Canadians sitting on $45 billion

TheStar.com - Business - Canadians sitting on $45 billion

Keeping more money than usual in cash has already cost investors $9 billion since Jan. 21
May 08, 2008 James DawBUSINESS COLUMNIST

Canadian investors are showing a record level of caution in the face of turbulent stock markets.
Economist Benjamin Tal of CIBC World Markets Inc. calculates we are sitting on an extra $45 billion of safe money.

It's languishing in money market mutual funds, brokerage accounts, savings and chequing accounts and government securities, barely earning enough to keep ahead of rising prices.
"The overall liquidity position held by Canadian households is now rising at a year-over-year rate of 15 per cent – the fastest rate in more than six years," Tal writes in a report released yesterday.

"When measured in both nominal and real terms, the current value of personal liquid assets is at a record high (with about $45 billion or 10 per cent more than what) would have been consistent with a risk aversion level seen at the eve of the current financial crisis."

If the entire excess sum were suddenly redeployed to earn capital gains from Canadian stocks, it would not be enough to change markedly the direction of Canada's leading stock index, valued at about $1.7 trillion.

Nor will the sidelining of this amount of money ruin retirement or pension plans, assuming the money is spread thinly across the whole spectrum of retail investors.
Yet Tal worries ordinary investors will repeat errors of the past, hold excess cash too long after markets have started to recover and sacrifice a higher return over several years. Already the timidity of investors has cost them a potential $9 billion.

The extra cash, if it had been put into the S&P/TSX composite index before Jan. 21, would have grown nearly 20 per cent. The recovery of the Toronto market since then has left it as the only major market in the world to post positive results for 2008, a modest 4.2 per cent as of yesterday.

That sort of gain could be quickly reduced, or lost altogether, of course.
The risk of stock prices falling with the United States near or in a recession may explain why investors have set money aside.

They haven't poured it into stocks, bonds or mutual funds, or even real estate, as investors did during the scary times of 2001 and 2002.

Donald Drummond, chief economist at TD Bank Financial Group, says that, "when there are downturns in the market, people do tend to exit fairly quickly and they do stay out and, on balance, miss the bottom.

"That's a bit of human nature, isn't it?

"But sitting here at the beginning of May, who is to say that is wrong, and that we are necessarily at the bottom? I think there is a lot of grief to come, and for an extended period of time in the U.S., and I find it hard to believe that won't spill over into Canada."

But Tal says he is taking a longer-term perspective, and not making a prediction on the direction of the market, when he cautions against keeping more money than usual earning short-term interest rates.

Based on historical stock-market returns, the difference could be 35 per cent over five years, he estimated quickly during an interview.

"We are bullish on the stock market, (because of the relative health of the Canadian economy and outlook for commodity prices) but that is something that is secondary and not part of this analysis," he insists. "We know from history that cash has underperformed the stock market in general.

"Basically, what we are saying is, if you sit on $45 billion extra cash, down the road you are basically sacrificing return, without getting into the timing of the market, whether or not the market has already rebounded or whether or not we have another small correction."
The securities industry does, however, have a vested interest in seeing investors assume more risk and shift money from low-cost mutual funds to higher-cost equity and bond funds.
An extra 1 percentage point of management and distribution fees on $45 billion translates into $450 million over a year if the investor earns zero return, and more if his or her investments grow in value.

Both Tal and Drummond say the extra funds held in low-return, readily cashable investments are not an indication Canadians have stepped up savings.
With home prices rising and employers still hiring, consumers are continuing to buy, although sales of homes have been falling.

"In 2001, real estate was like comfort food. You sell your (equity) mutual funds and go to money market, or you go into real estate. Today, you are not doing that," Tal says.

"Today, the real estate market is perceived, maybe rightly so, to be at the peak, and therefore more money is coming into cash. That is why the cash position is larger than in 1987 or in 2001."

Petrolifera to webcast corporate presentation at its annual meeting

Petrolifera to webcast corporate presentation at its annual meeting of shareholderscnwCALGARY, May 7 /CNW/ - Petrolifera Petroleum Limited (PDP - TSX) announces that it will be webcasting the Corporate Presentation which is scheduled at its Annual

Meeting of Shareholders being held on Thursday, May 8, 2008 at the Devonian Room at The Calgary Petroleum Club in Calgary. The Corporation's presentation will be made by Mr. R. A. Gusella, Executive Chairman and Mr. Gary Wine, President and Chief Operating Officer. The presentation will be webcast by CNW Group and will commence at approximately 3:15 PM MDT on Thursday, May 8, 2008.

To listen and view the presentation please follow the link to the webcast on Petrolifera's website at www.petrolifera.ca or

on CNW at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2256100.

