The Canadian Press, 2010  OTTAWA – The federal bankruptcy office says
more Canadian households and businesses became insolvent in September
than in the month before. The office says bankruptcies rose 9.6 per cent
– 9.9 per cent for consumers – in September from the August numbers.

Insolvencies, which combine bankruptcies and proposals to refinance
debt, rose 7.6 per cent overall.

The increases reverse a trend toward declining insolvencies since the
recession, but the Office of the Superintendent of Bankruptcy says it’s
not unusual to see an increase in the month of September.

Insolvencies for the third quarter overall are down 9.2 per cent, the
office says, and bankruptcies are 11.4 per cent lower. From last year,
September’s insolvencies dipped 26.5 per cent and bankruptcies fell 36.6
per cent. http://news.therecord.com/article/823732

Claire Sibonney, Reuters * 

TORONTO – The Bank of Canada is unanimously expected to keep interest
rates on hold next week, but the uneven economic recovery has primary
dealers and global forecasters divided on the timing of the next hike in
2011.

The Reuters poll, released on Thursday, showed 93% median probability
that the Bank of Canada will keep its key rate at 1% at its next policy
announcement date on Dec. 7, with all 44 forecasters polled predicting
no move.

Among the 42 that forecast the central bank’s next hike, the majority
saw it happening in the first half. The median forecast for the May 31
policy date has the rate rising to 1.25%.

But among the 12 Canadian primary dealers – the institutions that deal
directly with the central bank to help it carry out monetary policy –
the majority forecast rate hikes in the second half with a median
prediction of a first hike in July.

When compared with a similar poll taken in October, the more recent
survey showed rate hike forecasts had been moved deeper into 2011.

Thirty of the 44 forecasters surveyed say the central bank will still be
at 1 percent after March 1, a more pessimistic view than the last poll.

“Given that the Bank of Canada had indicated that they didn’t want to
see that great a divergence with U.S. rates and the Fed was actually
doing quantitative easing, it made sense to push out the Canadian rate
hike as well as opposed to adamantly defending a Q1 move,” said David
Watt, senior fixed income and currency strategist at RBC Capital
Markets.

“We’ve had a lot of recovery and we’re seeing some fade at the present
time, so you get that caution that maybe the domestic side of the
economy is not strong enough to offset the still sizable trade hit and
currency strength.”

A report out on Tuesday showed Canada’s economy disappointed in the
third quarter with the weakest growth rate in a year, while the economy
shrank outright in September, adding pressure on policy makers to
safeguard the patchy recovery.

Bank of Canada Governor Mark Carney in October gave a blunt assessment
of the global and Canadian economic recoveries, saying the central bank
would plot its next move with extreme caution.

Massive new monetary stimulus by the U.S. Federal Reserve to support a
flagging U.S. economy also prolongs low rates south of the border, and
Canada is seen not wanting to race too far ahead of its largest trading
partner.

Mr. Watt noted that a concern for the central bank has been a Canadian
dollar strengthening near parity without having seen a strong rebound in
oil and natural gas prices.

“Sluggish Canadian growth and an elevated exchange rate will keep the
Bank of Canada on hold until well into 2011 if, as we expect, core
inflation readings return to their more muted earlier monthly trend,”
said Avery Shenfeld, chief economist at CIBC World Markets.

“The U.S. Fed should still be on hold at a near-zero funds rate in early
2012, and wider interest-rate differentials would push the (Canadian
dollar) to levels that would be too damaging to Canada’s export
prospects.”

Estimates of the central bank’s target for the overnight rate by the end
of 2011 range between 1% and 2.5%.

Next on the domestic data front, analysts will keep a close eye on the
monthly jobs report on Friday and inflation figures later in the month.

Read more:
http://www.financialpost.com/news/Bank+Canada+rate+hike+seen+first+half+
2011/3916924/story.html#ixzz1707v8WNk
<http://www.financialpost.com/news/Bank+Canada+rate+hike+seen+first+half
+2011/3916924/story.html#ixzz1707v8WNk>

most Bay Street economists had forecast that the Bank of Canada rate wouldn’t resume movement until July, the fixed-income market has now priced in 50-50 odds of a rate increase of 25 basis points, to 1.25%, in March

Paul Vieira, Financial Post · OTTAWA — The fixed-income market, considered among the best of forward-looking indicators, suggests the economic recovery is picking up steam in Canada and the central bank may deliver another rate hike as early as March of next year.

