Saturday, September 11, 2010

Primer #4: CMHC- The Enabler To Canada’s Housing Addiction

In our primers, we’ve now covered some of the important concepts that will be referenced frequently on this blog, namely deflation, the housing bubble, and the significance of mass psychology in financial events. This primer will add on to the primer on the Canadian housing bubble and give some insight into what has enabled this bubble to reach such significant proportions.

It is not possible to understand the Canadian housing bubble phenomenon without understanding the role of CMHC (Canada Mortgage and Housing Corporation) in mortgage lending. First, a bit of history.

CMHC was created in 1946 (the known as Central Mortgage and Housing Corp.). The mandate of CMHC was to administer the National Housing Act and the Home Improvement Loans Guarantee Act. Essentially it was created to provide soldiers returning home from war with access to affordable mortgages.

Today, CMHC describes their role as follows:

“Canada Mortgage and Housing Corporation (CMHC) is Canada’s national housing agency. We are committed to helping Canadians access a wide choice of quality, affordable homes, while making vibrant, healthy communities and cities a reality across the country. CMHC works to enhance Canada’s housing finance options, assist Canadians who cannot afford housing in the private market, improve building standards and housing construction, and provide policymakers with the information and analysis they need to sustain a vibrant housing market in Canada” (more)

The Economist - September 11th-September 17th 2010

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.
In addition to regular weekly content, Special Reports are published approximately 20 times a year, spotlighting a specific country, industry, or hot-button topic. The Technology Quarterly, published 4 times a year, highlights and analyzes new technologies that will change the world we live in.

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COT And Silver Charts From Trader Dan Norcini

The Commitment of Traders report for this week reveals pretty much the norm for both the gold and silver markets that we have seen over the past 9 years or so. Speculators consisting mainly of the big funds and the smaller public were buying while the commercial category was selling.

First for gold – managed money flows remain in gold through Tuesday of last week which was countered by bullion bank and swap dealer selling (those two categories can sometimes include the same entity). While the commercial position is not the largest on record, the swap dealer is just shy of a record by some 3,000 contracts.

That sets up a situation where we have a large number of speculative longs sitting in the gold market with prices stalling out near $1,260. The potential for some stale long liquidation is definitely there as a result of the loss of upside momentum so we will want to see how price acts should any downside technical levels be taken out. Quite frankly I would like to see some downside movement in gold just to test the market action to see how aggressive dip buyers will be. Today they were obvious with the decent sized push up off the worst levels of the session. If they continue this sort of stand, bears are going to be quite frustrated and some of the weaker hands will be forced to cover. One way or the other we are going to see rather quickly what kind of strength is in this market. (more)

Goldman Does It Again: Firm Top Ticks Record Gold Price To The Penny

If only Goldman clients could receive a penny for every time the firm's sellside advice top ticked the market (to the dot), they would actually be in the green despite following said advice... The most recent blatant example of a concerted sell off following a Goldman "buy" note, occurred at the very peak of the gold move, when the yellow metal had just hit a new all time record high. Sure enough, Goldman, which now apparently caters only to the momentum crowd, decided to use that catalyst as a reason for a note (dated 8:18 am on September 8, note the time relative to the gold price below) to send the signal it was once again in the outright dumping mode. (more)

Commitment Of Traders Update: Week Ending September 10

Presenting the visual CFTC Commitment of Traders summary update for the prior week, courtesy of Libanman Futures and Horowitz and Company.

Commitment of Traders Report

Commitment of Traders Financials


Is this the Right Time for the Fed to go Negative?

Ben Bernanke, chairman of the Federal Reserve Bank, has a lot more tools for supporting U.S. economic activity through expansionary monetary policy than he discussed in his Jackson Hole speech, which alluded only to more quantitative easing and credit easing—increasing the size and changing the liquidity composition of the Fed's balance sheet.

Perhaps out of fear of resurrecting the moniker "Helicopter Ben," Mr. Bernanke did not refer to the combined fiscal-monetary stimulus that (almost) always works: a fiat money-financed increase in public spending or tax cut. Treasury Secretary Tim Geithner can always send a sufficiently large check to each U.S. resident to ensure that household spending rises. By borrowing the funds from the Fed, there is no addition to the interest-bearing, redeemable debt of the state. As long as households are confident that these transfers will not be reversed later, "helicopter money drops" will, if pushed far enough, always boost consumption. (more)

Rosenberg: Here Are 13 Signs That We're Actually In A Depression Right Now

David Rosenberg has outlined, in his latest letter, the 13 reasons with this so-called recovery is actually a depression.

Rosenberg sums it up like this:

This is what a depression is all about — an economy that 33 months after a recession begins, with zero policy rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help for its sustenance.

Each one of these 13 reasons is more damning and highlights the true state of the economy: caught in a liquidity trap with little way out. (more)

Gold Pullback Seen As Profit-Taking Within Continuing Uptrend

By Allen Sykora
Of Kitco News

(Kitco News) -- Gold prices were probably due for some type of profit-taking pullback, but the longer-trend uptrend remains intact, analyst say.

Around mid-week, gold was poised to break through to record highs.

On the Comex division of the New York Exchange, the December contract on Wednesday hit a peak of high of $1,264.70 an ounce. This brought it within striking distance of the $1,266.50 record for any most-active contract, which was hit by the August futures back on June 21. Spot gold also came close to its record listed by one price vendor at $1,265.30.

But December gold fell on Thursday and then dipped some more Friday to a low
of $1,237.90, before bouncing again. At 2:30 p.m. EDT (1830 GMT), the December futures were down $5 for the day at $1,246 an ounce.

“I think it is perhaps some profit-taking and technical selling,” said Carlos Sanchez, director of risk management with CPM Group.

Technically, some selling set in when the market was not able to forcibly break above $1,260, technicians said. Often, futures traders might exit some positions to capture short-term gains whenever they sense momentum might be abating around chart resistance. (more)

Treasuries Drop, U.S. Stocks, Oil Advance on Economic Optimism


Treasuries fell, sending 10-year yield to a one-month high, while U.S. and Asian stocks rose as an increase in American wholesale inventories and growth in Japan’s economy bolstered optimism in the global recovery.

The 10-year yield climbed 3 basis points to 2.79 percent at 4 p.m. in New York. Two-year Treasury yields, which hit record lows in August on concern the economy may relapse into a recession, rose for a third day. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,109.55, its highest close in a month. Oil rallied above $76 a barrel as a leaky pipeline slowed supplies to the U.S. Midwest. Corn surged to a 23-month high.

Today’s reports that U.S. wholesale inventories jumped by the most in two years and Japan’s growth slowed less than estimated helped bolster optimism in the global recovery after a decrease in American jobless claims yesterday. Banking shares weighed on European equity indexes after three people with knowledge of the talks said Deutsche Bank AG may seek to raise 9 billion euros ($11.5 billion) in a stock sale.

“What took us to record lows in yields were not what I’d refer to as positive for equities,” said Mark Freeman, a money manager at Westwood Management Corp., which oversees $10 billion. “To the extent some of that is abating, I’d view that as a positive for the broader equity market. It’s a lessening of fear in the markets.” (more)

The World Financial Report

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Bloomberg Businessweek - September, 13 2010

* Inside Foxconn
Exclusive: Massive, secretive, and hit by a
rash of worker suicides, the Chinese manufacturer
of iPhones, PCs, and PlayStations opens up.
A look at the industrial powerhouse of the 21st century.

* Opening Remarks. The Case against Craigslist.

* Jobs. The fastest rising salaries.

* Etc. Bone-crunching all football edition.

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