Why oil prices are at a record high

TheStar.com - Business - Why oil prices are at a record high
May 06, 2008 Reuters

U.S. crude oil hit an all-time high of $122 a barrel Tuesday.
Robust demand for crude and a weak dollar have fuelled the rally from a dip below $50 at the start of 2007.

Adjusted for inflation, oil is now above the $101.70 peak hit in April 1980, according to the International Energy Agency, a year after the Iranian revolution.
DOLLAR WEAKNESS

The fall in the value of the dollar against other major currencies has helped drive buying across commodities as investors view dollar assets as relatively cheap.
It has also reduced the purchasing power of OPEC's revenues and increased the purchasing power of some non-dollar consumers.

OPEC oil ministers have noted that although prices are rising to record nominal levels, inflation and the dollar have softened the impact.

Some analysts say investors have been using oil as a hedge against the weaker dollar.

FUNDS
Since the Federal Reserve cut U.S. interest rates in mid-August last year and central banks pumped billions of dollars into financial markets to ease a credit crunch, oil and gold have risen.
Investment flows from pension and hedge funds into commodities including oil have boomed, as has speculative trading. At the same time, the credit crunch has brought some other markets, such as the U.S. asset-backed commercial paper market, to a virtual standstill.
Some of that money has found its way into energy and commodities, analysts say.

DEMAND
While previous price spikes have been triggered by supply disruptions, demand from top consumers the United States and China is a main driver of the current rally.
Global demand growth has slowed after a surge in 2004 but is still rising and higher prices have so far had a limited effect on economic growth.
Analysts say the world is coping with high nominal prices because, adjusted for exchange rates and inflation, they have been until now lower than during previous price spikes and some economies have become less energy intensive.

OPEC SUPPLY RESTRAINT
The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, started to reduce oil output in late 2006 to stem a fall in prices.
Fewer OPEC barrels entering the market helped propel the rally and consumer nations led by the International Energy Agency have urged OPEC to pump more oil.
At its meetings since December, OPEC has agreed to leave output unchanged, saying there is enough crude in the market. It next meets formally Sept. 9.
Few in the group believe there is much it can do to tame a market it says defies logic.

NIGERIA
Supply of crude from Nigeria, the world's eighth-largest oil exporter, has been cut since February 2006 because of militant attacks on the country's oil industry.
Oil companies and trading sources have detailed 564,000 bpd of shut Nigerian production due to militant attacks and sabotage.

IRAN
Oil consumers are concerned about supply disruption from Iran, the world's fourth-biggest exporter, which is locked in a dispute with the West over its nuclear programme.
Western governments suspect Iran is using its civilian nuclear programme as a cover to develop nuclear weapons. Iran denies this, saying it wants nuclear power to make electricity.

IRAQ
Iraq is struggling to get its oil industry back on its feet after decades of wars, sanctions and underinvestment.
Exports of Kirkuk crude from the country's north are stabilizing as the system recovers from technical problems that had mostly idled the pipeline since the U.S.-led invasion of Iraq in March 2003.

REFINERY BOTTLENECKS
Refiners in the United States, the world's top gas guzzler, struggled with unexpected outages which have drained inventories.

Price Of Oil :Same old obsession

Same old obsession

Tuesday, May 06, 2008
Scratch out the old record for crude oil and replace it with this one: $122.36 (U.S.) a barrel. Yes, oil has returned with a vengeance from its recent slump, rising nearly 9 per cent in the past four trading days, and $2.39 a barrel on Tuesday alone.

You can blame it on perceived supply disruptions in Nigeria or the weaker U.S. dollar or the fact that Goldman Sachs has predicted oil prices could jump to a high of $200 a barrel within the next six to 24 months – but either way, oil is back on the minds of investors.

That, of course, is good news for a big chunk of the S[amp]amp;P/TSX composite index. It rose 77 points, or 0.5 per cent, to 14,351 at midday on Tuesday, led by commodity producers. Energy stocks were up 2.2 per cent and materials stocks were up 1.7 per cent. In particular, Canadian Oil Sands Trust shot up 5.2 per cent.

The Dow Jones industrial average fell 23 points, or 0.2 per cent, to 12,947, weighed down in part by concerns over the impact runaway energy costs are going to have on the already-fragile U.S. consumer. Home Depot Inc. fell 1.7 per cent and Wal-Mart Stores Inc. fell 1.4 per cent.

The broader S[amp]amp;P 500 fell 2 points, to 1405. Curiously, two bad-news stocks were among the biggest winners. Yahoo Inc. jumped 6.6 per cent a day after takeover talks with Microsoft Corp. fell through, sending its stock hurtling downward. Is there still hope for a deal?

As well, Fannie Mae shrugged off earlier losses after it reported dismal results in the first quarter and announced plans to raise capital. Its stock rose 5.1 per cent.

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