Finance topics

OTTAWA—The Bank of Canada has left the key overnight interest rate unchanged at one per cent amid slower than expected U.S. growth, but acknowledged that it will “eventually” have to go higher.

Economists had widely expected the Bank of Canada to leave rates unchanged in the announcement.

The latest decision on interest rates comes amid a growing credit crisis in Europe and fiscal gridlock in the United States.

However, the Canadian economy has appeared to be on track with three consecutive months of job growth and signs of inflation.

The bank’s overnight target rate affects the prime lending rate at Canada’s big banks and in turn the rates for variable rate mortgages and lines of credit.

The central bank last raised rates in September 2010.

Source

The labour disputes at Canada Post and Air Canada have certainly caught the country’s attention. Stopping mail delivery and disrupting people’s travel plans, even for a short time, will do that.

Air Canada quickly reached a deal with its 4,000 striking customer service workers after the government threatened back-to-work legislation but it’s likely going to be a long, hot summer for the airline as several other unions are also at the bargaining table.

Meanwhile, Canada Post and its union face binding arbitration if the government has to pass back-to-work legislation to end the lockout It’s a messy situation.

One of the core issues in both disruptions is pensions. Get used to it. We are going to see a lot more disputes like these in the coming years. There is a clash of interests taking shape in our society. Employees are trying to protect what they regard as basic entitlements, one of the most important of which is pension plans. Meanwhile, corporations and governments, to an increasing extent, are realizing they can no longer afford the costs of Cadillac pension plans.

Both Air Canada and Canada Post are trying to cope with huge pension deficits, compounded in Air Canada’s case by the fact it now has more retirees than active employees to support them.

In both cases, management’s solution is to propose a two-tier system. Current employees can remain in the existing defined benefit (DB) plans, which guarantee a specific level of income at retirement — a guarantee the companies are obligated to fulfill if the plan runs short of money, assuming they are still solvent. New hires would be moved into a defined contribution (DC) plan, in which there is no income guarantee at the end. The amount of money each person receives depends on how much was contributed over the years and the investment performance of the money credited to each individual.

When it comes to providing a secure retirement, defined contribution plans suck. With no guarantee of income, there is no certainty. A stock market crash a few years before retirement could wipe out half the accumulated assets. It happened as recently as 2008-2009. No wonder the unions are fighting back.

Unfortunately, economic realities will probably defeat them. The private sector is increasingly turning away from defined benefit plans to embrace defined contribution plans or hybrids.

The 2011 Pension Risk Survey published by human resources consulting firm Towers Watson reported that 51 per cent of private-sector defined-benefit-plan respondents have now converted their plans to defined contribution for current or future employees. That was up from 42 per cent in 2008. A press release issued by the company said there is no indication the trend is relenting.

Towers Watson described the future of defined benefit plans as being at “a tipping point,” saying private-sector employers have “crossed a pension Rubicon.”

Ian Markham, Canadian retirement innovation leader at Towers Watson, added: “This year’s survey results show employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy.”

The upshot is that if you work in the private sector and are fortunate enough to have any kind of a pension plan (only 25 per cent of people do, according to Statistics Canada) it will likely be the DC type. This puts the onus on you to manage the money to best advantage. Unfortunately, many people have no idea how to do that.

I occasionally lead seminars for defined contribution plan members at which I explain how their plan works and how to use it to their best advantage. Most of the participants have no idea where to start. Many of them simply leave their contributions in a money-market fund or put it into five-year GICs.

In both cases, the returns are well below the level needed to build a healthy retirement fund. For example, one plan I looked at recently was paying less than 2 per cent on a five-year GIC while the one-year return on its money market fund was 0.96 per cent. That’s not good enough.

If you belong to a DC plan, you need to take control. Otherwise, you are going to be sadly disappointed when you discover how little income you’ll receive when you retire. Here are some things you should do.

Know the investment options. A typical DC pension plan will present members with a smorgasbord of investment choices — one I looked at recently had 29 options, including stand-alone funds, portfolio funds and GICs. Understandably, many people are overwhelmed when presented with such a complex menu. It’s no wonder they fall back to the familiar world of GICs.

There are no easy shortcuts. You have to make time to study the choices carefully or use a financial professional to do it for you. Over the years, you’ll be contributing tens of thousands of dollars to the plan — in fact it is probably the largest single investment you will ever make apart from your home.

