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Apr 27.07
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Macroeconomics
/ by Ro Econ
The Bank of Canada released its April Monetary Policy Report, which discusses current economic and financial trends in the context of Canada's inflation-control strategy.
Growth of the Canadian economy has been essentially in line with the Bank's expectations as set out in the January Monetary Policy Report Update. But inflation has been higher than expected. After considering the full range of indicators, the Bank now judges that the Canadian economy was operating just above its production capacity in the first quarter of this year.
Over the projection horizon, domestic demand continues to be the main driver of growth in Canada. With the U.S. slowdown now expected to be somewhat more prolonged than previously projected, net exports should exert a slightly greater drag on growth in 2007. The Canadian economy is projected to grow by 2.2 per cent in 2007 and 2.7 per cent in both 2008 and 2009, returning to its production capacity in the second half of 2007 and remaining there through 2008 and 2009.
More on this report here at the Bank of Canada.
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Apr 27.07
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Finance
/ by Ro Econ
Fidelity launched six new Fidelity Managed Portfolios representing a combination of equities and fixed income securities, providing full diversification across asset classes, geography and sectors. The portfolios are available to financial advisors and investors on April 18, 2007.
All of the Fidelity Managed Portfolios invest in a mix of Canadian, U.S.and international equities and bonds including global real estate. There are six portfolios that meet the full range of investors' needs, risk tolerances and investment criteria.
For investors looking for income solutions Continue reading this article »
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Apr 25.07
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Personal Finances
/ by Ro Econ
For almost a century Canadians have been paying personal income tax. Personal tax was started as a means of financing World War 1. Since then Canadians have been deferring (two thumbs up) evading or avoiding(big red X) paying income tax.
One step to ensure that an income earner pays no more tax than he or she must is to understand there is an essential difference between a deduction and a credit.
Canadians also need to learn that getting a large tax refund year after year is not the best idea. Apparently that is a hard lesson to learn because at present there are millions of dollars of unclaimed refunds according to the Canada Revenue Agency. We can be assured that the owners of those refunds are NOT the same people who complain about the government.
Only 50% of a capital gain is subject to tax. But don’t write this in stone or even felt pen. One certainty about taxes is that little ever stays the same. It is a game of moving numbers!
If you are your own boss you must pay both employer and employee portions of the Canada Pension Plan. As of 2006 that was 9.9% up to a maximum of $3821.40.
So let’s try to pin down those tax numbers.
1. State all sources of income for the year. In the past most people only dealt with employment income. Today there are contractors, small business owners, and investors. Some types of income such as capital gains and dividends are more favorably taxed. If you are self employed you can deduct certain expenses incurred to earn income.
2. Take advantage of every available deduction. Why? Deductions reduce income and when income is reduced there will be less tax charged. It is possible to have enough deductions to put your income in a lower tax bracket. For example:
- Austen P. from the US is an actor who was offered a role in an Alberta made movie. He moved here with his 8 year old daughter. It cost him $4000 to move here. He pays child care expenses of $200/ month. His union dues are $80/ month.
- In 2006 Carl earned $45,000. He is able to subtract $4000 + $2400 + 960 from his income of $45,000. After those 3 deductions his net income is $37,640. He calculates that if he does a $2000 RRSP contribution he will reduce his income below $36,378 the upper end of the first tax bracket.( remember the brackets will be different for 2007).
3. Tax credits reduce tax owing. Credits are only useful if you make enough money to owe tax. Only 15.25%(another moving number) of a credit is used to offset tax owing. Remember a credit can only be used to reduce tax owing to zero. Often times the credit is subject to certain limits. For example medical expenses can be a tax credit only if they exceed 3% of net income up to a limit of $1884.
- Roxanne is employed by Red Dress Inc. In 2006 she purchased eyeglasses that cost her $585 and 10 massage sessions that cost $600.Neither is covered by a health plan. Her net income was $41,000. Therefore if her medical expenses exceed $1230 she can claim the excess over that number. She thinks she is short until she remembers that she pays extended health care premiums of $70/month to equal $840. Thus the $795 over and above the $1230 is a tax credit. Remember that only 15.25% of the $795 will offset tax owing: $795 x $15.25% = $121 credit.
So let’s discuss the provisions for taxpayers in the last 2 federal budgets. Have they had any significant broadly accessible positive impact on taxpayers?
Let’s examine a few of the changes and who they might benefit.
1. The reduction of the GST. This will benefit consumers and businesses.
2. Increase by $1000 each of the age and pension credits. Retirees receiving pension income over a certain age will benefit.
3. Scholarships and bursaries do not have to be declared as income. Students get a break here.
Let’s do some number crunching on a couple other tax credits to see their TRUE impact on a taxpayer’s bottom line. That is all that matters is the number on the refund or balance owing line right?
