysis to determine whether a country is in a recession. What needs to be added into the equation, says Mr. Orr, is data on industrial production, consumer spending and labour markets.
In the United States, the National Bureau of Economic Research (NBER) takes these and other numbers into account to officially declare whether a recession has happened.
The NBER (or more specifically, the NBER's "business cycle dating committee") says that a recession is the period that begins just after the economy reaches a peak of activity, and ends as the economy reaches its trough. Sometimes NBER data show there is a recession, even if GDP hasn't declined for two quarters. That was the case in 2001, when the U.S. was deemed to be in recession even though there were no successive quarterly GDP declines. (Later revisions showed there were GDP declines in the first three quarters of 2001.)
So is Canada in recession? Is the U.S. in recession?
Mr. Orr says Global Insight's view is that Canada is not in a recession. While the economy is pretty much stalled, with little or no GDP growth expected this year, "the labour market is moving along at a pretty good pace."
At the same time, consumer spending appears to be holding up, although some analysts are projecting a very weak fourth quarter.
The Conference Board of Canada weighed in yesterday, saying it thinks Canada will likely avoid a recession.
In the United States, however, all the signs suggest a recession is already under way. Estimates indicate the U.S. economy shrank in the third quarter, and will fall again sharply in the fourth, and again in the first quarter of 2009. Employment also has been falling since the start of the year and there is a definite decline in consumer spending. "There is a wide range of people who are feeling a lot of pain; a lot more than in Canada," Mr. Orr said.
If I lose my job, that puts me personally in a recession, doesn't it?
There is an old joke (recently retold in the Economist) that says that when your neighbour loses her job, it is called an economic slowdown. When you lose your job, it is a recession. But when an economist loses his job, it becomes a depression.
What is a depression, anyway?
There doesn't seem to be any formal definition of a depression. But economists say it would involve a sharp drop in economic activity, as measured by GDP, over a prolonged period of more than two years. That shrinkage would also be accompanied by a rapidly rising unemployment rate and a severe drop in personal consumption. During the most bleak stretch of the Great Depression between August, 1929, and March, 1933, the U.S. economy shrank by 27 per cent, about 10 times as much as during the worst postwar recession.
EUROPE
Why are European banks having more trouble than those in Canada?
European banks are in trouble because their leverage - their assets to equity ratio - is typically much higher than those of their Canadian and U.S. counterparts. In North America, the average leverage ratio is about 20. In Europe, it's close to 40. At the end of June, the top dozen European banks had a leverage range from, at the low end, 18.8 (Royal Bank of Scotland) to, at the high end, 61.3 (Barclays). The European banks' sheer size makes them vulnerable too, in the sense that they may be too big to save. For example, the total assets of Deutsche Bank, Germany's biggest lender, are almost €2-trillion. That's more than 85 per cent of the country's GDP. Political squabbling also has the potential to hurt the European banks. If a big bank with operations scattered across the continent, like Italy's UniCredit or ING of the Netherlands, needs a bailout, who pays? The home country or all the countries where the bank has major subisidiaries?
What did the British government do to bolster the banking sector?
The British government partially nationalized its financial institutions by offering to buy up to £50-billion in preference shares from at least eight of the country's biggest banks and building societies. These include HBOS PLC, Barclays and Royal Bank of Scotland. The move by the Treasury would give taxpayers a stake in Britain's major banks. Treasury chief Alistair Darling stressed Britain was not trying to take control of the banks or attempt to run them. But the government also warned it would not be hands off, saying it would look at the dividend policies and executive compensation schemes of the banks and also wanted a firm commitment to support lending to small business and home buyers.The government also promised to guarantee £250-billion of bank loans. British bank stocks surged on the announcement.
Why is Britain taking a leading role?
As the world's foremost banking centre, Britain has more than most at stake in repairing a system that has so rapidly disintegrated.
"We regard ourselves as leaders in global finance and I think government has really sought to protect that, to protect the city as a global leader in finance," said Charles Davis, economist at the Centre for Economics and Business Research Ltd.
Much of the motivation stems from the role of the country's financial services sector, which represents a higher-than-average chunk of the country's economic activity. Britain was the first country in the world to put together a policy package that addressed the different dimensions of the banking crisis, says economist Margaret Bray at the London School of Economics. Other countries have tackled those problems on a piecemeal basis, but Britain was the first to tackle the issues comprehensively, she said.
Will recent measures fix things?
British policy responses, in conjunction with global efforts to repair the financial crisis, are giving investors reason for optimism.
"It's premature to argue that this is the end of the credit crunch but certainly the pervasive lack of confidence and fraught atmosphere is starting to dissipate somewhat," said Mr. Davis of the Centre for Economics and Business Research.
