• TSX +31.07
• DOW +38.54
• Dollar -.24c to 96.73cUS
• Oil -$1.70 to $73.78US per barrel.
• Gold +$8.10 to $1,228.90 USD per ounce enjoys a third straight weekly gain
The new face of debt
Andrew Allentuck, Financial Post • Friday, Jun. 11, 2010
For James Kennedy, a federal civil servant before he retired, and his wife, Jane, who retired from the Calgary civil service, the golden years have become a series of tough compromises. Both 59, they live in Qualicum Beach, B.C., a five-minute walk from the Strait of Georgia on Vancouver Island. They enjoy the mild weather, long walks on the beach and their beautiful home.
Trouble is, a lack of employment income combined with debt stalk the good times they thought they would have after they left their careers.
Their jobs paid them a total of about $100,000 per year. Today, as a result of too much house and the repairs it entails — repainting, new floors, new electrical circuits, new kitchen counters, custom French doors and other elegances — they carry a debt of almost $70,000, nearly twice their retirement income of $37,000 a year.
If they pay off the debt, James and Jane would face a cash shortage. They could do it, but it would wipe out all of their RRSPs and other retirement assets built up over their working lives. A tough choice.
“We used to think that our house would go up enough in price to cover our debts,” Mr. Kennedy explains. “But I don’t think you can rely on that.”
Their situation could be resolved by selling the house, yet they fear that having paid too much in renovations, even downsizing might leave them house broke — with a nice abode and nothing else.
“As I approach the age of 60, I don’t want to carry so much debt. There has to be an end to the debt. I want my mind to be clear that when we get our Canada Pension Plan and Old Age Security, we will be able to keep those benefits. We don’t want to go into our sunset years paying off our debts.”
See The Kennedys are not alone. A flurry of recent studies show a significant increase of retirees in debt. First was Investors Group, which said 62% plan to carry debt such as a mortgage into their golden years. Then Royal Bank of Canada came out with its Ipsos Reid poll, which found four in 10 Canadians retired with some form of debt, and one in four began retirement with a mortgage on their primary residence.
“More and more, Canadians are carrying debt into retirement,” said Lee Anne Davies, head of retirement strategies at RBC.
Just this week, BMO Financial Group noted less than half of Canadians 55 and over have a post-retirement income strategy in place and only a third have considered that they might outlive their savings.
It’s a new and dangerous trend.
Unlike their parents and grandparents, who remembered the Great Depression and regarded debt as a first step toward ruin, today’s retirees, especially Baby Boomers born between 1947 and 1966, grew up comfortable with owing others. Indeed, for many who grew up in the expansionary years of the 1960s, it was a normal and expected to have a credit card, fund a university education with loans, graduate to readily available mortgages and then to handy lines of credit from accommodative banks.
“Retirees, especially Boomers, are less averse to debt than their parents were,” says Peter Drake, vice president for retirement and economic research with Fidelity in Toronto. The contrast with earlier generations is stark, Mr. Drake adds. “They lived through a sustained period of strong economic growth and have adopted the idea that they will be well-off.”
Boomers have always had a major influence on consumer trends, and now they are changing the face of retirement as well.
“Boomers don’t have the same sense of saving for bad days that their parents had,” explains Charles Mossman, a finance professor at the Asper School of Business at the University of Manitoba. “When they retire, former workers, especially those who don’t have defined-benefit pensions that provide a guaranteed and sometimes even an indexed cash flow, wind up with more debt service charges than they can afford.”
According to a special report by The Office of the Superintendent of Bankruptcy that was released in 2008, 15.3% of all individual bankruptcies in Canada in 2003 were of individuals 55 and over, up from 6.9% in 1993. “Those over 65 are less likely to be able to recover economically and socially from the bankruptcy,” noted the OSB.
The risk of senior bankruptcy grows with age. A study for the Canadian Institute of Actuaries released June 2007, shows that longevity risk — the chance of living to a very ripe old age — poses the problem of running out of personal savings.
Given Canadians’ extending life expectancy — currently 78 for males, 83 for females — a person retiring at age 55 has a 40% chance of running out of personal savings by age 85 and a 90% chance of being flat broke by age 95. It should be noted the data shows that women, who outlive men on average and tend to have lower lifetime incomes, have even greater reason to fear poverty caused by longevity.
Compounding the longevity problem is the trend, promoted by some financial services companies, to early retirement. Remember Freedom 55? But retiring at that age means giving up what may be one’s most financially productive years. Indeed, if the average retiree has paid down most of his or her debts, and delays retirement to age 62, he or she can live in reasonable financial security, says demographer David Foot, an economist on the faculty of the University of Toronto and author of the 1996 bestseller Boom, Bust & Echo.
It would be wrong to label all debt foolish and all debtors in peril of financial catastrophe, argues Tina DiVito, head of retirement solutions at BMO Financial Group. “There is bad debt and good debt. Bad debt may be what one borrowed for a transitory pleasure, such as a vacation, after which the borrower has to pay high interest rates and gets no tax breaks.
“Good debt bears moderate rates of interest and is payable in a reasonable time period, perhaps as a part of an investment that makes interest tax-deductible,” Ms. DiVito says.
For good debt, consider the case of 61-year-old Montreal retiree Ioanna Jakus, who has maintained a mid-six figure investment portfolio while living on an after-tax income of less than $2,000 per month.
A former bank employee, she has a $10,000 line of credit with her stock broker. “I use the line to buy stocks and bonds,” she says. “I can deduct the interest I pay from my taxable income. My investments have been successful and have more than paid the cost of credit. What’s more, rates of interest are so low that borrowing to invest just makes sense for me.”