Everyone who is an employee gets the employment tax credit. First of all correct me if I am wrong but I seem to remember that it was $500 back when it was just an idea of the Finance Minister’s. Never mind let’s take the $250 credit and multiply it by 15.25%. The answer is that your taxes will be reduced by $38.13. Does that make you feel better?
The public transit credit could be more significant. At $75/month for 12 months that equates to $900 spent on bus passes. $900 x 15.25% will recover $137.25 of taxes you’ve paid.
Here are some notable changes from the 2007 budget of the past few weeks:
- A $2000 tax credit for children under 18. Remember that equates to only a $310 tax savings. However it is transferable between spouses.
- Quarterly installments must now be remitted only when tax owing exceeds $3000.
- The capital gains exemption has now been increased to $750,000 a 50% increase.
- There is no minimum RRIF withdrawals for retirees age 70 and 71.
- The most interesting change is that now taxpayers can contribute to their RRSP for 2 more years until age 71. Most of my clients DO NOT want to be working when they are 71. The government really wants to encourage people to save for their retirement. One has to ask why.
The ever changing tax regime will ensure that accountants, financial planners, and tax preparers will field many questions in the years to come.
A necessary element of successful financial management involves advance tax planning. The best way to pay as little tax as legally possible is to give yourself a post Christmas present. One hour on December 27. Review your income, RRSP contributions, donations, and medical expenses for the year. That way come March 1 or April 30 you won’t be ripping out your hair. Unless of course you like stress! Doing your own tax return is very easy if you simply give yourself enough time.
Along with taxes here is a brief comment on the other inevitability of life. Everyone who has relationships and assets must have a will. The more relationships and assets you have the more your need for a will. If the task seems too daunting I can provide some very useful organizational tools to get you started. Also having named beneficiaries on assets such as life insurance policies and registered plans are a bare minimum. If you need even more motivation ask yourself these 2 questions:
1. Do you want government rules to determine how your estate is divided when you aren’t here?
2. Do you want to leave that decision making burden to your relatives?
Til the next time!
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Mar 26.07
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Insurance
/ by Ro Econ
Here's a funny trend, the majority of medical malpractice claims in seven states were closed without any compensation paid to those claiming a medical injury, the Justice Department's Bureau of Justice Statistics (BJS) reported. (Maybe it's cause people complain about the littlest things and sue for nothing.)
The study included suits from 2000 through 2004 in Florida, Illinois, Maine, Massachusetts, Missouri, Nevada and Texas. About 1/3 of the medical malpractice insurance claims closed in Maine, Missouri and Nevada resulted in a payout. In Illinois about 12 percent of closed claims ended in a payout.
Continue reading this article »
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Mar 19.07
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Insurance
/ by Ro Econ
Cut it out: Driving While Texting
Forget about drinking and driving and talking on your cell phone. The latest crazy in dumb driving involves texting for chat or email. Washington State Legislature is trying to respond by offering a bill that would make it a crime to "operate a motor vehicle while reading, writing or sending electronic messages."
In Oregon, pending bills would provide fines -- up to $720 in one of them -- for any driver caught texting or holding a cell phone to an ear. And in Arizona, a bill is pending that would make DWT a ticketable offense.
Lawmakers are being encouraged by insurance companies like Allstate, which has added an e-mail fanatic to its stable of "multitasker" safe-driving ads. The campaign shows the "dedicated investor," who is balancing a BlackBerry and the business section of a newspaper on the wheel while he navigates his sports car through stop-and-go traffic.
Although driving while talking on cell phones has gotten the most legislative attention, DWT is a natural transition. Connecticut, New York, New Jersey, California and the District of Columbia outlaw the use of handheld phones while driving, and 38 states are currently considering 133 bills that would regulate their use behind the wheel, according to the National Conference of State Legislatures.
Few driver distractions seem quite as frighteningly intrusive as attempting to read and type messages while weaving in traffic. The first reported incident of DWT may have been in Tennessee in 2005, when a man died while texting when he lost control of his pickup and plunged down an embankment. In Colorado that same year, a teenager served 10 days in jail after he struck and killed a bicyclist while texting a friend.
A study conducted by Nationwide Mutual Insurance that was released this year found that 19% of all drivers -- and 37% of drivers between the ages of 18 and 27 -- text message behind the wheel.
Sprint Nextel, which opposes legislation that would limit wireless devices in cars, has lobbyists who campaign to detract interest away from phones as distractions. The company has begun distributing a series of four posters to high schools around the country that highlight this strategy. One of the posters shows a burger and fries, while the others show a tube of mascara, a compact disc and a silver flip-top phone. The caption on the phone poster reads: "Cell Phone 4oz. Car 2,800 lbs. Taking the wheel is a ton of responsibility."
