December 2007 Market Research

[BMironov]

Statistics CanadaResidential construction investment (Dec 3, 2007)
http://www.statcan.ca/Daily/English/071203/d071203c.htm

QUOTE Residential construction investment achieved a new record in the third quarter of 2007, reaching $24.3 billion, an increase of 9.0% over the same quarter in 2006. Increases were seen in new housing (+10.1%), renovations (+8.4%) and acquisition costs (+5.7%).

Spending for new residential construction climbed to $12.4 billion, a 10.1% increase over the third quarter of 2006. Single-family home investment made the most significant contribution to the growth in this component, increasing 10.9% to $7.9 billion. Apartment/condominium construction increased by 6.2% to $2.6 billion. Investment in double and row housing also rose significantly, with respective gains of 18.4% and 16.2%.
...
The demand for housing continued to be supported by the encouraging employment situation, growing disposable incomes, appealing financing possibilities and Western Canada`s dynamic economy.

However, the decreasing affordability of housing, due to rapidly increasing prices for new housing and to recent mortgage rate increases, could adversely affect demand.
...
The total value of residential construction investments for the first three quarters of 2007 was $65.4 billion, up 7.5% over the same period in 2006.

Q3 2006 over Q3 2007:
Canada: +9%
Ontario: +2.3%
Saskatchewan: +39.8%
Alberta: +17.4%
British Columbia: +11.2%

 

[BMironov]

RBC Economics:Provincial current trends (Nov 2007)http://www.rbc.com/economics/market/pdf/provtrend.pdf

QUOTE East-west provincial growth gap already on a narrowing path
There is now compelling evidence that provincial regional growth disparities likely peaked in 2006. A narrowing in the provincial growth gap is expected to occur amidst what we now expect to be a considerably softer national growth profile in 2008 as an increasingly large drag from the trade sector weighs down economic growth.

Central Canada remains under significant downward pressure, particularly with the renewed strength in the Canadian dollar, elevated commodity prices and an even more prolonged slowdown south of the border. So, the narrowing we expect in the growth gap is not because the growth laggard (Ontario) will pick up pace in the near-term, but rather because the growth leader (Alberta) appears to have reached a cyclical growth peak.

The slowing trend in the west is now apparent across several key sectors, including labour and housing markets, inflation and non-residential activity. Saskatchewan lagged the resource provinces on growth in 2006 and only started to show signs of a pick-up in 2007. However, the other resource provinces are off their 2006 peaks as house price gains moderate from lofty levels, construction activity cools from recent highs and job growth slows, although it remains at healthy levels. In this report, we track each province’s year-to-date performance across these four categories.
...
Alberta — Alberta still holds the top spot on growth in many key indicators, but the pace of expansion in many of these indicators has shown clear signs of slowing. Job growth is running at a 5% year-over-year pace, but the rate of wage growth has decelerated after the sharp gains booked in 2006. On the housing front, resale activity has been on a slowing path for the last seven months, pushing the sales-to-new listings ratio, a measure of demand and supply in the market, down from a peak of 0.85 at the start of the year to 0.4 in the latest month’s data. We expect volatility in these indicators going forward, but the slowing direction of the trend is now apparent. Inflation in Alberta is tracking at 5% so far in 2007 (compared to 2.1% for Canada), indicating a sharply higher cost environment for businesses and consumers.
...
Ontario — Renewed challenges, including the strength of the C$, elevated commodity prices and a slowing U.S. economy, continue to weigh on the province’s export-oriented manufacturing sector. Broader economic weakness is showing up across several sectors. A comparison of key indicators on a year-to-date basis during the same period a year ago shows that manufacturing shipments are flat, retail sales are soft and have been dragged down by recent weakness in motor vehicle sales, and housing starts are down almost 10%. Strength in the service sector continues to fuel the economy and provide a powerful offset to goods sector weakness. Job growth in the goods sector is down 2.5% so far this year, while service sector job growth is up 2.8%. A strong service sector has helped keep labour markets tight (unemployment dropped to 6% in October) and wage growth healthy (wages are tracking at 2.7% year-over-year so far in 2007).