Not only has Ms. Jakus made intelligent use of credit, she has done so expertly, selecting low-risk GICs, bonds and blue-chip stocks with strong dividends. “I have always been motivated by the knowledge that only I can control my destiny,” she explains. “My husband and I paid off the mortgage — that was when interest rates were near 20% — and we never borrowed again for spending.
“Of course, I can clear my investment debt in a moment by using cash in one of my accounts. My philosophy has always been not to take risks that I cannot afford, especially when it comes to borrowing money.
“Nobody can look after me as well as I can,” she adds.
That’s a lesson a lot of retirees have yet to learn.
Read more: http://www.financialpost.com/news/face+debt/3143925/story.html#ixzz0qpSbthjV
Monday, June 14, 2010
Friday, June 11, 2010
Financial Update For June 11, 2010
• TSX +185.21 sharply higher as good economic news from China sent commodity stocks higher on the resource-heavy TSX and helped curb worry that Europe's debt crisis will seriously hamper the global recovery.
• DOW +273.28 to 10,172
• Dollar +1.21c to 96.97cUS
• Oil +$1.10 to $75.48US per barrel.
• Gold -$7.70 to $1,221.10 USD per ounce as a rise in stocks and the euro reflected sharper appetite for nominally higher-risk assets
Canada modestly impacted by European debt crisis so far, Bank of Canada says
BY LUANN LASALLE
MONTREAL — While the European debt crisis has only had a “modest” impact on Canada, the crisis isn’t over and all governments need to be on healthy fiscal paths, Bank of Canada governor Mark Carney said Thursday.
“So there’s been a modest impact on financial conditions — a slight tightening of financial conditions in Canada — and a modest impact on commodity prices,” Carney said at a news conference.
“But it’s not over. You know, this is serious stuff,” he said, adding that it is “incredibly important” to execute the right policies to deal with the situation.
The head of Canada’s largely independent central bank has been providing similar advice to policymakers for months. His latest speech comes as Canada prepares to play host to G20 and G8 meetings from June 25 to 27, when the state of the world’s financial system will be among the main topics.
Canada won widespread accolades during the 2008-09 credit crisis and recession, for a regulatory regime credited with avoiding problems that forced the United States and other governments to bail out major banks and insurance companies.
Carney said he’s encouraged with the measures that European policymakers have taken so far, “but I don’t think anybody is of the view that more will not be required.”
“What we are seeing at present is a stronger demand from the market for more credible plans, more rapid plans, more rapid movements to fiscal sustainability at any level of government.”
BMO Capital Markets senior economist Michael Gregory said Carney’s remarks suggest the Bank of Canada has room to raise its key rates in July — following a quarter-point hike this month.
The central bank’s policy rate had been set at an all-time low of 0.25 per cent last year as a means to ease the cost of borrowing in order to stimulate the economy out of the deepest recession in decades.
“Bottom line: It sounds like the urgency of the risks posed by the European situation has eased somewhat in the Bank of Canada’s mind,” Gregory wrote in a note.
“Other things equal, this modestly raises the odds of a followup rate hike on July 20.”
Carney wouldn’t say if another hike in the central bank’s policy rate is expected this summer. On June 1, the Bank of Canada raised its key rate a quarter point to 0.5 per cent, the first time in almost three years.
“I would say it’s too early to make a judgment, nor is it necessary for us to make a judgment today.”
This week, the World Bank raised the possibility of a second recession affecting most of the industrialized world if governments don’t deal successfully with the unfolding European debt crisis affecting such countries as Greece and Spain.
The risk is serious enough that it will likely be the key topic of discussion for leaders meeting in Toronto later this month at a G20 summit.
During his speech to a Montreal economic conference, Carney said that banks should prepare for radical reforms to the world’s financial system that will make it look a lot more like what’s already in Canada.
The Canadian banking sector has been held as an example for the international community because its conservative investment practices helped it endure the credit crisis in 2008.
“The rigour of Canadian capital regulation was an important — although far from exclusive — reason why the Canadian system fared so well during the crisis,” Carney told the International Organization of Securities Commissions.
And he stressed that reforms pose no threat to the global recovery, saying the opposite is true — they will help economic growth.
Once implemented, global financial institutions will be required to retain more and better capital, improve liquidity and reduce risk, and introduce a capital buffer that is sufficiently large to absorb losses encountered in the 2008 crisis that led to a global recession, Carney said.
Although the coming changes will be significant, Carney dismissed critics who believe the requirement for more capital reserves will limit banks’ ability to lend and slow down economic activity.
In fact, the opposite will happen, he said.
The reforms will cause banks to shift focus away from trading risky financial instruments and more to conventional lending to businesses and individuals that spur growth, he argued.
And he noted that banks will be given plenty of lead time to meet new standards since the implementation date of key reforms won’t be until the end of 2012.
http://news.therecord.com/Business/article/726447
The bad news - bad news on U.S. jobs
by Brett Arends, WSJ.com and MarketWatch
Commentary: Five reasons the employment numbers are worse than they seem
BOSTON -- The news on jobs isn't as bad as it seemed last Friday.
It's worse.
President Obama and Treasury Secretary Geithner were trying to putting on a happy face, but the markets weren't buying. They have tumbled worldwide since the latest payroll data.
But instead of overreacting, the markets may only just be waking up to the real bad news.
1. Look out ahead.
We already know that when you strip out the short-term Census jobs, May's jobs growth was a pitiful 41,000. But what people haven't realized is that the leading indicators for June are even worse. TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June. "The big news is that we have a job loss of about 200,000 coming in June," says Trim Tabs' Madeline Schnapp, "and the market isn't ready for it."
