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U.S. jobs and global gloom may mean more mortgage relief: Don Pittis
Interest rate hikes fade into the future as economic recovery appears to go flat
It seems a terrible thing to cheer about, but a new feeling of gloom may be good for Canadians weighed down by mortgage debt.
A worse-than-expected U.S. jobs report and increasing fears for the state of developing world economies mean that U.S. central banker Janet Yellen may have to once again delay a hike in interest rates.
Fed chair Yellen has repeatedly warned that U.S. interest rates are on the way up. Last month, she delayed that rate rise once again while suggesting the increase could very likely come by the end of this year.
Now a growing number of analysts say a hike in U.S. interest rates will be delayed to 2016 or beyond.
Why U.S. rates matter in Canada
Before going on, I should insert a quick reminder of why U.S. interest rates matter to so many Canadian mortgage holders.
While short-term rates are set by the Bank of Canada, mortgage rates depend on the cost of borrowing money on international bond markets. Before lending long-term cash, Canadian banks like to make sure they can spread the load if rates begin to rise. That means they look to the bond market to set the price of the long-term cash they lend.
When the U.S. Fed rates begin to rise, international bond rates begin to rise as well, and banks must pass along those increased interest interest costs to their customers.
As recently as June, Yellen foresaw not just an autumn rate rise, but her advisers on the Federal Open Markets Committee also suggested that rates would continue to rise at about a whole percentage point each year. In other words, long-term rates that were four per cent this year would be five per cent next and six per cent the year after.
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Campaign cone of silence descends on Saudi Arabia arms deal: Neil Macdonald
Warning: this article contains strong language and imagery
The definition of a “campaign issue” is elusive. Generally, it has to do with the self-interest of politicians and the reporters who cover them.
If the former think advancing a subject might mean more votes, they declare that “the people of Canada are concerned.” Journalists then decide whether it’ll sell papers, to use an old term. If the subject clears both bars, it’s a campaign issue.
That entire process took place with remarkable speed last week. The subject of Canadian arms sales to Saudi Arabia was raised, became an issue and died, all within about 24 hours.
- Canada braces for final offers on TPP trade deal
- Canadian Forces explored plan to integrate with U.S. military
The revenant Bloc Quebecois leader, Gilles Duceppe, who has suddenly taken a great interest in anything pertaining to radical Islam, kicked things off during the French-language leaders’ debate last Thursday.
“As we combat ISIS,” he asked Stephen Harper, “We must realize that its ideology was financed and promoted by Saudi Arabia, and we are sending billions worth of arms to Saudi Arabia.
“Would it not be sensible to say that’s enough, we’re stopping arms sales to Saudi Arabia? Wouldn’t that be logical, given our fight with ISIS?”
Harper, a man who has portrayed his government’s foreign policy as more principled and less susceptible to the power of the almighty dollar than other governments, basically replied that there’s a lot of money at stake and thousands of jobs in London, Ont.
The contract to export $15 billion worth of armoured vehicles to the Saudis, he noted, is the largest in Canadian history.
Cancelling it would only punish Canadian workers, he said, and besides, the contract is “support for an ally.”
“Yes, Saudi Arabia is a great ally,” snorted Duceppe. “Wonderful. I’ve taken note.”
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Mark Carney wants business to calculate the fossil fuel future: Don Pittis
Bank of England governor’s climate change warning puts the focus on the bottom line
No doubt Bank of England governor Mark Carney has personal views on whether or not climate change is a danger to his children’s future. Most thoughtful people do.
But when the former Bank of Canada governor spoke to a high-powered audience of insurance executives this week, unlike environmentalists such as Leonardo DiCaprio, he didn’t emphasize their moral obligation to future generations. Perhaps after the VW scandal, he realized there was a more direct way to a businessperson’s heart.
He appealed to their bottom line.
“Changes in policy, technology and physical risks could prompt a reassessment of the value of a large range of assets as costs and opportunities become apparent,” he told the group.
“Longer-term risks could have severe impacts on you and your policyholders.”
