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European Bank cuts half-point to 3.25 percent, Bank of England slashes 1.5 points to 3 percent

FRANKFURT, Germany (AP) — The European Central Bank cut its key rate by half a percentage point to 3.25 percent on Thursday, joining the Bank of England, Swiss and Czech central banks as they confront the looming recession.The ECB announced the cut from 3.75 percent shortly after the Bank of England lowered its key interest rate by a startling 1.5 percentage points to 3 percent.

The Bank of England’s cut was more than the full percentage point that most analysts had predicted and the biggest cut in 27 years.

The Swiss National Bank cut its key interest rate by half a percentage point to 2 percent, only its second reduction since March 2003. In Prague, the Czech Republic’s central bank cut its interest rate by three-quarter percentage point to 2.75 percent.

Both central banks, which followed the Fed and other banks in a coordinated cut on Oct. 8, have been criticized in some quarters for being slow to respond to the sharp economic slowdown this year amid fears about inflation. The European Central Bank actually raised rates a quarter-point in July as inflation spiked sharply higher.

Those inflation concerns, though, have eased, not least because oil prices have fallen by more than half from their July highs of around $147 a barrel — and growth prospects have diminished sharply.

The European Commission forecast Monday that the economy in the 15 countries that use the euro will barely grow next year, expanding just 0.1 percent, with Germany, France and Italy stagnant. And it said Britain’s economy will slump by 1 percent next year.

Many analysts suspected the Bank of England might go for a bold move, given that British interest rates had been at a relatively higher level and mortgage lenders have been slow to pass on previous rate cuts in full to hard-pressed homeowners and consumers.

The close: Welcome, November!

Good riddance, October. During the month that investors have learned to fear as one of the bumpier four weeks to be in the market, indexes around the world tumbled by double digits.

Still, it could have been worse: The Dow Jones industrial average had been down almost 25 per cent during the month, to its low point on Oct 27. Since then, though, it has rallied about 14 per cent, leaving it down 14 per cent for the month.

Canada’s S&P/TSX composite index made similar moves. It had been down as much as 27 per cent during the month, but has rebounded more than 14 per cent from its low. It exited October nursing a loss of 16.9 per cent.

On Friday, major North American indexes moved in different directions. In the United States, the Dow closed at 9325.01, up 144.32 points or 1.6 per cent. The broader S&P 500 closed at 968.73, up 14.64 points or 1.5 per cent.

A late surge gave financials a big lift, with JPMorgan Chase & Co. rising 9.7 per cent and Bank of America Corp. rising 6.1 per cent, on renewed efforts by JPMorgan to prevent foreclosures among U.S. homeowners. As well, Home Depot Inc. rose 3.8 per cent and General Electric Co. rose 0.8 per cent.

In Canada, the S&P/TSX composite index closed at 9762.76, down 93.45 points or 1 per cent – thanks largely to commodity producers, which had helped propel the index to gains of more than 350 points on Thursday. Goldcorp Inc. fell 8.1 per cent, EnCana Corp. fell 2.3 per cent and Canadian Natural Resources Ltd. fell 2.4 per cent.

Meanwhile, financials didn’t help much either: Although Toronto-Dominion Bank rose 0.9 per cent, Royal Bank of Canada fell 1.6 per cent and Manulife Financial Corp. fell 3.5 per cent. The biggest offset was Research In Motion Ltd., which rose 5.5 per cent.

The Globe & Mail

Fed cuts funds target rate by 50 basis points to 1%

The Federal Reserve lowered the Federal funds rate by 50 basis points to 1% today, pointing to the deterioration in economic growth and highlighting that the “intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

Against the backdrop of weaker economic growth, inflation pressures are expected to moderate “to levels consistent with price stability”.  While the statement said that “recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth,” policymakers still deem that downside risks to the economic outlook persist. 

Today’s statement unequivocally highlights that the Fed’s focus is on the growth outlook with inflation concerns having moved to the back burner as a result of weakening commodity prices and softer growth prospects. The Fed did not close the door to further rate reductions and reiterated their commitment to “monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.”

We don’t expect that the aggressive action by the Fed, with 100 basis points of rate cuts announced this month alone, will prevent the U.S. economy from slipping into recession, but we believe that it sets the groundwork for the economy to get back on a firming growth path in the second half of next year.