It's not just the stock market. You can bet that the administration -- and the country -- isn't ready either. Remember, we need to create about 100,000 just to keep up with population growth.
2. One and a half million people have 'disappeared'?
The government says the unemployment rate "edged down" to 9.7% -- keeping it below the politically sensitive 10% level.
But that's only because about one and a half million people have just, miraculously "disappeared" from the official labor force.
A million and a half people disappearing? It sounds like a crazy conspiracy theory. But there it is, buried in the fine print of the government's own data.
From May 2009 to May 2010, the U.S. "civilian non-institutional population" of prime working age -- 20 to 64 -- expanded by one and a half million, 180.5 million to 182 million.
Yet over the same period the official tally of the labor force over age 20 held steady at just 148 million.
What happened to those extra people?
The Bureau of Labor Statistics doesn't have a full explanation. "We don't have direct questions (in the survey) addressing that fact," said a spokeswoman. But many of the disappeared are "unemployed who have decided not to look for work any more," or who haven't looked for work recently. Anyone who hasn't actively sought a job in the last four weeks vanishes from the rolls.
People dropping out completely are not a bullish sign -- unless, perhaps, one is measuring the unemployment figures for the government.
3. Some of the new "jobs" may not even exist
That's because they're being counted by the Federal Department of Guesswork. Ever since 1994, say economists, Uncle Sam has been using some statistical, er, "adjustments" to the core jobs data to come up with the, er, "true" picture. It will surprise no one that these "adjustments" make the data look better, rather than worse. The government makes estimates about new companies being started up as well as jobs being lost.
Those adjustments may be adding as many as half a million extra "jobs" to the core figure, says independent economist John Williams at Shadow Government Statistics.
In previous recessions, these adjustments may have had some justifications, because new companies formed very quickly in the recovery. But this recession has been unlike any other in our lifetimes, because it was caused by too much debt rather than economic overheating. So the recovery has been different as well. The slump in bank lending and the money supply in the past year suggest new companies are probably being formed far more slowly than in past recoveries, if at all. Bottom line: many of those jobs may not exist.
4. The private sector picture may still be in recession
Some recovery: The number employed in the private sector is still about 900,000 below where it was even a year ago, and about 8 million below where it was in 2007. And remember, it has to keep growing just to stand still, because the population is growing.
"There's practically no growth in private sector employment," says Gluskin Sheff strategist David Rosenberg. Jobs growth was anemic even in the parts of the economy allegedly leading the recovery, such as manufacturing. And now, he says, many leading economic indicators have started to turn down again.
The jobs growth is so slow, Rosenberg says, that by his calculations "it is going to take years, probably five to seven years, before we recoup the employment (lost) from the Great Recession," he says. Five to seven years? "There's a significant chance," he adds, "that for the first time ever we will go into the next recession without having seen a new peak in employment."
5. And as for earnings...
In the quest for some more cheerful news, the government said for those who do have jobs, average hourly earnings were up 1.9% from a year ago.
Good, yes?
Er, not really.
The government also reported that those workers produced 2.8% more goods and services per hour. So they actually got paid about 1% less for each widget they made, TV they sold, or meal they served. Oh, and over the same period consumer prices rose 2.2%. So even those lucky enough to be working have gone backwards -- before taxes.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1646/the-bad-news---bad-news-on-jobs
Managing debt while rates grow
Terry McBride , For Canwest News Service SASKATOON -- Canadians have taken advantage of extremely low interest rates to overextend themselves. The Bank of Canada wants to try to prevent inflation by raising interest rates to slow the economy down. How will debtors manage?
Inflation vs. deflation
Actually, debtors generally prefer inflation (when prices go up) because that can make it easier to repay a debt, which is a fixed dollar amount owing. Loan payments become more affordable when wages keep up with inflation.
Debtors usually fear deflation (when prices go down) because it becomes more difficult to repay an obligation when the fixed number of dollars can buy more. Deflation is already a major concern these days in Europe where some governments are raising taxes and cutting back on spending to tackle mushrooming public debts. Businesses there may be forced to cut prices and workers’ wages to cope with the economic slowdown.
Debtors fear deflation. How can they handle debt payments after their wages are cut or they lose their jobs? Serious household debt management issues arise.
Mortgage term
If your mortgage is coming up for renewal, how do you choose the best mortgage term? If you have had a variable or floating rate of interest tied to the prime rate, should you take the safe route and lock in a fixed, usually considerably higher, interest rate for five years?
If your mortgage payments rise, then you will have to look at various ways to manage other debts.
Consolidate
One popular debt management strategy is to combine various loans into your mortgage or a line of credit. Consolidation can eliminate high-interest credit card debt. Free up some cash flow by reducing your interest costs.
Talk to a professional debt counsellor. Can you have a single monthly payment? You could continue to make the same level of payments on your consolidated loan as you did before consolidation. Aim to reduce your principal owing and cut interest costs.
Amortization
Knowing how amortization works will help you to understand how to properly manage your debts. Amortization is how long you are scheduled to repay an instalment loan.
If interest rates rise, consider stretching the repayment period on an instalment loan to reduce the size of your monthly payments. Making your payments smaller seems very attractive at first. However, by making payments over a longer time period you will eventually pay much more interest in the long run.
Debt snowball
Here is a strategy for cutting down your overall debt level:
Make a list of your debts. Add up how much you pay on each loan.