 

[BMironov]

CIBC World Markets:Canadian Cities: An Economic Snapshot (Dec3, 2007)http://research.cibcwm.com/economic_public...tro_monitor.pdf

QUOTE The CIBCWM Metropolitan Economic Activity Index is a measure designed to rank the pace of economic momentum in Canada`s largest Census Metropolitan Areas (CMAs). Nine key macroeconomic variables and drivers of economic growth comprise the index, which enables us to approximate economic growth in each of these cities and provides a consistent base for comparison with other cities and/or with the average performance of all other CMAs.

For the first time on record the city of Edmonton tops our city ranking in term of economic momentum. Strong population growth (second only to Calgary), impressive employment gains, low unemployment rate, and well below average corporate and personal insolvency rates combined to boost Edmonton to its current ranking. In fact, if it were not for some recent softness in the pace of the improvement in the housing market, the gap between Edmonton and Calgary would have been even larger. Note that the recent slowing in housing market activity in the city reflects deteriorating affordability as well as a natural slowing from an unsustainable pace of improvement observed earlier in the year.

Calgary is now ranked second in our metropolitan economic activity index. The city still leads the nation in population growth and the unemployment and consumer bankruptcy rates are the lowest among all other cities. But the pace of job creation in the city, while still strong, is losing momentum when compared to other cities such as Edmonton, Saskatoon and Victoria. Also note that housing market activity is not as strong as it was earlier in the year, with both housing starts and resale activity hardly changed over the year ending September 2007 Having said that, it is important to note that this recent softening in momentum is from an extremely high level of activity. In fact, the ability of the city to continue to show strong momentum from such elevated level of activity is impressive.
...

The consistent strong performance of Toronto reflects the growing diversity of the city. The city`s population is growing fast (ranked 4th in the nation) while the quality of employment is relatively strong. As well, the pace of growth in consumer and business bankruptcies is well below the national average. Note however that the labour market in Toronto is softening somewhat with the unemployment rate at well over 7% and employment gains well below average.

You can find more information about each CMA at:
http://research.cibcwm.com/res/Eco/ArEcoMEA.html

 

[BMironov]

Bank of Canada:Bank of Canada lowers overnight rate target by 1/4 percentage point to 4 1/4 per cent (Dec 4, 2007)
http://www.bank-banque-canada.ca/en/fixed-...ate_041207.html

QUOTE Consistent with the outlook in the MPR, the global economic expansion has remained robust and commodity prices have continued to be strong. The Canadian economy has been growing broadly in line with the Bank`s expectations, reflecting in large part underlying strength in domestic demand. However, both total CPI inflation and core inflation in October, at 2.4 per cent and 1.8 per cent respectively, were below the Bank`s expectations, reflecting increased competitive pressures related to the level of the Canadian dollar. The Bank now expects inflation over the next several months to be lower than was projected in the MPR. In the context of exceptional volatility in global financial markets, the Canadian dollar spiked well above parity with the U.S. dollar in November, but it has recently traded closer to the 98-cent-U.S. level assumed in the October MPR.
...
The Bank of Canada`s next scheduled date for announcing the overnight rate target is 22 January 2008.

 

[BMironov]

TD Economics:Housing market commentary (Dec 4, 2007)
http://www.td.com/economics/special/pg1207_housing.pdf

QUOTE According to the latest MLS / CREA existing home market data for October, year-to-date national resale home prices are up 10.5%. They will average close to $305,000 in 2007 compared to around $275,000 last year. This will mark the third consecutive year of 10% appreciation or more in the average Canadian existing home, a remarkable performance. But much of the price gains in recent years have been driven by markets west of Ontario, most notably in Alberta — where gains were outsized. National housing market statistics had lost much significance over the last three years due a marked divergence in performance between “the West and the rest”. In particular, along with 30%+ sustained price gains over the last two years and because of their significant and growing market size, Calgary and Edmonton were skewing the national figures.