We look for tomorrow’s GDP report to show that the U.S. economy contracted at a 0.7% annualized pace in the third quarter with a more substantial contraction in economic activity likely in the fourth quarter. The recent slide in the LIBOR rate, with the three-month rate down 140 basis points from the recent high on October 10, is providing some tentative encouragement that funding pressures are easing up although the high level of the LIBOR/OIS spread signals that markets remain nervous.

A further reduction in risk aversion and funding costs is needed before the impact of the current accommodative level of monetary policy will be able to filter through to the real-side economy. Although this is likely to take some time, we expect that the gradual improvement in credit conditions will support a moderate recovery in late 2009. Unless there are indications of a more severe weakening in near-term growth, 1% could represent a floor for the Fed funds rate.  

RBC Economics Research

Extolling the Value of the Long View

By JEFF SOMMER
Published: October 26, 2008
The search for wisdom in personal finance will take you to John C. Bogle, who still preaches the gospel of long-term, low-cost, diversified investing.

Buy American. I Am.

Op-Ed Contributor
By WARREN E. BUFFETT
Published: October 17, 2008
I’ve been buying American stocks. Why? A simple rule: Be fearful when others are greedy, and be greedy when others are fearful.

Montreal and Edmonton  

Gold Investment Management Ltd. is pleased to announce the launch of the GIM Meisels TOP 60™ and GIM Meisels Hedge 60 Portfolios.  “We are pleased to have partnered with one of North America’s leading Technical Analysts” said Jonathon Gold, President of Gold Investment Management Ltd.  “Mr. Meisels’ exceptional performance record has been achieved through bull and bear markets and is a testament to his near 40 years of investment experience.”

The GIM Meisels TOP 60™ Portfolio is constructed from the components of the S&P/TSX 60 index using technical analysis to overweight or underweight its components. Meisels’ experience at identifying opportunities through technical analysis results in a portfolio that is highly diversified in blue chip stocks with significant potential to outperform the index.

The GIM Meisels Hedge 60 Portfolio is the combination of the TOP 60 Portfolio hedged against the underlying index. The Fund uses leverage and short positions in the index components or index securities to partially hedge the market movement resulting in a return profile largely uncorrelated to the market. The return profile of the hedge portfolio resembles a leveraged version of the excess return of the TOP 60 Portfolio over the underlying index.

About Ron Meisels

Ron Meisels, Chief Analyst, has been active as an Analyst since 1971. He was Vice President and Director of Technical Research of Nesbitt Thomson (now BMO Nesbitt Burns) from 1982 to 1990. He was ranked among the top three technical analysts by Canadian Institutions for six consecutive years (Brendan Wood Survey). He is a regular guest on BNN and is frequently quoted by The Globe and Mail, The National Post, Bloomberg, Canadian Press and Reuters. He is the Editor for all publications and monitors the TOP 60 Portfolio. He contributes a weekly column “What the Charts Say” to the Globe & Mail.  In recognition for his outstanding contribution to the development of Technical Analysis, Ron Meisels received the A. J. Frost Award from Ralph Acampora at the 2004 Conference of the Canadian Society of Technical Analysts (CSTA). Ron Meisels is the founder and first President of the CSTA and the first Secretary of the International Federation of Technical Analysts (IFTA).

About Gold Investment Management Ltd.

Gold Investment Management Ltd. offers equity, fixed income and alternative asset management services with a low cost, tax efficient and highly personalized approach.  With offices in Montreal and Edmonton, Gold Investment Management serves individuals, corporations, pension funds and charitable foundations.  GIM’s guiding principles are integrity, discipline and results.

For further information:

Jonathon Gold, CFA
President
Telephone: 780.436.9955
E-mail: jgold@gold-im.com

Ron Meisels
Chief Strategist
Telephone: 514.393.3653
E-mail: rmeisels@gold-im.com

Liam Cheung, CFA
Vice President
Telephone: 514.710.7736
E-mail: lcheung@gold-im.com

Richard Ness
Vice President
Telephone: 514.299.5250
E-mail: rness@gold-im.com

www.goldinvestmentmanagement.com