U.S. Federal Reserve tapers bond-buying to $75B US a month – Tapering of bond-buying program indicates central bank believes U.S. economy is recovering

The U.S. Federal Reserve has decided to taper its bond-buying program by $10 billion US a month, beginning in January.  As Ben Bernanke prepares to step down as chair of the powerful U.S. central bank, the Fed voted Wednesday to reduce its monthly bond-buying program from $85 billion to $75 billion a month, posted online by the CBC News yesterday morning. ‘Beginning in January, the committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term treasury securities at a pace of $40 billion per month rather than $45 billion per month,’ it said in a statement.  The move came as a surprise to investors, who did not expect the Fed to taper its stimulus in Bernanke’s final month in office. Markets surged on the news with the Dow up 200 points in the half hour after the announcement.  It was at an all-time high at the end of the day, up 292 points at 16,167. The bond purchases are intended to keep long-term loan rates low to spur economic growth, and Bernanke in his news conference noted that the Fed continues a high rate of stimulus and continues to build a large portfolio of U.S. bonds, now amounting to about $4 trillion.  He said there would be ‘further measured steps at future meetings’ to reduce the amount of bonds the Fed buys each month, likely throughout 2014.  The Fed has been closely watching economic indicators, including the unemployment rate, which is at a five-year low of seven per cent.  ‘Recent economic indicators have increased our confidence that the job gains of the past quarter will continue,’ Bernanke said. Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

Finance Minister Jim Flaherty says; “Can’t tie the hands of future governments”

  Wes Sheridan is still surprised. No, make that perplexed. You can hear it in the PEI finance minister’s voice on the day after the federal government’s abrupt decision to shelve all the work that’s been done on CPP reform.  ‘We had full consensus from 10 provinces and three territories to continue work on enhancing the Canadian Pension Plan, and the feds just shut it down,’ Sheridan said Tuesday. ‘That’s never happened in the past.’  Never might be a stretch. But it has taken a few years — seven in fact — for federal-provincial relations to revert back to the barely concealed hostility Canadians had come to expect whenever the two levels of government met, reported Chris Hall of the CBC News early yesterday evening. Just three years ago Jim Flaherty agreed to consider a modest, mandatory increase in CPP premiums to pay for higher retirement benefits in the future. Federal-provincial officials have been working out the exact details ever since.  To do nothing, Flaherty said back then, condemned some Canadians to a retirement without enough money to take care of themselves.  This week, however, a different story altogether from the federal finance minister after meeting again with his provincial counterparts.  He spoke about having had ‘frank discussions’ on CPP reform. Which everyone familiar with Ottawa-speak knows means no progress or agreement, let alone any consensus. Flaherty’s no longer taking the proactive approach he preached back in 2010.  His official position on CPP reform after Monday’s one hour discussion is: Not now, perhaps not ever. Years  anyway. Don’t ask. Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

The Volcker Rule: Banks have reason to be apprehensive

“Wall Street is preparing to swallow a bitter pill as the U.S. government finalizes a last dose of medicine for the banking industry to ward off a future financial crisis reported Joanna Slater of the Globe and Mail.” “After nearly four years of negotiations, U.S. regulators are expected on Tuesday to approve a definitive version of a contentious rule to curb risk-taking by banks.  Known as the Volcker Rule, the measure forbids banks from engaging in trading solely for their own profit.  Defining the limits of proprietary trading has proven a slippery endeavour.  Ever since the United States passed a financial-reform law in 2010, regulators and the banking industry have sparred about what should and should not be allowed. The final version of the rule marks the conclusion of that battle – and will indicate which side gained the upper hand.” “Tuesday is ‘as big a day as there will be’ in the journey to reform the banking industry after the financial crisis, said H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP in New York who is considered the dean of Wall Street lawyers. ‘This is a rule geared obviously at the big trading banks and has enormous ramifications.’  Mr. Cohen said that among his clients, ‘There’s trepidation as to substance, but there is also concern about error’ given the complexity and length of the rule (together with a preamble, it is reportedly close to 1,000 pages).” Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

