Feb 7th 2008 | WASHINGTON, DC
From The Economist print edition
George Bush’s fiscal plan will set off an epic fight
APART from its record-breaking size—over $3 trillion, for the first time ever—the most memorable novelty of George Bush’s budget proposal was the method he used to submit it to Congress. On February 4th Mr Bush held up a tablet PC and showed off his 2009 e-budget. “It saves paper, it saves trees, it saves money. I think it’s the first budget submitted electronically,” he noted. All the easier for the Democrats to drag it to the recycling bin.

BUSINESS Thursday 07 February 2008
	US economy plan fails in Senate The US Senate fails to agree on a different version of the White House-backed economic stimulus plan.
	US chain Macy's to cut 2,300 jobs US department store chain Macy's is to cut 2,300 jobs, as it announces a 7.1% fall in sales in January.
	Bank cuts interest rates to 5.25% The Bank of England's Monetary Policy Committee cuts interest rates to 5.25% from 5.5%.

Tuesday Feb 5, 2008 Efforts to cool the economy may undo crucial reforms

• Friday 25 January 2008 Davos Corporate Global Citizenship in the 21st Century Video page

  Friday Jan 25, 2008 Canada Federal surplus running at $6.7 billion
  The latest monthly report on the government's finances suggest it easily has the cash to cover the cost of other tax measures - such as the GST cut, which kicked in on Jan. 1 - and meet its commitment to provide $1 billion in relief in the upcoming budget to help offset the impact on manufacturing and forestry industries of the strong dollar and weakening U.S. economy.
  In November, however, the surplus was just $100 million, down from $400 million a year earlier, suggesting that the flow of cash into government coffers may be slowing with the economy.

  Thursday 24 January 2008 OTTAWA: CANADIAN ECONOMY SHOWING WEAKNESS
  Canada's economy showed no growth in the last three months of 2007, the longest continuous period of weakness in six years. The composite leading index had zero growth in October and November, and a dip of .1 per cent in December. Statistics Canada blames the dip on unusually heavy winter snow that prevented housing construction. Consumer spending was mixed. Some increases were seen in sales of furniture and household appliances. Auto sales were weak, but appeared to rally in December. New orders in the United States for Canadian manufactured goods remained low, another sign of a slowdown in the U.S. economy.

  Wednesday 23 January 2008 OTTAWA: PRE-CHRISTMAS SALES STRONG
  The value of retail sales in Canada in November hit $34.8-billion, a rise of 0.7 per cent. Statistics Canada attributed the increase to strong sales of gasoline, along with a recovery in general merchandise store sales. It was the third month in succession that retail sales rose. Looking ahead, Ritu Sapra, an economist with TD Bank, says "while gathering economic storm clouds in the U.S. and the elevated loonie (Canadian dollar) will continue to give non-resource exporters in Canada serious migraines, the domestic side of Canada's economy, including the household sector, should continue to bear up well."

  anuary 19, 2008 The Education of Ben Bernanke
  (NYT Magazine) Ben Bernanke’s first exposure to monetary policy was reading the works of Milton Friedman, the Nobel laureate. That was 30 years ago, when Bernanke was a graduate student at M.I.T., and he has been studying central banking ever since.

  Thursday 17 January 2008 Economist.com Fed Chief Backs Quick Action to Aid Economy
  Ben S. Bernanke endorsed quick passage of a stimulus package and aggressive action by the Fed, but said that a recession is probably not on the horizon.

  Tuesday 15 January 2008 There is growing talk on Wall Street about the possibility of a recession. Since the beginning of the year three Wall Street firms (Merrill Lynch, Morgan Stanley and Goldman Sachs) have all stated they believe we are either in a recession already or are very close to a recession. In other words, it's no longer a matter of if a recession happens but when it will happen and how long it will last. In response to these developments, various presidential candidates have proposed various solutions. However, none of these will work, largely because this is not a typical slowdown caused solely by slowing consumer spending or business investment. Instead, it is a slowdown caused by inflated asset prices and a nation gorging on debt. As a result, it will probably take a lot longer to come out from under this problem. huffingtonpost.com/hale-stewart/the-great-debt-crisis-beg

