Gold soars to 28-year record of $850 U.S.

Gold soars to 28-year record of $850 U.S. TheStar.com - Business - Gold soars to 28-year record of $850 U.S.

Gains $22.10 per ounce on oil, weak greenback

January 03, 2008

Lisa Wright
Business reporter

Happy days are here again for gold bugs as the price of bullion finally broke the $850 (U.S.) record set nearly 30 years ago – and the industry sees it heading toward $1,000 an ounce in the coming months.

"It's unquestionably going to be a golden year," said analyst John Ing of Maison Placements Canada Inc.

The first trading day of 2008 began with a bang for bullion as the spot price jumped $22.10 in New York to close at $857 an ounce.

It's all thanks to a decidedly sluggish outlook for the U.S. economy, which hurt the greenback yesterday. Gold and the U.S. dollar tend to move in opposite directions.

Other commodities joined the party yesterday – including record highs for oil and platinum – along with a boost in copper and silver prices. Though gold stocks have been slow to follow gold's rise, the sector on the Toronto Stock Exchange rose 7.5 per cent with companies including Barrick Gold Corp. and Kinross Gold Corp. enjoying the ride.

Bullion's rise comes on the heels of an increase last year of more than 30 per cent. Last November, it almost hit its old 1980 record before an anticipated correction before Christmas.

"It's a resumption of last year's rally," Ing said.

"The next target is $1,000 an ounce, which is quite realistic in the first part of this year."

He pointed to strong supply-and-demand fundamentals, including the scarcity of new gold deposits globally along with voracious demand from China and India in the midst of one of the hottest bull markets ever for all things metallic.

Bullion is also widely considered a safe haven in which to weather currency storms and uncertain times, and these days that qualifies.

Last week's assassination of Pakistani opposition leader Benazir Bhutto has only increased worries on the geo-political front.

"The recent rise in gold is a combination of things. The U.S. is entering a recession and that has increased (expectations) of interest rate cuts," said analyst Craig Stanley of Desjardins Securities.

Extending last year's weakness, the U.S. dollar fell again yesterday against the euro and the yen after a new report showed U.S. manufacturing unexpectedly contracted last month.

The U.S. news follows last week's spate of housing figures also indicating a slowdown.

That in turn caused investors to hedge against both inflation fears and the expected continuing decline in the U.S. dollar by flocking to gold.

Stanley says gold has also been helped by the fact that big producers such as Barrick and Newmont Mining Corp. have unwound their controversial hedge books – the strategy of forward selling to protect against a falling gold price – signalling confidence in the metal.

Gold may have surpassed the old spot price closing record, but analysts note that in inflation-adjusted terms, $850 (U.S.) an ounce would be $2,200 in the current marketplace.

When gold last hit a record on Jan. 21, 1980, it was propped up by many of the same things as today: the weakening U.S. currency and higher oil prices. Times were also turbulent with the hostage crisis in Iran and the Russian invasion of Afghanistan.

Gold faced tough times after that peak, sliding into a bear market through most of the following 20 years as investors turned to stock markets and the U.S. dollar, with inflation falling to historic lows. Gold has since rallied, rising every year for the last seven years.

Is Oil Supply At Its Peak?

Is oil supply at its peak? TheStar.com - Business - Is oil supply at its peak?

JEFF ZELEVANSKY/REUTERS

Traders work in the crude oil pit on the floor of the New York Mercantile Exchange on Jan. 2, 2008. Geopolitical worry and demand concerns vaulted oil prices to a record $100 (U.S.) a barrel on the day.

Some market watchers say the end of increases in conventional crude output already at hand

January 03, 2008

Tyler Hamilton
Energy Reporter

"The peak in oil production does not signify `running out of oil,' but it does mean the end of cheap oil, as we switch from a buyers' to a sellers' market." – Energy Bulletin's "peak oil primer"

It's the summer of 2006. Osama Bin Laden warns the United States against becoming involved in Somalia. Mexicans elect a new president. And the international community strongly condemns North Korea for its testing of long-range missiles.

But only one event during this time could go down in the history books as forever changing the course of industrialized economies. The summer of 2006 is when the average amount of crude oil pumped out of the ground reached about 85.7 million barrels a day, according to the International Energy Agency.

That, say many followers of "peak oil" theory, is about as good as it's going to get.

