The Toronto Stock Exchange and the Dow Jones continued their decline on Tuesday, posting triple-digit losses after the closing bell rang. Talk of interest rate cuts intensified as the losses piled up.

Despite an early morning upswing of 250 points, the S&P/TSX composite index finished at a loss of 400.88 points to sit at 9,829.55.

The Dow Jones Industrial Average opened with a modest 71.68 point increase, but at the end of the day was down 508.39 points to 9,447.11.

The Nasdaq also rose by 15.59 points in early-morning trading, before finishing down 108.08 points to sit at 1,754.88. The S&P 500 fell 60.62 points and stands at 996.27.

It’s the second week of heavy losses in the markets due to the global credit crisis. Economists are now warning that Canada is headed for one of the toughest economic periods in recent memory, as job losses climb and energy prices tumble.

In an effort to calm the markets, the U.S. Federal Reserve announced that it plans to buy short-term debt so companies can finance daily operations.

The move means the Federal Reserve will act as a source of credit for businesses outside the financial sector that can’t raise funds during a credit squeeze.

While the initiative will help small businesses and should restore some balance to the market, one financial analyst said, government should not have to insert itself into the credit market.

“This is not ideal by any stretch,” analyst Theo Caldwell told CTV Newsnet. “Yes, this is what should be done but this is not the way markets and economies ought to work.”

Interest rate cuts expected

Although governments around the globe have tried to bail out their financial sectors to get banks lending again, there are still nervous investors and consumers who wonder whether that will be enough to revive world markets from an economic slump.

BNN’s Michael Hainsworth said U.S. Federal Reserve Chairman Ben Bernanke’s speech on Tuesday hinted that interest rates may need to be cut before the formal decision scheduled for later this month.

“If plan A didn’t seem to work and plan B didn’t seem to work, plan C seems like a last ditch effort as far as the street is concerned,” Hainsworth told CTV Newsnet. “That’s ultimately why we saw the sell-off that we did.”

Analysts speculate that the Bank of Canada, the Federal Reserve, the Bank of England and other central banks will cut interest rates in a further attempt to keep credit flowing.

Don Drummond, the Chief Economist at TD Bank, told CTV’s Mike Duffy Live on Tuesday that Bernanke’s speech may signal a change in Canada.

“(Bernanke) said he is going back to cutting interest rates (and) I expect at their next meeting they will cut fifty basis points.

“We saw Australia cut one-hundred basis points; it’s a shocking move to everybody,” Drummond said. “I think the next wave is a worldwide round of rate cuts and the Bank of Canada will probably join on that.”

The Canadian dollar also slid lower on Tuesday, dropping 0.67 cents, to stand at 90.31 cents US. This latest loss caps a three cent loss against the American dollar since the beginning of the month.

With files from The Canadian Press

Source: CTV

• It could put it in the bank and save it for a rainy day.
• It could decide to give all of the profits to its shareholders, so it would declare a dividend of $1 per share.
  
• It could use the money to buy more equipment and hire more employees to expand the company.
• It could pick some combination of these three options.

­If a company traditionally pays out most its profits to its shareholders, it is generally called an income stock. The shareholders get income from the company’s profits. If the company puts most of the money back into the business, it is called a growth stock. The company is trying to grow larger by increasing the amount of equipment and the number of people who run it.

Stock Prices: Income vs. Growth
The price of an income stock tends to stay fairly flat. That is, from year to year, the price of the stock tends to remain about the same unless profits (and therefore dividends) go up. People are getting their money each year and the business is not growing. This would be the case for stock in a single restaurant that distributes all of its profits to the shareholders each year.

Let’s say that the single restaurant decides, for several years, to save its profits, and eventually it opens a second restaurant. That is the behavior of a growth company. The value of the stock rises because, when the second restaurant opens, there is twice as much equipment and twice as much profit being earned by the company. In a growth stock, the shareholders do not get a yearly dividend, but they own a company whose value is increasing. Therefore, the shareholders can get more money when they sell their shares — someone buying the stock would see the increasing book value of the company (the value of the buildings, equipment, etc.) and the increasing profit that the company is earning and, based on these factors, pay a higher price for the stock.

In a publicly traded company, all of the financial information about the company is public. The Securities and Exchange Commission (SEC) is in charge of collecting this information and making it available to investors. Shareholders also use a number of other indicators to determine how much a stock is worth. One simple indicator is the price/earnings ratio. This is the price of the stock divided by the earnings per share. There are all sorts of indicators like these, as well as a great deal of other financial information available on any stock. You can look up all of it on the Web in thousands of different places — see the links at the end of this article for details.

