Welcome to Canada U.S. President Barack Obama!
Toronto’s main stock index fell broadly yesterday for the 3rd straight day touching a new low for the year, pressured by weak energy and financial sectors and a slide by Rogers Communications. The heavily weighted financial, telecom and energy sectors all retreated 3.6%.
President Barack Obama’s $275 billion plan to put a floor under housing prices and avoid foreclosure failed to reduce worries about the economy and bleak housing data highlighted the deepening recession. The Dow did manage a small gain driven by defensive shares such as Wal-Mart Stores keeping the index from breaking through the November 20th current bear market low.
U.S. President Barack Obama pledged to help stem a wave of home foreclosures, part of a broad effort using significant sums of government money to push the country out of recession. Up to 9 million families would be given the chance to refinance their mortgages under the plan, administration officials said. He unveiled the plan in Arizona, a state hard hit by home foreclosures.
Obama, who a day earlier signed into law a landmark $787 billion economic stimulus package, said his housing plan would counter a cycle of mortgage defaults, plummeting home values and financial-market turmoil. “A lost home often begins with a lost job. Many businesses have laid off workers for a lack of revenue and available capital. Credit has become scarce as the markets have been overwhelmed by the collapse of securities backed by failing mortgages,” Obama said.
“In the end, the home mortgage crisis, the financial crisis, and this broader economic crisis are interconnected,” he added.
The plan goes much further than previous government efforts to address the foreclosure crisis. In a break from past programs, it would help borrowers who have not yet missed a monthly mortgage payment but are having a hard time keeping up.
The home foreclosure plan features a $75 billion fund made up of $50 billion from the $700 billion financial bailout fund approved last year and up to $25 billion from housing finance firms Fannie Mae and Freddie Mac. It also relies on up to $200 billion authorized by last year’s housing bill. “All of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to continue to deepen,” Obama said.
Adding to the overall mood, the Federal Reserve slashed the economic forecast for 2009. In addition, record low housing starts and applications for building permits for January did not help either. The biggest problem in the market currently is a major lack of confidence and disappointment that the current administration really has not done anything yet about the toxic assets held by banks. The Dow Jones industrial average added 0.04%, the Standard & Poor’s 500 Index dropped 0.10% and the Nasdaq Composite Index dropped 0.18%.
Equity markets are forward looking! The two worst quarters for U.S. employment growth in the last 50 years were the first quarter of 1958 and the first quarter of 1975, which correspond to the two worst post-war recessions. While employment declined sharply in Q1 of 1958 and Q1 of 1975, stocks were rallying, ending bear markets that touched bottom the previous quarter. In both cases, monetary ease and fiscal stimulus encouraged the markets to ‘look through the valley’ and discount the coming economic recovery.
The U.S. futures market is pointing about 1% higher this morning.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