Nobel laureate and human rights campaigner spent 27 years in prison


“Nelson Mandela, the anti-apartheid icon who became the first president of a democratic South Africa, passed away Thursday at his home in Johannesburg after a prolonged lung infection. He was 95.  South African President Jacob Zuma announced that Mandela, ‘the founding president of our democratic nation, has departed,’ adding that he ‘passed on peacefully'”, the CBC News posted online late yesterday afternoon. “‘Our nation has lost its greatest son. Our people have lost a father,’ Zuma said.  ‘Our thoughts are with the millions of people who embraced Mandela as their own and who saw his cause as their cause.… This is the moment of our deepest sorrow.’  Mandela will be accorded a state funeral, Zuma said, and national flags will be lowered to half-mast.  ‘We saw in him what we seek in ourselves.  And in him we saw so much of ourselves,’ he said. ‘Nelson Mandela brought us together and it is together that we will bid him farewell.’ Read the full article here. |Raymond Matt CFP, CLU, TEP, CHS

Bank of Canada keeps interest rate at 1%

“The Bank of Canada kept its benchmark interest rate at one per cent on Wednesday.  That’s the rate on which other retail banks base their rates for savers and borrowers.  The rate, known as the target for the overnight rate, sets the terms at which banks can borrow from the central bank and each other for short-term loans”, posted online by the CBC News yesterday morning. “The rate has been at that level for more than three years, dating back to September 2010. The bank meets every six weeks to decide on interest rates, and has now decided to leave the rate unchanged for 26 consecutive meetings — its longest stretch of inaction ever. Broadly, the bank lowers the rate when it wants to stimulate the economy, and raises it when it wants to slow down growth.  ‘The Bank continues to expect a soft landing in the housing market,’ the bank said in a statement announcing its decision. ‘The downside risks to inflation appear to be greater,’ it added.  The language of the statement is a sign the central bank is leading toward cutting rates, not raising them.” Read the full article here. | Raymond Matt CFP, CLU, TEP, CHS

EXCLUSIVE| Jim Love, Canadian Mint chairman, helped run offshore ‘tax-avoidance scheme’ for clients

“The chair of the Royal Canadian Mint, who also served as an adviser on international taxation to the federal Finance Department, helped engineer the transfer of millions of dollars of a prominent Canadian family through offshore tax havens in what others involved characterized as a ‘tax avoidance scheme,’ documents obtained by CBC News show.” Zach Dubinsky, Nicole Reinert, Sophia Harris, and Harvey Cashore of the CBC News reported last night that “slightly more than $8 million was moved through offshore entities in Bermuda, Barbados and Antigua, later prompting allegations that the arrangement, if exposed, could lead to potentially hundreds of thousands of dollars in ‘taxes, interest and penalties.’ The documents show there were also concerns about secrecy and instructions to shred files.” “The hundreds of records are part of a sprawling lawsuit against James Barton Love, a Toronto tax lawyer who chairs the mint’s board of directors, and others by descendants of former prime minister Arthur Meighen. Quietly settled in 2011, the lawsuit saw family members allege that the offshore transactions, which began in 1996, were unlawful and negligent and that Love ‘breached his fiduciary duties and acted oppressively.'” “Love countered in sworn statements that the offshore manoeuvres ‘resulted in significant savings of Canadian tax’ for Meighen’s heirs — an amount he estimated at $1 million.  He also emphatically denied any breach of trust and said he had ‘specifically advised’ there were risks to the offshore arrangement.  None of the allegations was ever tested in court.” Read the full article here.   | Raymond Matt, CFP, CLU, TEP, CHS

Survey finds Canadians carry more debt; but pay it off

“Canadians are carrying more debt now than a year ago, but it seems like many have a better handle on paying it back, says a newly-released study.  Statistics from credit monitoring firm Equifax Canada show that consumer debt, excluding mortgages, rose 3.7 per cent in the third quarter to $507.1 billion from $489 billion a year earlier, posted The Canadian Press on the Cbc’s website early yesterday morning.” “Despite the increase in debt load, however, the overall delinquency rate — bills more than 90 days past due — dropped to a record low of 1.13 per cent in the three months ended Sept. 20. That was down from 1.22 per cent in the same period last year.  ‘People are gaining confidence and they see they can maintain more or less their lifestyle yet are more aware of the financial choices they’re making,’ said Regina Malina, director of modelling and analytics at Equifax.” “Meanwhile, overall consumer debt, including mortgages, continues to grow. In the third quarter, Canadians owed $1.36 trillion, up from $1.3 trillion a year earlier.  Malina said the data shows that Canadians have more control over their debt — from car loans to credit card purchases — even though debt levels have continued to increase over the past few quarters.  ‘It’s not like we can relax and not pay attention to the pattern because delinquency is low, but the conclusion is that consumers have learned to behave more responsibly,’ she said.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

Not everyone sees a housing bubble; Flaherty may be keen to intervene

 “The doomsayers of the Canadian housing market got a fresh round of ammunition this week.  First, the Organization of Economic Co-operation and Development warned of the risk of a ‘disorderly correction’ in the Canadian real estate market. Then the credit-rating firm Fitch Ratings said the country’s residential prices are overvalued by 21 per cent. Homes in British Columbia, Ontario and Quebec, where prices are apparently inflated by a whopping 27 per cent, are viewed as the most vulnerable to a correction, reported Sophie Cousineau of The Globe and Mail on Friday, November 22nd, 2013.”