And with spot oil surpassing the symbolic $100 (U.S.) mark yesterday for the first time, before easing slightly to close in New York at $99.62, more market watchers are asking: Has global production of oil hit a wall?

"You never know you're at peak until after the fact," says Jeff Rubin, chief economist of CIBC World Markets.

But with 18 months behind him, Rubin is increasingly convinced the days of easy, plentiful oil are gone. Even if December data show record production in the fourth quarter of 2007, there's growing consensus that, at the very least, oil supply has reached a plateau.

"I just don't think we're going to see increases in conventional oil production any more," Rubin says. "I think (peak oil) is here."

So do citizens of a local group called Post Carbon Toronto, created in 2004 to "learn about peak oil and its consequences."

The group holds a public meeting every month, and has for more than three years, to discuss what the city and country can do to avoid the local impact of what they believe is a certain global energy crisis.

Their concern is understandable. Peak-oil theory suggests that once we've passed peak production, rising demand combined with declining output will cause oil prices to soar, perhaps dramatically as the potential for conflict escalates in many oil-producing countries.

Daniel Lerch, author of Post Carbon Cities: Planning for Energy and Climate Uncertainty, says knowing the exact date of peak oil isn't what's important.

"What matters is that oil prices will become volatile and progressively higher when demand increases and supply can't keep up."

If panic sets in, many contend the situation will spark a global depression.

Only those regions that wean themselves substantially from fossil fuels, by switching to emission-free energy resources such as renewables and nuclear, will be able to weather the economic storm.

Hence the name "Post Carbon Toronto."

After meetings, this diverse group of "peakists" – retired academics, former city politicians, engineers, scientists and even one restaurant manager – often go to a nearby pub to passionately debate the issue over a beer. In between meetings they continue the dialogue through an email list, allowing the sharing of information and forwarding of magazine and newspaper articles that add evidence to their belief that peak oil is here.

"Even if the optimists are right, their peak prediction of 2030 is scary enough," says Jim Lemon, 78, a retired geography professor from the University of Toronto who has been following the peak oil debate for roughly a decade.

Lemon, like most moderate peakists, doesn't count so-called unconventional oil when discussing peak theory. He knows there's lots of hard-to-get petroleum in oil shale deposits located in Colorado, Utah and Wyoming, and in Alberta's tar sands.

At issue for him is the black gooey stuff that made the Beverly Hillbillies rich – the "black gold" or "Texas tea" that bubbled out of the ground after a stray bullet from Jed Clampett's shotgun struck ground.

The Organization of Petroleum Exporting Countries currently account for about 40 per cent of this easy oil, and the debate centres on whether countries such as Saudi Arabia can, as they claim, increase their output at will.

"The OPEC countries are very secretive about what they've got, and that's part of the problem," says Lemon, adding that retired oil-industry workers from the Middle East often debunk reports coming out of OPEC. "They're all saying the same thing: It's not as good as what we're saying officially."

Peakists also get their information in other creative ways.

According to Lemon, "some guy upstairs over a bakery in Geneva" has eyes on the ground that count each day the number of oil tankers leaving the Strait of Hormuz, a narrow and highly strategic passage that carries one-fifth of the world's oil supply.

But even the "official" scenario is beginning to change. The International Energy Agency, which over the years has been relatively optimistic about oil output, was uncharacteristically gloomy in November with its latest outlook.

"Although production capacity at new fields is expected to increase over the next five years, it is very uncertain it will be sufficient to compensate for the decline in output at existing fields and meet the projected increase in demand," the agency said, declaring a trend that could threaten the world's energy security.

MP Dennis Bevington, the federal New Democratic Party's energy critic, is worried that the Canadian government isn't taking peak oil seriously enough. In November, he made a statement in Parliament that called for public discussion of the issue, and emphasized the need for a national energy strategy that anticipates the coming energy crunch.

He calls it "disturbing" that most members of Parliament have been silent on the issue, even as oil prices dance around the $100 mark. The government is "telling a lie," he says, when it links the country's energy future to the tar sands and other dirty and expensive sources that, by many estimates, won't compensate for steady declines in conventional oil production.

Many oil analysts and executives are quick to point out new finds in the Gulf of Mexico, such as Chevron Corp.'s Jack 2 well about 430 kilometres southwest of New Orleans. The ultra-deep-water well is said to have anywhere from three to 15 billion barrels of recoverable oil-equivalent reserves.