Pick the smallest debt to tackle first. Pay the minimum on all debts except for your target debt. Pay whatever is left on your target debt until it is paid off. Then, continue with the debt snowball strategy by choosing the next debt on the list as your target debt. Pay it off.
Borrow wisely
The next time you have to borrow, avoid buying something that drops in value. The only time you should buy something using debt is if it is something that will appreciate in value or generate additional cash flow for you.
As a general rule, if you are buying something with borrowed money, make sure that what you buy lasts longer than the debt. Don’t add to your debt burden by going on a vacation financed by credit cards.
Emergency fund
Do you have to borrow when you have an emergency? Instead you should build an emergency fund with cash held in reserve. You could use a Tax-Free Savings Account, the cash surrender value of a whole life policy or a Canada Savings Bond payroll savings plan, for example. Having cash available to pay for an emergency will give you greater financial security than an untapped line of credit.
Terry McBride is a member of Advocis (The Financial Advisors Association of Canada)
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/Managing+debt+while+rates+grow/3136091/story.html#ixzz0qXodyQrw
• DOW +273.28 to 10,172
• Dollar +1.21c to 96.97cUS
• Oil +$1.10 to $75.48US per barrel.
• Gold -$7.70 to $1,221.10 USD per ounce as a rise in stocks and the euro reflected sharper appetite for nominally higher-risk assets
Canada modestly impacted by European debt crisis so far, Bank of Canada says
BY LUANN LASALLE
MONTREAL — While the European debt crisis has only had a “modest” impact on Canada, the crisis isn’t over and all governments need to be on healthy fiscal paths, Bank of Canada governor Mark Carney said Thursday.
“So there’s been a modest impact on financial conditions — a slight tightening of financial conditions in Canada — and a modest impact on commodity prices,” Carney said at a news conference.
“But it’s not over. You know, this is serious stuff,” he said, adding that it is “incredibly important” to execute the right policies to deal with the situation.
The head of Canada’s largely independent central bank has been providing similar advice to policymakers for months. His latest speech comes as Canada prepares to play host to G20 and G8 meetings from June 25 to 27, when the state of the world’s financial system will be among the main topics.
Canada won widespread accolades during the 2008-09 credit crisis and recession, for a regulatory regime credited with avoiding problems that forced the United States and other governments to bail out major banks and insurance companies.
Carney said he’s encouraged with the measures that European policymakers have taken so far, “but I don’t think anybody is of the view that more will not be required.”
“What we are seeing at present is a stronger demand from the market for more credible plans, more rapid plans, more rapid movements to fiscal sustainability at any level of government.”
BMO Capital Markets senior economist Michael Gregory said Carney’s remarks suggest the Bank of Canada has room to raise its key rates in July — following a quarter-point hike this month.
The central bank’s policy rate had been set at an all-time low of 0.25 per cent last year as a means to ease the cost of borrowing in order to stimulate the economy out of the deepest recession in decades.
“Bottom line: It sounds like the urgency of the risks posed by the European situation has eased somewhat in the Bank of Canada’s mind,” Gregory wrote in a note.
“Other things equal, this modestly raises the odds of a followup rate hike on July 20.”
Carney wouldn’t say if another hike in the central bank’s policy rate is expected this summer. On June 1, the Bank of Canada raised its key rate a quarter point to 0.5 per cent, the first time in almost three years.
“I would say it’s too early to make a judgment, nor is it necessary for us to make a judgment today.”
This week, the World Bank raised the possibility of a second recession affecting most of the industrialized world if governments don’t deal successfully with the unfolding European debt crisis affecting such countries as Greece and Spain.
The risk is serious enough that it will likely be the key topic of discussion for leaders meeting in Toronto later this month at a G20 summit.
During his speech to a Montreal economic conference, Carney said that banks should prepare for radical reforms to the world’s financial system that will make it look a lot more like what’s already in Canada.
The Canadian banking sector has been held as an example for the international community because its conservative investment practices helped it endure the credit crisis in 2008.
“The rigour of Canadian capital regulation was an important — although far from exclusive — reason why the Canadian system fared so well during the crisis,” Carney told the International Organization of Securities Commissions.
And he stressed that reforms pose no threat to the global recovery, saying the opposite is true — they will help economic growth.
Once implemented, global financial institutions will be required to retain more and better capital, improve liquidity and reduce risk, and introduce a capital buffer that is sufficiently large to absorb losses encountered in the 2008 crisis that led to a global recession, Carney said.
Although the coming changes will be significant, Carney dismissed critics who believe the requirement for more capital reserves will limit banks’ ability to lend and slow down economic activity.
In fact, the opposite will happen, he said.
The reforms will cause banks to shift focus away from trading risky financial instruments and more to conventional lending to businesses and individuals that spur growth, he argued.
And he noted that banks will be given plenty of lead time to meet new standards since the implementation date of key reforms won’t be until the end of 2012.
http://news.therecord.com/Business/article/726447
The bad news - bad news on U.S. jobs
by Brett Arends, WSJ.com and MarketWatch
Commentary: Five reasons the employment numbers are worse than they seem
BOSTON -- The news on jobs isn't as bad as it seemed last Friday.
It's worse.
President Obama and Treasury Secretary Geithner were trying to putting on a happy face, but the markets weren't buying. They have tumbled worldwide since the latest payroll data.
But instead of overreacting, the markets may only just be waking up to the real bad news.
1. Look out ahead.
We already know that when you strip out the short-term Census jobs, May's jobs growth was a pitiful 41,000. But what people haven't realized is that the leading indicators for June are even worse. TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June. "The big news is that we have a job loss of about 200,000 coming in June," says Trim Tabs' Madeline Schnapp, "and the market isn't ready for it."