Decide on asset allocation. Before you commit, decide on your asset allocation: the percentages of cash, bonds and stocks you want to hold in your plan. The less able you are to handle risk, the greater your emphasis on cash and bonds. Younger, more aggressive pension plan members should give greater weighting to equity funds to maximize returns but scale back the risk level as they get older.

Make changes as needed. Your first selections are not locked in. Except for nonredeemable GICs, you should be able to make changes in your pension plan portfolio whenever you wish. So check the performance of your plan, and of the individual holdings, at least twice a year. Replace underachieving funds with better performers — you should receive regular updates from the company that administers the plan.

Also, review the asset allocation at least once a year. If one of the components does exceptionally well, the added value will skew your weightings and you’ll need to rebalance. For example, if you have a target weight of 60 per cent equity funds and stock markets have a great year, as in 2009, you’ll probably find the weighting at year-end has ballooned to 65 per cent. At that point, switch some of the equity funds to bond or money market funds to get back to your original target.

Maximize your contributions. Some defined contribution plans allow you to decide how much of your pay you want to contribute, for example between 4 per cent and 6 per cent. Choosing the highest level will pay off big-time in the long run, especially if the employer is matching your contribution.

Let’s say your income is $50,000 annually and you have 30 years remaining until retirement. Your employer offers the choice of a contribution level of 4 per cent, 5 per cent, or 6 per cent, which the company will match. Assuming an average annual compound rate of return of 6 per cent, if you choose the lowest contribution level the value of the plan after 30 years will be just over $316,000. If you put in 5 per cent of your pay, that increases to $395,000. But if you choose the highest level of 6 per cent, the plan will be worth $474,000 when it comes time to stop work. The end difference between the lowest and highest contribution levels is $158,000 more in retirement savings!

As you can see, there’s a lot of money involved. That’s why it is so important to take the time to properly manage your defined contribution pension plan. It may not be the best plan around but if that’s the type you have, make the most of it.

Also read:

Why $1 million in an RRSP isn’t a pension

Freedom 45: I plan to retire in 13 years

Gordon Pape publishes the Internet Wealth Builder newsletter. His website is www.BuildingWealth.ca

Source

NATO pounded the area near Libyan leader Moammar Gadhafi’s compound again before dawn Thursday, rattling windows in the heart of the capital with thunderous booms as smoke rose from the vicinity.

It was not clear what was hit, and there was no word on casualties. Government officials did not immediately comment on the strike. NATO warplanes have repeatedly targeted the area in and around the Bab al-Aziziya compound.

NATO launched its air campaign nearly three months ago under a United Nations resolution to protect civilians. What started as a peaceful uprising inside the country against Gadhafi and his more than four-decade rule has become a civil war.

Poorly equipped and trained rebel fighters have taken control of the eastern third of Libya and pockets of the west. The fighting had reached a stalemate until last week when NATO launched the heaviest bombardment of Gadhafi forces since the alliance took control of the skies over Libya.

NATO has been pounding Gadhafi’s military and government positions with increasing vigor and the rebels are again on the move.

Tunisian army official Mokhtar Ben Nasr said the number of Libyans fleeing has mounted in recent days, with 6,330 Libyan refugees crossing into Tunisia earlier this week. Dozens of Libyan soldiers also have defected to Tunisia by boat, the state news agency there reported Wednesday.

Britain’s prime minister has said that time is running out for Gadhafi’s forces, even as some senior military leaders within NATO have voiced concerns that the mission is straining the alliance’s resources.

“Time is on our side,” British Prime Minister David Cameron told lawmakers Wednesday. “We have got NATO, we’ve got the United Nations, we’ve got the Arab League, we have right on our side. The pressure is building militarily, diplomatically, politically, and time is running out for Gadhafi.”

In Washington, the White House insisted Wednesday that President Barack Obama has the authority to continue U.S. military action in Libya even without authorization from lawmakers in Congress.

Its 32-page report to Congress argues that because the U.S. has a limited, supporting role in the NATO-led bombing campaign in Libya and American forces are not engaged in sustained fighting, the president is within his constitutional rights to direct the mission on his own.

But the report appeared to do little to quell congressional criticism. A spokesman for House Speaker John Boehner, R-Ohio, said the White House was using “creative arguments” that raised additional questions.

