From the wire:

-BANK OF CANADA CUTS KEY RATE BY 25 BP TO 0.25 PCT; NARROWS OPERATING BAND TO 1/4 POINT FROM 1/2 PT

BOC - WILL PROVIDE FRAMEWORK ON THURS FOR NONCONVENTIONAL POLICY, DOESN’T COMMIT TO IMMEDIATE ACTION

BOC-OVERNIGHT TARGET RATE BECOMES DEPOSIT RATE, WHICH IS LOWER LIMIT OF OPERATING BAND

-KEY RATE CAN BE EXPECTED TO STAY UNCHANGED UNTIL END Q2 2010, CONDITIONAL ON INFLATION OUTLOOK
-BOC SEES GDP GROWTH -3 PCT IN 2009 (REV FROM -1.2 PCT IN JAN), +2.5 PCT IN 2010 (REV FROM +3.8 PCT)
-BOC SEES 2011 GDP GROWTH +4.7 PCT,  PRODUCTION CAPACITY REACHED IN Q3 2011 (REV FROM MID-2011)
-BOC SAYS REVISES DOWN POTENTIAL GROWTH DUE TO RESTRUCTURING IN SEVERAL SECTORS
-BOC-CPI TO TROUGH AT -0.8 PCT IN Q3 (REV FROM -1 PCT), RETURN TO 2 PCT IN Q3 2011 (REV FRM MID-2011)
-BOC-CORE CPI TO DIMINISH THROUGH 2009, RETURN TO 2 PCT TARGET IN Q3 2011 (REV FROM MID-2011)
-BOC-RISKS TO INFLATION PROJECTION ARE TILTED SLIGHTLY TO DOWNSIDE
-BOC TO ROLL OVER PORTION OF EXISTING TERM PRA AGREEMENTS AT LONGER TERMS TO REINFORCE OVERNIGHT RATE
-BOC TO TARGET BALANCE OF C$3 BLN IN SETTLEMENT SYSTEM INSTEAD OF C$25 MLN TO REINFORCE O/N RAT

I’ve highlighted the most important part of the Bank of Canada announcement. The fact that the bank will keep interest rates at 0.25% for over a year will have a significant impact on the marketplace. Already yields on short term investments have plummeted. If the government plans on quantitative easing (printing money to buy government bonds), then yields will drop on longer term investments.

This will have an eventual impact on mortgage rates, to the benefit of borrowers. So for all those thinking about switched from variable to fixed mortgages, wait a little while longer. Rates are deffinetely not going up any time soon.

 One year ago,  the Bank of Canada cut interest rates by 0.5% to 3%. Today we sit at a target rate of 0.5% and the question on every-one’s mind is: what will they do tomorrow?

In truth, it’s more like what can they do. With rates already at historical lows, another 0.25% cut will likely have a small impact on lending. Most economists are predicting the bank will stand pat and not cut. However, the futures market where people are placing bets on the decision tell a slightly different story:

Probability is the likelihood that the Bank of Canada will either increase or  
decrease the Overnight Target Rate.                                             
                                                                    
===========================================
 Meeting                 Implied     Implied      Prob. Of     Prob. Of       
  Date                       Rate            BP                 0.25%        0.50%          
—————————————————————————–
21-Apr-2009       0.3620      -13.80       55.21%       44.79%       

What we can decipher from the above table is that traders, or people who are willing to bet real money on where interest rates are headed, believe that there is a 55% chance that the Bank of Canada will cut interest rates 0.25% tomorrow, the opposite view of most economists.

Ultimately, cut or no cut, the main focus tomorrow will be on quantitative easing. In simple English, quantitative easing is simply when the governement creates (prints) more money and uses it to buy bonds. The result is often a jolt in the arm to the economy …… and inflation. For now inflation isn’t really a problem and the amounts of money needed to be printed will be modest. We’ll know more tomorrow at 9am Eastern when the Bank’s announcement is published.

Many individual investors are completely unaware that some of the industry’s most powerful and meaningful tools are available free online. One of those tools is bank written economic reports.

While most financial research written is intended for client use only, economic reports tend to be public. One of the major driving factors behind this is media exposure. Business journalists need access to economic reports to write stories and quote authors. The more an economist is quoted in the media, the more credible they become.

The payoff is that the bank can then bring their oft quoted on tv/radio/print economist to client meetings and leverage them one of the benefits of doing business with the bank.