It's not just the stock market. You can bet that the administration -- and the country -- isn't ready either. Remember, we need to create about 100,000 just to keep up with population growth.
2. One and a half million people have 'disappeared'?
The government says the unemployment rate "edged down" to 9.7% -- keeping it below the politically sensitive 10% level.
But that's only because about one and a half million people have just, miraculously "disappeared" from the official labor force.
A million and a half people disappearing? It sounds like a crazy conspiracy theory. But there it is, buried in the fine print of the government's own data.
From May 2009 to May 2010, the U.S. "civilian non-institutional population" of prime working age -- 20 to 64 -- expanded by one and a half million, 180.5 million to 182 million.
Yet over the same period the official tally of the labor force over age 20 held steady at just 148 million.
What happened to those extra people?
The Bureau of Labor Statistics doesn't have a full explanation. "We don't have direct questions (in the survey) addressing that fact," said a spokeswoman. But many of the disappeared are "unemployed who have decided not to look for work any more," or who haven't looked for work recently. Anyone who hasn't actively sought a job in the last four weeks vanishes from the rolls.
People dropping out completely are not a bullish sign -- unless, perhaps, one is measuring the unemployment figures for the government.
3. Some of the new "jobs" may not even exist
That's because they're being counted by the Federal Department of Guesswork. Ever since 1994, say economists, Uncle Sam has been using some statistical, er, "adjustments" to the core jobs data to come up with the, er, "true" picture. It will surprise no one that these "adjustments" make the data look better, rather than worse. The government makes estimates about new companies being started up as well as jobs being lost.
Those adjustments may be adding as many as half a million extra "jobs" to the core figure, says independent economist John Williams at Shadow Government Statistics.
In previous recessions, these adjustments may have had some justifications, because new companies formed very quickly in the recovery. But this recession has been unlike any other in our lifetimes, because it was caused by too much debt rather than economic overheating. So the recovery has been different as well. The slump in bank lending and the money supply in the past year suggest new companies are probably being formed far more slowly than in past recoveries, if at all. Bottom line: many of those jobs may not exist.
4. The private sector picture may still be in recession
Some recovery: The number employed in the private sector is still about 900,000 below where it was even a year ago, and about 8 million below where it was in 2007. And remember, it has to keep growing just to stand still, because the population is growing.
"There's practically no growth in private sector employment," says Gluskin Sheff strategist David Rosenberg. Jobs growth was anemic even in the parts of the economy allegedly leading the recovery, such as manufacturing. And now, he says, many leading economic indicators have started to turn down again.
The jobs growth is so slow, Rosenberg says, that by his calculations "it is going to take years, probably five to seven years, before we recoup the employment (lost) from the Great Recession," he says. Five to seven years? "There's a significant chance," he adds, "that for the first time ever we will go into the next recession without having seen a new peak in employment."
5. And as for earnings...
In the quest for some more cheerful news, the government said for those who do have jobs, average hourly earnings were up 1.9% from a year ago.
Good, yes?
Er, not really.
The government also reported that those workers produced 2.8% more goods and services per hour. So they actually got paid about 1% less for each widget they made, TV they sold, or meal they served. Oh, and over the same period consumer prices rose 2.2%. So even those lucky enough to be working have gone backwards -- before taxes.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1646/the-bad-news---bad-news-on-jobs
Managing debt while rates grow
Terry McBride , For Canwest News Service SASKATOON -- Canadians have taken advantage of extremely low interest rates to overextend themselves. The Bank of Canada wants to try to prevent inflation by raising interest rates to slow the economy down. How will debtors manage?
Inflation vs. deflation
Actually, debtors generally prefer inflation (when prices go up) because that can make it easier to repay a debt, which is a fixed dollar amount owing. Loan payments become more affordable when wages keep up with inflation.
Debtors usually fear deflation (when prices go down) because it becomes more difficult to repay an obligation when the fixed number of dollars can buy more. Deflation is already a major concern these days in Europe where some governments are raising taxes and cutting back on spending to tackle mushrooming public debts. Businesses there may be forced to cut prices and workers’ wages to cope with the economic slowdown.
Debtors fear deflation. How can they handle debt payments after their wages are cut or they lose their jobs? Serious household debt management issues arise.
Mortgage term
If your mortgage is coming up for renewal, how do you choose the best mortgage term? If you have had a variable or floating rate of interest tied to the prime rate, should you take the safe route and lock in a fixed, usually considerably higher, interest rate for five years?
If your mortgage payments rise, then you will have to look at various ways to manage other debts.
Consolidate
One popular debt management strategy is to combine various loans into your mortgage or a line of credit. Consolidation can eliminate high-interest credit card debt. Free up some cash flow by reducing your interest costs.
Talk to a professional debt counsellor. Can you have a single monthly payment? You could continue to make the same level of payments on your consolidated loan as you did before consolidation. Aim to reduce your principal owing and cut interest costs.
Amortization
Knowing how amortization works will help you to understand how to properly manage your debts. Amortization is how long you are scheduled to repay an instalment loan.
If interest rates rise, consider stretching the repayment period on an instalment loan to reduce the size of your monthly payments. Making your payments smaller seems very attractive at first. However, by making payments over a longer time period you will eventually pay much more interest in the long run.
Debt snowball
Here is a strategy for cutting down your overall debt level:
Make a list of your debts. Add up how much you pay on each loan.
Pick the smallest debt to tackle first. Pay the minimum on all debts except for your target debt. Pay whatever is left on your target debt until it is paid off. Then, continue with the debt snowball strategy by choosing the next debt on the list as your target debt. Pay it off.