- Mark Carney says climate change could have ‘huge’ cost to insurers
- DiCaprio’s move to sell oil stock could affect Canada
When New Democratic Party candidate Linda McQuaig raised some of the same issues in the current federal election campaign, saying part of Canada’s fossil fuel resources might have to be left in the ground, it played as a left-right issue.
Dwayne Roy checks an active well site near Lloydminster, Sask., this summer. Bank of England governor Mark Carney says investors must realize oil may have to be left in the ground. (Reuters)
“For the hundreds of thousands of people whose jobs are dependent on Canada’s energy sector, listen to what you just heard,” responded Conservative candidate Michelle Rempel.
Profit and loss, not left and right
But for Carney’s audience at a Lloyd’s of London black tie dinner, the issue is not a matter of left or right politics, but a matter of profit and loss.
Insurance companies often pay the bills when storms and flooding do their damage. Climate change is likely to make those insurable crises worse.
But perhaps more important, against those potential losses, insurance companies hold trillions of dollars in assets invested in all kinds of stocks and bonds. And Carney said those assets were threatened.
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Canadians piling up more garbage than ever before as disposables rule
There’s a high price to pay for our love affair with products of convenience
We like to think we’re behaving like model citizens, hauling our recycling to the curb and composting our banana peels. But the sad truth is, Canadians are piling up more household garbage than ever before. It appears that even in an era of environmental awareness, we just can’t quit our love affair with convenient, disposable products.
- Canadians produce more garbage than anyone else
- Garbage nation: Why two women want to help Canadians stop piling up the trash
Unfortunately, all that convenience is costing us both environmentally and financially.
According to Statistics Canada’s latest data, the total amount of trash that Canadian households tossed increased by almost seven per cent since 2004 to 9.6 million tonnes in 2012. Although the population rose at a slightly faster rate over that period, the growing trash output is still startling considering the significant ramping up of the country’s many recycling and composting programs over those years.
“I’m not totally surprised but I am disappointed,” says Emily Alfred, waste campaigner with Toronto Environmental Alliance. She says a big culprit is the rapid pace of disposable products piling up in the marketplace.
“The rate of product design and new things being put on the market is faster than most municipalities’ [recycling systems] can keep up with,” she says.
Can’t get enough of convenience
Frozen vegetables in stand-up plastic bags on display in a store freezer. The City of Toronto cannot recycle these bags. (CBC)
One good example — those convenient resealable plastic bags often containing frozen fruit or vegetables that stand upright in a grocery store’s freezer. “It’s great for advertisers because you can now see their products,” says Alfred.
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TSX falls 373 points as commodities sell off again
Canadian dollar loses almost half a cent to close at 74.66 cents US.
Canada’s benchmark stock index lost almost 2.8 per cent on another bleak Monday for commodities like oil, gold and copper.
The S&P/TSX Composite Index lost 373 points to close at 13,004. That’s the lowest level for Canada’s benchmark stock index since October 2013.
The TSX is now down by almost six per cent since the start of September. If that holds until Wednesday, the last day of the month, it will be the worst month for the index since 2012, and the June-to-September period would be the worst three-month period for Canada’s benchmark stock index since 2011.
Almost all of the sub-sectors were lower. Commodities were especially hard hit as the December gold contract fell $13.40 to $1,132.20 US an ounce and the November crude oil contract was down $1.23 at $44.47 US a barrel.
The gloom in commodities was largely tied to more news out of China about that country’s slowing economy. Profits at Chinese industrial firms dropped by the largest amount on record since Beijing started releasing the data in 2011.
“Whenever the market is down, the first place to look these days is China,” John Manley, chief equity strategist at Wells Fargo Fund Management, told The Associated Press.
“Right now, we need evidence that China is not slowing that much and that profits are still going to be OK.”
Alcoa splitting in two
In corporate news, one of the world’s largest mining companies, Alcoa, was a bright spot for mining stocks with the stock rising about six per cent on the NYSE. But that optimism was only because the company announced it was splitting itself into two, to insulate its growing and profitable aerospace and automotive business from its sagging base metals business, which primarily consists of aluminum assets.
Prior to Monday’s bounce, Alcoa shares had lost more than 40 per cent this year as the price of metals cratered.
