I have the distinct pleasure to be in New York City over the next couple of days to attend the World Business Forum.  For those of you who have been you know all about the cities vibrancy, pace, attitude and frenetic energy.  Walking the streets you can just feel it. You either keep up or you better step aside. There’s no middle ground when it comes to New York, people love it or hate it.  Put me down in the infatuation column.

New York always finds a way to make the headlines.  Most recently is was the squatters who protested on Wall Street.  Remember them?  They ended up being just another footnote in New York’s long history.  Ah, but today there’s even juicer headlines in the Big Apple.   New York Attorney General filed a lawsuit against J.P. Morgan Chase & Co on Monday for fraud over faulty mortgage-backed securities packaged and sold by the former Bear Stearns.  That’s right; they’re being sued for something allegedly done by Bear Stearns before J.P. Morgan Chase & Co was forced to buy them by the U.S. Government back in 2008.   It was the critical first days of the sub-prime mortgage meltdown and the heads of the major banks were summoned to Washington, and they were told in no uncertain terms by then Secretary of the Treasury,   Henry Paulson, that before anyone goes home deals would have to be cut to ensure banking stability.  That’s the Readers Digest version of how J.P. Morgan Chase & Co ended up buying Bear Stearns for $2 USD a share.  It appears now that they ended up buying a whole lot of headaches.  I’m sure the timing of this lawsuit is all coincidental and it has nothing to do with the upcoming U.S. Presidential election.  Sure, the sub-prime mortgage meltdown first came to light in 2008, and the first lawsuit just happened to be filed just prior to the election; a mere coincidence.  It took the Obama administration close to 4 years to create the Residential Mortgage-Backed Securities Working Group to investigate the selling and pooling of risky mortgages.  Better late than never, I guess.  Does someone deserve to pay dearly and possibly go to jail for nearly bringing down the global economy? Damn right, and long overdue; but to do it now reeks of politics and not justice; coincidence? As a New Yorker all I want to say is, “coincidence this!”

Until next time,

Cheers.

One doesn’t have to be an expert in the real estate market to grasp that there’s something different in the market today.  Call it what you will, a sense, intuition or just plain old gut feel but there’s little doubt that things are changing.  The only question that remains is the degree of change?

Here are the facts as we know it:

• Home sales have dropped month over month by 5.8%, which is the biggest monthly drop in two years
• Number of newly listed homes is down 1.7% month over month
• Greater Vancouver Real Estate Board states that re-sales were down 30.7% as compared to August 2011.
• Toronto Real Estate Board states re-sales were down 12.5% as compared to August 2011
• According to the August 2012 CMHC quarterly report, second quarter insured mortgages unit volumes were down 25%

Indeed, things are different today.  The data speaks for itself, and the debate today has been reduced to correction versus bust.  I think it is far too early to come to come to any final conclusion but that will not stop stakeholders and the press from jumping into the debate. This issue is way too sexy to resist, and there’s a lot on the line for our economy and policy makers.  I came across an interesting quote from Wayne Moen, President of CREA., “August’s sales figures will no doubt provide comfort to policymakers, providing the first clear indication that the recent changes to mortgage regulations aimed at cooling the market are working as intended”. Very eloquent but policymakers may find the end result as comfortable a slipping into a pair of size 34 jeans, when you’re a size 38!  Policymakers insisted the most recent changes to mortgage rules targeted the tail end of the credit curve; therefore, the overall impact to the market would be marginal.   Nothing about the statistics indicates marginal, and I suspect home owners in Vancouver and those in the mortgage industry would agree.

 Look for the Vancouver market place to garner special attention in the coming months.   As an example, “the housing market correction appears to be under way, driven by the sharp downturn in Vancouver”, according to TD’s Chief Economist, Craig Alexander.  He went on to say, “we expect the slowdown will become broader based following a fourth round of mortgage insurance regulation tightening by the federal government”.  The way I interpret this is what goes for Vancouver, also goes for the entire country.  And then there’s the obvious, if it all goes bad, you know who to blame. 

Until next time,

Cheers.

Leave it to bureaucrats to come up with an acronym which acts as camouflage for the truth.  QE3, Quantitative Easing Part Three, is code for bail-out.  Politicians and bureaucrats are loath to use that term for fear of negative press and political ramifications.  If it looks like a duck, and it quacks like one, it’s a duck!  US Federal Reserve Charmin, Ben Bernanke, announced a couple of weeks ago that the Fed would inject $40 billion a month through purchases of mortgage back securities.  This move by the Fed is viewed as being dramatic in that it is a two pronged approach.  Firstly, there’s no defined time limit and they will not deviate from this policy until they succeed.  What does Fed deem to be success?  Full employment.

