After sifting through Finance Minister Jim Flaherty’s latest keep-the-opposition-from-voting-us-out budget, I’m sorely tempted to adopt the analytical approach of Carl Weinberg, the estimable chief economy watcher for High Frequency Economics in Valhalla, NY. 

The budget does not merit analysis, because there’s going to be an election anyway, he told clients long before Flaherty tabled the document on Tuesday. “[W]e see no reason to invest a lot of time worrying about the economic impact of today’s budget. We doubt it will be implemented.” 

But that’s precisely why this exceedingly modest and deliberately cautious budget is important. 

Flaherty plainly crafted it with two potential outcomes in mind: Either it would offer just enough to keep the New Democrats onside and prolong the life of the minority government or it would provide the key fiscal plank for the Conservatives’ next election campaign. Given the instant and entirely predictable thumbs down from NDP and the other opposition parties, it’s a safe bet that we’re looking not at the next budget but the economic underpinnings of the Conservatives’ election platform. 

Click here for the full Globe and Mail article

Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.

Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. “In our industry we never fit the paperwork guidelines ‘for the banks.’ For some reason, people don’t think we pay our bills.”

Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. “He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn’t for him, we may not have made the leap.”

Sorting through a mortgage process and negotiating rates can be overwhelming for first-time and seasoned home buyers alike. That’s why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.

Yet mortgage brokers will tell you that a good portion of home buyers out there don’t really understand what they do. “Part of the challenge we have in our world is that people aren’t really sure what a mortgage broker is,” says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.

Brokers should not be confused with “rovers,” mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.

“They only deal with that bank’s product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank.”

About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vice-president, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.

“The reason more people don’t know about them is because the banks are so visible. It’s easy to gravitate to them when you have your savings accounts, credit cards and investments there already,” Ms. Quinton says.

Going for the comfort factor could cost you however, she adds. “A broker has access to different lenders including banks, and can shop rates and features. A half per-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps.”

Mr. Siegle confirms that shopping around can deliver significant savings.

“Let’s take today’s average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower -around 4.14%. And if you look at preferred deals that don’t offer features such as prepayment privileges, it can get as low as 3.89%. That’s another 25 basis points below what’s generally available.”

The reason for that is simple, he says. “We offer wholesale rates, banks offer retail.”

For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time.

“It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those.”

Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.

“Knowing these things before you go in can save you a lot of money,” she adds.

Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.

If you’re not completely prepared, however, that shouldn’t be a concern when working with a good mortgage broker, Mr. Siegle says.

“After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions,” Mr. Siegle notes.

“You just need to be prepared to answer them openly and honestly so they can get you the best deal possible.”

Recent tragic events in Japan follow a string of global catastrophes that could slow economic recovery in the short term, but should not push either the Canadian or global economies back into recession, according to some of Canada’s top economists.

“Obviously horrible things have happened (in Japan) that will take some of the growth out of the economy for the next two quarters,” said Glen Hodgson, chief economist at the Conference Board of Canada.

“Then people need to rebuild infrastructure, rail and housing and that will actually improve growth in the next four to six quarters.”

Hodgson joined two major banks Thursday in projecting that the crisis at Japan’s Fukushima Dai-ichi nuclear plant and last week’s earthquake and tsunami will conspire with a number of other global events — including uprisings in the Middle East and Europe’s sovereign debt crisis — to decelerate the global economic recovery.

“They will have a negative impact … (but) we’re certainly not returning to recession in any place,” Hodgson said.

G7 countries, including Canada were set to meet in a teleconference Thursday night to discuss the economic impact of the disasters in Japan.

Bank of Montreal (TSX:BMO) economists said in a report that they had trimmed their forecast for global growth by a quarter point to 3.75 per cent as a result of recent events.

“Prior to Japan’s earthquake, we had been calling for global GDP growth this year of four per cent,” they wrote.

“Until we see how the (Japanese) nuclear crisis plays out, it’s next to impossible to properly assess the full economic impact, but a rough guess would be that events in Japan could cut this year’s GDP growth by nearly a percentage point.”

As a result, the bank doesn’t expect an increase in the Bank of Canada’s key overnight lending rate until at least this summer.

However, the effect on the Canadian economy will be minimal and short-lived as Canada stands to benefit from higher oil prices and Japan’s rebuilding process, Paul Taylor, chief investment officer at BMO Harris Private Banking, said during a conference call Thursday.