  Saturday 12 January 2008 OTTAWA: TRADE SURPLUS EXPANDS AGAIN
  Canada's trade surplus expanded for the second straight month as merchandise exports rose in November while imports increased at a slower pace. It was only the third export increase in 2007 and halted a three-month decline. Canadian companies exported $37.9 billion worth of merchandise, a 3.1 per cent increase, while imports rose 1.7 per cent to $34.2 billion. Canada's trade surplus with the world expanded to $3.7 billion, up from a revised $3.1 billion in October. While exports have grown since early 2006, the share of Canada's exports to the United States has fallen. Exports to the United States accounted for 75 per cent of the total in November, compared with 82 per cent in January 2006.

  TORONTO: RBC PREDICTS SLOWER GROWTH IN 2008
  The latest forecast from RBC says difficult conditions in the trade sector will slow Canada's economic growth this year. In a statement released Friday, RBC predicts the national economy will grow by 2.1 per cent in 2008, down from 2.6 per cent last year. RBC is forecasting strain on the trade sector due to the high Canadian dollar and weak economic performance in the US But the report says the sluggish performance in trade will be offset by a strong labour market and rising wages, as well as the recent percentage point reduction in the GST. RBC says the same factors should help boost consumer spending across the country. The forecast calls for slower growth in the first half of the year as a result of the plummeting housing sector and credit market tightening south of the border.

  Friday 11 January 2008 msnbc the upside of the U.S. Dollar video

  Thursday 10 January 2008 TORONTO: >b>ECONOMISTS PREDICT SLOWER ECONOMY BUT NO RECESSION
  Canada's leading bank economists predict that Canada's economy will slow this year, but the country will steer clear of a recession. They forecast growth at about two per cent. Economists from Canada's chartered banks spoke to an audience of the Economic Club of Toronto. They did not foresee a recession in the United States either. However many economic pundits in the United States are far less optimistic. Economists at the investment bank, Goldman Sachs, say that recent data suggest the U.S. economy is falling into mild recession.

  Saturday 05 January 2008 FACTORY PRICES
  Factory prices and the cost of raw materials surged in November. Statistics Canada reported Friday that prices charged by manufacturers for their goods rose 0.6 per cent in November after six straight monthly declines, while raw materials jumped 3.4 per cent, boosted by steep increases in oil and coal during the month.

  new dimensions to the somewhat dismal economic forecasts (U.S. economic forecast for 2008: Bleak), including the speculation that a slowing U.S. economy will cause the U.S. dollar to continue its decline against the euro. Possibly he will also comment on the woes of USB in the wake of the subprime crisis.

  ECONOMIZING
  Faced with soaring fuel prices, Canadian consumers are ditching their gas guzzling SUVS for more fuel efficient crossover vehicles. Hybrid vehicles are seeing their sales go up, although they still represent a relatively small share of the market. Airlines, railways and trucking companies whose businesses rely on jet fuel and diesel are also seeking ways to keep their costs down, with many passing on fuel surcharges to customers.

  Stephen S. Poloz VP EDC Economics Weekly Commentary
  Surprise of the Year: Deflation Dissipation - December 19, 2007
  Each year, just before the holidays, we take a look back and recall the surprises that took place in the previous 12 months. 2007 was loaded with candidates.
  Start with the world economy. We began the year with the world in decent shape, but concerned that the U.S. housing sector could surprise on the downside. Downside surprise indeed! Despite repeated reassurances from policymakers, the U.S. housing sector went into a meltdown and there is no evidence to suggest that it is over. The erosion of consumer confidence is affecting the rest of the economy, and economists are now open to the possibility of a U.S. recession. Past issues | his WN page
  
  Commentary podcast.
  