Borrow wisely
The next time you have to borrow, avoid buying something that drops in value. The only time you should buy something using debt is if it is something that will appreciate in value or generate additional cash flow for you.
As a general rule, if you are buying something with borrowed money, make sure that what you buy lasts longer than the debt. Don’t add to your debt burden by going on a vacation financed by credit cards.
Emergency fund
Do you have to borrow when you have an emergency? Instead you should build an emergency fund with cash held in reserve. You could use a Tax-Free Savings Account, the cash surrender value of a whole life policy or a Canada Savings Bond payroll savings plan, for example. Having cash available to pay for an emergency will give you greater financial security than an untapped line of credit.
Terry McBride is a member of Advocis (The Financial Advisors Association of Canada)
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/Managing+debt+while+rates+grow/3136091/story.html#ixzz0qXodyQrw
Thursday, June 10, 2010
Financial Update For June 10, 2010
• TSX -66.54 another rocky finish as investor sentiment soured after the Federal Reserve's Beige Book said economic growth was subdued in many regions of the United States.
• DOW -40.73
• Dollar +.39c to 95.76cUS
• Oil +$2.39 to $74.38US per barrel.
• Gold -$15.60 to $1,228.80 USD per ounce “With confidence in paper currency systems badly shaken in the financial crisis, gold, it seems, is reasserting its old role as the ultimate debt-free money,” according to a new report from UBS Wealth Management as the yellow metal ran to yet another record high above $1,250 per ounce earlier this week . “We think that the price of gold has yet further to rise.” In its note to clients, the UBS analysts said gold has re-established its role as “safe haven” and should hit US$1,500 an ounce in 12 months’ time
Wells Fargo closes outlets in Canada
Barbara Shecter, Financial Post • Wednesday, Jun. 9, 2010
Wells Fargo Financial Corp. Canada is closing its outlets across the country and will no longer make customer loans, but will maintain existing real estate, auto and consumer loan accounts.
“In response to recent analysis of our operations, we have made the decision to stop originating consumer loan products in Canada,” the company said in a statement to customers on its website, which states that Wells Fargo has 130 stores across Canada.
The company is also suspending originations in its private-label credit card business.
Wells Fargo & Co., one of the largest banks in the United States, began to withdraw consumer lending from Canada in 2008 at the height of the financial and economic crisis. In November 2008, it decided to exit the indirect auto-lending business. Then, last July, Wells Fargo stopped offering residential mortgages and home-equity loans in Canada.
Wells Fargo Financial was the largest of the company’s five business lines in Canada, with total consumer receivables of $1.9-billion at the end of April.
Wells Fargo and other U.S. lenders such as General Electric Co. thrived in Canada before the financial crisis. The companies loaned money to consumers and home buyers, including those who may not have qualified for loans from Canadian banks.
Canada’s financial services sector is dominated by the domestic chartered banks and while foreign players have managed to get a toehold in the country, history has been marked by dramatic entrances followed by often quiet retreats.
According to the Wells Fargo website, the company has been providing financial products and services to Canadians for more than 60 years.
Some operations will remain in Canada, including a building in suburban Toronto to administer existing loans and mortgages.
“There will be no change to our customers’ existing account terms and conditions,” said Rick Valade, president of Well Fargo Financial Corp. Canada. “We still have more than 450 team members based in Canada available to support and service existing customers.”
Business loan operations will continue through division under the umbrella of parent company Wells Fargo & Co., such as Wells Fargo Equipment Finance Inc., and Wells Fargo Global Broker Network, an insurance brokering and risk management services company.
In April, Wells Fargo & Co., which has combined assets of US$57-billion, merged its asset lending businesses in Canada with similar operations acquired through its purchase of Wachovia Crop. in 2008. The combined operations operate under the name Wells Fargo Capital Finance.
Read more: http://www.financialpost.com/news/Wells+Fargo+closes+outlets+Canada/3133005/story.html#ixzz0qRuvrRe7
Bank and investment dealer complaints hit record high BY DAVID FRIEND
TORONTO — More complaints were filed by consumers against Canada’s financial industry last year than ever recorded before, as tumbling stock markets left some customers caught in disputes with their financial advisers.
The Ombudsman for Banking Services and Investments reported Wednesday that it opened 990 cases in 2009, a 48 per cent increase over the previous year.
The national organization also processed more than 12,400 individual inquiries from consumers and small businesses in 2009.
Ombudsman Douglas Melville said a growing number of filings have been made against the investment industry in recent years, and that 2009 was no exception.
“The global economic crisis, coupled with sharp declines in financial markets, gave rise to much of the increase in complaints we saw,” Melville said.
“However, despite the improvement in the markets over the last year, complaint volumes remain high. We expect this to continue.”
Last year, 599 of the cases were related to the investment industry, an increase of 71 per cent, while 391 were banking cases, an increase of 21 per cent.
Melville said that banking complaints often involved mortgage prepayment penalties, lines of credit and fraud.
“On the investment side, the vast majority of cases were related to the suitability of investment advice,” Melville said.
“Investment advisers need to fulfil their ‘know your client’ obligations as well as explain the risks and characteristics of the products they are recommending.”
The ombud said that 28 per cent of cases reviewed last year received compensation, with 20 per cent of banking complaints compensated and 35 per cent of investment complaints.
In response to the findings, the Canadian Bankers Association said that the 391 banking cases examined by the ombud represent about one in every one-hundred thousand transactions that are made at Canadian banks each year.
“With such a huge volume of transactions, mistakes can sometimes happen and we want to make things right,” said CBA spokesperson Maura Drew-Lytle in an email.
