40 Year Mortgages .. No more

The Canadian Finance Ministry announced yesterday that 40 year mortgages will no longer be allowed if the mortgage is CHMC backed. In essence;

• Mortgages with less than 20% down payment can not be obtained for longer than 35 years and must be insured.
• A minimum of 5% down payment is mandatory on all CHMC backed mortgages.
• New rules will require and enforce a minimum credit worthiness before a mortgage application is granted.
• To service the debt a maximum of 45% of gross income will be allowed.

Even though a 35 year mortgage, in my opinion, is still too long but I think given the additional safeguards announced yesterday new home owners will have a fighting chance of staying afloat. This will also ensure that the Canadian housing market stays healthy.

To me this means my house's value will not increase at the same rate as it did in the past few years. Clamping down on crazy financing schemes means less liquidity, less buyers and lower house value increases but my house will have a value and will not face the depreciation being experienced in the USA as a result of the sub-prime mortgage mess.

This brings a reasonable conclusion to this topic which I covered in two previous posts ( May 13 and June 16 ).

Market Capitulation - Cash is King

Over the next two or three months the most viable market position to have is to hold cash or very liquid assets because I think that the market CAPITULATION is around the corner. explain?

When the market capitulation is all over; those who wanted or had something to sell would have sold then, only buyers remain. Buyers with cash or liquid positions would be kings.

Why do I think the market will capitulate?

• The financials markets are still in the gutter.
• The housing market is still straining and now the commercial real estate is showing signs of fatigue.
• The Nasdaq is trending downward.
• The Dow and S&P are in bear market territory.
• The US dollar is in the ditch and sinking. This should help manufacturing but factory utilization is down.
• The North American Consumer is tired and weary. The $600 Bush stimulus will end up being swallowed by the walloping price of gasoline.
• Inflation is rising (real cost of living is rising when we add energy and food back in)
• Economies are shrinking and unemployment is rising. Early second quarter results are pointing to a bad quarter. This quarter was expected to be the best of all quarters in 2008.
• The disconnect in the oil and gas market behaviour. In June while the price of oil and gas trended upwards, the price of oil and gas stocks in general headed south or at best stayed flat particularly the natural gas plays. for examples (CL-Nymex) (NG-Nymex) (Suncor) (Exxon)(Encana)

Putting all this together brings about a bad case of investor fatigue, anxiety and desperation caused by an emotional roller coaster ride.

Adding a global catalyst of some sort, the market traders, the small and large investors will throw in the towels and head for the exit door, all at once. Many of my readers may not have known or remember Black Monday in 1987. I do not claim that the conditions today are the same, Its the psychology that I am refrencing here.... (more on black Monday).

I also believe that the Canadian stampede will be more pronounced as evident by the disconnect between the price of oil and the price of oil and gas equities. If we remove the oil and gas component, Research in Motion and the ags from the equation will end up with a Canadian market that is a nervous wreck. We've already witnessed a mini-stampede out of metals and ags on July 2nd.

When everything is said and done still wait for the dead cat to bounce and only then move into the market and shop around for the gems.

Be careful out there!

Suckers Rally

In my posting of may 1st I said that the S&P at 1400 had no place to go but down. I also urged my readers to "be careful out there and protect themselves against the down side".SP index at 1400

Generally Canadians are nice and polite, so I did not dub the market's upward movement "a suckers rally". If you shared my opinion and protected yourself against a slide in the market then, I hear your laughter. If you didn't well, you got suckered.

Following the market decline in March many of the analysts called the end of troubles. Investors became euphoric and went on a buying binge driving the S&P upward by 11.8% in just two months.

Today the S&P touched an intraday low of 1252. This not only wipes all those gains but is 5 point below the intraday low of March 17th. Some people would say this is a double bottom and that the market should move aggressively upwards from here. I believe, this is BS. Nothing in the US economy would for a moment suggest or faintly support this theory. Furthermore, since Oct 11, 07 the S&P has channelled downward with lower highs and lower lows. The S&P reached a high of 1440 on May 19 and never looked back again. ( OK I was out by 40 points).

I predict that the S&P will continue its downward movement and find real support at the 1050 to 1100 level with a lot of volatility in between now and when we reach those levels.

Again if your investments are still in the black then, protect yourself from downward pressures. How? Buy puts. Place sell on stop orders. If you are the sentimental type and you really love and would like to keep your stocks then, sell calls. Selling calls will give you some cash-in while waiting for the market to turn around.

Be careful out there !

Oil, Nuclear or Hydrogen where is the vision?

I am mad as hell.

Today President Bush called to end the offshore drilling ban.

He said "There is no excuse for delay" and that “Families across the country are looking to Washington for a response".

He proposed the opening the Arctic National Wildlife Refuge for drilling and making it easy to explore the green river Basin in Colorado, Utah and Wyoming.

An 18 billion barrels of oil could be found he says of course, some time in the future, and this should ease pricing today he thinks.

Haven't we done enough damage to this planet. When are we going to accept the fact that the oil producing countries have us by the balls. This applies to us too in Canada we ship our western oil to the USA and buy oil from those other countries to feed our eastern Canadians.

Bush is not the only one with this screwed view, our Canadian government is giving permits to mining companies to use beautiful Northern lakes full of fish and life to dump mining crap and turn them into poluted pools.

Something is awfully wrong with those pictures. Whatever oil we find we will deplete and whatever clean water we contaminate today, our kids will be missing in the future. What are we going to use to make plastics once we've used all the oil to move our asses from point A to B.

J F Kennedy said "We choose to go to the Moon". He had a Vision, he mobilized the scientific community to fulfill the dream and they did it.

I wish JFK was alive today his quotation may read something like this in the future: "We choose to do without oil and move our dependence to Nuclear and Hydrogen Power".

The developed world has the technologies today to resolve those issues and secure a bright future for ourselves and our kids. I have no doubt that once the oil producing countries get the hint of what we could and will do, our balls will spring free and the price of oil will drop. As a bonus we'll have some oil left to make all the other useful products.

I agree with President Bush there is no excuse for delay and that families across the western world are looking to one of the world leaders for a guiding vision.

BCE, still a toss up

We will have to wait a bit longer.

I think the Supreme Court will render its decision on the weekend.

I still bet .. BCE wins this case.