There will be a short-term impact on the financial sector— where Canadian insurer Manulife (TSX:MFC) has taken a beating due to its exposure in Japan — as well as uranium producers, as governments around the world begins to rethink the use of nuclear energy.

However, many Canadian businesses, including lumber producers and engineering and construction firms, will see an increase in business during the rebuilding phase, he added.

“The Canadian economic impact, we expect to be quite limited,” he said, adding that trade between Canada and Japan doesn’t compare with Canada-U.S. trade.

“For us, it’s only the secondary impact of Japan’s effect on U.S. economic activity that were focused on,” he said.

Meanwhile, his colleague, Jack Ablin, chief investment officer at U.S.-based subsidiary Harris Private Bank, said he was knocking down his U.S. growth forecast by a percentage point because of the crisis in Japan.

Japan’s earthquake and nuclear disasters will likely reduce manufacturing output for several months, potentially creating shortages that could disrupt North American producers, such as automakers, that rely on Japan for parts.

General Motors said Thursday that it was suspending production at its Shreveport assembly plant in Louisiana next week due to a parts shortage resulting from the crisis in Japan, but so far its Canadian plants are operating normally, a spokesman said.

CIBC also cut its growth forecast for the U.S. growth by a tenth of a point, to 2.7 per cent, mostly due to the negative impact of oil price hikes and government spending cutbacks.

Among other things, CIBC senior economist Peter Buchanan noted in a report that surging gasoline prices raise questions about whether U.S. consumer spending can continue its increasingly healthy pace.

However, Buchanan believes that oil would have to reach US$160 a barrel to derail the economic recovery, a scenario he does not see playing out. After plunging in recent days, crude jumped $3.44 to settle at US$101.42 a barrel Thursday on the New York Mercantile Exchange.

“Oil has risen dramatically before, only to crash back to earth, and there are still good reasons why history may repeat itself,” Buchanan said.

Inventories in industrial countries were adequate when the Middle Eastern political pot began bubbling and OPEC, while it likes firm prices, has no interest in recession-inducing ones that crush demand.

Since Canada is one of the world’s top dozen net exporters of oil and oil products, higher crude prices are a modest plus for the economy in the near term.

But beyond four to five quarters, the drag on the economies of its major trading partners means the bad more than cancels the good, and the level of GDP is actually lower than it would otherwise have been.

While Canada is not immune to issues facing the global economy, the report forecasts real GDP growth of four per cent for the country in the first quarter of 2011 and Buchanan expects the Bank of Canada to hike its trend-setting overnight rate as early as May. http://ca.news.yahoo.com/canadian-gdp-grow-pace-four-per-cent-first-20110317-061726-639.html

If you’re thinking of selling your house to make a little money before rising interest rates squeeze the real estate market, there’s good news and bad news.

The good news is you’re almost certainly making money because home prices in Canada have been rising for the past few decades, particularly in the greater Vancouver area.

The bad news is: It’s not as much money as you’d like.

We recently sold our income property, and I was aghast at some of the costs associated with closing. Here are some of the biggies to keep in mind, if you’re going that route:

– Paying the agent. Your real estate agent and the buyer’s agent share 3 per cent to 7 per cent of the selling price. That comes out of your pocket. You can haggle on the commission, though. You also have to pay sales taxes on the commission. If you decide to sell your house without an agent, you get to keep more money, but it does mean that you have to do the legwork yourself, while fending off persistent calls from agents who are waiting for you to throw in the towel.

– Paying the lawyer. You’re looking at least $500 in legal fees. There is also the cost of disbursements, such as registration fees and related expenses, which can add up to a few hundred more. And you pay sales taxes on the total, which varies depending on which part of Canada you live in.

– Paying the bank. Unless your house is fully paid off, you will have to pay a fee of as much as $270 to discharge your mortgage. (Major banks’ discharge fees are listed here.) If you have a closed mortgage, your bank may also ding you for prepayment charges — equalling several months’ worth of mortgage payments, depending on the number of years outstanding and the interest rate. If you are buying another property, you may be able to transfer your mortgage.

– Paying utilities and property taxes. You have to pay your share until the deal closes. For example, if it closes in the middle of the month, you have to pay for the first half.

– Paying the government. If it’s your primary residence, you’re in luck and don’t have to pay capital gains tax. If it’s an income property, however, you have to pay tax at your marginal income tax rate on half the gains. http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/selling-a-house-beware-the-costs/article1911130/

Here’s a handy-dandy checklist that you can use.

important to marketing, but there is overwhelming new evidence to underscore what impact an online presence can mean – in particular to Canadian consumers – and to the professionals trying to win their business.