The Canadian dollar lost almost half a cent amid the gloom, to close at 74.66 cents US.
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Shell ends exploration in Arctic near Alaska ‘for the foreseeable future’
Shell spent upward of $7 billion US on offshore development in Chukchi, Beaufort seas
Royal Dutch Shell will cease exploration in Arctic waters off Alaska’s coast following disappointing results from an exploratory well it just completed.
Shell found indications of oil and gas in the well in the Chukchi Sea about 120 kilometres off Alaska’s northwest coast, the company said Monday in a release from The Hague, Netherlands. However, the petroleum was not in quantities sufficient to warrant additional exploration in that portion of the basin, the company said.
“Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” said Marvin Odum, president of Shell USA, in the announcement. “However, this is a clearly disappointing exploration outcome for this part of the basin.”
Shell will end exploration off Alaska “for the foreseeable future,” the company said.
The decision reflects the results of the exploratory well in the Burger J lease, the high costs associated with Alaska offshore drilling and the challenging and unpredictable federal regulatory environment in offshore Alaska, the company said.
Shell Oil Co. President Marvin Odum, seen on Sept. 2 in Anchorage, said it was “a clearly disappointing exploration outcome for this part of the basin.” (Mark Thiessen/The Associated Press)
Shell has spent upward of $7 billion US on Arctic offshore development in the Chukchi and Beaufort seas.
Monday was Shell’s final day to drill this year in petroleum-bearing rock under its federal permit. Regulators required Shell to stop a month before sea ice is expected to re-form in the lease area.
The company reached a depth of nearly 2,075 metres with the exploratory well drilling in about 45 metres of water.
Environmental groups oppose Arctic offshore drilling and say industrial activity and more greenhouse gases will harm polar bears, walrus and ice seals.
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How Saudi Arabia, and a $15B armoured vehicle deal, became an election issue
Government says contract will create and sustain 3,000 jobs
Niqabs, the economy, national unity — all issues that predictably came up in Thursday night’s French-language debate.
But few had forecast that Canada’s relations with Saudi Arabia, and specifically, a multibillion-dollar contract to sell armoured vehicles to the country, would erupt as an issue. It made for one of the more interesting exchanges of the night, and a reprieve for debate watchers tiring of the party leaders covering the same old ground.
- French-language debate triggers hot exchanges on niqab, economy, national unity
- Raif Badawi prison sentence, lashes upheld by Saudi court
- Raif Badawi: What he has in common with Jason Kenney
- General Dynamics Canada wins $10B deal with Saudi Arabia
- Why Canada stays friends with Saudi Arabia
The issue of whether Canada should be involved in such a deal with a country with a poor human rights record carried forward Friday. Conservative Leader Stephen Harper, as he did the night before, defended the $15-billion deal that Canada helped secure last year, under which the London, Ont.-based manufacturer General Dynamics Land Systems will sell armoured vehicles to Saudi Arabia.
At a campaign stop in Rivière-du-Loup, Que., Harper was asked whether he was putting Canadian jobs ahead of human rights concerns.
“As I’ve said in the debate, it’s frankly all of our partners and allies who were pursuing that contract, not just Canada. So this is a deal frankly with a country, and notwithstanding its human rights violations, which are significant, this is a contract with a country that is an ally in the fighting against the Islamic State. A contract that any one of our allies would have signed,” he said.
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Oil sands pipelines now back on the election agenda
Mulcair may have the most explaining to do in tonight’s French-language leaders’ debate
So now we know. The woman who wants to be the next Democrat to occupy the White House has made a decision that the president she hopes to succeed hasn’t, or won’t.
Hillary Clinton came out against the Keystone XL this week, the Canadian-backed pipeline that would carry Alberta bitumen — and some North Dakota crude — through the heartland of America to the giant refineries on the U.S. Gulf Coast.
“I think it is imperative that we look at the Keystone pipeline for what I believe it is — a distraction from the important work we have to do on climate change,” Clinton said at a meeting in Iowa, which just happens to be a key battleground state for Democrats in the lead-up to the presidential nomination race next year.
She used stronger language in a later tweet, saying “it’s time to invest in a clean energy future not build a pipeline to carry our continent’s dirtiest oil across the U.S.”