Rarely has the Fed exercised its authority and flexed its muscles in a such a manner.  This is a sign that the Fed has little confidence that the Whitehouse, Congress and Senate, will put their bickering and their campaign posturing aside to do what’s right.  This move has put Bernanke into the Republican crosshairs, we can use that reference in Canada because we Canadians wouldn’t take that term literally.  Being so close to the US presidential election, it’s odd that the Fed would make this move now.  Say what you will about Bernanke, he’s injected himself into this political campaign.  I believe his motivation was not political but of necessity.  Managing the economy has not been president Obama’s stronger suite, and the Republicans wouldn’t agree to anything today that Dem’s might suggest.  Fixing the US economy has been put on hold for over a year now because of the length and nature of  presidential campaigning.  Maybe Bernanke was willing to roll the dice because he has nothing to lose.   His tern as Chair expires in 2014.  The Republicans are questioning the need for a Federal Reserve Chairman, and maybe Bernanke has already decided that if asked he will not accept reappointment.  If he does step aside it would be a challenge for whoever replaces him as Chair, given no defined end date for QE3.  It is always easier to make bold decisions about the future knowing that you may not be subject to the consequences of that decision in the future.

The reverberations of QE3 will be felt here in Canada.  Bernanke has stated that the Fed is committed to leaving its target interest rate close to zero until 2015.  A few short months ago the prediction for a rate increase was 2014.  Clearly the Fed believes interest rates are too high in the US to encourage investment and mortgage borrowing.  I am not sure how enamored the Bank of Canada is with this decision.  Up until now the Bank of Canada has been in lock step with the US Fed.  Will they deviate from that?  I highly doubt it.  So, an overnight lending rate increase may have been pushed out for another 12 months in Canada.  That’s good news for consumers, especially for borrowers renewing their mortgages over the next 24 months.  The not so good news is that if you’re a first time home buyer, don’t expect the government to reverse the most recent changes to mortgage rules anytime soon. 

Until next time

Cheers

Most polls show the race for the oval office within the margin of error.  Stunning considering the economic mess our friends to South are in. What’s more staggering is the incumbent may perform the greatest slight of hand trick ever known to man. To be reelected based on today’s economic data would be Houdini like, straight jacket and  all.

For all intent and purposes the presidential election campaign begins post labour day weekend.  Up to this point all the primaries and conventions have been but a mere warm up.  From here on both parties will resort and say to whatever it takes to win.  The nastiness will begin in earnest, and for the president it’s imperative that the focus is diverted away from the facts.  The fact is that unemployment rate in the U.S has been understated for some time now.  The latest numbers has the U.S. unemployment rate at 8.1%, down from 8.2%.  The decrease is a function of people who have stopped looking for work, and no longer count.  Over 60% of people in the U.S. now believe their children will not be better off than they are.  Over 50% of people believe the economy is getting worse.  The latest job figures came in less than what was expected, and yet according to a new poll by Reuters, the president has actually widened his margin since the Democratic Convention.  Me thinks those who were polled must have all lived in Ontario at some point because that is the only explanation I can come up with for the bump in the polls for the president. Why let facts get in the way of a good story?

Like the millions of people outside of the U.S., I really wanted this president to succeed.  He represented change and his election was a signal to the world that race will not play a part in determining the leader of the free world.  But simply being cool is not enough to get elected.  Then again millions of Americans disagree, and to them I say, you deserve what you elect.

Until next time,

Cheers.

The dog days of summer are over and now it’s back to normal.  The kids are back to school; you can always tell because the traffic is bigger mess than usual driving to and from work.  The distractions that come along with summer will be in the review mirror and reality will soon hit us in the face like a cold glass of water.

 For many who have tuned out over the last few months there’s a significant election taking place today in Quebec and depending on the results we could all end up feeling the aftershocks.  If the polls are correct the Parti Québécois, led by Pauline Marois, could control the leavers of power.  Just like the movie Groundhog Day, we’ve all seen this before.  Ms. Marois has made it clear that if her party is successful their demands will be clearly articulated in short order, with the ultimate objective being sovereignty.  Could this mean another referendum in Quebec? Possibly. Even if a referendum does not come to pass the mere threat of one will have an impact on the economy.  Canada is viewed as safe haven to invest and one of the main reasons for that is our political stability.  A referendum debate is a sure fire way to shake investor confidence. 

Another election looming is in B.C. The Provincial Liberals are being savaged in the polls.  Caucus members are fleeing for the exits with such speed that Usain Bolt would have to take notice.  Premier Christie Clark is taking much of the heat for the exodus and for the state of her party.  I find it interesting that B.C. has been the envy for many in our country, yet locals have grown restless.  Change is in the air and the polls indicate the NDP will once again rule.  I actually resided in Vancouver when the NDP were last in power, I can honestly say my memory of them has faded somewhat.  What I do remember is that the leaders of that party were either convicted of a crime or came under RCMP investigation. The past has a way of repeating itself, and if it does in B.C., hello headlines and uncertainty.

Here in Ontario the Premier is talking tough and taking to all the special interest groups that the Liberals have catered too to get elected.  Massive debt, unemployment levels higher than the national average are at the forefront for Ontario.  The question for the Provincial Liberal is how long will their cousins to the left prop them up. As usual in politics the polls will determine when the Liberals fall, meaning yet another election in Ontario.  So, there’s political uncertainty in Quebec, BC and Ontario.  Three key provinces will be in the news with regularity.  Like or not we’ll have no choice but to pay attention.  Summer is over and the political silly season is about to commence.  Depending what happens we could all be in for a bumpy ride.

Until next time,

Cheers.