[Arktwo] The Canadian Collapse
Bruce Beach
language@webpal.org
Sun, 9 Mar 2008 19:27:30 -0400
Watched the markets on Friday.
Mid-morning -
the news commentary was gleeful.
The Dow was up.
The dollar was up.
Expectations were up.
And oil was down.
By the end of the day -
the Dow closed at the lowest level since October 11, 2006 -
the dollar hit a new low against the euro -
and oil had hit a new high -
of above $108 per barrel.
Expectations remained up in Canada.
This may all make for
an interesting Monday / Tuesday.
I really do not like
being lied to -
and of late it seems
that so much that comes my way
is made up of intentional lies.
Never mind the messages
of the campaigning politicians.
The propaganda from the incumbents
about how they are winning the war
in Iraq and elsewhere.
The disinformation from the Pentagon -
that is meant to intentionally
deceive the enemy.
What distresses me most -
as an economist
trying to comprehend reality -
is the intentional misinformation -
put out as statistics and facts.
For example -
a current headline:
"Unemployment Has Gone Down"
This is based upon the fact that it:
"dipped slightly from 4.9 percent to 4.8 percent".
And what caused the dip?
I found the answer
in another news article.
"...450,000 people left the labor force for any number of reasons."
If people become discouraged
and quit looking for jobs -
then they are no longer unemployed.
They may be going on welfare.
Becoming families with one earner.
Kids moving back home.
Going to work in dad's business.
Working on the farm.
Enlisting in the military.
Going back to / staying in school.
Doing volunteer work.
Trying to start a business.
Listing themselves as a consultant.
There are dozens of other responses -
(some so nasty I really don't want to mention them)
but it all means that -
they may wish they could find a job -
but they can't.
One reason they can't find a job -
"For the second straight month, nervous employers got rid of jobs
nationwide. In February, they sliced payrolls by 63,000, even deeper than
the 22,000 cut in January, the Labor Department reported Friday."
What bugs me still more
is that I am endlessly hearing
on the MSM TV in Canada that -
"All these problems are south of the border."
That Canada doesn't have these problems with:
employment
construction
housing prices
mortgages
the banks
etc.
I can tell you -
Canadians are whistling in the dark.
The cold has frozen our brains.
Here is Canadian news -
from sources not read
by the Canadian masses:
http://tinyurl.com/3y9xzo
"Bank of Canada proposes criteria for accepting ABCP as collateral"
As I have explained
in previous newsletters -
ABCP means
Asset Backed Commercial Paper -
or what we call 'derivatives'.
They have turned out to be worthless -
so what we have here -
is the Bank of Canada
proposing to bail out the banks
by giving them dollars
for their worthless paper -
in just the same way
that the US Fed is doing it -
at what they call their 'auction window'.
This will just make the dollar
worth less -
(a nice way of saying worthless)
and that will not please holders of it -
in other countries.
To see how this effects Canada
and how other countries are responding -
look at:
http://tinyurl.com/2hgr4l
Friday's Globe and Mail
Bank of Montreal bore the brunt of investor concern over Canadian banking's
credit crunch woes yesterday, leading a dramatic stock market drop across
the sector.
(yep, no problem in Canada)
Speculation that Swiss bank UBS has sold a massive mortgage portfolio at a
large discount, coupled with news that Citigroup Inc. plans to cut its U.S.
consumer mortgage portfolio by about one-fifth in the next year, helped to
drive down the shares of many banks around the world.
Bank of Montreal shares have lost nearly 20 per cent.
Investors are increasingly lumping Bank of Montreal in the same camp as
Canadian Imperial Bank of Commerce, which was punished for its oversized
exposure to the struggling U.S. subprime mortgage market.
(yep, no problem in Canada)
BMO said this week that it had taken a $39-million provision in the first
quarter relating to Fairway Finance, which creates commercial paper by
gathering up loans, mortgages and other interest-paying assets and
repackaging them to be sold to investors as short-term paper....Mr. Mendonca
told investors to prepare for a charge of at least $400-million from
Fairway.
Investors are also fretting because BMO is still in negotiations to
restructure two Canadian ABCP trusts. If the talks fall through, it will
take a $500-million writedown in the coming quarter.
(yep, no problem in Canada)
And one of the trusts' investors is fighting BMO's demand that it return a
$400-million funds transfer, while the bank is fighting a counterparty for
$600-million it says its owed.
BMO has long been the big fish in Canada's ABCP market and is now dealing
with its share of the problems.
(yep, no problem in Canada)
"This is a good business," chief executive officer Bill Downe said after the
bank's annual meeting Tuesday.