Some statistics show that wireless devices cause crashes. Indeed, there are few data suggesting that texting causes more wrecks than, say, fast food. A study conducted by the state of Washington in 2006 blamed "driver distractions" for 7.5% of the 50,000 reported accidents during the first nine months of that year.
Interestingly, police in Washington say not a day passes when they don't see a case of DWT, and that the statistics may not reflect the extent of the problem. Many wrecks have an undetermined cause, and DWT data rely on driver honesty. Current state law gives drivers little incentive to blab. The reward for honesty is a ticket for negligent operation of a vehicle, which draws a flat $538 fine.
The only way to independently determine whether the devices were in use is cumbersome. Police would have to get a warrant to subpoena billing records. But it would be hard to talk a judge into granting such subpoenas for a fender bender. In light of this, the biggest problem with McDonald's legislation may be its enforceability.
[tags]dwt, driving while texting, cell phone drivers, driving with cell phone[/tags]
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Mar 18.07
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Uncategorized
/ by Ro Econ
Canada's overall housing affordability improved in the fourth quarter of 2006, according to the latest Housing Affordability report released today by RBC Economics. RBC said that despite variations in the pace of the current housing market slowdown across the country, the common trends in the fourth quarter were a weaker pace in resale activity, an increase of homes on the market, and more moderate price growth.
The RBC Affordability report captures the proportion of pre-tax household income needed to service the costs of owning a home. The most affordable housing class remains the standard condo, requiring 27.5 per cent of income. A standard townhouse is next at 31.7 per cent, followed by a detached bungalow at 39.4 per cent. A standard two-storey home, while improving, remains the least affordable housing type at 44.9 per cent.
According to the RBC report, the western provinces continue to show signs of price growth topping out, with British Columbia, Alberta and Saskatchewan having likely reached the peak of price appreciation. These provinces, along with Manitoba, reported some affordability improvements. In fact, Alberta's housing affordability deteriorated for the fifth consecutive quarter, but appears to have slowed significantly. In Central and Eastern Canada, housing affordability improved across-the-board as housing markets continued to soften alongside weaker economic growth. Still, if you want a nice acrage then Moose Jaw has some cheap ones. RBC's Affordability measure for detached bungalows in Canada's largest cities is as follows: Vancouver 68.5 per cent, Toronto 42.6 per cent, Calgary 40.9 per cent, Montreal 35.3 per cent and Ottawa 30 per cent.
The Housing Affordability measure is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Brief comments on each province:
- British Columbia: The final quarter of 2006 provided some relief for B.C. homeowners with affordability improving for the two-storey and detached bungalow segments. However, condos and townhomes continued a fifth straight quarter of deterioration. Overall, B.C.'s housing
affordability should continue to improve over the next year.
- Alberta: Since the start of 2005, housing affordability across Alberta has been eroding at an aggressive pace. While the most recent quarter reported another across-the-board deterioration, the pace of erosion appears to have topped out and has slowed significantly.
- Saskatchewan: For a fifth consecutive quarter, affordability eroded in three out of four home classes - detached bungalow, townhouse and condo. Saskatchewan's annual house price gains, which are in the 10 per cent range, outweighed any mortgage rate relief or household
income growth that would have helped offset costs. So yes, it's getting more expensive to live here but it's still way cheaper than Alberta.
- Manitoba: After declining affordability in the first half of 2006, Manitoba saw a marked improvement for the second half of the year. The strongest improvement came from the condo sector, reversing much of the deterioration that occurred in the early part of 2006.
- Ontario: As Ontario's housing market continued to cool, affordability improved across all classes. Softer price growth, a decline in mortgage rates and lower utility bills combined to bring monthly payments down by one to two per cent for all four housing segments.
- Quebec: Led by improvement in two-storey homes, housing affordability recovered significantly for the first time in over a year as the long-anticipated soft landing continues to unfold. Supply and demand fundamentals in Quebec's housing market are cooling off in tandem and the effects are overflowing to improve affordability conditions for prospective homeowners.
- Atlantic region: Strong household income growth, lower monthly utility bills and a modest drop in mortgage rates contributed to improve conditions across Atlantic Canada.
[tags]canadian hosing, canadian affordability housing, hosing affordability canada, rbc hosing[/tags]
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Mar 09.07
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Macroeconomics
/ by Ro Econ
Canada now has claim of second spot, but for what you ask? The US trade deficit with Canada rose to $6.87 billion, surpassing January's deficit with Japan, which edged down to $6.5 billion. Japan normally has the second largest trade gap with the United States after China. Now, though, it is Canada. A positive sign? Sure, assuming the US pays up!