  Several of you have remarked on Jacques' unusually prolonged absence from Wednesday Night and we thought you would want to know that, thanks to the efforts of his friend Colette Birks, we have learned that Jacques was suffering very severe headaches and was in a state of "confusion". We are not sure exactly when this occurred. He was hospitalized, but is now in recovery at an undisclosed location. Colette was assured by a member of his family that he is "bien entouré" and recovering slowly, but is not yet up to talking on the telephone. At this stage we have no way of communicating with him, but as soon as we have further news, we will let you know. We know that your thoughts and prayers for a speedy recovery will be with him.
  Diana & David

  Thursday 20 December 2007 WASHINGTON: IMF SEES SLOWDOWN FOR CANADA
  The International Monetary Fund has revised downward its economic growth forecast for Canada. The IMF says the economy will grow at less than its forecast of October of 2.3 per cent, without giving a second figure. Its report says that after five years of strong growth, the economy will slow because of the weakening U.S. economy which could fall into recession, the appreciating Canadian dollar also being a factor. The IMF also expects a slower domestic demand to "moderate" as financial conditions tighten. The IMF praised the Bank of Canada's decision on Dec. 4 to cut its lending rate by a quarter of a percentage point to 4.25 per cent, reversing its quarter-of-a-point increase in July.

  Stephen S. Poloz VP EDC Economics Weekly Commentary
  Labour Shortages are Global - December 12, 2007
  We hear about labour shortages a lot – there are not enough doctors, carpenters, plumbers, or skilled workers in general (except, perhaps, economists). This is becoming a global problem.
  Economists will tell you that labour shortages are not supposed to happen. When something is in short supply, excess demand pushes the price up. This reduces demand and increases supply. When it comes to skilled labour, the supply response is by necessity gradual, and may be very difficult, since it requires education and, perhaps re-education of transitioning workers. Past issues | his WN page
  
  Commentary podcast.
  

  • at Wednesday-Night1345 WithPeter Perkins BCA & Dr. Tony Deutsch OWNs stills by Robert J. GAlbraith stills - Dec 12, 2007 4:15 video page

  Friday 14 December 2007 mw ECONOMIC REPORT
  Consumer inflation accelerates in November
  Consumer inflation increased at the fastest pace in more than two years in November, and analysts said the report wouldn't sit well with the Federal Reserve.

  Sunday 09 December 2007 OTTAWA: ECONOMY CHURNS OUT JOBS
  The Canadian economy created 43,000 jobs in November, an achievement which exceeds economists' predictions by four times. However, Statistics Canada says that the unemployment rate rose by .1 per cent to 5.9 per cent because of the arrival on the market of 68,000 new job seekers. The jobless percentage of 5.8 percent in October was the country's lowest in 33 years. Job creation was strongest in transportation, teaching and natural resources, but the manufacturing sector in Ontario and Quebec continued to decline. StatsCan also reports that the jobless rate in Canada is lower than in the U.S. or most European nations.

  Stephen S. Poloz VP EDC Economics Weekly Commentary
  Back to the 70s: That was then, this is now - December 5, 2007
  Those of us with grey hair have noticed that there are a lot of parallels between our current economic situation and that of the 1970s. But there are differences, too, and these are important enough to suggest that things will be different this time.
  The similarities with the 1970s are obvious. High prices for oil, gold, base metals, food and fertilizer. A weak U.S. dollar. War, then in Viet Nam, now in Iraq and Afghanistan. Concerns about inflation, combined with worries about recession - the stagflation recipe. Not to mention a fast-growing economy changing the global landscape - then it was Japan, now it is China. Past issues | his WN page
  
  Commentary podcast.
  

  Friday 23 November 2007 OTTAWA: QUARTERLY PROFITS BOUND
  Statistics Canada reports that third-quarter profits amounted to $67 billion, a record. Oil and natural gas and the banking sector earned almost one-half of that amount. Oil and gas earned $8 billion, a four-quarter high and up 9.6 per cent from the preceding quarter. Financial industries earned $19.4 billion, up 6.2 from the second quarter. In manufacturing, motor vehicle and parts makers earned $600 million, six times more than in the previous quarter.