A similar deepwater find off the coast of Brazil, about 7.2 kilometres beneath the ocean's surface through sand, rock and salt, could produce up to eight billion barrels. But Bevington says ultra-deep-water wells are costly, risky and take a long time to develop.

"These areas that require intensive, long-term investment of capital and engineering, like the tar sands, just can't develop fast enough to fill the gap that this easy conventional oil we've been living off for the last 100 years has been supplying," he says.

"You could say, you're crazy, there's lots of oil out there in the world, but it's so hard to get now, the ability of these industries to mobilize the manpower and equipment in this already overcharged energy industry is very difficult."

Besides, says CIBC's Rubin, headline-grabbing "finds" such as Jack 2 don't tell the whole story. "Jack means nothing in the grand scheme," he says. "What people have to realize is that we lose several Jacks every year to depletion."

Meanwhile, a number of individual oil giants are showing signs their own production has peaked, including Shell, BP, Conoco-Phillips and ExxonMobil. Many have lost their rights to develop in countries such as Venezuela, shrinking both the market and opportunity for growth.

It's why, as far as Rubin is concerned, BP broke its promise not to invest in Alberta's oil sands at risk of tarnishing its green image. It's also why major consolidation in the oil sands is inevitable, and could be Canada's biggest business story in 2008.

"The world is getting smaller and smaller for these guys," says Rubin. "When you're schlepping through barrels of sand to get a barrel of oil you're into the bottom of the 9th here. This isn't exactly low-hanging fruit, but where else is there to go?"

The effects of peak oil won't necessarily plunge the world into depression, but higher and higher energy prices will change the way we do business. Rubin suggests there will be a reversal of globalization trends, such as a return to regional economics.

"Distance is going to start costing on a scale never seen before, at least not in the context of post-war economies," Rubin says.

"So that's bullish for somebody in the Holland Marsh.

Copper gained on Wednesday with buyers returning to the market

Bargain hunters push copper prices higher

ANNA STABLUM

Wednesday, January 02, 2008

LONDON — Copper gained on Wednesday with buyers returning to the market after selling in the last days of 2007, but doubts about global economic growth dampened sentiment, analysts said.

Other commodity markets hit records, with gold rising to an all-time high of more than $850 (U.S.) per ounce and oil touching $100 per barrel, but positive sentiment in these markets did not spill over into industrial metals.

“There is a bit of bargain hunting ... volumes are much better than New Year's Eve but the markets are still pretty subdued,” analyst Leon Westgate at Standard Bank said.

Copper for delivery in three months on the London Metal Exchange was up $85 at $6,755 per tonne at the end of the day after it earlier traded up to $6,820.

MF Global's technical charts for copper were neutral at these levels with prices drifting in a range with support at $6,430 and resistance at $7,080, analyst Edward Meir said in a report.

“The bias could resume towards the downside, especially if U.S. numbers disappoint this week,” he said.

On Monday the metal, used widely in sectors such as construction and power, fell about 2 per cent to close at $6,670.

The U.S. Institute for Supply Management index for December, a key gauge of U.S. economic performance, was at its lowest since April, 2003, data which knocked the dollar, but metals prices did not immediately react.

The U.S. Federal Reserve at 19:00 (GMT) will release minutes from its last rate setting meeting in which it cut rates by 25 basis points.

“The market will take this week to assess the situation and then it will pick up next week,” Westgate said, pointing to the reweighting of fund indices.

Between January 8 and 14, the Dow Jones AIG commodity index

will adjust the weighting of many commodities including zinc, nickel, copper and aluminum.

The adjustment is likely to involve the purchase of about 250,000 tonnes of zinc.

“Zinc would likely be the main beneficiary,” Mr. Westgate said.

Zinc ended the day $85 higher at $2,400/2,402 a tonne, after shedding around 45 per cent in 2007.

However, the impact of the reweighting was expected to be short-lived as the markets looked sluggish due to concerns about the health of the world's economies and future metals demand, Standard Bank's Westgate said.

Economic growth in China, copper's top consumer, is expected to slow moderately this year as cooling policies take effect, the State Information Centre said.

Gross domestic product growth is projected to ease to 10.8 per cent in 2008 from an estimated 11.4 per cent last year.

Copper rallied 5 percent during 2007, its sixth straight annual increase, but well short of the 44 per cent gain in 2006.