Yet as we crunch the numbers and look forward to 2008-09, we can state with some assurance that this particular chapter in Canadian housing market history is soon coming to an end, if not already behind us. Alberta’s home price growth is cooling rapidly. The pickup in national average prices since January is mostly an Eastern markets story. After bottoming out in terms of home appreciation during the tail-end of 2006, Quebec and Ontario (and the Atlantic region to a lesser extent) continue to pick up enough steam to push up the national trend despite a massive cool down out West. This is particularly notable in Ontario where an uptrend since April has contributed heavily to a bounce-back in overall Canadian prices. We expect Alberta’s home prices to grow close to par with the national average in 2008 and to underperform in 2009. And while Saskatchewan is currently on fire, it will likely follow a similar path in about 12 months time. Furthermore, Saskatchewan would not on its own skew the national numbers given its smaller market size.

With much less regional dispersion around the Canadian mean, national numbers start to have meaning again. This is reflective of underlying market (demand/supply) conditions: Calgary and Edmonton have become much more balanced with more listings coming on tap and sales slowing, whereas most large urban markets in Ontario and Quebec have seen the reverse, with their markets tightening.

Under a reasonable scenario of a continued cool down in Alberta (and in British Columbia to a lesser extent) and that Ontario and Quebec hold in around 7-9% or higher for a few months, then resale price growth performances should converge sometime in the second quarter of 2008.

 

[BMironov]

Globe and Mail:Husky Energy and BP to launch integrated oil sands business (Dec 5, 2007)
http://www.globeinvestor.com/servlet/story...bp1205/GIStory/

QUOTE Husky Energy Inc. and British petroleum giant BP PLC are joining forces in a landmark deal move that will give BP access to Canada`s oil sands while bringing Husky the additional refining capacity it has been seeking.

The two companies said Wednesday that they have struck a deal to create an integrated North American oil sands business through two 50/50 joint ventures, one for upstream resources, the other for downstream.

Husky will contribute its Sunrise oil sands asset in northeast Alberta`s Athabasca region, while BP will contribute its refinery in Toledo, Ohio. The companies will invest a total of about $5.5-billion (U.S.) in the two assets over the next seven years.
...
Among other things, the deal calls for an investment of about $3-billion to bring what will be named the Sunrise Oil Sands Partnership into production in 2012, at an initial rate of 60,000 barrels a day, rising to about 200,000 in the 2015 to 2020 period, the companies said.
...
The joint venture plan calls for an investment of about $2.5-billion by 2015 to boost bitumen processing capacity at Toledo to 120,000 barrels a day and raising total daily refining capacity to 170,000 barrels.

 

[BMironov]

Toronto Star:Immigrants drive house market (Dec 6, 2007)
http://www.thestar.com/Business/article/283021

More than half purchase home within three years of arriving, report finds

QUOTE Immigration continues to be a driving force behind the strength of the Canadian housing market, says a study to be released today. More than a half of immigrants to Canada purchase a home within three years of arriving, says the study by Genworth Financial Canada.
...
The report comes on the heels of new census figures this week that show almost half the Greater Toronto Area`s population was born in another country – making the city more diverse than New York, Los Angeles or Miami. Another report released yesterday shows that the Toronto area is on pace for a record-breaking year for home resales, although it is difficult to assess exactly how much of that is due to immigration.

Still, in the five years ending in 2006, 40 per cent of newcomers settled in the Greater Toronto Area, and the poll shows home ownership remains a high priority, with 59 per cent of immigrants expecting to buy a home within five years.

Genworth report "Homeownership a Major Priority For New Canadian Immigrants":
http://www.genworth.ca/mi/eng/downloads/GN...Dec_06_2007.pdf

 

[BMironov]

Toronto Real Estate Board:Toronto Real Estate Board on Track for a Record-Breaking Year! (Dec 5, 2007)
http://www.torontorealestateboard.com/cons...07/nr120507.htm

QUOTE Last month became the best November on record with 7,313 resale home transactions in the Greater Toronto Area, Toronto Real Estate Board President Maureen O`Neill announced today.