Yields across the curve have reached levels last seen in June and July when the Bank of Canada commenced a short-lived rate-hike campaign. And at that time, there was no talk of the U.S. Federal Reserve needing to inject hundreds of billions of dollars of additional liquidity into the U.S. economy to jump-start the recovery.

Two-year bond yields, a great indicator of where the Bank of Canada’s benchmark rate might be headed, have jumped nearly 40 basis points in barely a month since the last central bank decisions.

Meanwhile, yields on five- and 10-year government of Canada notes have moved upward 46 and 33 basis points, respectively, since the beginning of November, which mirrors activity in the U.S. Treasuries market.

“We have seen a heavy-duty selloff in recent weeks, right up and down the yield curve in Canada,” said Douglas Porter, deputy chief economist at BMO Capital Markets.

Experts say this is a combination of heightened inflation expectations and this week’s stronger-than-expected consumer price data in Canada, signs of an improving U.S. labour markets, and a realization among investors that yields are just too low.

And whereas most Bay Street economists had forecast that the Bank of Canada rate wouldn’t resume movement until July, the fixed-income market has now priced in 50-50 odds of a rate increase of 25 basis points, to 1.25%, in March.

The rise in yields also emerges as the Fed kicks off its US$600-billion asset purchase plan — designed to pull down borrowing costs — and Europe’s debt woes re-emerge, perhaps prompting investors to park cash in safer government debt, such as Canada’s.

“Clearly, the bigger issue of where the market believes the U.S. economy is going and, ultimately, Fed rate policy is going seems to have had much greater pull on bond yields — and it is higher,” Mr. Porter said.

Eric Lascelles, chief Canadian strategist at TD Securities, said Canadian bonds have, like their U.S. counterparts, sold off in recent weeks after investors bought debt in the preceding weeks leading up to Fed’s decision to pursue further easing.

“But in fairness, that sell-off in the United States has not been as large, so there certainly is a made-in-Canada phenomenon at play as well.”

In its last rate statement, in which the benchmark rate was left unchanged, the Bank of Canada made significant downward revisions to its growth outlook, and pushed back the date, by a year, as to when economic slack is absorbed and inflation is set to hit the preferred 2% target.

But October inflation data indicated consumer prices rose on 2.4% on a year-over-year basis, much stronger than expectations, while core inflation — which strips out volatile-priced items — rose 0.3% month over month, the biggest such increase since February. Core inflation now stands at an annual rate of 1.8%, which is just below the Bank of Canada 2% target and above the central bank’s forecast.

Other fixed-income watchers, meanwhile, indicate traders are growing more confident about the global recovery based on better U.S. data. There have been five straight months of private-sector job creation above the 100,000 level — with November expected to continue the trend — and U.S. initial jobless claims dropped this week to their lowest level in two years.

On top of that, annual growth in corporate profits is set to hit 30% this year, and third-quarter GDP growth, at 2.5% annualized, was above expectations.

“Housing remains a serious Achilles heel, but the U.S. consumer is in increasingly better shape in terms of wage growth and confidence, and corporations are starting to use the trillions they had set aside for the double-dip recession that never came,” said Hank Cunningham, fixed-income strategist at Odlum Brown. “So the bond market decided yields were too low.”
Read more: http://www.financialpost.com/news/features/Bonds+tell+tale+sound+recovery/3885352/story.html#ixzz16fujO52L

By Julian Beltrame, The Canadian Press

OTTAWA – Canada’s annual inflation rate jumped to 2.4 per cent in October, its highest level in two years, as Canadians were hit with price hikes for most things from gasoline to cars, shelter and food.

The half-percentage-point increase in the annualized consumer price index was well above what analysts had forecast, and is likely to raise some alarms with the Bank of Canada.