Source

The secretly taped conversations aired at the insider trading trial of Raj Rajaratnam, a one-time billionaire hedge fund boss, have given jurors a sometimes colorful dose of the go-big-or-go-home mentality at Wall Street firms.

Now the jury must determine whether the conduct caught on tape was criminal. Regardless of its decision, the highly publicized audio evidence alone seems certain to make an impression on high-stakes financiers and how they do business.

The wiretaps should “scare the hell out of anyone thinking about doing insider trading,” said Ed Novak, a veteran white-collar defense attorney in Phoenix.

For seven weeks, federal prosecutors in New York have played nearly 50 tapes of conversations between the 53-year-old defendant and fellow portfolio managers, analysts and executives at public companies, including some who have pleaded guilty to charges that they tipped off Rajaratnam.

Prosecutors accuse Rajaratnam, who was arrested in October 2009, of making at least $68 million by trading illegally after he started his now defunct family of hedge funds, the Galleon Group, more than a decade ago.

Defense attorney John Dowd has told the Manhattan federal jury in closing arguments that what they hear on the tapes is nothing more than his client discussing stock outlooks that were widely known among professional traders who pay attention to every scrap of information on the securities they follow.

But the defense focus on the intricacies of what constitutes material and immaterial or public and non-public information, and the finer points of when Rajaratnam received guidance from an in-house analyst versus one of the alleged tipsters “is going right past most jurors,” Novak said.

When the jurors begin deliberating _ possibly as soon as Monday afternoon _ Novak predicted, “They’re going to immediately talk about those tape recordings, and that’s where the case is going to be decided.”

One of the only defenses against the wiretaps is “don’t believe your ears,” said Jonathan New, a former prosecutor now in white-collar defense in New York. “That’s a very hard thing to sell.”

Prosecutors alleged in their closing arguments that Rajaratnam, who was born in Sri Lanka, was motivated by money and a desire to “conquer the stock market at the expense of the law.”

The gunslinger mindset of the Galleon chief and others, the government says, was demonstrated in a July 2008 conversation with admitted conspirator Danielle Chiesi in which they gloat over a blockbuster inside trade.

“But it’s a conquest right?” Rajaratnam says.

“It’s a conquest,” she says. “It’s mentally fabulous for me. … You’re a warrior. I’m a warrior.”

And there’s more, like the day in July 2008 when prosecutors say a brassy-sounding Chiesi called Rajaratnam to give him an inside tip that a stock price was dipping.

“They’re going to guide down,” she says. “I just got a call from my guy. I played him like a fine-tuned piano.”

Prosecutors say Rajaratnam taught Chiesi to cover her tracks when she was trading on secrets by moving money in and out of companies to imitate an innocent investment pattern. During an August 2008 conversation, she asks him if she should use the tactic with a computer chip maker whose stock she thinks might shoot up 30 percent once a secret’s out.

“I think you should buy and sell, and buy and sell, you know?” Rajaratnam tells her.

At a minimum, the sometimes brazen tone of the tapes shows that Rajaratnam and others _ while cautious with their email and instant-message traffic _ were uninhibited on phone calls. In another call, Chiesi muses that she might be under investigation and tells Rajaratnam she’s “glad that we talk on a secure line” _ a segment that drew muffled chuckles in the courtroom.

The exchange reflects a sense in the hedge fund culture “that the phone is a safe place,” said Eric Fisher, a New York defense attorney and former federal prosecutor. “And it usually is _ absent a wiretap.”

The behavior exposed in the Galleon case is still outside the norm on Wall Street, said Jonathan New, another ex-federal prosecutor and New York defense attorney. Still, he added, if federal authorities are seeking to send a warning, the securities industry is hearing it.

“There’s a concern on Wall Street that you have a very aggressive prosecutor in the picture,” he said.

The Galleon investigation that led to more than two dozen arrests and 20 guilty pleas has already led firms where employees have access to secrets about public companies to tighten policies and procedures, said Latour “L.T.”‘ Lafferty, a former federal prosecutor now practicing white-collar defense in a Tampa, Fla., firm.

“When you start seeing people in handcuffs doing the perp walk, that’s called one healthy dose of reality,” Lafferty said. “The government warns you against this type of conduct and everybody looks the other way until people start getting arrested.”

But Richard Scheff, a former Department of the Treasury official and defense attorney in Philadelphia, predicted that human nature would trump the case’s deterrence effect.