"I recently reported that 2007 became the best year ever for resale transactions in the Greater Toronto Area with six weeks left to go," said Ms. O`Neill. Even more astonishing though, is the fact that eight of the 11 months so far this year set new monthly records. No other year has shown as many record-breaking monthly performances."

Sales were up 16 per cent in November compared to the same timeframe last year.
At $393,757, November`s average price increased 11 per cent as compared to a year ago and remained in line with the previous month.
...
"We expect 2007 to be the first year ever to exceed 90,000 transactions, said Ms O`Neill. These numbers reflect the fact that people who live in the Greater Toronto Area see real estate as an excellent long-term investment."

 

[BMironov]

Statistics Canada:Building permits (Oct 2007) (Dec 6, 2007)
http://www.statcan.ca/Daily/English/071206/d071206a.htm

QUOTE The value of building permits remained above the $6-billion mark for the sixth month in a row in October, thanks to marked gains in commercial and institutional intentions and strong demand for multi-family units.

On a year-to-date basis, municipalities issued $62.1 billion worth of permits from January to October, up 14.2% from the same period in 2006. This was only $4.2 billion short of the record for an entire year, set in 2006.

HIGHLIGHTS:

• Housing sector: Strong demand for units in multi-family
• Non-residential sector: Strong demand for commercial space in CalgaryToronto and three major western metropolitan areas lead the pack

TD Economics commentary:
http://www.td.com/economics/comment/pg121007.pdf

 

[BMironov]

Statistics Canada:Labour Force Survey (Nov 2007) (Dec7, 2007)
http://www.statcan.ca/Daily/English/071207/d071207a.htm

QUOTE Employment rose by an estimated 43,000 in November, pushing the employment rate to another record high (63.8%). So far this year, employment has increased 2.3% (+388,000), stronger than the 1.8% increase seen over the same period in 2006. As more people entered the labour force in November, the unemployment rate moved up 0.1 of a percentage point to 5.9%.

Four industries recorded employment increases in November: transportation and warehousing; business, building and other support services; educational services; and natural resources. Gains were concentrated among men aged 25 to 54 years.

Manufacturing continued its slump in November. So far this year—that is, from December 2006 to November 2007—factory employment losses have totalled an estimated 98,000, with most of the declines in Quebec and Ontario.


TD Economics commentary:
http://www.td.com/economics/comment/rs120707.pdf

If you prefer newspaper format.
Globe and Mail:
http://www.reportonbusiness.com/servlet/st...ry/robNews/home

 

[BMironov]

Toronto Star:Lowe`s to have lower prices in Canada (Dec 7, 2007)
http://www.thestar.com/Business/article/283381

Rival to Home Depot opening first three non-U.S. stores Monday

QUOTE The rival to Home Depot plans to open its first three non-U.S. stores on Monday, all in southern Ontario.
...
Its first three Canadian stores are slated to open on Monday in south Brampton, Brantford and Hamilton. Another four are scheduled to open a few weeks later in East Gwillimbury, the former city of York, Maple and north Brampton, Stallings said.

 

[BMironov]

Financial Post:Canada`s auto union pugilist faces fight of his life (Dec 6, 2007)
http://www.financialpost.com/story.html?id=149608

QUOTE The biggest problem by far is how to preserve jobs in the auto sector, in both vehicle assembly and parts-making, where employment has dropped by more than 20,000 since 2002. This year alone General Motors Corp., Chrysler LLC, parts maker Lear Corp. and others have announced thousands of job cuts in Canada. The CAW`s auto parts membership is now at its lowest level ever, at about 18,000. Its assembly worker membership is also in a trough, numbering roughly 35,000.
...
Canada used to be a lower-cost assembly site than the United States because its dollar was lower and employees enjoyed universal health care. For more than two decades, that has helped Ontario and Quebec win billions in new auto investments.