Government assurances Monday were "exactly what was needed because clearly the markets weren't going to come up with a solution to the systemic problems that the credit crunch created," he added.
The spectacular bounce in stock markets Monday was "encouraging," though it will take more time to see whether interbank lending recovers. Recapitalizing banks and guaranteeing debt will go a long way toward restoring confidence.
Economic challenges remain, though. "We may be getting past the worst of the financial crisis but you still have the economic crisis to deal with next year in terms of the effects on the real economy," Mr. Davis said.
What is Mr. Brown proposing now?
British Prime Minister Gordon Brown wants reforms to the international financial system. His London speech Monday outlined five principles that should govern any overhaul.
First, transparency and the adoption of internationally agreed-upon accounting standards. Second, integrity and closer focus on conflicts of interest. "This includes a system of remuneration founded on long-term success, not short-term irresponsibility," he said.
Third, responsibility and ensuring boards are effectively managing risks. Fourth, closer regulations and supervision of banks. This should also help to "prevent speculative bubbles when markets are rising and to cushion the impact of shocks when they are falling."
Fifth, a new Bretton Woods agreement (established in 1944 and which set up the International Monetary Fund and the World Bank) that would build a new global financial framework for the years ahead. "Sometimes it takes a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed."
Iceland's president said his country could face "national bankruptcy" because of the credit crisis. Can a country actually go bankrupt?
Countries can't go bankrupt in the same way that companies do - closing their doors, sending everyone home, and having their remaining assets seized. But they can become insolvent if they default on their loans and don't repay the interest or principal.This has happened many times over the years, particularly among small developing nations. But in those cases the creditors were not able to seize assets - that would have meant an invasion and takeover of the country. In most cases, world bodies such as the International Monetary Fund work to reschedule or restructure debt so that creditors get some of their money back eventually. At the depths of Latin American debt crisis in 1990, more than four dozen countries were close to bankruptcy because they were unable to pay what they owed. Some were brought back from the brink by the creation of "Brady bonds" - a repackaging of defaulted loans that were backed by U.S. collateral.
FINANCIAL SYSTEM
Are bank deposits safe?
Bank deposits in this country - GICs or other deposits that mature in five years or less - are insured by the Canada Deposit Insurance Corp., a government agency. But the limit is $100,000 per person per institution. and not all financial institutions are members. Depending on the type of account in question, more than one account may be covered to $100,000 at a given bank. In Europe, some countries have recently removed any limits, to make sure that there is no rush of worried customers taking their money out and stuffing it under their mattresses. In Canada there has been no move to change the limit. The CDIC points out on its web site that banks in Canada don't fail often, but "it has happened and it could happen again." In fact, 43 CDIC members - mostly small ones - have collapsed since it was formed in 1967.
What is interbank lending?
Banks normally lend each other cash and short-term securities to help balance out their everyday activities. But lately, banks around the world have been extraordinarily cautious about this lending - partly because they are worried about getting repaid - and this is driving up the interest they have to pay when they want to borrow. This also makes the banks much more cautious about lending out the money they receive in deposits, thus making it harder - and more expensive - for homeowners, small businesses or corporations to borrow. The standard interest rate for interbank loans is Libor, an acronym for the London Interbank Offered Rate. Libor is an average of interbank rates offered by more than a dozen banks, and is calculated every day. The difference between Libor and government bond yields has been growing recently, and that's important because corporate loans, mortgages and student loans are all based on Libor.
Don't banks usually get the money they loan from deposits?
That is usually the case, but the balance is never perfect, and that's why banks lend money to each other. Currently, there is a lot of demand for loans from corporations, which until recently haven't needed much money because they've been so profitable. With little cash available, rates have increased.
Where is the U.S. government getting the money to buy shares in the country's financial firms?
The $250-billion will be part of the $700-billion set aside to help bail out the financial sector. That bigger pot of money, authorized by the U.S. Congress, is likely to be borrowed from the public, corporations and perhaps other national governments, by issuing bonds and Treasury bills.
Of the $250-billion, about half will be used to buy preferred shares and common stock warrants from several of the country's largest banks. Those banks have also agreed to place some limits on executive pay, including a ban on "golden parachutes" during the period that the government holds its stake. The other half will go to thousands of small and mid-sized banks.
The U.S. government will earn an annual dividend of 5 per cent for the first five years and 9 per cent after that. But Washington's holdings will be non-voting.
The banks will be able to buy back the shares from the government when volatility has cooled down and they can raise capital from private investors.
President George Bush also said the government will insure all deposits in non-interest bearing bank accounts, to help businesses worried because their payroll and checking accounts exceed the limits backed by the Federal Deposit Insurance Corp. The government will also back most new bank debt, a change designed to spur more lending between banks.
Why is the U.S. government investing in healthy banks as well as struggling ones?