 “The news made for striking graphics: Growing condo towers evoked overstretched homeowners and tottering housing markets. It’s actually surprising ‘for sale’ signs didn’t spring up all over, turning the latest headlines into a self-fulfilling prophecy. (Mind you, this might still happen.)  And so it is that bubble talk is fizzing once more in Vancouver, Calgary and Toronto. But as bubbles are only recognized as such after they burst, you can never be certain they exist until it’s too late.”  “If there are experts in bubble spotting, then surely Robert Shiller, the U.S. economist who foresaw the tech bubble of 2000 and the American housing collapse, is one of them. But even the author of Irrational Exuberancedoesn’t venture that far where Canada’s housing is concerned.  ‘Toronto prices keep going up. They have increased almost as much as New York prices ever did,’ the Nobel-prize winner told a crowd of chartered financial analysts in Montreal two weeks ago. He went on to compare prices in Canada and the United States with graphs that support his view of troubling signs of ebullience in Canada. Yet, when asked point blank, the Yale professor stopped short of calling it a bubble – unlike the prediction he made in September in Brazil about that country’s housing market, which did not sit well with Brazilians.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS  

Starting July 1, banks must look for markers that identify accounts belonging to Americans

“Starting next July, Canadian banks will be required to ask anyone opening a new account if they are now, or ever have been, an American ‘person’.  It comes at the behest of the U.S. government and its efforts to ‘smoke out’ tax dodgers.  The Foreign Accounts Tax Compliance Act, or FATCA, was passed by the U.S. Congress in 2010 and comes into force July 1, 2014”, wrote James Fitz-Morris of the CBC News, early this morning. “The law forces all banks and other financial institutions outside the U.S. to search for customers who have certain ‘indicia’. Those are markers that show the person may be a U.S. citizen or a former permanent resident who, under U.S. law, must file income tax returns to Uncle Sam no matter where they reside in the world.  The only other country with similar tax rules for expats is Eritrea. When announcing the law, U.S. President Barack Obama said,’if financial institutions won’t cooperate with us, we will assume they are sheltering money in tax-havens and act accordingly’.  ‘The threat is a withholding tax of 30 per cent levied on every transaction a non-compliant bank has coming from, or even passing through, the U.S.  Bottom line is: there is absolutely no way that a large, modern financial institution like a Canadian bank or a large credit union could escape FATCA,’ says Marion Wrobel, vice-president of policy and operations at the Canadian Bankers Association (CBA).” “Wrobel says his organization has been fighting FATCA since it was announced, calling it the ‘extra-territorial’ application of American law.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

Yellen Defends QE as Economic Benefit in Letter to Senator

“Janet Yellen, the nominee for Federal Reserve chairman, defended the central bank’s bond purchases in a letter to a U.S. senator, saying they boosted economic growth and provide benefits that exceed the risks.  ‘By putting downward pressure on longer-term interest rates and helping to make financial conditions more accommodative, the Federal Reserve’s asset purchases have supported a stronger economic recovery, improved labor-market conditions and helped keep inflation closer to its 2 percent objective,’ Yellen said in a Nov. 18 response to questions from Senator David Vitter, a Republican from Louisiana.” “In a separate letter to Senator Elizabeth Warren, Yellen said ‘monetary policy is likely to remain highly accommodative for a long time,’ even after the Fed reaches thresholds for considering an increase in the main interest rate.  Yellen, at a Nov. 14 confirmation hearing, told the Senate Banking Committee she’s committed to promoting a strong recovery, reducing 7.3 percent unemployment and ensuring stimulus isn’t removed too soon. The Fed has held the main interest rate near zero since December 2008 and pumped up its balance sheet to a record $3.91 trillion through bond purchases.” “Yellen said in her Nov. 18 letter to Warren that the Federal Open Market Committee’s pledge to keep the main interest rate exceptionally low as long as the unemployment rate exceeds 6.5 percent should be considered a threshold, not a trigger for action.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

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