Statistics Canada blamed higher energy costs for most of the increase, particularly an 8.8 per cent hike in gasoline prices, but most things were noticeably higher in October.

Transportation costs rose 4.6 per cent, while shelter costs increased 2.8 per cent.

Other higher costs included food which was up 2.2 per cent, electricity 8.1 per cent, cars 4.9 per cent, car insurance 4.6 per cent, and property taxes by 3.5 per cent.

On a month-to-month basis, Canadians paid 0.4 per cent more in October for a basket of items than in September.

Economists had expected an increase to about 2.2 per cent from a recent pick-up in oil prices and the continuing impact of the new harmonized sales tax in Ontario and British Columbia — two populous provinces that can move the national needle — but the higher number suggests that inflation may be more sticky than previously thought.

Even the underlying core inflation, which excludes volatile items like gasoline, rose three-tenths of a point to 1.8 per cent, edging nearer to the Bank of Canada’s two-per-cent target.

Central bank governor Mark Carney, whose prime mandate is to guard against price spikes, is still expected to hold steady on interest rates at the next scheduled decision date next month, however.

Not all prices were higher last month. Clothing and footwear continued to be bargains as prices edged down 0.1 per cent, although the drop was less than the 2.2 per cent seen in September.

As well, mortgage interest costs retreated by three per cent, the price of computer equipment and supplies dropped 12.5 per cent and air transportation and furniture were lower than last year as well.

Regionally, the two HST provinces continued to have among the highest inflation rates in the country, with Ontario leading the way at 3.4 per cent, half-a-point higher than in September, and British Columbia at 2.9 per cent. Newfoundland’s inflation also remained elevated at three per cent.

Alberta and Manitoba had the lowest inflation among provinces at 1.2 per cent. http://ca.news.finance.yahoo.com/s/23112010/2/biz-finance-canada-s-inflation-rate-jumps-half-point-2.html

By Christopher S. Rugaber

WASHINGTON – U.S. Federal Reserve officials have become more pessimistic in their economic outlook through next year and have lowered their forecast for growth.

The economy will grow only 2.4 per cent to 2.5 per cent this year, Fed officials said Tuesday in an updated forecast. That’s down sharply from a previous projection of three per cent to 3.5 per cent. Next year, the economy will expand by three per cent to 3.6 per cent, the Fed said, also much lower than its June forecast.

Fed officials project that unemployment won’t change much this year, averaging between 9.5 per cent and 9.7 per cent. The current unemployment rate is 9.6 per cent. Progress in reducing unemployment has been “disappointingly slow,” the central bank said, according to the minutes of its Nov. 2-3 meeting.

The darker view helps explain why the Fed decided at its meeting earlier this month to launch another round of stimulus. The central bank plans to buy $600 billion US in Treasury bonds over the next eight months in an effort to lower interest rates and spur more spending.

The Fed is slightly more optimistic about 2012, in part because officials expect the bond-buying program to have a positive impact. The economy should grow 3.6 per cent to 4.5 per cent that year, a tick better than June’s forecast of 3.5 per cent to 4.5 per cent.

The economy will also grow 3.5 per cent to 4.6 per cent in 2013, the central bank said, the first time it has issued projections for that year.

The economic outlook was prepared at the Fed’s meeting earlier this month and released Tuesday. It reflects the views of the Fed’s board of governors and its regional bank presidents.

The jobless rate will be 8.9 per cent to 9.1 per cent next year, Fed officials predict. That’s much worse than June’s projection of 8.3 per cent to 8.7 per cent.

By 2012, when President Barack Obama faces the electorate, unemployment will be 7.7 per cent to 8.2 per cent, up from the previous forecast of 7.1 per cent to 7.5 per cent.

The Fed’s forecasts of a slow economy with only gradual improvement in the job market are broadly similar to those by private economists. An Associated Press survey of 43 leading economists last month found that they expect the economy to expand just 2.7 per cent next year, after growing only 2.6 per cent this year.

The unemployment rate will remain at nine per cent by the end of next year, the economists said.

The Fed said that data released since its last projections showed the economy was weaker in the first half of this year than it previously thought. The economy grew at only a 1.7 per cent annual pace in the April-June period, much lower than the first quarter’s 3.7 per cent rate.