The government said it didn't want there to be a stigma in accepting the government cash, so it is giving it to both strong banks and weak ones. President Bush said the new capital will help healthy banks continue to make loans to consumers and businesses, while it will help struggling ones "fill the hole created by losses during the financial crisis, so they can resume lending and help spur job creation and economic growth."
Is this the first time the U.S. government has taken equity stakes in private companies?
By no means. Despite the free-enterprise culture of the United States, Washington has often intervened to take ownership of private business. During the First World War the U.S. government took over the railways to make sure that arms and troops were efficiently transported. The trains were returned to private ownership in the 1920s.
The railways were nationalized again during World War II, along with coal mines. The government has also taken direct ownership of banks before. In 1984, when Continental Illinois National Bank and Trust was on the verge of failure after a run on its deposits, a huge rescue package was put in place that resulted in Washington owning an 80-per-cent stake for a decade. In 1994 Continental was finally sold to Bank of America.
Has the Canadian government ever owned shares in our commercial banks?
The Canadian government has avoided any direct investments in Canadian banks, and has tried not to get directly involved in rescuing troubled financial institutions, says Duncan McDowall, a historian at Ottawa's Carleton University.
"The pattern in Canada has consistently been that when commercial banks got in trouble, the federal government allowed them to collapse, or more likely, to fall into the arms of another bank that took its assets and its employees," Prof. McDowall said.
An example: In 1906, the Ontario Bank collapsed, but the federal and provincial governments and other commercial banks arranged to have Bank of Montreal take over its assets and operations.
The only active federal government involvement in banking, Prof. McDowall said, was Canada Post's ownership of the mainly rural Post Office Savings Bank, which had almost 1,500 branches but was shut down in the late 1960s after 100 years in existence.
Aside from that, "there's always been a complete arm's length relationship" between the federal government and the banks, he said. It also helps that the Bank Act is updated every decade or so, "which allows it to be attuned to changes in the market."
Interestingly, the federal government didn't even own the Bank of Canada when it was first established in 1935. For the first few years it was held by private investors, including the commercial banks. But in 1938 the central bank was nationalized and has been in Ottawa's hands since then.
What should be done differently in a new Bretton Woods?
Bretton Woods was formulated more than half a century ago when the world was a different place. Mr. Brown's proposal calls for more co-ordination among national regulators and a focus on global money flows. A new agreement would need to be much more inclusive, said Peter Chowla, London-based policy officer at the Bretton Woods Project, which monitors the World Bank and International Monetary Fund. "We need to involve more people in the discussion. We shouldn't presume one country from a region is going to represent the whole region."
What is Tier 1 capital and what does it tell you about a bank's health?
Tier 1 capital includes a bank's common equity - the value of the shares it has sold to the public - plus the value of its non-cumulative preferred shares, and its retained earnings. These are instruments that can't easily be redeemed by holders, so they are considered permanent.
Tier 1 capital, as a proportion of a bank's overall assets, is a key measure of its financial strength. There are international standards, set by the Swiss-based Bank for International Settlements, for this Tier 1 capital ratio. In Canada, the Office of the Superintendent for Financial Institutions sets the minimums.
Most Canadian banks have Tier 1 capital ratios of around 10 per cent (meaning that Tier 1 capital represents about one-10th of overall assets), well above the OSFI minimum of 7 per cent. The banks also measure second level, or Tier 2, capital which includes not-quite-so-permanent items such as reserves, loan loss provisions, and subordinated debt.
What is the TED spread?
The TED spread is a measure of how much premium banks have to pay when they borrow from each other, and it is a reflection of worries over possible defaults.
Originally, the TED spread was the difference in interest rates between three-month U.S. treasury bill contracts (the "T") and three-month Eurodollar contracts (the "ED").
Now, it usually represents the spread between risk-free three month T-bills and not-so-risk-free three-month LIBOR (the London inter-bank offered rate that banks use for interbank borrowing).
When the TED spread goes up, that suggests bank lenders are worried their counterparties on interbank loans might default. In today's paranoid environment, the TED spread has increased to more than 400 basis points (a basis point is one-hundredth of a percentage point) from "normal" levels of around 30 basis points.
How exactly is the American taxpayer going to pay, directly or indirectly, for the $700-billion bailout package?
The U.S. government's treasury will likely borrow the $700-billion from the public, corporations and perhaps other national governments, by issuing bonds and treasury bills. They will then use this money to buy, at a discount, the distressed assets from the financial institutions that are in trouble. The hope is that when these assets are eventually sold, they could bring in a substantial return to the government, and possibly even make a profit. If it works out as planned, the process should not cost the taxpayer anywhere near $700-billion. Because the process of selling the assets will take time, there should be no impact on the U.S. budget deficit in the short term. If the government eventually takes a loss on the assets it is buying, then it will deepen the deficit down the road.