  Nov 12, 2007 Performance-pay Perplexes
  The havoc on Wall Street following the collapse of the subprime-mortgage market boils down to a simple truth: for years, lots of very smart people took lots of very foolish risks, betting borrowed billions on dubious mortgage derivatives, and eventually the odds caught up with them. But behind that simple truth is a more surprising one: the financial whizzes made bad decisions in part because that’s what they were paid to do.

• at Wednesday-Night1337 Jacques Clement mkts the 17 Oct 2007 2:53 page

  Friday Nov 9, 2007 U.S. faces risks, not recession: Fed
  Federal Reserve chairman Ben Bernanke told lawmakers yesterday the U.S. economy does not appear headed for recession, but..

  Stephen S. Poloz VP EDC Economics Weekly Commentary
  Canada’s Two-Track Economy to Persist - November 7, 2007
  High and rising prices for metals, oil and food have put the global economy on two independent growth tracks. The adjustments this is fostering can be painful, and there is no let-up in sight.
  This is not the first time the world has been here. The same thing happened in the mid-late 1970s, when oil and other commodity prices surged. When this happens, resource sectors grow rapidly, generate new jobs and attract new investment. Meanwhile, sectors that use resources as inputs must restructure - adopt new technologies that are less resource-intensive and reduce workforces. Those sectors slow or stall – hence the reference to two growth tracks. Past issues | his WN page
  
  Commentary podcast.

  www.Wednesday-Night.com/Wed1337page2.asp 17 Oct 2007

• at Wednesday-Night1337 Jacques Clement mkts the 17 Oct 2007 2:53 page

• John Curtin, winner for Best Biography Documentary Program the 17 Oct 2007 :41sec
  John Curtin, winner for Best Biography Documentary Program for Dangerous When Provoked: The Life & Times of Terry Mosher see page

  Thursday 18 October 2007

  Thursday 18 October 2007 IMF SEES DRAG EFFECT ON CANADIAN ECONOMY
  The International Monetary Fund has lowered its economic forecast for growth in 2008 among the two U.S. neighbours Canada and Mexico because of the slumping U.S. economy, while anticipating nonetheless "vigorous" global growth. In its October report, the IMF sees global growth of 5.2 per cent for 2007 and 4.8 per cent next year compared with 5.4 per cent last year. The most serious loss is forecast for the U.S. and its two neighbours where the financial and trade effects of the U.S. slowdown will likely be the most pronounced. The IMF predicts growth of 1.9 per cent for the U.S. in 2007 and 2008. Growth for Canada is forecast at 2.5 per cent in 2007 and 2.3 next year.

  Saturday 13 October 2007 TORONTO: ROBUST ECONOMIC SEEN CONTINUING
  Royal Bank of Canada predicts that the country's economy will grow by 2.8 per cent second half of the year and by 2.5 in 2008. The bank says that healthy consumer and business spending will offset a weakening of exports due to the slow U.S. economy and the high Canadian dollar. The Royal Bank's report says that one strength of the economy is the strong demand for Canadian natural resources from such emerging markets as China. The report also predicts that the Canadian dollar will remain above parity with its U.S. counterpart for the rest of the year but will subside to US93 in 2008.

  October 10, 2007

  U.S.
  The Dow Jones reached a record level yesterday at 14,165 a gain of 762 points since the Sept, 18 bold cut of ½% by the Fed on its administered rates, despite crude reaching a record $84.10 U.S. on September 28, a weak economic outlook for the second half and the drying up of private equity and mergers and acquisitions in the third quarter, the lowest in four years.  “The Federal Reserve/(F.O.M.C.) minutes published yesterday, indicated unanimity in their decision to lower Fed funds to 4¾% and discount rate to 5¼% as they were worried that a jarring credit crunch would stifle the economy, that the credit crisis and worst housing slump in sixteen years could undermine their economic health.  They expressed concern that a weaker economy could worsen the credit crunch and reinforce the economic slowdown.  Financial markets were expected to stabilize over time.  The cut was appropriate to help offset the effects of tighter financial conditions on the economic outlook.  Economic growth is likely to run at a sub-par pace and they expect inflation data on the favourable side.”    Employment data have been revised to average, close to 100,000 new jobs per month in the last three months and unemployment rose to 4.7%, a one year high.  Personal income and spending rose by 0.4% respectively in August and personal consumption expenditures inflation eased to 1.8% (year/year).  The manufacturing sector is weakening with the third consecutive decline in the I.S.M. index, weaker new orders, production, employment, all declining one to two points, but prices were off four points in the index.  Factory orders (August), off 3.3% was the largest decline in seven months and durable goods orders off almost 5%.  Non-durable goods orders eased 1.6% and non-defense capital goods orders, excluding aircraft, down 0.5%, a good gauge of investment plans.  Pending home sales (August) were at record lows, down 6.5% (-22%, year/year) because of high credit costs and lender restrictions.  The U.S. dollar weakened to a record Euro $1.42 U.S. on September 26 and is now trading just below $1.41 U.S.  The Fed is likely to ease by another ¼% on October 31 to 4½% federal funds rate. 