Concerns about slowing Chinese demand growth as well doubts about the U.S. economy weighed on base metals in the latter part of 2007, prompted by credit worries and a spate of dismal data, which helped drag copper down from above $8,300 in October.

Despite that, LME stocks ended the year at 197,450 tonnes, equivalent to around four days of world consumption, and only 7,000 tonnes higher than at the end of 2006. Shanghai stocks were at 25,597 tonnes, down around 5,700 tonnes from the end of 2006. On Wednesday, LME stocks rose 1,475 tonnes to 198,925.

LME aluminum picked up $31 to $2,451.

The lightweight metal could be a strong performer in 2008 after it fell 14 per cent in 2007, buoyed by high energy prices.

Nickel, the key ingredient in stainless steel, closed at $27,200 per tonne, up from its previous close of $26,350.

Tin was untraded but quoted at $16,350/16,400 per tonne, down $50. Earlier it fell 4 per cent to an intraday low of $15,750 on option related selling which triggered stops, traders said.

Three-months lead gained $65 to $2,615 per tonne.

© Copyright The Globe and Mail

Fed rate cut prompted by worries about housing, credit problems

Fed rate cut prompted by worries about housing, credit problems

JEANNINE AVERSA

Wednesday, January 02, 2008

WASHINGTON — Worsening problems in the housing, credit and financial markets drove the Federal Reserve to do an about-face in December and slice its key interest rate yet again with the hope it would help bolster an economy that was losing speed, according to meeting minutes made public Wednesday.

All those problems also greatly increased uncertainty about the economy's outlook, prompting Fed policy makers to keep all their option open about their next move, the minutes of the closed door meeting on Dec. 11 revealed.

“Although members agreed that the stance of policy should be eased, they also recognized that the situation was quite fluid and the economic outlook unusually uncertain,” the minutes said.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed to trim the Fed key rate by one-quarter percentage point to 4.25 per cent, a two-year low. The central bank ordered its key rate to be lowered three times last year; the December reduction was most recent one.

The decision to cut rates essentially marked a reversal for the central bank, which had hinted at its previous meeting in October that the Fed's two rate cuts probably would be sufficient to help the economy survive the housing and credit stresses. But the economy's problems intensified after that meeting, forcing the Fed to change its stance.

“Members judged that the softening in the outlook for economic growth warranted an easing of the stance of policy at this meeting,” the minutes said. “In view of the further tightening of credit and deterioration of financial market conditions, the stance of monetary policy now appeared to be somewhat restrictive,” according to the minutes.

The 9-1 decision for a quarter-point reduction in December was opposed by Eric Rosengren, president of the Federal Reserve Bank of Boston. He preferred a bolder, half-percentage point cut.

In Mr. Rosengren's view, the worsening housing slump, high energy prices and more cautious spending by individuals and businesses raised the risks of continued economic weakness, the minutes stated. “In light of that possibility, a more decisive policy response was called for to minimize that risk,” the minutes said, explaining Mr. Rosengren's concerns.

However, the other Fed policy makers also had concerns that rising energy prices could spread inflation through the economy. That concern figured into the Fed's decision to cut rates by a modest one-quarter point cut in December, the minutes suggested.

“Inflation pressures and risks remained,” according to the minutes.

To bolster the economy, many economists predict the Fed will slice rates yet again at next meeting, on Jan. 29-30, the first regularly scheduled gathering of 2008. The economy is believed to have slowed sharply in the October-to-December, probably to a pace of just 1.5 per cent or less, according to analysts' projections. Economic growth in the first three months of this year also is expected to be weak.

The big worry among economists is that individuals will clamp down on spending and businesses will become reluctant to hire workers, throwing the economy into a tailspin. The odds of a recession have grown, with some economists putting it just under 50 per cent.

© Copyright The Globe and Mail

Oil hits $100 a barrel

Oil hits $100 a barrel

ROMA LUCIW
Wednesday, January 02, 2008

Oil prices surged to $100 a barrel (U.S.) for the first time on record Wednesday, kicking off the New Year by hitting the key psychological mark.

Crude futures for February delivery jumped $4.02 to $100 a barrel at 12:09 EST on the New York Mercantile Exchange, the highest since trading there began in 1983, then eased back down to $99.29. The previous record of $99.29 was reached on Nov. 21, 2007.

