Some of you, like me, may be pleased to note that the 5-year Canada Government Bond closed at 2.495% earlier this afternoon, an increase of 3.02%.  In fact bond yields have been rising since mid-October, when the second round of quantitative easing (QE2 – No Virginia, that is not a ship) was implemented by the US Fed.  So, hopefully the market is starting to head back to normal, and everyone will benefit.

For many of you who have been following my blog, you may recall I am a contrarian on interest rates.  In my opinion, the current low rates are distorting the market, give rise to volatility and low return expectations (low opportunity costs – wondering why investments by firms have been so lack luster and job creations have been so low).  Apparently, there is also an excess demand on money problem, which has not occurred to me (being an amateur, of course).

Why should we Canadians care about this QE2 business in the US?  Because of the proverbial elephant next door, that’s why!  What happens in the US will happen to us.

I would like to summarize a recent article on the Wall Street Pit titled “Rising yield is a good sign” by David Beckworth (Assistant Professor of Economics) of Texas State:
Rising Yields is a Good Sign

Buying or selling a house is a big deal.  Most people thus seek expert advice and assistance.  That advice comes mainly from real estate agents, who are represented by the Canadian Real Estate Association (CREA).  Until now, however, the system has been designed to serve agents, and the brokers who employ them, at the expense of consumers.  Studies suggest that the excess charges extorted by the industry may run into the billions.

This system has now — in theory — been broken up by an agreement between CREA and the Competition Bureau, which was approved by members of CREA over the weekend.  The 10-year settlement follows three years of discussions and several months of “intensive negotiations.”  CREA fought tooth and nail to keep its tight grip on fees, and tried to insert a weasel clause under which individual real estate boards might be able to pull out of any deal.  However, the two sides eventually reached an agreement in principle that, according to the bureau, “fully resolved the commissioner’s concerns.”
CREA fought tooth and nail to keep its tight grip on fees

Today, the Scotia Bank released its latest Economic Special Report.  See below.  It’s worth a read.  However, I think the report is unduly optimistic.  Read between the lines in the section on Households.  I am not that reassured.  I think Canadian households will have to continue to trim back in order to handle interest rates that must return to normal, i.e. perhaps 50% higher than they are now, sooner, rather than later.  That is certain.   Unemployment will likely remain high and wages will not keep pace.  I will not be surprised that this inevitable reduction in consumer demand will last a good decade.

Scotia Economics Special Report: Canada’s Balance Sheet & Economic Advantages Mitigate Household Debt Risks

TORONTO, Nov. 4 /CNW/ – After witnessing the experiences of other countries during the global credit crisis, and living through the painful deleveraging here in the 1990s, Canadians are very cognizant of the dangers of excessive debt leverage, according to a special report released today by Scotia Economics, entitled Canada’s Balance Sheet & Economic Advantages Mitigate Household Debt Risks.
There is understandable concern about the rapid rise in borrowing

Here is the summary of the latest Market Insight from the CIBC:

Not surprisingly, the Canadian recovery didn’t play out as advertised.  While we did see a spike late last year and early 2010, the momentum has faded lately, largely as a result of a strong C$ and a softening US economy.  Growth in the second half of the year will be only a fraction of the Bank of Canada’s July Monetary Policy Report forecast.  Early 2011 doesn’t look promising either, which should prompt major revisions in October’s MPR, forcing the Bank of Canada to defer further tightening.  Our pared-down outlook for the Canadian economy comes partly as a result of the downbeat export picture.
... more on the Canadian Economy & Interest Rate Outlook for 2010/2011

I had an exceptional experience yesterday.  I shared lunch with a centenarian.  Actually a group of us celebrated his 100th birthday with him here in Victoria, BC.  I can’t tell you who he is because of privacy concerns, but I can tell you he looked wonderful.  He stood ramrod straight and was able to tell us his life experiences without skipping a bit – on his feet for 15 minutes yet!  What is his secret?  Well I don’t know.  But I know he is still actively doing volunteer work at a hospital.  Perhaps that is the real story.  If you want to stay young and healthy forever, you must stay engaged.  You have to keep doing something useful and meaningful.  I really don’t think you can live a healthy life in your later years by just playing golf.  Unless you are a pro golfer perhaps.

This birthday boy has outlived two wifes.  Is it nature or nurture? Or both?

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The Bank of Canada may raise its rate by another 0.25% again tomorrow.  Apparently, it is only a 50/50 chance because the economy is now stuck in neutral, although the possibility of a double dip is not out of the question, but unlikely.  Below is the most current charts for a comparison of fixed and variable rates in Canada for the last 25 years courtesy of FirstLine Mortgages, a division of CIBC Mortgages Inc.

Although fixed mortgage rates have been dropping in recent days (you may be able to get a 5-yr fixed rate at less than 3.5% for a 30-day quick closing), you should still be cautious if you are a first time home buyer with no more that 5 to 10% down payment.  Why? Because the trend for mortgage rates is still up.  In 5 years’ time,  if rates are close to double what they are now, can you still afford that mortgage?

My advice is: if you really want to buy that dream home, see if you can qualify for a variable rate mortgage.  If you can, that means you pass the stress test with the BoC benchmark rate (currently at 5.39%).  So why wouldn’t you take advantage of lower variable rates?

New Regulations for HELOCs and Mortgages

The Department of Finance (DoF) put new credit card regulations in force yesterday. A few of the rules also apply to HELOCs and mortgages.  The DoF says the new regulations are designed to “ensure that consumers have access to credit on terms that are fair and transparent.”  The following regulations will now apply to secured (HELOC) and unsecured lines of credit:

• A prominent summary box must now appear on contracts, disclosing all material fees, rates, etc.
• New restrictions now apply to debt collection practices (for example, lenders can no longer hound delinquent borrowers after certain times of the day)
• All credit disclosures must be made in language that is “clear, simple and not misleading”
• New rules now specify when statements and rate change notices must be sent to consumers

Here are the details.
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Here I go again, talking about credit rating.  Why?  Because it is critical for you to get the financing you need in the first place and the best deal available in the second.  For those of you who have credit challenges, you may want to pay some attention to this blog.

No matter what your future needs may be, a new home, a new car, a new business, your credit will be a determining factor in your progress towards that goal. If you feel just a little insecure about your credit history, you should know that you don’t always have to feel that way. You have the option to make improve your credit.
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My mom opened a savings account for me when I turned 13.  Every week she would make sure I put money in it.  I wonder why more moms are not doing that these days?  Saving is a habit.  Just like spending.

A report from BMO Retirement Institute to be released today says that although 90% believe retirement planning should begin before age 35, 40% of non-retirees concede they’ve done no retirement planning at all.  The amusing title of the report is Retirement Planning: Can get back to you on that?

Strategic Counsel looked at behavioural finance research and found some psychological disconnects that prevent Canadians from properly saving.  Many suffer from paralysis of choice and succumb to immediate gratification.  That is, they procrastinate because they place less value on a future reward than they do to a benefit in the present: while 82% thought it was important to start early in saving for retirement, 81% who had saved nothing said they were more concerned about current needs.
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