According to a new poll released from marketing survey company comScore, Canada is the global leader in terms of time spent online. Canadians spent more time online than Internet users from any other country during Q4 2010.

So then, for business to fully leverage marketing initiatives, they need to meet Canadians where they are – and that’s, overwhelmingly, online. 

On average, Canadians reported spending 43.5 hours online per month in Q4 2010, which signals a rise from the 42.2 hours reported in Q4 2009.

Click here to read more from PropertyWire.ca.

at a faster pace than that of our American cousins, buoyed by a strong real estate market and stronger stocks pumped up by commodities prices.

“The rollicking stock market helped boost the net worth of American households in [the fourth quarter], though they remain nearly $9 trillion (or 13%) poorer than before the credit crisis because of depressed home values and the almost $2 trillion loss in equity values,” economist Sal Guatieri of BMO Nesbitt Burns said in a research note. 

“Conversely, Canadian household wealth continues to scale new heights on the back of record house prices and a near-full recovery in equities (thanks to the commodities boom).”

Guatieri was referring to figures released last week by the Federal Reserve that showed household wealth in the US rose by $2.1 trillion in the final quarter of last year. That brought the total to $56.8 trillion, the central bank said. At the same time, Americans continued to cut back their debt levels. 

Click here for the full Globe and Mail article

assuming rising American demand for consumer goods and autos, according to a report issued Friday by Royal Bank.

Economists at the bank predict net exports such as cars and commodities will boost economic growth this year and next, as those industries account for two-thirds of Canada’s goods sold abroad.

The report from RBC Economics says Saskatchewan will lead the country in growth, followed by Newfoundland and Labrador and Alberta.

Ontario and Manitoba will stay close to the national average while other provinces will fall below.

Canada’s economy will register a strong start to 2011 despite the growing risks from crises in Japan and the Middle East, predicts a major Canadian bank.

The TD Bank’s new forecast has the Canadian economy advancing a robust 3.5 per cent in the first half of this year, before slowing slightly in the second half.

For the year, the chartered bank expects the economy will expand by three per cent, half a point more than its previous estimate and 0.6 percentage points higher than the Bank of Canada’s official projection. The 2012 growth estimate remains unchanged at 2.5 per cent.

The bank expects the economy will create about 350,000 new jobs this year, more than last year’s total, with the unemployment rate dropping to 7.5 per cent by year’s end.

The new forecast is not a big surprise — more and more of Canada’s financial institutions have been upgrading their outlooks. The economist consensus given to the Finance Department on Friday in preparation for the March 22 budget has moved to 2.9 per cent from 2.4 per cent in January.

But it is the first major revision since last Friday, when a massive earthquake and tsunami rocked the world’s third largest economy, setting off a chain of events that points to a nuclear catastrophe at Japan’s nuclear plants.

TD chief economist Craig Alexander said the outlook took events in Japan into consideration, but the bank has determined the impact on the Canadian and global economies will be minor.

While there might be supply-chain disruptions in some sectors, particularly the auto sector, it notes that Japan represents on two per cent of Canadian exports.

“You don’t want to minimize what’s happening in Japan and if the worst fears come true then Japan’s economy is going to do a whole lot worse,” said Alexander.

“But the risks are risks, they aren’t the most likely outcome. It’s still the case that the economic climate in the world is quite good. For Canada, we’re going to have moderate growth, low inflation, solid profit growth, low albeit rising interest rates … this is actually a pretty benign economic environment.”

As devastating as the disaster in Japan is in human terms, the macro-economic impacts are small since global supply chains will find substitute sources for output to replace the affected region, Alexander explained.

Longer term, Japan’s need for materials to help in the reconstruction could help the Canadian economy, although the overall impact will also be small.

Alexander said the strengths of the Canadian economy going forward are business investment, which he expects to keep growing, exports and consumer spending.

Government restraint, higher interest rates from the Bank of Canada moving to a tighter monetary posture, and housing will be key drags.

While it predates the Japanese natural disaster, Statistics Canada released fresh data Wednesday showing that Canada’s still depressed manufacturing sector had a banner January, with activity picking up by a massive 5.5 per cent in volume terms.

The data adds credence to December’s trade surge, which even after a downward revision showed exports rising about eight per cent.