Wednesday's surge to $100 marks a nominal record for oil. Prices are also within their range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 – or more – today.

Phil Flynn, an analyst at Alaron Trading in Chicago, said the $100 mark is significant only in that it is a big psychological milestone. “It is the number that we talked about back when oil was at $20. Everybody was obsessed with this number and now that we hit it, maybe we can get it out of our system and focus on fundamentals.”

Mr. Flynn expects that crude will pull back to the low $90s in the coming weeks. “In the last week, we have had every bullish oil story we could get. But a lot of these issues are likely not going to impact oil in the coming months.”

He noted that with many traders still off on holidays, volume levels were down by roughly half on Wednesday.

“Apparently there was one trade on the floor that pushed us through $100. We hit a little air bubble of buying and it came right back down,” Mr. Flynn said in an interview. “A lot of the big players in oil are still on holidays and with no one to step in with a cooler head, the market is getting pushed around.”

Crude oil prices have been on a tear and jumped more than 58 per cent in 2007, driven by rising demand in developing nations like China and India, tight inventories and U.S. dollar weakness. The most recent surge was triggered by violence in Nigeria and Pakistan, a spell of cold weather in parts of the United States and anticipation of further decline in U.S. crude stockpiles.

Bart Melek, global commodity strategist at BMO Nesbitt Burns, said that if supply-demand and geopolitical conditions warrant it, there is no longer any reason to think the world cannot cope with $100 a barrel oil. “Once these psychological barriers are broken, they can be broken again quite easily.”

Canadians should be prepared to dig deeper into their wallets for fuel and gasoline, since the surge in crude will translate into higher prices, he said. “People should expect fairly high prices.”
Higher crude might also increase inflationary pressures around the world, which would place the Bank of Canada and its global counterparts in a precarious situation, Mr. Melek said. “The banks must be worried that high oil prices may translate into inflationary pressures and that may slow down the rate at which they lower interest rates.”

Mr. Melek expects that a weakening U.S. economy will weigh on crude prices in 2008. His annual forecast calls for prices to average around $80 in 2008.
Meanwhile, the White House said Wednesday it would not release fuel from the nation's oil reserves to drive down soaring prices, unless there was a true emergency.

“Doing a temporary release of the Strategic Petroleum Reserve is not going to change prices very much,” said White House press secretary Dana Perino. “We know that from past experience.”

Analysts pointed to a myriad of short-term developments that were boosting oil prices on Wednesday, including violence in Nigeria, Africa's largest oil producer.
Bands of armed men invaded Port Harcourt, the centre of the country's oil industry, attacking two police stations and raiding the lobby of a major hotel. Four policemen, three civilians and six attackers were killed, and the increased tensions sparked concern of supply disruptions.
Separately, the Organization of Petroleum Exporting Countries indicated its member nations may not be able to meet their share of global demand as early as 2024, though OPEC also said that deadline could slide for decades if members increase production more quickly.
An ongoing dispute between the U.S. and Iran, OPEC's second-largest producer, also contributed to oil's rally.

On top of that, investors expect that U.S. crude inventories fell by 1.8 million barrels last week, which would be the seventh weekly decline in a row. Supplies of distillates, which include heating oil and diesel, are also forecast to drop on increased demand amid the wintry weather. The weekly government report will be delayed by one day because of the New Year's holiday, and is slated to be released on Thursday.

With files from The Associated Press
© Copyright The Globe and Mail

Here's how to cut investment risk in scary 2008

Here's how to cut investment risk in scary 2008 TheStar.com - columnists - Here's how to cut investment risk in scary 2008

January 02, 2008

Ellen Roseman

In a recent column, I said the ongoing credit crisis will keep generating nasty news into 2008. And I said investors should cut their risk and protect their capital.

"How do I proceed?" asked one reader. "I'm a very small fry investor with (as you would guess) mutual funds that are heavily weighted in equities."

So, here's my advice on how to reduce the risk of your investments.

Make sure you have a balanced portfolio.

When investing for the long term, you will face many gut-wrenching times when the stock markets are choppy and heading down.

You may find it hard to sit tight during a slump that lasts a year or two. Many people panic and sell as they see prices going lower and lower.

With a balanced portfolio, you can weather the storms more easily. This means keeping 20 to 50 per cent (or more, depending on age and stage of life) of your money in investments, such as bonds, that don't tend to go down when stocks go down.