While individual investors won’t get any face time with economists, they can still read the reports that are published online regularly. The information contained, while somewhat bland, often yields nuggets of perspective that can be beneficial on analyzing future expectations.

Below are links to the economic publications of Canada’s big 5 banks. If you have time this weekend, take a few minutes to go over the weekly reviews published every Friday. It’s time well spent.

Econ Reports:

• Bank of Montreal
• Scotiabank
  
• Canadian Imperial Bank of Commerce
• Royal Bank of Canada
• Toronto Dominion Bank

I always get a lot of question asking how someone becomes a trader. The truth is that there is no simple answer, it is a combination of education, ability, personality, drive & luck. I’ll quickly go over them below:  

Education

At a minimum a University Bachelor in Commerce/Economics and preferably some industry courses. All the large institutions recruit at the major Universities in September for positions beginning after graduation in June/Aug. There are usually two types of positions, Analyst & Associate. Analyst is for Undergrads and Associates for MBAs.  Read more

Today the Toronto Stock Exchange Index (TSX) hit 15,000 points, its highest number ever.

Even though 15,000 is purely a nominal number, skewed heavily by a small number of companies granted heavy weightings by the indexing formula, now is as good a time as any to reflect on the past 10 years.   Read more

I wish this wasn’t true. I wish there was a nicer way of saying this. Alas, there is not.

Canadian consumers are suckers, willing to buy at any price.

How else can one explain the record quarter for new auto sales during the first quarter of 2008. Sales that had their biggest increase since 1998. That’s a freaking decade, people!

Sales of new passenger cars were up 17.8%, the largest increase since 1976.  That’s more than three freaking decades!

I don’t get it.

Canadian cars are expensive. No, that’s too nice, they’re a rip-off. Auto manufacturers are scamming the Canadians and they seem more than happy to go along with it.

How else can one explain these sales numbers?

The Canadian dollar has been near or above par with the US for over a year. Yet Canadian car prices are still more than 10, 20, even 30 percent more expensive than identical models south of the border. The only leverage Canadian consumers have to reduce this discrepancy is to buy used cars, or simply not buy at all.

However, going out like lemmings and buying new cars just because the dealer’s marketing campaign uses slogans like “Canadian Pricing” while giving you a 3% discount on price is just stupid.

Boo on you Canada, Boo on you.

According to a new Bloomberg survey, the world wide CreditCrunch™ appears to be slowly fading away.

You might be wondering what the heck is this CreditCrunch? There has been a lot written on the subject, but not too much explained at a basic level. So here goes…..

The current issues with credit is that it has become more expensive. What does that mean? Well, essentially it means that the funding of lower credit investments have become more expensive. Why? Because people were afraid of risk and wanted only the safest investments. Treasury Bills (T-Bills).  Read more

Ed Clark, CEO at Toronto Dominion Bank spoke at conference in New York today where he stated that the bank is assuming “dramatically lower” commodity prices in the long run.

If the world financial system is “over-inflating” prices as he put it, then we’re in a bubble. As bubbles don’t last forever, TD Bank is wise to begin planning for lower prices in order to protect itself from future losses.

His remarks are in stark contrast to the bullish predictions by market analysts who see prices going nowhere but up. If the head of a major international bank is weary of current prices, then maybe it’s time for you to review your portfolios…. Or maybe the analysts are right….What do you think? 

This will be a slow week on the economic front, as the only economic data out of Canada today is the release of data on the price of new homes in March. Prices rose 0.2% compared to a month earlier, matching economists’ expectations.

Year over year, new home prices are up 6.1%, a healthy number, although the market is appearing to slow down a bit as the increase this year is slightly lower than last year’s.

Overall this is good news. Continued strong sales in new homes will encourage developers to begin new projects, employing laborers and strengthening the economy. Eventually we’ll meet a point where we’d expect to see a decrease in sale prices as inventories of new homes pass the number of people looking to purchase them. This is normal in a market economy and there is no evidence to suggest the type of collapse that happened south of the border.

When I first got interested in markets I thought technical analysis was a great tool. It was easy to learn, made logical sense and most importantly, appeared to work.

I was fooled by this cunning, seductive mistress. Technical analysis is the fools gold of finance. It is an illusion that is as real as Michael Jackson’s face. But to quote Levar Burton’s Reading Rainbow: “You don’t have to take my word for it”. Read more