Leap in home building offers hope
Construction of new homes has surged by a surprising eight per cent in June, prompting analysts to say the housing market in Canada has turned the corner and begun recovering.
The annual pace of housing starts rose to 140,700 units in June from 130,300 in May, with the increase in activity spread across different types of buildings, said the national housing agency, Canada Mortgage and Housing Corp.
“The increase in housing starts in June is broadly based, encompassing both the singles and multiples segments,” said Bob Dugan, chief economist at CHMC. “In addition, Western Canada experienced an increase this month.”
The leap in activity was much stronger than anticipated. Analysts had been expecting a small increase, after seeing decreases in nine of the previous 12 months.
While home construction is still 30 per cent less active than a year ago, there are many signs that the bottom has been reached and the housing market has moved on to a slow recovery, said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.
High-yield bonds remain attractive
The price of high-yield bonds has soared in the past three months as the economic situation has reverted into just a really awful recession. And now that a reprise of the Great Depression is averted, high-yield bonds still look like good value in spite of rising default rates and sizeable gains since March.
Companies issuing speculative-grade debt are the riskiest borrowers in the corporate credit universe because they are most likely to default on their debt. They have all sorts of bad habits such as high levels of indebtedness and highly volatile earnings. At the end of 2008 when the U. S. financial sector was collapsing, investors bailed out of this sector fearing heavy defaults and losses.
Those fears were realized as speculative-grade borrowers have been squeezed in a vise — on one side by falling earnings and on the other by contracting credit. The old story that credit is easy to get — until you really need it, best describes the plight of these companies.
What comes after The Great Recession?
There is growing consensus that a global economic recovery is in the making, albeit the pace will be tepid and restrained. Momentum should, however, build through 2010 and 2011.
The question we should start asking is, ‘What comes next?’ In part this will depend upon the skill and will of central bankers. They will need to withdraw their unprecedented monetary stimulus with surgical precision– not so quickly as to jeopardize recovery but not so slowly as to stoke the inflation fire.
But the world economy will still be a dangerous place. In the name of mitigating the downturn, the U. S. federal government will go from around a 40% debt-to-GDP ratio to 100% within a few years and many states are racking up large fiscal shortfalls as well. The United States will not likely deal with this exploding debt very well. They will find it difficult to cut spending or raise taxes sufficiently. Even if financial sector regulations are improved around the world, this type of imbalance could provoke the next economic cycle. And even if another crisis is avoided, the United States will be exporting to the world lower growth, a depreciating dollar and premiums on bond yields as the inexhaustible supply of debt floods the global markets.
Real estate recovery expected to be tepid
The worst of Canada’s housing market woes appear to be past but the sector’s rebound will be tenuous as a rise in mortgage rates and high unemployment limit the recovery in prices and sales.
Property experts say first-time buyers and Bank of Canada rate cuts have helped restore stability to a market that slumped from late 2008 to early this year, when the worst leg of the global financial crisis battered consumer confidence.
“We should be less fearful than we were six months ago, but I don’t think we should be exuberant yet. The resale markets in Canada are very strong. May numbers were pretty good, and June numbers will be even better,” said Will Dunning, an economic consultant who specializes in the housing market.
“But by July and into the fall there will be an offset of considerably slower activity. I don’t think it’s likely to go off a cliff. It’ll depend on what happens in employment and the broader economy, and how that affects confidence.”
Recent data suggest Canada’s residential property market, which weathered the financial crisis much better than its hard-hit U.S. counterpart, has been thawing for several months.
The latest Canadian Real Estate Association data shows May resale home prices rose 0.4 per cent to $319,757, topping the previous record set a year earlier. It was the first year-over-year increase since May last year. And sales activity climbed for a fourth straight month.
Harper Government has Launched $1-Billion Clean Energy Fund, Invests in New Technology, Creates Jobs
Canada will further demonstrate its leadership in the development and advancement of clean energy technologies thanks to the launch of the $1-billion Clean Energy Fund, announced in May by the Honourable Lisa Raitt, Minister of Natural Resources, during an address to the University of Alberta.
“By investing in the Clean Energy Fund, our Government is encouraging new technologies now to help protect and preserve our environment for future generations,” said the Honourable Lisa Raitt, Minister of Natural Resources. “Not only will this funding protect our long-term energy security, but this additional stimulus creates high-quality jobs for Canadians at a time when they’re most needed.”
The Fund invests $850 million in technology development and demonstration. This includes $650 million for large-scale carbon capture and storage (CCS) demonstration projects and $200 million for smaller-scale demonstration projects of renewable and alternative energy technologies.
‘Boring is cool’ for Canadian banks
In any other industry at any other time, trying to build an ad campaign around stability would send shudders through marketing mavens. But there has never been a better time to be a stodgy Canadian banker.
“I guess boring is cool and Canada is cool,” said Jim Little, chief brand officer with Royal Bank of Canada, explaining the bank’s decision to play up its nationality in an ad campaign aimed at U.S. and British capital markets.
A few months ago, you might never have known Canada’s No. 1 and 2 banks, Royal Bank and Toronto-Dominion Bank, were big players in global banking.
Canada’s success in emerging nearly unscathed from the financial crisis changed all that. Caution has a new cachet, and the nation’s bankers are embracing their inner maple leaf.