“Without a doubt, the manufacturing data shows that underlying economic growth is improving,” said David Madani of Capital Economics, although he wondered if the momentum can be sustained.

TD’s sunnier outlook, as with other major institutions that have revised upwards, stems from the strong 3.3 per cent growth recorded in the fourth quarter, a more optimistic outlook for Canada’s biggest trading partner — the United States — and higher demand for commodities.

TD suggested that growth will be particularly prominent in the Prairies and Newfoundland and Labrador, helped by stronger financial positions from the governments in those regions, and strength in commodity prices.

But even manufacturing-heavy Ontario saw its growth profile rise from 2.4 per cent to 2.9 per cent in the TD outlook.

The Canadian Press http://www.therecord.com/news/business/article/502523–canadian-economic-growth-will-pick-up-despite-crisis-in-japan-td-says  

The Bank of Canada has now kept its official interest unchanged at 1 per cent for the fourth meeting.

Those with floating-rate debts will no doubt be relieved; however, economists were looking for a signal from Mr. Carney and crew that improving economic conditions were paving the way for a return to rate hikes sometime soon.

Had this week’s policy meeting taken place a few weeks ago, it’s likely we would have received that signal. Indeed, most indicators have pointed to stronger-than-expected activity in Canada and the U.S., while emerging economies have maintained a torrid pace of growth.

That would have been before the recent developments in Egypt, Tunisia, Yemen and now Libya. The grassroots uprising against incumbent regimes might be welcome from a democratic ideal perspective, but it has created a rift in energy markets.

Crude awakening

After dipping briefly below $85/barrel in February, the price of crude oil has now broken above $100 for the first time since October 2008, testing $103.40 last week — the 61.8 per cent retracement mark from the July-December 2008 collapse.

A close above this level will increase the odds of a move to $120 (recall that $147.27 was the intraday high from July 2008). And if you thought the recent spike in pump prices was unnerving, gasoline futures have already crossed above the 61.8 per cent retracement level and are trading above three bucks (US) a gallon.

In July 2008, futures broke above $3.70/gallon. Even if prices simply hold near current levels, average pump prices in Canada could easily gravitate towards $1.30/litre. That’s not good news for those planning to drive to their March break vacation spots, or for those returning snowbirds.

One might suspect the Bank of Canada would see the boost to inflation, that will come from commodities like oil and gasoline, as something that needs to be worked against through tighter monetary policy, but that’s old school.

These commodities, like food (which is also seeing some inflation strain), are essentials and represent a significant share of our non-discretionary spending. Unless incomes rise by the same amount as the cost of these essentials, everything else being different, there will be less to spend on discretionary goods and services. In other words, real consumption growth in Canada could slow.

Not so fast

How much of a slowdown we experience in consumer spending (and let’s throw in housing expenditures too), depends greatly on that above-mentioned phrase “all other things being equal.”

If employment grows at a decent clip and wages go with it, then the affect on spending will be less pronounced. As of the end of 2010, average weekly earnings in Canada were up 4.5 per cent over the same period a year ago, which was the fourth-best growth rate in earnings since records started in the early 1990s.

To put this in perspective, when crude oil was climbing towards $150 back in the summer of 2008, weekly earnings growth was heading in the opposite direction.

There were other headwinds facing Canada back in 2008, including the cost of borrowing. When oil reached its peak, the 5-year conventional mortgage rate in Canada was above 7 per cent. Today, it sits near 5.5 per cent. The 1-year rate was also close to 7 per cent (yes, we had a very flat yield curve before the walls came tumbling in), compared to 3.5 per cent today.

Now, I’m not suggesting that we’re going to stay in interest rate limbo forever, but the Canadian consumer is in better shape to handle higher pump prices today than back two years ago.

How long can they sit on the fence?

What the Bank of Canada has to be careful of here is the oil price shocks emanating from across the pond turn out to be temporary and there is no slowdown in consumption growth. Bank economists are already looking towards 2012 as the likely period where excess capacity in Canada’s economy disappears and inflation returns to target (using the core inflation measure).

It is easy, however, to accelerate that trip back to zero excess and just as easy to push the economy into a situation of excess demand.

Coming back to the Bank’s decision this week, it may have been surprising to see it lean against speculation of near-term tightening. But, it would be a mistake to assume the Bank can’t and won’t pull the trigger on rates before the summer.