But a sharp rise in the loonie, and recent deals signed between the Detroit automakers and the United Auto Workers union in the United States, have changed the equation.
...
On balance, things aren`t quite as bleak as that. Toyota, Honda and their suppliers are hiring, although they are non-union jobs. GM, Ford and Chrysler are spending billions to update their top assembly factories in Ontario. And while Ford may eventually close its St.Thomas plant and Chrysler eventually nix a shift of work at its Windsor, Ont. minivan facility, their largest facilities are not likely to disappear.

Canadian assembly factories are also among the most productive in the world. And that helps attract more investment.
...
Carlos Gomes, economist at Scotiabank, calculated in a note published Sept.28 that for GM specifically, the automaker`s Canadian factories are 25% more productive than its U.S. plants. This translates into costs here that are US$800 per vehicle lower than in the United States even after the UAW agreement is factored in. "Next year`s contract negotiations between the CAW and the Canadian auto industry will be crucial to ensure that Canada retains this advantage," Mr. Gomes said.

 

[BMironov]

Statistics Canada:Study: Staying at home longer to become homeowners (Dec 11, 2007)
http://www.statcan.ca/Daily/English/071211/d071211b.htm

QUOTE There is a positive link between the age at which a young adult leaves the parental home and the likelihood that they become homeowners, but only until about age 25, according to a new study published today in Canadian Social Trends.
...
According to the study, there is a link between the age at which a young adult leaves the parental home and the likelihood that they become homeowners, but only until about age 25. After age 25, the likelihood of being a homeowner when they are in their 30s declines. This conclusion remains the same even after taking account of various factors associated with the likelihood of being a homeowner (such as income, employment status, having a spouse and children, and place of residence).

About two-thirds (67%) of young adults who had left the parental home at 18 or 19 reported owning their own home in their 30s. The proportion was almost three-quarters (74%) for those who had left at 24 or 25.

Beyond age 25, the later their age at departure, the lower their probability of being a homeowner in their 30s. Among those who did not leave their parents` home until they were 28 to 30 years old, only 61% owned their own home in their 30s.

A similarly low ownership rate was reported by those who left the family home when they were very young. Only 61% of young adults who left at age 16 or 17 were homeowners when they reached their 30s.

The link between home ownership and young adults who return to live in the parental home is more complex. As a whole, these so-called "boomerang kids" are just as likely to be homeowners eventually as those who leave their parents` home only once.

However, for boomerang kids, the likelihood of owning a home depends on their reasons for returning to live with their parents. Those who returned because they lost their job or were having financial problems were much less likely to be homeowners in their 30s than those who never came back home.

On the other hand, young adults who "boomeranged" because a relationship ended or because they had finished their studies were no less likely to become homeowners than those who never returned to live with their parents.

 

[BMironov]

Globe and Mail:Main Street USA is poised for rebound: CIBC (Dec 11, 2007)
http://www.reportonbusiness.com/servlet/st...ialEvents2/home

QUOTE Don`t believe Wall Street: the U.S. economy is poised to speed up again next year, providing the Federal Reserve Board comes through with some more rate cuts, starting today, and this will mean more record highs for Canadian and U.S. stocks.

Indeed, Canada`s benchmark S&P/TSX composite index should end next year at about 16,200 points, according to Jeff Rubin, chief strategist and economist at Canadian Imperial Bank of Commerce in Toronto. Rough calculations show that would be up about 16 per cent from current levels and nearly 11 per cent above its record high of 14,625 last July.

CIBC report "Canadian Portfolio Strategy Outlook":
http://research.cibcwm.com/economic_public...oad/psdec07.pdf

 

[timk519]

QUOTE (BMironov @ Dec 11 2007, 09:02 AM) Globe and Mail:Main Street USA is poised for rebound: CIBC (Dec 11, 2007)
http://www.reportonbusiness.com/servlet/st...ialEvents2/home Here`s a contrarian view:

Merrill Lynch`s Weekly guidebook for the global investor

Among other things, they forecast a CDN / US FX rate of $1.12 by Dec 2009.... ouch.