- Clinton calls for Canada-U.S.-Mexico climate change plan
- Mulcair the target this time in Thursday’s French leaders’ debate
American progressives and environmentalists — key Democratic constituencies — immediately cheered her decision. Barack Obama likely did, too, from the privacy of the Oval Office.
After delaying his own decision, again and again, Clinton’s statement may well relieve him of having to make one at all.
Clinton, too, had delayed stating where she stood. And for good reason. She was Obama’s secretary of state when her department concluded Keystone XL would have no significant impact on oil sands development, support 42,000 jobs and generate billions in tax revenues in the U.S.
But these days, Clinton is more interested in burnishing whatever climate-friendly agenda she intends to roll out, especially now that she’s facing a real threat for the Democratic nomination from Vermont Senator Bernie Sanders.
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Spin cycle: Can 1.3-million new jobs be created in 5 years?
This election has a theme common to almost all others before it: everyone is promising more jobs
The promise of jobs, jobs, and more jobs has long been a staple of election campaigns.
NDP Leader Tom Mulcair has promised a basket of goodies to help manufacturing and other sectors create jobs, as well as help for young people and veterans to connect with the new jobs.
The Liberals, meanwhile, decided to go big or go home by promising $125-billion in infrastructure spending — even if it means short-term deficits.
Now it seems the Conservatives, not wanting to be outdone, are making a bold promise of their own.
Perhaps channeling Babe Ruth, Conservative leader Stephen Harper figuratively pointed to the faraway bleachers on Tuesday and promised “1.3-million net new jobs.”
The spin
“I would say that there is no reason why we can’t have a similar record on that we have now,” Harper told reporters on Tuesday.
Harper points out that the economy created 1.3-million new jobs since the “depths of the global recession.”
Of course, those jobs were created in large part by the unprecedented stimulus spending the government launched — including the largest deficit in Canadian history.
This time around is quite different. Harper’s plan to duplicate the results involves maintaining a balanced budget, reducing employment insurance premiums two years from now, and re-introducing the home renovation tax credit.
The counter spin
“I find that number, to put it mildly, wildly optimistic,” Liberal Leader Justin Trudeau said.
Trudeau is dismissing this as just another empty campaign promise.
No one is going to campaign against creating more jobs. In fact, as mentioned, everyone in this campaign is promising that.
The critique, and indeed the test, of Harper’s promise is whether or not it is a realistic goal and, if so, are the measures in place to achieve it.
Economics and demographics
To borrow an old adage, if you asked 12 economists if tax cuts lead to job creation — you are likely to get 13 different opinions.
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On the economy, politicians debate, central bankers decide
Bank of Canada pushing stimulus; Conservatives, NDP talking austerity. Go figure
The idea that a prime minister is the “steward of the economy” is a convenient bit of fiction, co-created by politicians and the journalists who cover them.
It was an explicit theme of last night’s leaders’ debate; at one point, the moderator actually asked NDP leader Tom Mulcair “why should the electorate hand the national economy over to you?”
- Federal leaders trade pointed barbs during economy debate
- Spin Cycle: Is the NDP’s corporate tax hike a ‘job’s killer’?
- Follow CBC’s complete election coverage
This notion is convenient to prime ministers because of their need to appear in charge of everything; convenient to opposition leaders, who need to assign blame for everything; and convenient to those journalists who thrive on reductive, easily digestible notions that smell like truisms.
In reality, though, a prime minister gets to decide how federal spending is allocated, and federal spending accounts for roughly 15 per cent of the $1.8-trillion Canadian economy.
Actually, even that is too sweeping: the prime minister decides how a portion of that 15 per cent is spent.
Most federal spending is structurally entrenched (entitlement programs, equalization payments, transfers to provinces, etc.) or politically entrenched.
Enter Stephen Poloz
Still, there is one Canadian official who probably does deserve the steward-of-the-economy title. It’s almost his job description, but you won’t hear much about him during this campaign, because he isn’t running for election, and because most people have only a dim understanding of what he does. He went unmentioned in last night’s economic debate.