“But there are also many cases where a customer is unhappy with a situation and escalates their complaint when the bank was within its rights.”
Drew-Lytle said banking customers can also use a free complaint-handling system designed to resolve consumer complaints, before filing a complaint outside the banking industry.
The ombudsman’s office can investigate complaints from clients of financial institutions, including banks, investment dealers, trust companies, mutual fund dealers, credit unions and scholarship trust plans. Its services are free to consumers, and it can recommend compensation of up to $350,000 http://news.therecord.com/Business/article/725762
Europe’s debt crisis could undermine economic recovery, says World Bank THE CANADIAN PRESS OTTAWA — The World Bank is warning that the European debt crisis could derail the global economic recovery.
In its latest global economic prospects report, released Wednesday, the bank says Europe’s debt problems have created new hurdles on the road to sustainable medium-term growth.
Greece, Spain, Britain and other European countries face huge government debts and are moving to cut spending in a bid to balance their books and get their costs under control.
Many fear the cuts will slow growth in Europe and undermine the fragile recovery from recession now going on in many countries.
The World Bank predicts the global economy will grow between 2.9 and 3.3 per cent this year and next, and between 3.2 and 3.5 per cent in 2012. That would reverse a 2.1 per cent decline in 2009.
The bank says developing economies are expected to grow between 5.7 and 6.2 per cent each year from 2010-2012.
Meanwhile, high-income countries are projected to grow by between 2.1 and 2.3 per cent in 2010 — not enough to undo the 3.3 per cent contraction in 2009. In 2010, those countries could grow by between 1.9 per cent and 2.4 per cent.
“The better performance of developing countries in today’s world of multi-polar growth is reassuring,” Justin Yifu Lin, the World Bank’s chief economist, said in the report.
“But, for the rebound to endure, high-income countries need to seize opportunities offered by stronger growth in developing countries.”
The World Bank says the global recovery faces several important headwinds over the medium term, including reduced international capital flows, high unemployment, and spare economic capacity exceeding 10 per cent in many countries.
While the impact of the European debt crisis has so far been contained, prolonged rising government debt could make credit more expensive and curtail investment and growth in developing countries, the financial agency warns.
On the upside, world merchandise trade has rebounded sharply and is expected to increase by about 21 per cent this year, before growth rates taper down to around eight per cent in 2011-2012.
The World Bank’s projections assume that efforts by the IMF and European institutions will stave off a default or major European government debt restructuring.
But even so, developing countries and regions with close trade and financial connections to highly indebted countries may feel serious ripple effects.
“Demand stimulus in high-income countries is increasingly part of the problem instead of the solution,” said Hans Timmer, director of the Prospects Group at the World Bank.
“A more rapid reining in of spending could reduce borrowing costs and boost growth in both high-income and developing countries in the longer run.”
Regardless of how the debt situation in high-income Europe evolves, a second round financial crisis cannot be ruled out in certain countries of developing Europe and Central Asia, where high debts and slow recovery could threaten the banking sector.
“Developing countries are not immune to the effects of a high-income sovereign debt crisis,” said Andrew Burns, manager of global macro-economics at the World Bank.
“But we expect many economies to continue to do well if they focus on growth strategies, make it easier to do business, or make spending more efficient.” http://news.therecord.com/Business/article/725712
Have a great day!
• DOW -40.73
• Dollar +.39c to 95.76cUS
• Oil +$2.39 to $74.38US per barrel.
• Gold -$15.60 to $1,228.80 USD per ounce “With confidence in paper currency systems badly shaken in the financial crisis, gold, it seems, is reasserting its old role as the ultimate debt-free money,” according to a new report from UBS Wealth Management as the yellow metal ran to yet another record high above $1,250 per ounce earlier this week . “We think that the price of gold has yet further to rise.” In its note to clients, the UBS analysts said gold has re-established its role as “safe haven” and should hit US$1,500 an ounce in 12 months’ time
Wells Fargo closes outlets in Canada
Barbara Shecter, Financial Post • Wednesday, Jun. 9, 2010
Wells Fargo Financial Corp. Canada is closing its outlets across the country and will no longer make customer loans, but will maintain existing real estate, auto and consumer loan accounts.
“In response to recent analysis of our operations, we have made the decision to stop originating consumer loan products in Canada,” the company said in a statement to customers on its website, which states that Wells Fargo has 130 stores across Canada.
The company is also suspending originations in its private-label credit card business.
Wells Fargo & Co., one of the largest banks in the United States, began to withdraw consumer lending from Canada in 2008 at the height of the financial and economic crisis. In November 2008, it decided to exit the indirect auto-lending business. Then, last July, Wells Fargo stopped offering residential mortgages and home-equity loans in Canada.
Wells Fargo Financial was the largest of the company’s five business lines in Canada, with total consumer receivables of $1.9-billion at the end of April.
Wells Fargo and other U.S. lenders such as General Electric Co. thrived in Canada before the financial crisis. The companies loaned money to consumers and home buyers, including those who may not have qualified for loans from Canadian banks.
Canada’s financial services sector is dominated by the domestic chartered banks and while foreign players have managed to get a toehold in the country, history has been marked by dramatic entrances followed by often quiet retreats.
According to the Wells Fargo website, the company has been providing financial products and services to Canadians for more than 60 years.
Some operations will remain in Canada, including a building in suburban Toronto to administer existing loans and mortgages.
“There will be no change to our customers’ existing account terms and conditions,” said Rick Valade, president of Well Fargo Financial Corp. Canada. “We still have more than 450 team members based in Canada available to support and service existing customers.”
