Hot off the press…

(ed. wonder if this had anything to do with Toronto City council voting in their own land transfer tax for the GTA)

The more I read from this economist, the more I learn that:

1- that he knows way more than I

2- he has a unique way of presenting ideas in a way that the average Joe can understand

This weeks article… sorry no chart that I could find.

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The market was not too impressed with the central bankers’ plan to address liquidity issues this week. The
coordinated measures by central banks in the US, Canada, Switzerland, UK and the Euro region did not move
the markets in any significant way. Note that the main reason for this intervention was to lower the gap
between inter-bank lending rate (Libor) and treasury yields. And this gap is still extremely high (Chart).
Those who want to get a sense of how significant the
credit crunch is simply have to glance at this spread. It is a
good proxy for the angst banks have in lending to each
other. Also note that most US adjustable rate mortgages
are linked to the Libor rate, so cutting the fed funds rate is
of limited use if it is unable to lower the Libor rate.
And the Libor rate is not falling because global financial
system remains extraordinarily unsettled. While the new
lending facilities introduced by central banks may help in
improving confidence, they are limited in their abilities to
deal with the key issue of banks’ willingness to lend money
to one another. The reality is that until the magnitude of
the subprime losses is known with greater certainty, banks’
reluctance to lend will continue to be a major impediment to any improvement in credit flows.
But the new effort by the Fed to supply liquidity to banks via “term auction facility,” or TAF might help
somewhat. The purpose of the TAF is to provide short-term cash to banks, without the stigma of discount
borrowing given that some banks are still reluctant to use the discount borrowing window, fearing that it
sends a negative signal about their financial stability.
Next week the Fed will make $20 billion in funding available with a term of one month. It will be an auction,
but given that the minimum bid will be set at the expected fed funds rate over the term period, the TAF rate
will be lower than the discount rate. Right now, the plan is for four auctions, two in December and two in
January. Other auctions are possible in the future. It will be interesting to see how many banks use this facility
next week.
In Canada, the closely watched Prime-BA spread is now at around 140 basis points — still 15-20 basis points
too low. Judging from the language of the Bank of Canada regarding the risk associated with the current
global credit crunch, along with the likelihood that the economy will slow in the coming six months, it is likely
that the Bank will cut rates again, probably by 25 basis points in early 2008.
Benjamin Tal
Senior Economist

Well, December has seen a flurry of activity for me trying to get commitments on a couple of deals.

In the interim, the Bank of Canada has dropped their rate by 25 Bps making ARM/VRM customers a little less nervous. The dollar has come down from it’s ridiculous high. No one thought it would last. Even Mr. Dodge made a plea to the world markets to hold back. The speculation was rapidly growing. He needed to put a halt to it as quickly as possible.

Still no really good news coming out of the US. The former head of the Fed Reserve was kind enough to let the world know that there are many indications that the US is headed for…wait… you guessed it… recession.

It will be interesting to see what incentives the government will come up with to try and kick start the real estate market.

Looks like things are also starting to slow down in Alberta. I was just talking with the representative with Gibraltar mortgages. They indicated that the prices are starting to fall by 5-10K per month.

Now most of the readers at this point are going, WHAT? That must be a typo. Well consider the other side. For the last 2-3 years it’s been rising at 10-15K a month. The rep said they bought a house 2 years ago. Price to build $235K and they thought that was high. Estimated price on move in day was $300K and today they are looking at $510K only 2 years later.

The service industry is the hardest one hit. No one can retain employees even at $25/hour. Tim Horton’s, the ever popular coffee shop, close their doors from 1-4PM as they don’t have anyone to work those hours.

Good restaurants have massive line ups outside and only a third of the tables are used. Two servers can only handle so many tables. I imagine only one cook can make so many meals as well.

Calgary also experiences what I call “Rush Days”. They no longer have a rush hour at the beginning and end of the day. A lot like many major urban centers in the US.

The city planners must be pulling their hair out. Subdivisions everywhere, but no schools or infrastructure to go with it. Yikes.

I know several investors who have bought in Alberta. Wonder if anyone has thrown up a red flag and told them to get while the getting is still good. Now of course they are professional investors and did their due diligence and the fundamentals were sound and they have an exit strategy regardless of the insanity of the current market conditions. No panic selling, but no 100% ROI in a year either.