  CANADA
  At 14, 276, the T.S.X. is now 350 points away from its July 19 record of 14,626 and has recovered 1,427 points since its bottom of August 16, with crude reaching a record $84.10 on September 28 and gold, $754.00, a twenty-eight year high on October 1.  Since then crude has lost $3.00 U.S. and gold, $14.00 U.S.  The Canadian dollar has traded at a thirty-one year record high of $1.0217 U.S. on October 5 and has eased slightly since.  The Canadian economy has remained very strong with 75,000 new jobs created in August-September and an unemployment rate of 5.9%, a thirty-three year low, very strong housing starts (+25% in August-September), building permits 1.4% (August), a fourth consecutive monthly rise, a strong manufacturing sector, particularly in Western Canada, strong consumer spending, business capital investments, a strong non-residential sector, healthy profits and a strong energy sector.  With a record currency, exports to the U.S. are likely to remain weak.  David Dodge estimates that “the Canadian economy appears to be operating further above its non-inflationary production potential.  Domestic demand remains robust.  Wages are rising (4.2% hourly earnings year/year, a ten year high).  Housing sales and prices are at record pace.  The turbulence in financial markets has meant some tightening of credit conditions that should temper growth of domestic demand.”  Bank of Canada is likely to remain steady at 4½% overnight rate and 4¾% discount rate at their meeting October 16.  Every three years, Bank of Canada, with fifty-three other Central Banks and monetary authorities conduct a survey of foreign exchange activities world-wide.  In Canada, the survey is done with eighteen institutions representing 99% of foreign exchange activities.  It concluded that there is the equivalent of nearly fifty-four billion dollars U.S. average daily foreign exchange trading, an increase of 11% versus 2004 with just over 95% involving the U.S. dollar.  The Canadian dollar was involved in almost 68% of the transactions, the Euro, 11.7%, Sterling for 6.9%, Yen, 5.4%, Mexican Peso, 3.9% the Australian dollar, $3.5% and the Swiss Franc, 2.6%.  Other currencies, including the Hong Kong dollar, for 2.5%.

  Near-Term Trading Outlook: Wed1336
  
  

  • Canadian Dollar:$1.01¢ - $1.03¢ U.S.
  • Euro: $1.41 - $1.43 U.S. us
  • Crude Oil: $80.00 - $86.00
  • Dow-Jones D.J.: 14,000 - 14,300
  • The T.S.X : 14,250 14,500
  • Gold:: $745.00 - $755.00U.S.

    www.Wednesday-Night.com/Wed1334page2.asp 26 Sep 2007

  • at Wednesday-Night1334 Jacques Clement mkts the 26 Sept 2007 10:48 page

    September 28, 2007

    U.S.