If you keep the restaurant going, it will probably make at least $75,000 this year — you know that from your history with the business. Therefore, you can think of the restaurant as an investment that will pay out something like $75,000 in interest every year.

Looking at it that way, someone might be willing to pay $750,000 for the restaurant, as a $75,000 return per year on a $750,000 investment represents a 10-percent rate of return. Someone might even be willing to pay $1,500,000, which represents a 5-percent rate of return,

or more if he or she thought that the restaurant’s income would grow and increase earnings over time at a rate faster than the rate of inflation.

The restaurant’s owner, therefore, will set the price accordingly. You might price the restaurant at $1,500,000. What if 10 people come to you and say, “Wow, I would like to buy your restaurant but I don’t have $1,500,000.” You might want to somehow divide your restaurant into 10 equal pieces and sell each piece for $150,000. In other words, you might sell shares in the restaurant. Then, each person who bought a share would receive one-tenth of the profits at the end of the year, and each person would have one out of 10 votes in any business decisions. Or, you might divide ownership up into 1,500 shares and sell each share for $1,000 to make the price something that more people could afford. Or, you might divide ownership up into 3,000 shares, keep 1,500 for yourself, and sell the remaining shares for $500 each. That way, you retain a majority of the shares (and therefore the votes) and remain in control of the restaurant while sharing the profit with other people. In the meantime, you get to put $750,000 in the bank when you sell the 1,500 shares to other people.

Stock, at its core, is really that simple. It represents ownership of a company’s assets and profits. A dividend on a share of stock represents that share’s portion of the company’s profits, generally dispersed yearly. If the restaurant has 10 owners, each owning one share of stock, and the restaurant makes $75,000 in profit during the year, then each owner gets a dividend of $7,500. A large company like IBM has millions of shares of stock outstanding — about 1.7 billion in February 2004 (see Quicken: International Business Machines for details). In this case, the total profits of the company are divided by 1.7 billion and sent to the shareholders as dividends.

One measure of the value of a company, at least as far as investors are concerned, is the product of the number of outstanding shares multiplied by the share price. This value is called the capitalization of the company.

­The stock market appears in the news every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like “The Dow Jones Industrial Average rose 2 percent today, with advances leading declines by a margin of…”

Obviously, stocks and the stock market are important, but you may find that you know very little about them. What is a stock? What is a stock market? Why do we need a stock market?

Where does the stock come from to begin with, and why do people want to buy and sell it? If you have questions like these, then this article will open your eyes to a whole new world!

Determining Value
Let’s say that you want to start a business, and you decide to open a restaurant. You go out and buy a building, buy all the kitchen equipment, tables and chairs that you need, buy your supplies and hire your cooks, servers, etc. You advertise and open your doors.

Let’s say that:

• You spend $500,000 buying the building and the equipment.
• In the first year, you spend $250,000 on supplies, food and the payroll for your employees.
• At the end of your first year, you add up all of the money you have received from customers and find that your total income is $300,000.

Since you have made $300,000 and paid out the $250,000 for expenses, your net profit is:

$300,000 (income) - $250,000 (expense) = $50,000 (profit) At the end of the second year, you bring in $325,000 and your expenses remain the same, for a net profit of $75,000. At this point, you decide that you want to sell the business. What is it worth?

­One way to look at it is to say that the business is “worth” $500,000. If you close the restaurant, you can sell the building, the equipment and everything else and get $500,000. This is a simplification, of course — the building probably went up in value, and the equipment went down because it is now used. Let’s just say that things balance out to $500,000. This is the asset value, or book value, of the business — the value of all of the business’s assets if you sold them outright today.

But what if you keep it going? Read on to find out.

Investing in stocks doesn’t have to just for the market savvy. Anyone with a self directed IRA, or even just funds to open an investment account can invest in the stock market. Don’t know anything about stocks you say? Well, there is a solution for those that either don’t have the time or inclination to do lots of study. Index funds or ETFs are the vehicles of choice for these types of investors.


What is an index fund? An index fund is sort of like a mutual fund. A mutual fund is made up of a group of stocks that are selected for certain reasons. This reason could be stock value, past performance, by sector, or even by the philosophies of the companies , such as a green fund - based on a company’s environmental impact. These mutual funds have a fund manager who takes a percentage of the funds earnings, as well as earning commissions based on trades within the fund. If the manager doesn’t do a good job, they still get paid the commissions, while you lose the value.