“We were always worrying about how we’d be seen, because when we’re in the United States, we act like Americans,” said TD Bank chief executive officer Ed Clark, whose U.S. retail operation has been marketed as “America’s most convenient bank.”
“Now it’s actually a positive to say, yes, we happened to be owned by a Canadian bank.”
It was perhaps U.S. President Barack Obama who opened the door to Canadian banking bravado when he hailed the nation’s sound banking system back in February. The compliment followed the World Economic Forum’s ranking of Canada’s banking system as the world’s soundest.
Before long, marketing executives at the big banks noticed a newfound interest in Canada’s conservative credentials among capital markets and investment banking clients.
Is Canada’s housing market tanking or taking off?
The Canadian housing market is beginning to look like a large jumbled puzzle. A week after a report showed the price of an average house had soared to a record high, an alternate report suggested Wednesday prices have in fact declined for five consecutive months.
Both sources are respectable, and their data accurate. But different methodology has led to a discrepancy between the figures. So where does the Canadian housing market stand?
Economists and those in the real estate industry believe conditions fall somewhere in the middle.
The price of a Canadian home was down 6.7% in April from a year earlier, the relatively new Teranet–National Bank House Price Index showed Wednesday. It was the fifth consecutive month of yearly decrease and caused the index to be down 8.9% from its peak in August. Home prices in Vancouver were down 10.9% from April last year, while prices dropped 9.8% in Calgary and 7.6% in Toronto. On a positive note, prices were up 2.4% in Montreal, 0.6% in Ottawa and 0.2% in Halifax.
Alberta aims to revive natural gas industry
The government of Alberta, sideswiped by the recession and depressed natural gas prices, is stepping up its efforts to resuscitate drilling and compete against massive supplies of shale gas from British Columbia and the United States.
Premier Ed Stelmach’s government is expected on Thursday to extend royalty breaks on natural gas production. Observers also believe the government could make one permanent change that would see a low rate of 5 per cent on the production from gas wells in their first year, a move considered key by the industry.
A spokesman for the provincial Energy Minister said the government would not announce new incentives but rather extend a program related to existing breaks, allowing drillers to plan.
The changes would mark the fourth adjustment of royalty rules since a decision to raise rates was made in late 2007. But for the first time the province is also expected to acknowledge the stiff competition for investment capital from recent massive shale gas discoveries in British Columbia, Texas and Louisiana. Shale gas is natural gas trapped in barely-porous rock.
Investing in Canada: 3 Top Stocks to Buy Now
I’ll say it right up front: investing in Canada is one of my top five-year investing themes.
The Canadian dollar is cheap (in PPP terms) versus the U.S. dollar. Canada’s banks are strong and more conservative than ours and its government is conservative and sensible. And unlike the United States, Canada is an energy exporter. In fact, Hydro-Quebec is the world’s largest producer of hydroelectric power.
Here then are three top Canadian stocks you should buy now to maximize your returns in 2009.
Top Canadian Stock #1
In a recent interview posted at Kudlow’s Money Politics, Canadian Prime Minister Stephen Harper told readers, “We have, I think, the only banks in the western world where we’re not looking at bailouts… We haven’t got any TARP money… We don’t have a Fannie Mae or Freddie Mac equivalent mucking around in the system.”
See any difference here from the Barney Frank, Chris Dodd, Hank Paulson, Captain Geitner approach?
Bank of Nova Scotia (BNS) is my number-one Canadian bank stock. Founded in 1832, the Bank of Nova Scotia got off to a rough start. None of the board members really knew anything about banking, and the man chosen to manage the bank swindled it to the tune of C$315,000. Not a small sum in 1844. But Bank of Nova Scotia bounced back.
Today, Bank of Nova Scotia is one of Canada’s “Big 5″ banks. For 2008, Scotia Capital, Bank of Nova Scotia’s investment banking arm, was named Best Investment Bank in Canada and Best Investment Bank globally in the infrastructure sector by Global Finance magazine.
Buy Bank of Nova Scotia below trend.
Alberta’s oil sands show signs of life
Unlimited overtime pay was just one of the many perks John Halbauer enjoyed as a welder during Alberta’s super-sized energy boom.
That’s disappeared, along with 11 of the 25-year-old’s 13 co-workers who got laid-off in January. “I was worried. I didn’t know if I was going to have to move back home or what,” the Kimberley, B.C., native said.
His employer, Harley’s Welding Inc., is located in Nisku, an industrial park south of Edmonton that caters to the province’s notoriously unpredictable oil and gas industry. Most companies were hit hard when the global economic crisis and plummeting energy prices side-swiped Alberta late last year.
But in recent weeks, Mr. Halbauer and many others in the province have noticed that the economy is slowly improving, especially in the northern half of Alberta.
“We are almost really busy. Work is rolling in,” Mr. Halbauer said.
Indeed, a run-up in oil prices and recent news that two oil sands projects, including Imperial Oil Ltd.’s $8-billion Kearl mine outside Fort McMurray, are going ahead has buoyed many.
But the optimism is guarded, and no one is predicting another unprecedented boom for Alberta, once the country’s hottest economy.
Earlier this year, Statistics Canada estimated that oil-sands spending will drop to $13.2-billion in 2009, down more than 30 per cent from last year. Billions worth of capital projects have either been scrapped or put on hold.
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