Chris Lau - Seeking Alpha

Sunday, February 15, 2009

Focus on the Numbers, not the U.S. $787B Rescue Package

Below is a summary of the key economic numbers released last week. Yesterday details for the U.S. economic stimulus bill was provided.

On closer observation, actual spending will not be $787 Billion: a large portion will be for tax cuts. Some U.S. States may not pass on the tax savings to its people, because they are in a deficit. This reminds me of the (recent) time interest rates were cut to almost 0%, but not so for consumer mortgage rates.

As "Market Monitor" -Elaine Garzarelli, President of Garzarelli Capital said on Nightly Business Report:

"GARZARELLI: Well, I think it's a little late. I think it's more of a 2010 deal than it is 2009. In both years it will be about 2 to 3 percent of GDP. But 38 percent of it is a tax cut and consumers right now, with the unemployment rate probably getting up to 10 percent, are more likely to save than to spend that money. And the other spending has to do with infrastructure projects. A lot of it goes to state and local governments and their budgets are so bad, they're likely to keep it rather than spend it. "

I continue to believe additional jaw-dropping rescue packages will be required.

U.S. Real Estate:

  • Median price of a U.S. home declined 12 percent to $180,100 from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions
  • Price declines of 30 percent or more were found in much of California, plus parts of Michigan, Florida, Arizona and Nevada. The biggest drop, of more than 50 percent, was in Fort Myers, Fla.

Image source: Washington Post

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Canada Real Estate:
  • National average prices declined 11.3 per cent year-over-year, according to Canadian Real Estate Association data
  • The national seasonally adjusted dollar volume of $7.4 billion was the lowest since May 2003.

Recall also that Statistics Canada reported 129,000 jobs were lost in December. Unemployment is at a four-year high of 7.2 per cent. This will likely add to downward pressure in the Canadian housing market.

US $787 Billion Stimulus

This Bill is of Concern for Canadians: 'Buy American' clause stays

The bill still contains the "Buy American" policy that spurred international concerns of protectionism that could trigger trade wars.

The provision requires public works projects receiving money from the federal stimulus package to use U.S.-made iron, steel and manufactured goods.

After fierce pressure from Canada, the European Union and several prominent U.S. corporations, lawmakers in Washington added a caveat to the provision to clarify "Buy American" must not violate international trade agreements.

Analysis: Not only does Canada need to brace for low commodity prices and a weakening auto industry, it now needs to worry about protectionist policy with its largest and most important trading partner.