Consumers are still holding back on their spending, the central bank said, and recent reports on housing, manufacturing, international trade and employment were all weaker than expected at the June meeting.

The central bank expects prices will remain in check. Inflation is projected to rise 1.1 per cent to 1.7 per cent in 2011, little changed from the previous forecast of 1.1 per cent to 1.6 per cent.

The Associated Press http://news.therecord.com/Business/article/818606

By Julian Beltrame

OTTAWA – North American consumers are showing signs of emerging from hibernation in time for Christmas, pushing up inflation in Canada to a new two-year high and improving growth prospects for both economies.

Canada’s inflation rate rose a surprising half-point to 2.5 per cent in October, a sign the economy is not facing the imminent risk of a deflationary slump.

In conjunction with price firmness, Statistics Canada also reported Tuesday that retail sales jumped 0.6 per cent in September as consumers bought more cars and spent more on sporting goods, clothing, books and music.

The strength of the consumer was also evident south of the border, where the third-quarter gross domestic product was revised to 2.5 per cent from a previously reported two per cent.

The three data points are positive indicators for the North American economy – which had been under pressure over the past few months – and for retailers with Christmas shopping season approaching, said Douglas Porter, deputy chief economist with BMO Capital Markets.

“Today’s numbers do suggest the economy had a little more underlying momentum than previously believed,” he said. “The consumer spending numbers are not rock-and-sock’em, but they are solid.”

TD Bank’s chief economist Craig Alexander also doubted the better consumer spending data signalled a return to “booming” sales, saying the increase should be kept in context.

But the improvement was welcomed in Canada given recent soft data in other sectors of the economy, particularly manufacturing, exports, housing and employment.

Analysts were bracing for a potential drop in gross domestic product in September, but the retail numbers now suggest the month will come in positive.

And analysts now think Canada’s third quarter will see the economy advancing at about 1.5 per cent, below the two per cent growth of the second quarter but in line with the Bank of Canada’s expectations.

While that is one percentage point less than the U.S., CIBC chief economist Avery Shenfeld cautioned Canadians against making the comparison, since the American economy is starting from a much deeper hole.

“We have not had as deep a disinflationary trend as the U.S. and that’s a sign we’re not as many miles below full employment as the U.S.,” he said.

“They have a lot more catching up to do,” he added.

The key difference, say analysts, is that while Canada has recouped all the jobs lost during the 2008-09 recession, the U.S. has only brought back about 15 per cent of the almost nine million jobs that vanished.

Still, nothing in Tuesday’s numbers changes the established picture that the recovery will continue to be a long, arduous slog before the conditions return to the robust growth and strong job creation levels that existed prior to the crisis.

“Given all the concerns that continue to swirl around the global economy, I don’t think we should let down our guard just yet,” Porter said.

Analysts said it is unlikely the one-month consumer price jump will scare Bank of Canada governor Mark Carney into raising interest rates in the near future, in part because inflation is expected to moderate.

Breaking down the numbers, Statistics Canada said higher energy costs were responsible for about half of the inflation increase, but most things were noticeably higher in October.

Transportation costs rose 4.6 per cent, while shelter costs increased 2.8 per cent. Other gains included food, up 2.2 per cent, electricity 8.1 per cent, cars 4.9 per cent, car insurance 4.6 per cent, and property taxes by 3.5 per cent.

There were still some bargains, however. Clothing and footwear edged down 0.1 per cent from last year, mortgage interest costs retreated by three per cent, the price of computer equipment and supplies dropped 12.5 per cent, and air transportation and furniture were also lower.

Regionally, the two harmonized sales tax provinces continued to have among the highest inflation rates in the country, with Ontario leading the way at 3.4 per cent, half-a-point higher than in September, and British Columbia at 2.4 per cent.

The Canadian Press http://news.therecord.com/Business/article/818192

The Bank of Canada will keep its policy rate unchanged until the second quarter as economic growth slows, according to a Bloomberg News survey that also showed bond-yield forecasts were cut for a fourth month.