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Mar 07.07
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Personal Finances
/ by Ro Econ
According to a recent Decima Research survey, nearly half (46 per cent) are banking on employer-sponsored pension plans as part of their retirement mix. Little do people know (they are too arrogant or ignorant, both are bad) that company pension plans WILL NOT BE ENOUGH for you to retire on. Have you looked outside? Prices of goods aren't going down, you'll need more, so get ready to work till you're 70.
Continue reading this article »
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Mar 03.07
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Energy
/ by Ro Econ
Apparently oil prices are going down and that will in turn lower the profits of Canada's oil extraction industry by almost 30 per cent this year, although thankfully for all fat oil execs profits will expected to remain high, at least that's what the Conference Board's Canadian
Industrial Outlook: Canada's Oil Extraction Industry-Winter 2007 said.
Oil extraction industry profits grew by 26.4 per cent in 2006, reaching a record $15 billion. In line with lower oil prices, profits this year are expected to decline, but at $10.6 billion they will still be high by historical standards. Gains in production and improvements in productivity will allow profits to increase again starting in 2008.
Following an increase of just over five per cent last year, oil production in Canada is expected to rise by about 10 per cent in 2007. Production growth will remain strong in the coming years thanks to ongoing development of Canada's oilsands resources.
Labour and material shortages in Alberta are causing concern about costs for energy companies. Fierce competition for both labour and materials increased the costs of extracting crude oil by 10.4 per cent in 2006. Reduced exploration activity related to lower oil prices means that total costs for the industry are expected to decline by 3.3 per cent in 2007, but the decline
in revenues will be much larger.
This is the first release of the Conference Board's new Canadian Industrial Outlook: Canada's Oil Extraction Industry. The content for this report used to be included in the Board's broader oil and gas industry report. Canadian Industrial Outlook: Canada's Oil Extraction Industry will be
published twice a year.
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Feb 27.07
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Investments
/ by financewriter
Following today's meltdown in practically all indices and instruments, it is worthy to reconsider where to make the next move, especially if you were fortunate to have some holdings in cash. The general consensus now is that the precipitous decline was completely overblown, not based on any particularly disturbing fundamentals and was accelerated by program trading and perhaps errors in automation or execution. Regardless, I wouldn't hang my hat on a complete reversal on Wednesday and plow a bunch of money into the market at once. These events sometimes drag on for a couple days, but the end is near (as of this writing, the Chinese, Australian and other eastern markets are opening down a couple percent each for Wednesday trading again). With this in mind, I wanted to highlight a few different topics and opportunities short term:
China - This is where it all started - down 9%. Note one particular stock which didn't follow the markets all the way down: FMCN(http://finance.yahoo.com/q?s=FMCN). Focus Media Holding is a particularly successful advertising company in China which relies primarily on LCD advertising (if you've been to China, these screens are all over). They've been acquiring competitors and just had an earnings announcement on Monday where they tripled their net quarterly profit and upped their Q1 forecast. This is the kind of momentum you want and isn't representative of today's sell-off. This stock has been hot, quadrupling in less than 2 years since it went public. However, it doesn't have much of a following. FMCN is a good international diversification stock to get into now. There may not be another buying opportunity like this for FMCN any time soon. I've been in this for about a year and a half and still love its potential. This is a beautiful chart:
401K - I'm not sure about you, but if you're in a 401K, 403, etc. there is a money market option. I normally keep about 5% of my holdings in cash for an occasion just like this. Since it takes a day or two for exchanges to go through, I felt justified in transferring the cash component into international and S&P funds offered through the plan. Hopefully, the market rebounds a bit, I build some more cash through my monthly additions and have the opportunity to do the same for the next minor correction.
Defensive Stocks - If you take a look at who got hit and who didn't suffer so much, you'll note the pharmas fared better than most. This is because of the defensive nature of the industry, which is generally immune to any sort of market condition. People need their medicine and it's generally subsidized in some way by local/governmental/employment plans. I'd recommend getting into either a pharma index, namely XLV(http://finance.yahoo.com/q?s=xlv&x=17&y=13). It is a lower cost option compared to funds and spreads the risk across several companies. If I had to recommend a particular stock, I'd be looking at Merck (MRK)(http://finance.yahoo.com/q?s=mrk). Just in the past couple days, Novartis delayed Galvus, which boosts Januvia sales for Merck for the next year via monopoly market position for this new class of drugs, positive HIV drug data was just released for an upcoming launch which may place it in front line therapy category, and Gardasil sales beat consensus last quarter (not to mention another report today on an even higher prevalence of infection in women than was initially thought in addition to various states stepping up and offering it for free or announcing it will be mandatory for school age females). The fundamentals look great, but a bit more risky than an index given the pending Vioxx litigation.