 

[timk519]

From the San Franciso Chronical
MORTGAGE MELTDOWN
Interest rate `freeze` - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
http://www.sfgate.com/cgi-bin/article.cgi?...9/IN5BTNJ2V.DTL

QUOTE The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It`s in the loan application documents, and it`s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can`t refuse."

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

 

[timk519]

Kass: Another Rate Cut Would Be Utter Folly
http://www.thestreet.com/s/kass-another-rate-cut-would-be-utter-folly/newsanalysis/investing/10393851.html?puc=_tscrss ://http://www.thestreet.com/s/kass-ano...?puc=_tscrss ://http://www.thestreet.com/s/kass-ano...?puc=_tscrss ://http://www.thestreet.com/s/kass-ano...?puc=_tscrss ://http://www.thestreet.com/s/kass-ano...?puc=_tscrss

QUOTE "From my perch, the only thing a 50-basis-point move could do is buoy equities over the short term. In the intermediate term, it would serve to increase the risk of an acceleration in inflation, a further dive in the U.S. dollar and create another asset bubble."

"The answer to the credit crisis (which broadens daily) lies not in a monetary solution; it is far more deeply rooted in greed and the reach for yield, fraud (in the absence of, or faulty, documentation loan processes and packaging of loans) and in the absence of regulatory supervision (on the part of S&P, Moody`s and Fitch)."

" The next real growth area will be in the legal arena, not the world economies: Ultimately, the heart of the mortgage-based securities contracts that orbit the world`s financial institutions and rest in money market funds will be challenged by the very investment bankers and commercial banks who sold the crap in an attempt to avoid buying back the credits at par value."

 

[BMironov]

Globe and Mail:After the storm, it`s off to the oil patch (Dec 12, 2007)
http://www.theglobeandmail.com/servlet/sto...ory/energy/home

QUOTE As Imperial`s new president and likely its next CEO, Mr. March`s cool head will be tested again. This time he must manage spiralling costs of labour and construction materials created by Alberta`s overheated market, all while integrating the company`s huge oil sands potential with parent firm Exxon Mobil`s vast U.S. refining network.
...
One investment banker, speaking on condition of anonymity, said bringing in a refining expert to lead the company next appeared a good move. “It makes sense as the question of integration is now key in the oil sands,” he said. “It`s no use any longer just building an oil sands project and assuming that someone will refine the production for you – you need to create solutions.”

While the upstream sector currently contributes the majority of Imperial`s earnings, the importance of the company`s refining business is rising. The sector has accounted for about 30 per cent of Imperial`s profit thus far in 2007, compared with about 18 per cent in 2006.

In addition, the company`s proposed $8-billion Kearl oil sands project includes a substantial upgrading component; upgraders process the heavy bitumen from the oil sands so it`s easier to refine and can access a larger market.

$8B Kearl oil sands project:
http://www.imperialoil.ca/Canada-English/T.../TI_O_kearl.asp

 

[timk519]

National Post Dec 12, 2007 - "Dodge Sounds Alarm"

"Banks must co-operate to save debt market".

Discusses what can happen when $250B (yes, billion) of debt goes down the toilet.

 

[BMironov]

Statistics Canada:Study: Canada`s trade with China 1997-2006 (Dec 14, 2007)
http://www.statcan.ca/Daily/English/071214/d071214c.htm

QUOTE Canada’s total merchandise trade with China has soared in the last decade, reaching $42.1 billion in 2006 and accounting for 5.0% of Canada`s world trade. In 1997, China was Canada’s fourth largest trading partner with total merchandise trade of $8.7 billion. By 2003, the country had emerged as Canada’s second largest trading partner surpassing the U.K. and Japan.[sup]2[/sup] Imports from China were five times higher in 2006 than in 1997 while exports to the country tripled.

http://www.statcan.ca/english/freepub/65-5...-XIE2007001.htm