(yep, no problem in Canada)
(Would you buy a used car
from this man?)
----
Not just the banks -
but also other big financial institutions
in Canada (and the US)
are having similar problems.
http://tinyurl.com/2mywq4
"Desjardins increases ABCP writedown by $116M
(over a previous $273-million )
to 16 per cent of face value."
That is saying
the derivative is now worth only 16%
of what it was sold / bought for.
This lets us see -
the nature of the derivative problem.
However,
the bankers are very upbeat
about the problem:
"D'Amours said he's confident that efforts to find a resolution to the
liquidity crisis surrounding the commercial paper will succeed,..."
(yep, no problem in Canada)
"The chance that the Montreal Accord will succeed are very high," he said,
(yep, no problem in Canada)
"About $33-billion of Canadian third-party asset-backed commercial paper
became stranded starting in early August. "
The additional writedown has moved Desjardins into a position similar to
other institutions with big non-bank ABCP holdings, such as the Caisse de
depot et placements,
(yep, no problem in Canada)
National Bank has taken hundreds of million in writedowns, representing 25
per cent of its ABCP holdings.
Write downs -
and
write offs -
with need for
Bank of Canada intervention -
but still -
the banks and financial institutions
are claiming they are making
gigantic profits.
(yep, no problem in Canada)
http://tinyurl.com/2sfhm3
The possible collapse of two asset-backed commercial paper (ABCP) conduits
sponsored by Bank of Montreal has cast a shadow over a tentative deal
reached in December to stabilise Canada's $33bn market in non-bank
commercial paper.
(uhhh - 'shadow' - 'tentative')
(yep, no problem in Canada)
The bank risks criticism from investors if it allows its own trusts to go
under while supporting the 20 non-bank conduits involved in last December's
restructuring plan.
Yep,
that restructuring plan
with the February 7th deadline -
postponed to February 27th -
postponed to March 15th -
postponed to end of April -
postponed until end of the world -
well -
you get the idea.
(yep, no problem in Canada)
Five Canadian banks, including BMO, have tentatively agreed to contribute
$2bn towards a $14bn credit facility that would provide extra collateral in
the event of margin calls as the value of the trusts' assets declines.
JPMorgan would top up the margin-call facility by about $2bn if other
contributions fall short. A spokesman for the committee overseeing the
non-bank ABCP restructuring said that "market conditions are tougher than
they were in December. Negotiations with the banks are taking longer than we
hoped for."
(tougher than in December -
when they couldn't put it together -
but now -)
(let's see -
2bn + 2b = 4bn towards 14bn needed)
(yep, no problem in Canada)
Nonetheless, Purdy Crawford, the committee's chairman, expressed optimism
that the Canadian banks would participate in the restructuring plan.
(yep, no problem in Canada)
The two BMO trusts are verging on default ...
(yep, no problem in Canada)
http://tinyurl.com/35hee2
When it comes to the Big Six banks, "we are truly, truly in a freefall now,"
said Genuity Capital Markets analyst Mario Mendonca.
(yep, no problem in Canada)
www.autopilottraders.com
ABCP Is Forecast Upward Automated Software picks OTCBB stocks that are
likely to double soon.
Yep,
buy now -
and double your money.
Like chief executive officer Bill Downe said -
"This is good business."
Step right up -
and put your money down.
(yep, no problem in Canada)
Meanwhile -
down south of the border -
in the US of A.
http://tinyurl.com/3dukps
The Federal Reserve announced Friday that it will boost the size of auctions
planned for March 10 and March 24 to $50 billion each.
The Fed, in a statement, said it planned to continue the auctions for at
least six months, and would move to even larger auction amounts if needed.
In a second step, the Fed said it will make $100 billion available to a
broad range of financial players through a series of separate transactions
starting on Friday.
Economists predict another cut on March 18, the Fed's next meeting.
Still, unemployment is expected to move higher this year. The Federal
Reserve predict the jobless rate will rise to as high as 5.3 percent in
2008. Last year, the unemployment rate averaged 4.6 percent.
(5.3 !
you think !
unless the rules are changed again -
as to who is unemployed.)
According to the RBC Cash Index, confidence sank to a mark of 33.1 in early
March, the worst reading since the index began in 2002.
(Read that as -
the worst reading ever)
----
Don't know how this newsletter
will read either.
At the end
I have had to slash / slash/ and slash
way over half the quotes
that I saved -
but you should get the idea.
At least -
you should get the idea
if you read the quotes
and don't listen to the news -
in Canada.
Peace and love,
Bruce
DawnSayer@webpal.org