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ECONOMY: Is the subprime crisis over yet? IMF, CIBC take different views
        (AlbertaIndex, October 8, Monday) --- Are we past the worst of the subprime and credit crises? It depends on who is talking.

        International Monetary Fund managing director Rodrigo Rato told the Financial Times the global credit crisis is far from over and will have an impact on governments’ budgets.

Meanwhile, CIBC World Markets said the worst has passed and wants investors to return to the stock markets as “a late rally should push the TSX to 15,000 by year-end” and “6,200 in 2008.”

Speaking in Washington, Mr Rato said: “Problems are going to come to the real sector, come to the budgets - that is something we keep telling people.”

He said that it would be “a few months, probably into next year” before the availability of funds returned to normal levels in the markets, which was “going to have an impact on growth.”

He warned that the credit crunch, sparked by months of concerns and a run on the financial markets over high-risk subprime mortgages in the US, was “not a storm in a teacup”.

As a result, the major economies of the US, Europe and Japan will slow down, eventually impacting emerging markets including China and India.

Taking a completely different view, Canada’s CIBC said the recent rally in the “stock markets are … signs that the worst of the recent credit troubles have passed.”

In its latest Canadian Portfolio Strategy Outlook report, CIBC chief strategist and chief economist Jeff Rubin said that while some problems remain in the asset-backed commercial paper market, “we are becoming more confident that the worst in credit markets may now be in the rearview mirror.”

He notes that with liquidity improving, oil hitting record highs, a base metals rally and good prospects for further rate cuts south of the border, the TSX should not only hit 15,000 by year-end but close 2008 at the 16,200 level. The TSX has already recouped nearly three quarters of the summer’s slide, with the previously hard-hit materials group up 20 per cent from a low in August.

Given this, Mr Rubin remains 12 percentage points overweight in equities and has also shifted two percentage points of weighting from cash back into the bank's still-underweight bond position.

“Despite an initial reluctance, the US Federal Reserve Board signaled clearly with September’s aggressive 50 basis point cut that it now takes the threat of housing contagion seriously, and is ready to adjust policy accordingly,” he adds.

While Mr Rubin notes that mortgage troubles in the US will certainly dampen growth in the country over the next year, he does not think a full-blown US recession is in the cards - in part because he expects the Fed will make further rate cuts.

He also states that with its almost 50 per cent resource capitalization, the fortunes of the TSX are more intertwined with those of the global rather than the North American economy. It is the resource hungry emerging markets in Asia that are driving commodity prices and these economies have escaped serious damage from the US credit crisis.

This will keep positive pressure on resource demand and prices. West Texas Intermediate crude prices have already pierced the US$80/barrel mark, which is CIBC World Market’s forecast for the fourth quarter, even with a comparatively uneventful hurricane season so far in 2007.

The bank expects an average US$90 wellhead price in the coming year with global demand climbing by almost two per cent, nearly double its long-term trend. This growth will be driven not only by buoyant Chinese demand, but also rocketing consumption in oil exporters like Saudi Arabia, whose heavily subsidized motorists are using 10 per cent more fuel than a year ago.

He also expects natural gas prices to rebiund from recent weather-depressed levels.



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