Open a high-interest savings account. If you check the interest tables in Monday's business section or on thestar.com, you'll find more than a dozen banks offering 3.75 per cent or more on short-term savings accounts.

You're not taking a risk by going outside the Big Five banks, because your deposits are protected for up to $100,000 per account by the Canada Deposit Insurance Corp. For information, go to www.cdic.ca on the Internet.

Put some money into bonds or fixed-income mutual funds.

When you hold bonds directly, your capital will be returned to you if you hang on until maturity (as long as the bond issuer doesn't go bankrupt). You will need a stockbroker or online brokerage account to invest in bonds on your own.

Bond funds can also be good choices. But make sure the management expense ratios, or MERs, are reasonable, because they cut into your returns.

At thestar.com, you can search for mutual funds with low MERs. I'd suggest looking at Canadian fixed-income funds that charge 1.5 per cent or less. Good choices include PH&N Bond and Beutel Goodman Income among actively managed funds; RBC Canadian Bond Index and TD Canadian Bond Index among passively managed funds; and iShares Canadian Bond Index Fund, which trades on the Toronto Stock Exchange (symbol XBB).

Take a look at dividend income funds.

The managers invest in high-yield common and preferred shares and income trusts: generally, mature companies with generous payouts. The stock prices don't fall too far unless the market thinks the dividend may be cut.

The Big Five banks offer monthly income funds with excellent safety records. You won't go wrong with any of them.

Read a good book on investing.

Gordon Pape, a prolific Canadian financial author, tells people how to hold a panic-proof portfolio in a book coming out this month, Sleep-Easy Investing (Viking Canada).

He says low-risk investors should avoid common stocks, income trusts, most exchange-traded funds (except bond ETFs) and precious metals mutual funds.

Gail Bebee of Toronto is a self-taught investor, who has learned by trial and error to manage her own portfolio.

Procrastination is the enemy of successful investing, she says in her new self-published book, No Hype: The Straight Goods on Investing Your Money (sold online at www.nohypeinvesting.com).

So, make a resolution to start rebalancing if you're too heavily invested in stocks or equity funds. Your future security depends on it.

---

Ellen Roseman's column appears Wednesday, Saturday and Sunday. You can reach her by writing care of Business, the Toronto Star, 1 Yonge St., Toronto M5E 1E6;

Economists present their 2008 outlooks

TheStar.com - Business - Economists present their 2008 outlooks

STEVE RUSSELL/TORONTO STAR

Doug Porter, chief economist at BMO Capital Markets, foresees an average oil price of $81 (U.S.) per barrel and a loonie ending the year near 95 cents.

Most expect stock market returns of less than 10% as investors deal with impacts of slower U.S. growth

January 01, 2008

Madhavi Acharya-Tom Yew
Business Reporter

It was a high-flying year – and then some – for the Canadian dollar and oil.

While the Bank of Canada raised interest rates, then promptly cut them, and the stock market managed to eke out a single-digit gain on the year, it was the loonie and crude oil prices that sent financial markets reeling in 2007.

The price of oil hit an all-time high of $99.29 (U.S.) a barrel on Nov. 21, though the story of its rise started in 2003. The price of oil has quadrupled in four years, driven by surging demand from China and other developing economies.

Meanwhile, production cuts by the Organization of Petroleum Exporting Countries and rising geopolitical turmoil have put the squeeze on the supply side. The price rose about 58 per cent from the start of this year alone, leaving the average for 2007 at about $72 per barrel.

Yesterday, light crude oil prices settled at $95.98 a barrel, off two cents, on the New York Mercantile Exchange.

The Canadian dollar soared to parity with its U.S. counterpart for the first time in 30 years in September.

The currency rose to an all-time high of $1.10 on Nov. 7, though it has since hit some turbulence. The loonie – which closed yesterday at $1.0088 – has risen about 18 per cent this year, strengthened by higher commodity prices.

The S&P/TSX composite index scratched out a small gain yesterday, leaving the benchmark Canadian market up about 7 per cent for the year.

That's enough for investors to breathe a sigh of relief after the global credit crunch that wreaked havoc on the stock markets through the summer and fall, but it's also a far cry from the healthy 14.5 per cent gain the market saw for 2006.

