The year was 2005. Tiger Woods was beginning what was sure to be a long and blissful marriage to wife Elin, Mel Gibson was the darling of Hollywood after steering “Passion of the Christ” to over $600 million at the box office and US house prices were at record highs after 5 consecutive years of stellar growth. Life was good. Little did we know that Mel was on the verge of a very public break down, Tiger was about to get caught with his pants down and the US economy was standing on the precipice of financial meltdown. The housing market was built on a foundation of weak lending standards, rising personal debt and a speculative fever which had gripped the nation and it was a foundation which was about to crumble, claiming with it some of the largest institutions on Wall Street. Continue reading →
“To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual.”
– Oscar Wilde
Governor Carney will be hoping that the words of Mr. Wilde ring true in the coming months if his plans to revive the declining Canadian economy prove successful. In the face of decreased exports, poor progress in the US Government’s efforts to revive their economy and with little sign of the problems in the EU abating, the Bank of Canada (BoC) has opted against changing interest rates, as it announced on Thursday, last week. After raising its benchmark lending rate three times this year it came as no surprise to see Carney play it safe in the face of continuing international uncertainty and decreasing growth fuelled largely by a decrease in exports. The Bank of Canada’s Financial System Review for December highlighted the current plight of the European financial system as a key risk to Canada’s economic prospects. Although the report points out Canada has limited direct exposure to the sovereign debt of the likes of Greece and Ireland, were these problems to spread to more prominent members of the EU, such as Spain, it could reek havoc on the global bank funding markets. Given this level of uncertainty it would certainly seem prudent to follow a “wait and see” strategy and leave interest rates unaltered, until the degree of damage can be better understood. Continue reading →
Variable will be the winner for the next couple of years. The Bank of Canada came out on October 19th and decided to keep interest rates unchanged. This was no surprise. What may have been slightly surprising to those focused on the consistent gains of the North American equity markets was the language used in the statement that followed the decision. The Bank of Canada revised its forecasts for growth downward for 2012, leading us to believe that they see something on the horizon that will slow Canadian growth.
The Bank realizes that the eventual reduction of stimulus being poured into the Untied States will have a dramatic effect on the Canadian economy. In this current term of economic uncertainty the United States Government is propping up its economy with incredible sums of money. Some of this money is very transparently entering the economy through mortgage buy back plans, cash for clunkers, employment generating schemes, and infrastructure spending. The rest of it is entering the economy a little more secretly, through debt and equity market purchases by the Federal Reserve. Once these schemes are relaxed, or as the Federal Reserve would have us say, “When quantitative easing is reduced”, surely some change will occur? Continue reading →
Variable rate mortgages and good information are still by far the best two ways to ensure you are saving money on your mortgages. The Bank of Canada meets tomorrow and most economists forecast an increase in our country’s overnight rate. This is probably the safe bet. However, I believe that there is a strong argument for the Bank of Canada to hold rates as they are. Continue reading →
The Bank of Canada (B.O.C.) raised its key policy rate 25 bps to 0.75%, as was expected. This will mean an increase in variable rate mortgage rates by the same amount. In a statement released, The B.O.C. echoed its previous sentiments:
“Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.” Continue reading →