An index fund, on the other hand, is a group of stocks that make up an entire index, such as the S&P 500 index. This particular index fund includes all of the stocks in the S&P 500, regardless of any particular stocks performance. These indices are normally compiled by computer, so this eliminates the need for a fund manager, therefore reducing expenses. The idea behind the index is that it will give you stable growth. The stock market over time has risen - generally 5-7% per year, with some flux. A mutual fund manager is always trying to pick stocks that beat the market average, and taking on inherent risk in doing so. Buying an index fund basically will give you average market returns each year - with no chance of beating the market average, but not under performing, either. So, purchasing shares in an index fund will involve only the investor deciding which index to purchase. You can open an investment account with a company such as Vanguard and purchase their index fund. Most index funds require a certain amount to open, and a specific amount reinvested each month.

Thank you all very much. Good morning. [Treasury] Secretary [Henry] Paulson, Secretary [of State Condoleezza] Rice and I just had a productive discussion with finance ministers of America’s partners in the G7 — Canada, France, Germany, Great Britain, Italy, and Japan. I’m pleased to be with Prime Minister [Jean-Claude] Juncker of Luxembourg, who is the president of the Eurogroup of countries, Managing Director [Dominique] Strauss-Kahn of the International Monetary Fund, President [Robert] Zoellick of the World Bank, Chairman [Mario] Draghi of the Financial Stability Forum. Thank you all for coming.

I appreciate the spirit and common purpose that these leaders have brought to Washington. We recognize that the turmoil in the financial markets is affecting all our citizens. Citizens are rightly concerned about the crisis. And we understand that in dealing with the financial crisis, we’re really helping people be able to have a better future themselves.

In my country, it is important for our citizens to have understood that which affects Wall Street affects Main Street as well. And all of us recognize that this is a serious global crisis and, therefore, requires a serious global response for the good of our people. We resolve to continue our strong efforts to return our economies to the path of stability and long-term growth.

The United States has a special role to play in leading the response to this crisis. That is why I convened this morning’s meeting here at the White House, and that is why our government will continue using all the tools at our disposal to resolve this crisis. At our meeting, Secretary Paulson and I described the bold actions the United States has taken over the past few weeks.

To help thaw frozen markets, the Federal Reserve has taken unprecedented measures to boost liquidity. The Securities and Exchange Commission has cracked down on abusive practices in the markets. Federal agencies have significantly expanded the amount of money insured in bank and credit union accounts. My administration worked with the Congress to pass legislation authorizing the government to recapitalize banks by purchasing troubled assets or providing insurance or purchasing equity in financial institutions.

These extraordinary efforts are being implemented as quickly and as effectively as possible. The benefits will not be realized overnight. But as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions.

I’m pleased that other G-7 countries are taking strong measures. Finance ministers and central bankers have acted to provide new liquidity to markets, strengthen financial institutions, protect citizens’ savings, and ensure fairness and integrity in the financial markets.

As our nations confront challenges unique to our individual financial systems, we must continue to work collaboratively and ensure that our actions are coordinated. The joint interest rate cut earlier this week was a good example of effective cooperation. Yesterday, G-7 finance ministers and central bankers agreed to a plan of action.

The G-7 nations have pledged to take decisive action to support systemically important financial institutions and prevent their failure, provide robust protection for retail bank deposits, and ensure financial institutions are able to raise needed capital. We’ve agreed to implement strong measures to unfreeze credit, ensure access to liquidity, and help to restart the secondary markets for mortgages and other assets. We’ve all agreed that the actions we take should protect our taxpayers. And we agreed that we ought to work with other nations such as those that will be represented this afternoon in the G-20 forum.

As our nations carry out this plan, we must ensure the actions of one country do not contradict or undermine the actions of another. In our interconnected world, no nation will gain by driving down the fortunes of another. We’re in this together. We will come through it together.

I’m confident that the world’s major economies can overcome the challenges we face. There have been moments of crisis in the past when powerful nations turned their energies against each other, or sought to wall themselves off from the world. This time is different. The leaders gathered in Washington this weekend are all working toward the same goals. We will stand together in addressing this threat to our prosperity. We will do what it takes to resolve this crisis. And the world’s economy will emerge stronger as a result.

Thank you very much.

President Bush’s Rose Garden appearance Saturday morning was meant to provide a reassuring picture of stability — the world’s most powerful leader, standing alongside finance ministers of the seven old-line industrial powers, their flags flapping proudly in the autumn breeze.

But as recent financial shocks have showed, the so-called G-7 — the U.S., Canada, France, Germany, Italy, Japan and the U.K. — aren’t quite the pillars of strength they once were. And as the world begins to attack the root causes of the crisis, the G-7 might not even be the real center of power.