The Bank of Canada, worried that a surging Alberta economy would boil over, raised the key overnight bank rate by 25 basis points to 4.50 per cent in July. It then cut the rate back to 4.25 per cent in December, much to the relief of exporters and manufacturers in Ontario and Quebec who have been broadsided by the loonie's rise.

What's in store for the next year?

The Toronto Star asked three economists for their outlooks for 2008 on oil prices, the Canadian dollar, the S&P/TSX composite index, and whether the Bank of Canada will raise or lower interest rates.

Benjamin Tal, CIBC World Markets

Oil: "We believe oil prices will remain elevated. This is not an oil shock. This is a permanent structural change in the economics of oil.

"We have huge demand coming from China, India, and supply is limited. We see oil prices averaging about $100 (U.S.) in 2008."

Canadian dollar: "We see the Canadian dollar losing some ground over the next six months and then regaining this ground and closing the year at about $1.05.

"It will stay below par for six months or so, reflecting some softness in commodity prices, but we believe by the second half, we will see overall recovery in global economic growth and the U.S. economy."

Interest rates: "We see the Bank of Canada cutting interest rates by 25 basis points because of the credit crunch early in 2008, then taking a break for the rest of the year, with potentially starting to raise them toward the end of the year."

Stock market: "We are bullish on the stock market. We think the next few months will continue to be very volatile.

"Beyond that, we believe we will see a significant rebound in the stock market as the credit crunch will come to an end, and it will end up to be not as bad as some people believe.

"We also think the North American economy will start the process of recovery. We see the S&P/TSX ending 2008 at roughly 16,000 points."

Clément Gignac, chief economist at National Bank Financial

Oil: "We see oil prices averaging $75 (U.S.) for 2008, largely because of a deceleration of the worldwide economy, with a huge headwind from the U.S. side.

"I think we will find that gasoline demand is probably more cyclical than structural. If you lose your job, and go less often to the restaurant, the shopping centre, and less often to Florida, you will use less gasoline."

Canadian dollar: "On one side, I see a headwind on commodities and oil prices. On the other end, I see rate cuts on the U.S. side, which will support the Canadian dollar. After five years of aggressive targets on the Canadian dollar, this year I'm very low profile with my target. I predict a trading range of 97 cents (U.S.) to $1.03."

Interest rates: "We're working with assumption of a significant easing on the U.S. side to avoid a recession. We expect easing in Canada as well, though not as much since the economy is running at full capacity already with tame and friendly core inflation. We see the Bank of Canada cutting rates by a maximum of 50 basis points."

Stock market: "I'm working with a 12,800 target on the S&P/TSX – a negative return. Even with a negative return, 30 to 35 per cent of stocks will deliver a positive return. Some sectors will be better than others ... For instance, life insurance stocks will continue to outperform banking stocks and gold will outperform base metals."

Doug Porter, BMO Capital Markets

Oil: "We're looking at an average price of $81 (U.S.). A lot of the spectacular increase we've seen over the last six months would be sustained, but we do think there's a bit of air built into those prices, so it could come off a bit from current levels."

Canadian dollar: "We see it hanging around parity for the first half of the year and then slowly receding to about 95 cents by the end of the year. That would still leave the currency with an average exchange rate of about 98 cents. Most of the spectacular gains we've seen since the spring would be sustained."

Stock market: "We see a mild to modest gain of under 10 per cent for 2008. The market will be dealing with slower growth and softer profit gains on one side, but lower interest rates on the other side.

"But the stock market always tends to surprise. There's always the possibility it could have a nice bounce if the U.S. economy turns out to be better than expected and interest rates come down and inflation pressures ease. That's the combination it would take to fire the market up."

Interest rates: "We see modest interest-rate reductions by the Bank of Canada.

"The decline in core inflation and slower growth leave the door open for further cuts, but I don't think they're going to embark on a major rate-cutting campaign, because the unemployment rate remains so low.

"We see one 25-basis-point rate cut early in the year and possibly a second one after (new Bank of Canada governor Mark) Carney takes over."

The year Timminco soared 7,000% TheStar.com - Business - The year Timminco soared 7,000%

Ore, fertilizer, BlackBerrys helped 2007 markets while debt crisis, recalls and patent losses took toll

January 01, 2008

Gary Norris
THE CANADIAN PRESS

It was the best of times, for those who bought stock in Timminco Ltd. a year ago and watched it gain more than 7,000 per cent.

It was the worst of times for shareholders in Coventree Inc., Menu Foods Income Fund and even former blue chips like Quebecor World or Loblaw Cos.