    At 13,913, the Dow Jones is 128 points away from the July 19 record, having gained over 500 points since the September 18 bold move by the Fed in cutting by ½ %, its federal funds rate (4 ¾ %) and discount rate (5¼%). It was the first cut in four years and the largest in nearly five, in order “to restore confidence to the U.S. economy, to stop the turmoil, turbulence and disruptions in the housing and financial markets from bringing down the overall economy.” The Fed “still has lingering worries about inflation, acknowledged the risks of recession, the tightening credit conditions and credit squeeze.” They are in recession watch despite a strong second quarter economic growth of 3.8% (+0.6% in the first quarter). The third quarter G.D.P. will likely be closer to 2% given the housing industry is in recession.
    Existing home sales have declined for the fifth consecutive month (-4.5% in July-August), new home sales were off 8.3% in August, housing prices have declined 6.5% from their peak (the most severe since the Depression) and are expected to fall by another 13% by next August. Housing starts were down 2.6% in August (20% in the last twelve months). Unsold homes at 4.6 million, are at a twenty year high and equivalent to ten months’ supply. Listed houses for sale are at an all time high. Building permits have fallen to a twelve year low. Home and mortgage foreclosures are up 115% (year/year).
    Durable goods have fallen 5% in August. Last month saw the first job loss in four years and only 88,000 new jobs were created in the last two months. Business confidence is the lowest in four years. Consumer confidence is tumbling with retail sales sagging in the last three months. Exports are rising given the record low U.S. dollar versus the Euro ($1.42 U.S.) and other currencies. The Fed is likely to ease by ¼% at both the October and December meetings to 4¼% Fed funds.
    Equity buybacks in the second quarter were at a record $770 billion, financed by $625 billion of corporate borrowings and the balance by liquidity, but have dried up in the third quarter so far, the lowest in four years.

    Canada

    At 14,130, the T.S.X. is nearly five hundred points away from its July 19 record, fuelled by record prices for crude ($83.32) and gold ($740.00), a twenty-eight year high and other commodities, a very strong economy that has propelled the Canadian dollar above parity ( a thirty-one year high) as the second quarter balance of payments improved by $2.3 billion to $8.4 billion. G.D.P. has averaged 3½% in the first half with strength in consumer spending, business capital investments, corporate profits, oil and gas extraction activities, a very strong housing sector, increased capacity utilization and strong employment in the last three months, creating an average of 23,000 new jobs monthly and unemployment remaining at 6%, a thirty-three year low. The manufacturing sector was very strong in July with rising shipments (+2.3%), new orders (+3.2%) and unfilled orders up 6.7% in the last three months. Housing starts climbed over 5% in August but existing home sales declined 5.3%. Building permits (July) were off close to 11.5%. Productivity growth (second quarter) receded. Retail sales plunged 1.7% in the June-July period. Imports climbed 3.5% in July and exports only 1.5%, reducing the trade surplus to $3.7 billion from an average of $5.5 billion monthly in the previous six months. Housing prices (August) averaged $326,000 (+11.2% year/year) versus U.S. at $225,000 (+0.2% year/year). David Dodge is worried about the rise in housing prices (particularly in Eastern Canada), the increasingly loose lending rules and the easy terms mortgages. He does not foresee much inflation relief from the strong dollar and feels that the domestic credit crunch could slow growth in Canada with core C.P.I. at 2.3% and G.D.P. deflator at 5.7%, Bank of Canada is likely to remain steady at 4 ½ % overnight rate and 4 ¾ % discount rate at their meetings October 16 and December 4. The $14.2 billion final fiscal surplus for 2006/2007 after the initial estimate of $3 billion and March revision of $9.2 billion will be used to reduce the $467 billion outstanding debt, the lowest in twenty-five years. The interest savings of $750 million will be used for tax cuts. Record personal and corporate taxes contributed to the tenth consecutive fiscal surplus fuelled by strong economic growth.

    Near-Term Trading Outlook: Wed1332
    
    

    • Canadian Dollar:$1.02¢ U.S.
    • Euro: $1.43 U.S. us
    • Crude Oil: $85.00 +6.00
    • Dow-Jones D.J.: 14,250
    • The T.S.X : 14,500
    • Gold:: $760.00 U.S.