Instead, as this weekend’s events in Washington suggested, it could be an obscure entity called the G-20, which includes the old-line powers as well as big hitters from the rest of the world, such as China, India, Russia, Australia, Brazil, Saudi Arabia, South Africa and South Korea. Mr. Bush himself nodded to the G-20’s emerging importance in his brief remarks on Saturday. While he touted G-7 members’ pledges of cooperation to shore up the international financial system, the president also noted that the G-7 members agreed to “work with other nations, such as those that will be represented this afternoon in the G-20 forum.”

Treasury Secretary Henry Paulson requested a separate meeting with the G-20 countries Saturday evening to explain all the actions that the U.S. is undertaking.

The reason for the attention is obvious: the G-20 nations include major players on the world economic stage, many of whom are big investors in the developed countries’ economies.

And a lot of these emerging economic powers are unhappy about what’s been going on lately. That’s particularly so, given that the G-20 itself was a product of the last global economic disaster, the Asian crisis of 1997-1998, and was supposed to help fix up the global economic order. Emerging countries believe they’ve done their part, but the big industrial powers haven’t.

“It’s pretty clear that the world has not moved on enough,” Australian treasurer Wayne Swan complained on Friday at a Brookings Institution panel. “There was too little interest in advanced economies in addressing the root causes of that crisis. And the lessons from that period now have to be learned so that we can move on with the essential reforms that are required.”

Those future reforms would include more uniform standards for judging the health of big financial institutions.

Already, there’s been widespread talk of a leaders summit to consider such reforms, including from French President Nicolas Sarkozy. Congressional Democratic leaders also have called for a G-8 leaders’ summit (the G-8 is the G-7 plus Russia) to discuss the economic crisis.

Still, it’s not yet clear that Mr. Bush will be standing together with elected leaders of the G-20 –or the G-7, or the G-8, or any other numerical variation — to announce such changes anytime soon. With just 100 days left in office as of this weekend, Mr. Bush has to focus on the task at hand – following up on this weekend’s pledges, and stabilizing the financial and credit markets.

A leaders’ meeting to discuss global financial architecture — something like a new version of the World War II Bretton Woods meeting — could simply take too long, says Brookings’ Robert Litan. And global finance ministers can work out enough coordinated action to start to restore confidence, “I’m not sure what’s left for the leaders to talk about,” he adds.

“My deepest feeling is what we need is action, not more talk,” says Sidney Weintraub of the Center for Strategic and International Studies.

But when the big leaders’ summit happens, look for it to include a lot of the G-20 countries.

“It’s critical, critical that we have a broader group of countries involved in coordinating and responding,” Australia’s Mr. Swan said on Friday. “It is just incredible that we don’t have a body which is representative of that part of the globe [Asia]. So the case for a G-20 involvement here I think is just not arguable.”

While there were no concrete offers of new moves made on Saturday, Mr. Bush pledged anew that his administration was doing everything possible to halt the biggest market disruptions since the Great Depression and the finance ministers spoke in unusually somber terms about the need for action.

Mr. Bush, who had started the day shortly after daybreak with a Rose Garden appearance with finance ministers from the world’s richest countries, made an unexpected late day visit to the headquarters of the 185-nation International Monetary Fund. With Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, he participated in an evening discussion with the Group of 20 which includes rich countries and major developing nations such as China, Brazil and India.

Brazilian Finance Minister Guido Mantega said that the president had stressed the seriousness of the current situation and told the finance ministers that he was doing all he could to involve other countries in efforts to resolve the crisis.

In response, the G-20 countries issued a joint statement in which the finance officials pledged to work together “to overcome the financial turmoil and to deepen cooperation to improve the regulation, supervision and the overall functioning of the world’s financial markets.”

Earlier Saturday, after emerging from a meeting with finance ministers from the group of seven leading industrial nations, Mr. Bush said that turmoil in financial markets requires a “serious global response,” but cautioned that the world wide economic crisis won’t be solved “overnight.”

“We’re in this together, we will come through it together,” Mr. Bush said in remarks from the Rose Garden. “We will stand together in addressing this threat to our prosperity, we will do what it takes to resolve this crisis, and the world’s economy will emerge stronger as a result.”

At a meeting in Washington Friday, the G-7 agreed on a framework to address the crisis, but fell short of unveiling a specific plan for joint action.

“We resolved to continue our strong efforts to return our economies to the path of stability and long-term growth,” Mr. Bush said, adding that the U.S. will use “all the tools” at its disposal to resolve the crisis.