Business loan operations will continue through division under the umbrella of parent company Wells Fargo & Co., such as Wells Fargo Equipment Finance Inc., and Wells Fargo Global Broker Network, an insurance brokering and risk management services company.
In April, Wells Fargo & Co., which has combined assets of US$57-billion, merged its asset lending businesses in Canada with similar operations acquired through its purchase of Wachovia Crop. in 2008. The combined operations operate under the name Wells Fargo Capital Finance.
Read more: http://www.financialpost.com/news/Wells+Fargo+closes+outlets+Canada/3133005/story.html#ixzz0qRuvrRe7
Bank and investment dealer complaints hit record high BY DAVID FRIEND
TORONTO — More complaints were filed by consumers against Canada’s financial industry last year than ever recorded before, as tumbling stock markets left some customers caught in disputes with their financial advisers.
The Ombudsman for Banking Services and Investments reported Wednesday that it opened 990 cases in 2009, a 48 per cent increase over the previous year.
The national organization also processed more than 12,400 individual inquiries from consumers and small businesses in 2009.
Ombudsman Douglas Melville said a growing number of filings have been made against the investment industry in recent years, and that 2009 was no exception.
“The global economic crisis, coupled with sharp declines in financial markets, gave rise to much of the increase in complaints we saw,” Melville said.
“However, despite the improvement in the markets over the last year, complaint volumes remain high. We expect this to continue.”
Last year, 599 of the cases were related to the investment industry, an increase of 71 per cent, while 391 were banking cases, an increase of 21 per cent.
Melville said that banking complaints often involved mortgage prepayment penalties, lines of credit and fraud.
“On the investment side, the vast majority of cases were related to the suitability of investment advice,” Melville said.
“Investment advisers need to fulfil their ‘know your client’ obligations as well as explain the risks and characteristics of the products they are recommending.”
The ombud said that 28 per cent of cases reviewed last year received compensation, with 20 per cent of banking complaints compensated and 35 per cent of investment complaints.
In response to the findings, the Canadian Bankers Association said that the 391 banking cases examined by the ombud represent about one in every one-hundred thousand transactions that are made at Canadian banks each year.
“With such a huge volume of transactions, mistakes can sometimes happen and we want to make things right,” said CBA spokesperson Maura Drew-Lytle in an email.
“But there are also many cases where a customer is unhappy with a situation and escalates their complaint when the bank was within its rights.”
Drew-Lytle said banking customers can also use a free complaint-handling system designed to resolve consumer complaints, before filing a complaint outside the banking industry.
The ombudsman’s office can investigate complaints from clients of financial institutions, including banks, investment dealers, trust companies, mutual fund dealers, credit unions and scholarship trust plans. Its services are free to consumers, and it can recommend compensation of up to $350,000 http://news.therecord.com/Business/article/725762
Europe’s debt crisis could undermine economic recovery, says World Bank THE CANADIAN PRESS OTTAWA — The World Bank is warning that the European debt crisis could derail the global economic recovery.
In its latest global economic prospects report, released Wednesday, the bank says Europe’s debt problems have created new hurdles on the road to sustainable medium-term growth.
Greece, Spain, Britain and other European countries face huge government debts and are moving to cut spending in a bid to balance their books and get their costs under control.
Many fear the cuts will slow growth in Europe and undermine the fragile recovery from recession now going on in many countries.
The World Bank predicts the global economy will grow between 2.9 and 3.3 per cent this year and next, and between 3.2 and 3.5 per cent in 2012. That would reverse a 2.1 per cent decline in 2009.
The bank says developing economies are expected to grow between 5.7 and 6.2 per cent each year from 2010-2012.
Meanwhile, high-income countries are projected to grow by between 2.1 and 2.3 per cent in 2010 — not enough to undo the 3.3 per cent contraction in 2009. In 2010, those countries could grow by between 1.9 per cent and 2.4 per cent.
“The better performance of developing countries in today’s world of multi-polar growth is reassuring,” Justin Yifu Lin, the World Bank’s chief economist, said in the report.
“But, for the rebound to endure, high-income countries need to seize opportunities offered by stronger growth in developing countries.”
The World Bank says the global recovery faces several important headwinds over the medium term, including reduced international capital flows, high unemployment, and spare economic capacity exceeding 10 per cent in many countries.
While the impact of the European debt crisis has so far been contained, prolonged rising government debt could make credit more expensive and curtail investment and growth in developing countries, the financial agency warns.
On the upside, world merchandise trade has rebounded sharply and is expected to increase by about 21 per cent this year, before growth rates taper down to around eight per cent in 2011-2012.
The World Bank’s projections assume that efforts by the IMF and European institutions will stave off a default or major European government debt restructuring.
But even so, developing countries and regions with close trade and financial connections to highly indebted countries may feel serious ripple effects.
“Demand stimulus in high-income countries is increasingly part of the problem instead of the solution,” said Hans Timmer, director of the Prospects Group at the World Bank.
“A more rapid reining in of spending could reduce borrowing costs and boost growth in both high-income and developing countries in the longer run.”
Regardless of how the debt situation in high-income Europe evolves, a second round financial crisis cannot be ruled out in certain countries of developing Europe and Central Asia, where high debts and slow recovery could threaten the banking sector.
“Developing countries are not immune to the effects of a high-income sovereign debt crisis,” said Andrew Burns, manager of global macro-economics at the World Bank.
“But we expect many economies to continue to do well if they focus on growth strategies, make it easier to do business, or make spending more efficient.” http://news.therecord.com/Business/article/725712
Have a great day!
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