There are two policy meetings left this half (April and May), so if Mr. Carney and crew wake up and realize there is too much potential inflation risk in leaving rates unchanged, they will need the April meeting to deliver the guidance towards a May rate hike — something economists thought was going to happen this week.

And if energy price shocks don’t intensify and the Bank fails to deliver such guidance, don’t be surprised if the bond market creates the guidance for them. http://ca.finance.yahoo.com/news/Central-bank-still-hike-rates-yahoofinanceca-1276928971.html

The improving economic backdrop has strengthened some economists’ view that the Bank of Canada will begin raising its benchmark rate in the  – either in April or May – or at the very least in July, once the U.S. Federal Reserve is scheduled to end its US$600-billion asset purchase plan.

Not so the Bank of Nova Scotia. It is among the few research houses on Bay Street that believe the Bank of Canada, led by governor Mark Carney, will wait much longer – to October to be more precise. (Meanwhile, analysts at Capital Economics have reiterated their view the central bank remains on hold for all of 2010.) The main culprit: A weak U.S. dollar which could drive the loonie to US$1.08 by the end of the year.

Scotiabank economists Derek Holt and Gorica Djeric offered a detailed explanation of its view in a note to clients. Here is a summary of Scotiabank’s arguments:

• THE GREENBACK WILL KEEP SLIDING

Scotiabank is just plain bearish on the U.S. currency, as the Federal Reserve continues to pump cash into the system and keep its benchmark rate near zero. But the bank also believes there is a chance the White House further extends stimulus measures agreed upon late last year as opposed to allowing them expire – likely earning a rebuke from bond raters and fixed-income investors as Washington’s fiscal status would deteriorate further. That, in turn, would make the U.S. dollar even less favourable and likely adds to the loonie’s strength.

That could drive the loonie to as high as US1.08¢ by the end of 2011 — a full 12 cents above the most dovish view on the loonie, Scotia admits.

“This type of CAD strength imposes net tightening on the Canadian economy that we believe will do the Bank of Canada’s tightening for them. It is difficult to envision further Bank of Canada tightening when our expectation is that Canadian dollar will be lit up apart from what the Bank of Canada does.”

• GLOBAL UNCERTAINTY WILL CONTINUE

Turmoil in North Africa and the Middle East, and the impact that is having on energy prices, justifies the central bank keeping its powder dry for now. “No one has a clue as to how various geopolitical developments … will fully unfold,” Scotiabank said.

Also lurking in the background is Europe’s sovereign debt worries, and what policy makers will eventually agree to at a summit late this month.

• ECONOMIC SLACK REMAINS WIDE

Despite the better-than-expected fourth-quarter growth data, it likely didn’t have much of an impact on the country’s output gap that according to the last Bank of Canada estimate stood at 1.9% of the economy, Scotiabank said. It added it foresees risks to demand growth from government spending cuts, high commodity prices and new mortgage rules.

Furthermore, recent historical evidence would suggest there is a weak link between a narrowing output gap and inflationary pressure, especially since the Bank of Canada adopted an inflation-targeting regime about 20 years ago.

• TIGHTENING ALREADY UNDERWAY

There are developments underway which have the same impact as a rate hike, from a higher Canadian dollar; tougher mortgage financing rules which begin to take effect this month; the withdrawal of government stimulus; and, eventually, higher bond yields which will translate into higher rates on consumer loans.

• DOVISH FED

Fed chairman Ben Bernanke continues to signal a cautious, dovish approach, with expectations rate hikes begin sometime next year. Raising rates in Canada now would just push an already strong loonie higher.

• INFLATION TARGETING REGIME

It is still not clear what the Bank of Canada’s inflation-targeting regime will look like once it is renewed at the end of the year. “Therefore, it’s not clear to us if the Bank of Canada hikes the minute its operational core target gets to 2% in this cycle or is expected to do so,” Scotiabank said.

• FEDERAL & PROVINCIAL ELECTIONS

It remains unclear about whether the federal parties go on an election campaign this year once the federal budget is tabled on March 22. Still, Scotiabank said the central bank has raised rates only once during an election campaign in the last 20 years – in 2006, when the strong economy justified a hike – and will likely show caution again. Compounding matters are a series of provincial elections due in 2011, including Ontario where incumbent Premier Dalton McGuinty has repeatedly voiced concern about rate hikes and the upward push it provides to the Canadian dollar. http://business.financialpost.com/2011/03/07/why-the-boc-wont-raise-rates-until-october/