But Bank of Canada governor Stephen Poloz not only has the unilateral power to change the financial circumstances of almost every Canadian tomorrow, he is almost certainly considering at the moment whether he should use it.
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Foreign buyers driving demand for luxury homes, Sotheby’s says
Luxury housing segment ($4M+) is hotter than the overall market in Vancouver, Toronto
International demand is expected to keep driving luxury real estate sales in Canadian cities for the rest of the year, according to a report from Sotheby’s International Realty.
A faltering Chinese economy and volatile global stock markets are likely to encourage an influx of foreign buyers, especially from mainland China, the company said in its fall outlook report.
- Foreign ownership on Vancouver real estate needs ‘creative’ policies: David Mulroney
- Should we tax foreign buyers of Vancouver real estate?
- More data on foreign homebuyers won’t address affordability problem, say experts
Sotheby’s notes the surge in luxury sales in the first half of the year, with sales of property in the $4-million range rising 71 per cent in Vancouver and 72 per cent in the Greater Toronto Area.
Toronto and Vancouver are Canada’s hottest housing markets where even modest detached houses are priced at over $1 million.
With interest rates low and stable employment in both cities, 2015 has seen huge demand for housing in both cities, with more buyers than homes on the market.
But the luxury segment is even hotter than the overall housing market in Toronto and Vancouver, Sotheby’s said.
It predicts demand for condos over $1 million – considered a luxury price for a condo — will remain strong in both markets, especially near the downtown core. But the strongest percentage sales increases will be seen among detached homes in the $4-million range, it forecasts.
In Vancouver, demand for traditional luxury neighbourhoods will push high-end buyers east and south with neighbourhoods in Vancouver East and South Vancouver emerging as new options, Sotheby’s said.
Montreal also saw a period of heightened interest in its luxury properties in the fall of 2015 after the election of a Liberal government, Sotheby’s said. A luxury price in Montreal is in the $1.5-million range. The market is now more balanced, but foreign demand is picking up, it said.
When good loans go bad among junior energy companies
The energy sector is facing a season of pain as its loans are renegotiated.
This is shaping up to be a deeply unpleasant autumn for junior energy companies and the banks that lent them hundreds of millions of dollars.
“Everyone got hall passes until the fall, but the principal is going to be standing in the hall wanting his passes back.”– Bruce Edgelow, ATB Financial
Banks typically review their loans twice a year, but the last review took place in the spring when it looked as though oil prices might be poised to make a recovery. There are no such illusions now.
- Alberta has lost 35,000 oilpatch jobs, petroleum producers say
- Oilpatch pain will continue, say 3 wise men
“Everyone got hall passes until the fall,” said Bruce Edgelow, head of energy banking at ATB Financial. “But the notion is that the principal is going to be standing in the hall wanting his passes back.”
Looking for the exit
Oil reserves are worth a lot less than they were a year ago. That has banks looking to renegotiate their loans in the energy sector. (REUTERS)
The investment bank Canaccord Genuity suggested that Canada’s banks are going to be looking to reduce their exposure to oil and gas loans by 15 to 20 per cent, simply because lending to energy has become too risky.
This has come as a shock to some juniors. The relationship between banker and corporate borrower tends to be pretty jolly when times are good, with money on tap for growth plans and parties during the Calgary Stampede. But when those loans become troubled, they are passed to another group, whose job it is to collect or otherwise get the debt off the books.
It’s a little less friendly.
“When you move files to the special loans teams, in most of the eastern banks, they are managed by the eastern-based special loans guys and their sole mandate is to get off the position,” said Edgelow. “Not necessarily to restructure and return it to health.”
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Goldman Sachs downgrades oil forecast, says $20 per barrel is possible
Investment bank predicts average price of $45 a barrel next year, but lower isn’t implausible
Goldman Sachs has bad news for anyone banking on the oil price rebounding any time soon, saying in a report that the price of crude could fall to $20 per barrel by the time it’s all said and done.
The investment bank downgraded its oil forecast on Friday, saying the oil glut is proving to be far worse than forecast and shows no sign of fixing itself in the short or medium term.
“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” the analysts wrote in a note to clients on Friday.