The benchmark S&P/TSX composite index gained about 7 per cent for the year but, as always, the average concealed a tumultuous cavalcade of thrills of elation and pangs of agony.

Shares in Timminco, a Toronto-based maker of specialized metal, ended 2006 at 30 cents on the Toronto Stock Exchange. By the end of this year, jolted by sales of high-purity silicon for solar-power applications, it was at $21.95, a gain of 7,216 per cent. The company, majority owned by AMG Advanced Metallurgical Group NV, lost $4.6 million in its latest quarter as sales slipped 2 per cent to $43 million.

At the other extreme, the "nobody's perfect" contingent featured Coventree, a company few had heard of before Aug. 13 but which had found a profitable business issuing asset-backed commercial paper. Coventree stock started 2007 at $14.80 and hit $16.30 before the summer credit-market convulsion. It traded yesterday at 77 cents, down 95 per cent on the year.

Among other conspicuous calendar-year ups and downs:

Research In Motion rode rampant over the threat of Apple's iPhone, a stock-option-grant review and fears that financial-market turmoil would decimate the ranks of BlackBerry-thumbers in expensive suits. RIM stock split three for one and ended the year at $112.56, up from $49.67 – a gain of 127 per cent.

Posting a steeper if less widely tracked gain than RIM was Major Drilling International, a provider of drilling services for the global mining industry, based in Moncton, N.B. MDI closed 2007 at $62.60, up 140 per cent for the year.

Fertilizer bloomed as demand boomed. Potash Corp. of Saskatchewan rose 158 per cent, while Agrium Inc. added 102 per cent and China-centred Hanfeng Evergreen Inc. grew 243 per cent.

While it was a miserable year in the forest industry – Tembec Inc., for example, lost 80 per cent of its market value – TSX-listed Chinese tree-farm operator Sino-Forest Corp. rose 173 per cent.

Infrastructure was also big. Aecon Group Inc. saw a 256 per cent stock-price rise on the year, outpacing 50-per-cent-plus gains for fellow engineering providers SNC Lavalin Group and Stantec Inc.

It was a tough year for many in the oil patch. Precision Drilling Trust fell 44 per cent, but Petrobank Energy and Resources Ltd. rose 238 per cent.

Among other notable gains, Thompson Creek Metals was up 65 per cent, WestJet climbed by half and Bell Canada showed a 26 per cent increase thanks to the country's biggest-ever corporate takeover, by a group led by the Ontario Teachers' Pension Plan.

Coventree had no shortage of company in the doghouse, including pet-food maker Menu Foods Income Fund, down 90 per cent on the year after an adulterated ingredient from China poisoned pets.

Investors in CV Technologies Inc. kept feeling worse all year. The maker of the cold and flu remedy pitched by Don Cherry bombed, ending down 78 per cent from a year ago, afflicted by disappointing sales, accounting woes and allegations of lobbying irregularities.

Bigger and more established drug maker Biovail Corp. tumbled 46 per cent as generic competition ravaged its Wellbutrin antidepressant franchise amid U.S. regulatory approval delays and the retirement of founder Eugene Melnyk.

So how about stashing your cash in a massive international commercial printer? Quebecor World churned out an 87 per cent loss, hurt by operational woes, executive-suite uproar and a deepening financial crisis. Parent company Quebecor Inc. finished down just 2 per cent, supported by its Vidéotron cable-TV subsidiary and media holdings. But the year was less kind to TV and newspaper operator CanWest Global Communications Corp., down 35 per cent.

Another family-controlled giant, Loblaw Cos., slumped 32 per cent during 2007 as Galen Weston Jr. struggled to turn around Canada's largest supermarket company. Parent company George Weston sagged 28.5 per cent.

Toy maker Mega Brands Inc. tumbled 76 per cent as its woes piled up after a major recall of magnetic building sets blamed for injuring children who swallowed the pieces.

Also down by three-quarters on the year was Cinram International Income Fund as investors tuned out the world's biggest maker of pre-recorded CDs and DVDs in an increasingly online world.

The Canadian banking industry had its most profitable year ever, but the debt crisis took a toll on share prices. Hardest hit was CIBC. Itsexposure to securities based on the U.S. mortgage market knocked its stock down 28.5 per cent. TD Bank finished the year almost exactly where it started.