Decades of wiretapping by federal authorities in a variety of cases “hasn’t deterred a lot of people, and the reason is nobody thinks it’s going to be them,” Scheff said.

“What drives this kind of conduct,” he added, “is greed, and greed colors judgment.”

Source

From the time he was a child, Steven Bolduc knew he wanted to be an entrepreneur.

More than being his own boss, he also wanted to create something that could help his own community.

Originally from the Fort William First Nation near Thunder Bay, Bolduc grew up both on and off reserve, and ended up spending his teenage years in Hamilton.

Armed with two degrees from Brock University and University of Windsor, he worked as a procurement officer for Fortune 500 companies. He squirreled away his money before buying a Print Three franchise in RBC Plaza in 2008, launching the Aboriginal Printing Corp.

Bolduc, 40, who loves graphic design, decided the printing was the way to go.

Cities hoping for cash for new infrastructure spending came away short-handed in the provincial budget.

While the Liberals are continuing transfers like the gas tax and the ongoing uploading to Queen

Rates on long-term certificates of deposit have been creeping up.  That’s good news for savers, but does that mean inflation is bound to follow?

Rates on 5-year CDs have been rising for the past nine weeks, moving from a national average of 1.54 percent to 1.62.

Dan Geller of Market Rates Insight thinks that’s a sign that consumer prices are headed up, too.  “Long-term CD rates are the canary in the coal mine,” he says in a press release. 

He points to 2003, when both inflation and long-term CD rates began to rise in November. That “could be the same scenario we’re facing now,” he says.  It took another eight months for the Federal Reserve to begin pushing up short-term interest rates, its standard anti-inflation medicine.

Banks are trying to lock consumers into low-rate CDs now, in anticipation of having to pay higher rates later as the economy recovers and inflation resumes, says Geller.

Of course, anticipating inflation isn’t the only reason that banks raise rates.  Rising loan demand can also make bankers hungry for deposits.  And a .08 point rise in rates isn’t huge.

You can find Geller’s report here.

Source

Centrue Financial Corp., the parent company of Centrue Bank, received a warning from the Nasdaq stock market for failure to maintain a minimum one dollar per share price.

Centrue (Nasdaq: TRUE) announced in a filing with the SEC today that it received the warning from Nasdaq on Feb. 22. Centrue has until Aug. 22, 2011, to regain compliance with its minimum bid price rule by reaching or surpassing a dollar or higher share price for 10 consecutive days. On Feb. 25, Centrue’s stock closed at 60 cents per share.

“During the grace period described above, the company will consider its alternatives, including whether to apply to transfer its common stock listing to an alternative exchange or inter-dealer quotation system such as the OTC Bulletin Board,” Centrue said in the filing guaranteed high risk personal loans.

It’s the second warning Centrue has received from Nasdaq in recent weeks. In December, Centrue received a delisting warning from Nasdaq for failure to have a minimum market value of $5 million of publicly held shares.

Clayton-based Centrue has 26 bank branches in Missouri and Illinois.

Source

China’s imports of foreign cars nearly doubled last year, with Japanese and German models most in favor among buyers looking to upgrade their vehicles, an industry association said Tuesday.

The quasi-official China Association of Automobile Manufacturers said car imports jumped 93 percent last year from 2009 to 813,600 vehicles. By value, imports doubled to $30.64 billion, while China’s vehicle exports rose 40 percent from a year earlier to a record $51.8 billion.

An explosion in demand and sluggish sales in the recession-stricken West helped China overtake the U.S. as the largest car market by sales of new vehicles in 2009. Last year, sales of passenger cars, excluding large buses, jumped by a third to 13.7 million vehicles.

While domestic-made models of foreign joint ventures dominate the market, demand for higher-quality imports remains strong.

Imports of SUVs led the market at 351,400 vehicles, up 69 percent from 2009, while imports of sedans more than doubled to 343,700, the report said. Imports also more than doubled, to 89,900.

Despite a spate of safety-related recalls by Japanese manufacturers, imports from Japan accounted for the largest share, followed by Germany, South Korea and the United States.

China’s auto exports are mainly buses, trucks and knockdown kits for assembly overseas, sold by domestic manufacturers to developing countries.

So far, exports of made-in-China vehicles, especially by foreign joint ventures, have been limited, partly due to the struggle to keep up with surging local demand. Last year they accounted for less than 3 percent of the 18.3 million vehicles produced in China, far behind South Korea, Thailand, India and Brazil.