MORTGAGES AND MORTGAGE INSTITUTIONS
This whole downward spiral seemed to start with U.S. subprime mortgages. What exactly are they?
Subprime mortgages are home loans made to people who would not, under normal circumstances, be ideal candidates to get a mortgage - thus they are "subprime." These are individuals who have a higher risk of defaulting on their loan, such as those who have been delinquent in making payments in the past, or people with a bankruptcy on their credit record, or those who simply don't have a credit history.
Starting around 2005, U.S. lenders loosened their rules and began granting mortgages to borrowers who provided very little evidence of their income and ability to repay. Many of these mortgages had very low initial interest rates, for the first six months to three years, but when that period ended the payments jumped sharply. Borrowers were led to believe that they would be able to refinance their homes at this point because the value of the property would have increased. But the slump in the housing market meant that didn't happen. As a result many people - especially those who had not been completely frank about their income levels - defaulted on their mortgages and lost their homes.
What are Fannie Mae and Freddie Mac? Why the cute names?
Fannie Mae is the nickname of the Federal National Mortgage Association, while Freddie Mac is the Federal Home Loan Mortgage Corp. Fannie Mae is the older of the two. It was created as a government agency in 1938 under U.S. president Franklin Roosevelt's New Deal. The idea was to give local banks federal money to finance home mortgages, since private lenders were leery of lending money. The government wanted to help more people buy homes, and encourage the building of affordable housing. In 1968 it became a private company. Freddie Mac was set up in 1970 to expand the secondary mortgage market, and ensure there was competition with Fannie Mae's monopoly. Both companies buy loans from banks or mortgage firms, and re-sell these as mortgage-backed securities. Together they own or guarantee about half of U.S. mortgages. The two were put under "conservatorship" by the U.S. Federal Housing Finance Agency on Sept. 7 - essentially a takeover by the government.
Who owns Canada Mortgage and Housing Corp. and can it go under?
CMHC was set up by the federal government just after the Second World War to help deal with a housing shortage exacerbated by the huge number of soldiers returning home. It helped finance home construction and provided funds for low-income housing. In the 1950s, when banks got into mortgage lending, CMHC started insuring "high-ratio" mortgages where home buyers initially made only a small down payment. This summer CMHC stopped insuring mortgages with zero down payment or 40 year amortizations.
CMHC also subsidizes aboriginal housing, provides loans and grants for certain kinds of renovations, and gathers statistics on the housing market. It also buys mortgages from financial institutions, and repackages them as mortgage-backed securities, which it sells to investors.
Because CMHC is a Crown corporation - unlike Fannie Mae and Freddie Mac which were private companies - it is backed by Ottawa and could not really "go under."
PERSONAL FINANCE
Do the interest rate cuts mean my mortgage rate or credit card interest rate will go down?
On Wednesday several banks lowered their prime rates by just a quarter of a percentage point, instead of matching the half-point cut in the Bank of Canada's benchmark overnight rate. One bank said it couldn't afford a steeper cut because it is paying so much these days to fund its own borrowing through global credit markets. You will see that quarter-point cut in interest rates if you have a variable-rate mortgage that is tied directly to prime. Other short-term loan rates - certain car loans, for example - that are measured off prime will also go down. But other rates - for five year mortgages, for example - are set based on bond yields, which have been rising sharply, so don't expect any relief. Credit card rates are a function of credit risk, and won't likely see any decline because of the drop in the prime rate.
Why are Saudi Arabia and other OPEC countries allowing the price of crude oil to fall so dramatically? Can they not control the price of oil by adjusting production?
OPEC (the Organization of Petroleum Exporting Countries) does have significant control over production, but it is not an instantaneous process and changes don't always have an immediate effect. In early September the cartel said it would cut production by about 520,000 barrels a day, and OPEC is set to meet Oct. 24 to talk about possible further action. (On Thursday it shifted the meeting forward from Nov. 18.)
Still, as University of Alberta business professor Joseph Doucet points out, OPEC has no direct control over prices, but can merely control the quantity of its production, which has an indirect influence on prices. Other factors - such as the level of crude and gasoline supplies in the United States - can have a greater impact. In addition, Prof. Doucet says, oil prices have been shifting quickly in the past few weeks and production changes take some time to put into place.
The internal politics of OPEC account for yet another complicating factor. "Saudi Arabia has the largest reserves of any OPEC country and is the 'patient' one - the country with the longest view," Prof. Doucet said. "They have an interest in a moderate oil price [because] they want to be able to sell oil for a long time. Countries with shorter views, say Nigeria, have more pressing needs for cash flow ... and thus worry less about long term oil substitution."
And even when OPEC sets quotas, not every country in the organization always respects them.
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