      
      
      

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      Monday 17 September 2007 MARKHAM: FINANCE MINISTER NOT WORRIED ABOUT ECONOMY
      Canada's minister of finance, Jim Flaherty, says the strong Canadian economy is helping to offset the financial storm that has swept through global credit markets. Mr. Flaherty spoke Sunday to the Canadian Chamber of Commerce in Markham, Ontario. He said solid job growth in the economy, government budget surpluses, a falling debt burden, as well as Canada's role as an emerging energy superpower have helped ease the economic stresses caused by the credit crunch. But he said the Conservative government and the Bank of Canada will continue to monitor the situation closely. Canadians are currently digesting the ramifications of a 30-year-high in the value of the dollar. The loonie ended the day Friday at 97.04 cents US. Analysts say the rise of the dollar will mean relief for Canadian consumers, but they also say the rise will put further pressure on the Canadian economy.

      Economist.com
      A book-keeping error
      AS THE old joke goes, there are three types of accountant: those who can count and those who cannot. Saturday 01 September 2007
      

      12 September 2007

      U.S.
      Since its record of over 14,000 on July 19, the Dow Jones has lost 750 points with the collapse of the U.S. subprime housing market, followed by the credit crunch. Mortgage delinquencies and foreclosures (up 93% y/y in July) reached a record high with 36% of mortgage loans in late payments. Over 100 mortgage operations have halted their operations worldwide; worldwide there is over $891 billion asset-backed commercial paper at risk.
      Housing prices have declined for the first time since the Depression and will go down further. Housing starts in July tumbled to the lowest level in 10 years; house sales in the second quarter were at a 5-year low. There is nearly 9 months of supply of houses in the market. Two million home foreclosures are expected to be filed this year. Sales of existing houses declined in July for the fifth consecutive monthly decline. Bad loans with U.S. banks have increased by 51% - the largest increase in 16 years. Subprime mortgages account for 20% of U.S. home loans. These loans were made at 8-10% versus the market rate of 6%. There are two million adjustable rate mortgages (ARMs) including $400 billion of subprime loans scheduled for rate adjustment of 30% or more by the end of next year. The housing slump has already affected the US. Economy: employment (August) was negative for the first time in 4 years; consumer spending and confidence are waning. Consumer credit growth has abated substantially. The services sector has flattened.
      The Beige Book has called for limited growth in the near term. The manufacturing sector has slowed down significantly since June, particularly new orders. Capacity utilization has flattened at under 82%. Auto sales are the slowest in 9 years. Production is being curtailed; construction spending is 2.5% for the year. With personal consumption expenditures deflator under 2%, there is increasing talk of … recession and financial market turmoil. The Fed is likely to cut its Fed Fund rate by ½ to 4¾ on September 18 and to leave its discount rate unchanged.

      Canada
      Since July 19, the TSX has lost 869 points as the U.S. subprime mortgage market created havoc in the $35 billion non-bank mortgage backed commercial paper (or Asset backed Commercial Paper - ABCP) market. The total Canadian mortgage-backed commercial paper market is over $16 billion.
      The economy has remained very strong with a second quarter growth of 3.4% after 3.7% in the first quarter. Employment has remained strong with nearly 24,000 new jobs created (August) and 6% unemployment remaining at a 30-year low. Exports have recovered in July (+1.5%) and very strong imports (3.5%), indicating strong domestic demand.
      The housing sector remains strong with a rise of over 5% in August housing starts, and expected existing house sales rising by over 8% this year, and prices by 10.5%. Retails sales in the second quarter were the highest in almost six years. July manufacturing shipments are expected to rise by 1% when figures are published on Friday.
      Bank of Canada kept its overnight rate steady at 4½ despite core inflation at 2.3 above the inflation target and despite the economy operating further above its production potential as domestic demand remained robust. But recent developments in financial markets have led to some tightening of credit conditions for Canadian borrowers, which should temper growth in domestic demand. Despite receding commodity prices (particularly metals: copper, zinc, nickel and aluminum, these four metals down an average of over 7% for September to date and 12½ for year-to-date) crude oil has risen $4, trading at a new record of over US$80, and gold has risen to over US$721, pushing the Canadian dollar to its 30-year high of over 96 cents on July 19.

      Near Term Trading Outlook: Wed1332
      
      

      • Canadian Dollar: 96¢ U.S. – 97