Passenger car sales slowed in January as tax breaks for energy-efficient cars lapsed and cities began tightening curbs on vehicle use to help combat traffic congestion and smog, according to the Shanghai-based China Passenger Car Association.

It reported Monday that sales of passenger cars fell 10.3 percent in January from the month before to 965,238 vehicles. On an annual basis, sales rose 12.6 percent.

Weaker demand inside China would likely spur efforts to export more to other fast-growing markets, though rising costs for labor and materials already are already eroding its price competitiveness.

Source

U.S. markets ended Thursday on a mixed note as traders tried to grasp the developments in Egypt.

The Dow Jones industrial average (INDU) lost 10.6 points, or 0.1% to end at 12,229; the S&P 500 (SPX) rose 1 point, or 0.1%, to 1,322; and the tech-heavy Nasdaq (COMP) closed up 1.4 points, or 0.1% to 2,790. The Dow had been down more than 75 points earlier in the day.

At the beginning of trading, the Dow and Nasdaq posted steep losses led by Cisco Systems (CSCO, Fortune 500) — whose shares fell 14%. The network equipment maker posted a quarterly profit late Wednesday that was lower than year-earlier results, although it beat Wall Street’s forecasts.

Cisco’s earnings and outlook generally have a heavy influence on both technology stocks and the broader market, because it builds several key components for the Internet. However, investors noted Cisco has been in turnaround mode for several quarters now.

"The market is trying to work through [whether] Cisco’s problems are Cisco’s problems, or if they’re related to tech overall," said Daniel Morgan, portfolio manager for Synovus Trust.

Despite poor quarterly earnings from other tech companies including Akamai (AKAM) and Activision Blizzard (ATVI), the markets erased the majority of losses after major news outlets reported that Egyptian President Hosni Mubarak could step down today.

After hours of waiting, President Mubarak began speaking at around 3:45 p.m. ET, giving U.S. markets only about 15 minutes to react to the news. When U.S. markets closed, it wasn’t clear if Mubarak was stepping down, but it soon became evident that he was not relinquishing power.

Investors said the global reaction to Egypt overnight will hold the key for trading tomorrow.

"We know are possibly losing a friend, but are we gaining an enemy? It’s hard to tell at the moment," said Peter Cardillo, chief market economist with Avalon Partners."The auxiliary markets such as the dollar and gold will be the ones to watch overnight."

Companies: Shares of Credit Suisse (CS) fell 7.3%, after the financial services company reported quarterly results that disappointed investors paydayloans. The bank’s asset management division also adjusted its target for return on equity this year, citing the "new regulatory environment."

PepsiCo (PEP, Fortune 500) said fourth-quarter earnings fell 1.7% to 85 cents per share, and issued a disappointing outlook. Shares lost nearly 2% in afternoon trading.

Whole Foods (WFMI, Fortune 500) stock was up more than 11% after the grocery chain reported first-quarter results that beat expectations, and raised its sales and earnings outlook for the year.

After the closing bell, Kraft Foods (KFT, Fortune 500) reported earnings per share of 46 cents on $13.8 billion in revenue, in line with expectations.

Economy: A weekly government report showed that the number of Americans filing first-time claims for unemployment benefits fell to 383,000 last week — the lowest number in two-and-a-half years.

The report was better than expected. Economists surveyed by Briefing.com had forecast 410,000 initial claims.

Investors will also keep an eye out for a proposal due Friday from the Obama administration recommending a phase-out plan for Fannie Mae and Freddie Mac, two government-sponsored mortgage backers.

World markets: European markets closed mixed. Britain’s FTSE 100 slipped 0.5%, while the DAX in Germany added 0.3% and France’s CAC 40 edged up 0.1%.

Asian markets ended mixed. The Shanghai Composite rose 1.6%, while the Hang Seng in Hong Kong plunged nearly 2% and Japan’s Nikkei eased 0.1%.

Currencies and commodities: The dollar rose against the euro, the Japanese yen and the British pound.

Oil for March delivery settled up 2 cents to $86.73 a barrel. However in afterhours electronic trading, oil futures climbed 1.1% to $87.67 a barrel..

Gold futures for April delivery settled down $3 to $1,362.50 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasuries fell, pushing the yield up to 3.68%.  

Source