- Oil at $10? Don’t laugh, it’s happened before
- Don’t shed any tears for the part of Big Oil that’s making a killing
The bank now assumes that a barrel of West Texas Intermediate, the dominant North American oil blend, will average $45 through next year — down from $57 a barrel the last time the bank had a forecast.
Oil lost another $1.15 on Friday to close at $44.77, so a call to stay at that level for the next 18 months or so can’t be good news for oil companies
But the future could be even worse — that’s just the scenario the bank thinks is most likely.
There’s an outside chance the price could fall even lower because “while not our base case, the potential for oil prices to fall to such levels, which we estimate near $20 a barrel, is becoming greater as storage continues to fill,” the bank said.
Supply and demand imbalance
Goldman Sachs listed several reasons for their pessimism. It thinks OPEC isn’t as willing as some people believe to turn off the taps until prices rebound. Instead, OPEC seems to be increasing production, trying to rake in as much revenue as possible even if it means they are making less money for every barrel.
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Should we cry or rejoice as Russia steps up in Syria?
Vladimir Putin has vastly different objectives in Syria than the West, but not much has worked so far
Such is the torment of Syria’s ongoing war that the idea of Russia sending in its forces to attack ISIS have caused a rare diplomatic mix of alarm and excitement.
I mean, really, would that be truly bad news? Or something to be hoped for, given all the recent disasters there? Would more direct Russian involvement prolong the fighting, or shorten it? Do we even have a clue?
We know only that intelligence reports have Vladimir Putin’s Russia stepping up large transport flights of new military equipment for Syria, as well as barracks for personnel on the ground.
And now Reuters is reporting that Russian forces have begun participating in military operations alongside Syrian government troops.
The U.S. had warned Moscow against any such move, even if meant to fight ISIS, a common enemy.
Washington’s position is that more direct Russian involvement, beyond the military advisers it’s had in the country, would further escalate the fighting, increase refugee flows, and risk even broader extension of a conflict now destabilizing much of the Middle East.
Certainly Russia’s responsibility for the bloodshed there over these past four years is substantial as it has been, along with Iran, the primary supplier of arms and diplomatic muscle to the besieged Assad government.
Until now, at least, no boots on the ground, but plenty of planes and ammo.
Always Syria’s friend. A Syrian election poster last year on a micro-bus shows, from left, Syrian President Bashar al-Assad, Russian President Vladimir Putin and Lebanese Hezbollah leader Hassan Nasrallah. (Reuters)
On the other hand, what has the West’s own vague, often distracted and mostly hands-off policy achieved?
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Interest rate cuts a two-edged sword for Bank of Canada: Don Pittis
Another decrease could spur exports but would announce serious pessimism
Conjure up an image of Bank of Canada governor Stephen Poloz in Hamlet pantaloons, hand to brow, declaiming to the middle distance: “To cut or not to cut?”
A confusion of contradictory economic data means it may be a melancholy choice. If the Bank of Canada were to lower interest rates for a third time this year at this Wednesday’s meeting, the cut could spur exports and challenge other countries that have pushed their currencies lower.
But there is a danger that it may instead be taken as a warning.
- Canada creates 12,000 jobs but jobless rate rises to 7%
- Buy Canada. The bullish case for the Canadian economy
- Recession confirmed as Canadian economy shrinks again
A poll of 40 economists last week by Reuters didn’t rule out another cut in rates. The consensus was that there was a one in four chance of a cut this week, and a 40 per cent chance of another cut “at some point.” But the most likely result, said the economists, was a rate freeze till 2017.
Frozen
More than a year of rates frozen at 0.5 per cent is not a resounding vote of confidence in a Canadian recovery. But in the face of that steady-as-she-goes opinion from economists, another rate cut would be a two-edged sword.
Cutting interest rates would help keep the Canadian property market strong. (Darren Calabrese/Canadian Press)
Lower rates would make it easier for Canadians to keep up their borrowing binge, helping retail sales and keeping house prices strong. More usefully, it would help secure lending for struggling or expanding businesses.
A byproduct of lower rates is a lower loonie. If, as many have said, our shrinking trade deficit can be credited to a low Canadian dollar, then a still lower loonie could be even better.
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