The G-7 countries agreed Friday to work to prevent systemically important financial institutions from failing and take steps to thaw credit markets, ensure that bank-deposit insurance programs are solid, and make sure financial institutions can access liquidity and raise capital.

The global crisis dominated discussions at the annual meetings of the International Monetary Fund and World Bank over the weekend. The 185-nation IMF strongly endorsed the G-7 plan to do everything possible to protect the financial system and get credit flowing again. “The depth and systemic nature of the crisis call for exceptional vigilance, coordination and readiness to take bold action,” the IMF said.

“There is a resolve that this crisis will be resolved, that no tools will be spared to address this issue,” Egypt’s finance minister, Youseff Boutros Ghali, chairman of the IMF’s policy panel, told a news conference late Saturday.

Treasury Secretary Henry Paulson said the U.S. is working to have a standardized government program for purchasing equity in financial companies up and running “as soon as possible.” That program would supplement the government’s new authority to purchase bad assets from struggling banks and steps the Federal Reserve has taken to boost liquidity.

“These extraordinary efforts are being implemented as quickly and as effectively as possible,” Mr. Bush said. “The benefits will not be realized overnight, but as these actions take effect they will help restore stability to our markets and confidence to our financial institutions.”

Mr. Bush said the U.S. would have a “special role” in leading the global response to the market meltdown.

“All of us recognize that this is a serious global crisis, and therefore requires a serious global response for the good of our people,” the president said.

European leaders are meeting Sunday in Paris for an emergency summit on the situation.

Mr. Bush said it is crucial that the global response not pit countries against each other.

“As our nations carry out this plan, we must make sure the actions of one do not contradict or undermine the actions of another,” he said. “In an interconnected world, no nation will gain by driving down the fortunes of another.”

In a show of unity, Mr. Bush was joined in the Rose Garden by the G-7 finance ministers, Mr. Paulson, Secretary of State Condoleezza Rice and the heads of the International Monetary Fund and World Bank. They stood against a backdrop of G-7 flags. The president didn’t take questions, and left the White House shortly after his remarks to take his regular Saturday morning bicycle ride.

The G-7 is comprised of the U.S., Japan, Canada, the U.K., Italy, France and Germany.

The Dow Jones fell 456.3 to 8122.2 leading to a 21pc fall over the week after the index on Thursday suffered its biggest fall since Black Monday in October 1987.

In one of the most volatile trading days in memory the Dow fell nearly 700 points after markets opened, breaking the 8,000 mark for the first time since April 2003.

The drama continued as the index rallied into positive territory, cheered on by traders on the floor of the New York Stock Exchange on hopes that the market had reached its bottom.

Traders were left disappointed as shares fell again amid fears that intervention by central banks to stabilise markets would be insufficient to avert a deep and lengthy recession.

“Investors are just focusing on getting through the day,” said Alan Gayle, an investment strategist at Ridgeworth Investment in Virginia. “The markets are being driven by emotion and rumor.”

The S&P 500 fell 53.4 to 856.5, a weekly drop of more than 20pc. The index has plunged in eight consecutive trading days, its longest losing streak since 1996.

The stock market falls came despite attempts by US President George Bush to restore confidence.

“The government is acting to resolve this crisis. We have a wide range of tools at our disposal and we are using those tools aggressively,” he said. “We can solve this crisis and we will.”

The stock market sell-off was broad based with banks, car makers and retailers continuing to fall.

The Dow Jones and S&P 500 are down more than 40pc from their peaks a year ago and are on course to record their worst yearly returns since the Great Depression.

General Motors, which saw its share price drop 33pc on Thursday to its lowest level since 1950, recovered some ground after it was forced to assert that it was “not considering bankruptcy”.

That came amid rising fears over the car maker’s long term future after ratings agency Standard & Poor’s said GM, Ford and Chrysler could be forced into bankruptcy in the face of slowing economies, dwindling car sales and debt borrowing costs at record highs.

Wall Street bank Morgan Stanley also came under pressure, trading down 25pc, despite claims by chief executive John Mack that the bank was not in trouble.

Mr Mack sought to quash speculation that the bank would have to raise fresh capital to strengthen its balance sheet. Moody’s, the ratings agency, had earlier warned that it might cut Morgan Stanley’s credit rating on concerns over future earnings.

Concerns that the credit crisis is hitting spending on the high street escalated after department store Macy’s said profits would fall more than it had forecasted.

The company’s share price fell 10pc as it became the latest US retailer to warn of dire economic conditions and plummeting September sales.