Canadian Personal Finance Blog

Thursday caused the world to stop worrying about the Financial Apocalypse and start worrying about the demise of their Celebrity Aristocracy with the deaths of Ed McMahon, Farrah Fawcett and finally Michael Jackson.  I remember seeing Farrah Fawcett on the wall of most boys my age bedroom, and hearing her passing makes me feel a little older.

When celebrities die, does that change the economic climate? Hey anything is possible in this day and age, maybe we will see the Michael Jackson recovery?

The Poster

In the Financial Blogs This Week

With the summer coming is there an economic malaise about to fall? We shall see:

• The Canadian Capitalist points out that Borrowing Costs are Going up even though interest rates are staying the same.  Time to buy Bank Stocks again?
• Michael James points out Grocery Bag Lessons in Economic Incentives, and now he is a bring your own bag man.
• Preet at WhereDoesAllMyMoneyGo is pushing a Great Father’s Day Gift (OK I’d like to get it, but I am not entering as I feel there is a conflict of interest), if you want to go fast, go check this out.
• Four Pillars points out How to Use Aeroplan points, always useful to read case studies for services I use.
• Larry MacDonald wrote about how the Media’s Influence on the Stock Market, you’ve got to admit the media does swing things some times.
• Gail Vaz Oxlade asks How Do You Track Your Money, which is always a topic I love to talk about, although Gail’s method is a bit higher work than I’d do.
• The Canadian Tax Resource gives you 5 Tips to Pay Off Your Mortgage, which is always useful.

No LCBO Strike

The LCBO and their union decided not to turn off the liquor spigot, and thus the mad rush on Tuesday simply meant that the shelves on Wednesday needed a lot of restocking (and lots of profits for the LCBO as well). For those who rushed out, guess you can have a BIG party for Canada Day, or you can keep your stockpile, for another holiday? There is a tentative deal in place and now we can all look forward to a boozy summer (whoo hoo!).

Unfortunately for Toronto their strike continues on and their garbage continues to stack up. With the heat this week, might make for some very aromatic issues in Toronto.

U.S. Interest Rates Stay the Same

Interest rates in the U.S. will stay the same for now, said the Federal Reserve on Wednesday.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

Good to hear, but energy prices going back up is going to whiplash on food prices as well, so inflation being low may be wishful thinking on their part.

Now that the largest bankruptcy in history has occurred, it begs the question, is there a bottom here somewhere? I think there is for now, but it does point out that “sure things” should sometimes be questioned. If someone had told a trader or investor that GM and Nortel would be in bankruptcy protection, 10 years ago, that person would have been laughed off as a “nut” or “crack pot” or worse, and now we have seen this happen.

Thanks to all of this the Canadian Government is pouring money into GM, with little hope of recuperating this money or of it making a huge difference. We are in uncharted waters that is for sure, I have little understanding of where this all might lead, and I am pretty sure that I am not the only one with these thoughts.

Stay tuned this could be some very interesting times ahead.

GDP Down, down, down…

Canada’s GDP is down 1.4% in the first quarter of 2009 which is the worst drop since 1991, another bad omen for the economy. 

Lower spending in Canada and the United States, particularly business investment in plant and equipment, led to a sharp decline in Canada’s exports and imports. Business investment in Canada fell at the fastest rate since 1982. Final domestic demand was down 1.5% as personal spending, particularly on durable goods, continued to decline. Corporate and personal income also fell in the quarter.

It is not a surprise that GDP is down, but the size of the drop is concerning, but if Canadians are dropping their spending that might be a good thing in some ways.

GDP Looks Not So Good

Companies and individuals in Canada also had the problem of their purchasing power dropping off steeply as well:

Real gross domestic income (GDI), a measure of Canada’s purchasing power, fell 3.0% in the first quarter (-6.2% year over year). Canada’s terms of trade, a measure of export prices relative to import prices, deteriorated for the third consecutive quarter as commodity prices fell and the Canadian dollar depreciated relative to its US counterpart. As a result, the decline in real GDI was much sharper than real GDP; the third consecutive quarter this has occurred.

Less money to spend, less money being spend, and less purchasing power, not a recipe for a way to spend our way out of this economic downturn (read apocalypse).

The bank of Canada took the last step before making money absolutely free yesterday by lowering it’s key overnight interest rate to 0.25%. For someone who remembers 15% interest rates, this is an astounding turn of events, that I have no idea how long will last or whether it is a good or a bad thing.

 Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20, measures to stabilize the global financial system have taken longer than expected to enact. As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009.

Yup, they are now saying that Canada’s anticipated early recovery is now only planned to happen in Q4 of this year, if not later, so keep that one in mind when making your big financial plans.

What About Inflation?

Well the bank’s view on that one is interesting as well.

The Bank expects core inflation to diminish through 2009, gradually returning to the 2 per cent target in the third quarter of 2011 as aggregate supply and demand return to balance. Total CPI inflation is expected to trough at -0.8 per cent in the third quarter of 2009 and return to target in the third quarter of 2011.

So effectively DEflation for a quarter, but lower inflation for the next two years.

How can this be, all governments in the world have hurled massive cash inflows and food prices are at a highly inflationary rate, yet there is no real inflation seen on the event horizon. I am skeptical of this statement by Canada’s Central bankers.

How Did We Get Here?

The bank was kind enough to publish this table showing how we have gone from 3.00% a year ago to 0.25 % today.

Better get out my Dire Straits album, because if Money is For Nothing, I am going to be looking for the second part of that line.

Not sure if I want my MTV, but Money For Nothing sounds interesting to me.

Will Banks Follow?

That is a darn good question, will banks lower their rates to consumers to reflect this change, or will it be business as usual? This drop may well be a temporary thing, so there may be no reaction by BMO, TD, Scotiabank or the other major Canadian banks.