The central bank didn’t raise rates Oct. 19 after three prior increases and won’t act again until the April-June period, compared with the earlier forecast of a first-quarter increase, the survey showed. Canada’s three-month treasury bill will yield 1 percent at year-end, down from 1.1 percent in last month’s survey, to match the Bank of Canada’s overnight target for loans between commercial lenders.

Governor Mark Carney, 45, has said there are limits to how far Canada can diverge from the U.S., where the Fed said on Nov. 3 it plans to buy an extra $600 billion of Treasuries to support the recovery. The so-called quantitative easing may not benefit Canada much because it’s pushing up the Canadian dollar and making goods more expensive abroad, said Paul Ferley, assistant chief economist at Royal Bank of Canada.

“To the extent the Bank of Canada shares that concern about slowing growth it’s a reason to delay hiking rates,” Toronto-based Ferley said.

The 10-year government bond yield will be 2.83 percent on Dec. 31, according to the median of 20 estimates gathered Nov. 4-11. The last survey called for a 3 percent yield by the end of the year. The 10-year bond yield was 3.02 percent on Friday.

“The longer and larger Fed QE becomes, the further the Bank of Canada probably extends its policy pause,” Michael Gregory, senior economist at Bank of Montreal in Toronto, wrote in a Nov. 12 note to clients. “Government of Canada bond yields should decrease in the wake of declining U.S. Treasury yields.”

Factory Decline

Investors are betting the Bank of Canada will keep interest rates unchanged until mid-2011. The rate on the six-month overnight index swap was 1.10 percent on Nov. 12, and the nine- month security’s was 1.17 percent. Investors are also betting 10-year bond yields will be 3.13 percent in December, according to futures contract trading on the Montreal Exchange Nov. 12.

Elsewhere in credit markets, the extra yield investors demand to hold the debt of Canada’s corporations rather than its federal government narrowed on Nov. 12 to 135 basis points, or 1.35 percentage points, from 138 the day before and 141 a week earlier, according to Bank of America Merrill Lynch data. That’s the narrowest so-called spread since May.

Relative yields on U.S. corporate bonds ended last week at 175 basis points, from 176 the week before, the Merrill data showed. Global corporate spreads were 167 basis points, two basis points wider than the previous week. Canadian corporate bonds have lost investors 0.6 percent this month, compared with declines of 0.1 percent for U.S. company debt and 0.2 percent for global corporates.

Provincial Bonds

In provincial bond markets, relative yields ended last week at 51 basis points, from 53 basis points the week before and matching the tightest spreads since April. Spreads have dropped from as wide as 71 basis points over federal benchmarks on May 21, when concern about debt levels in Europe was at a peak.

Provincial and municipal bonds have lost 1.3 percent this month, compared with a loss of 0.9 percent for U.S. municipals.

Canada will auction C$1.4 billion in 30-year bonds on Nov. 17. The 4 percent bonds will mature in June 2041. The previous auction of 30-year bonds, on Sept. 1, drew an average yield of 3.489 percent and a bid-to-cover ratio of 2.27.

30 Years

The benchmark 30-year yield rose 14 basis points last week, or 0.14 percentage points, to 3.63 percent. The price of the 5 percent security due in June 2037 dropped C$2.79 during the five days to C$123.30.

Canada’s 30-year bonds yielded 65 basis points below the equivalent maturity U.S. security, compared with an average of about 6 basis points over the last decade, according to Bloomberg data.

Gross domestic product grew at a 1.6 percent annualized pace in the third quarter, according to the median of 20 responses, less than the 2.1 percent estimate taken last month.

“It’s not just trade that has slowed,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. “Domestic demand seems to have slowed, and the housing market, from a boom in the first half of the year.”

===============================================================
                    3Q      4Q      1Q      2Q     Avg.    Avg.
                   2010    2010    2010    2011    2010    2011
===============================================================

GDP annualized     1.6%    2.4%    2.5%    2.7%    3.0%    2.4%
 Previous survey   2.1%    2.5%    2.6%    2.4%    3.1%    2.5%
---------------------------------------------------------------
Jobless rate       8.0%    7.9%    7.9%    7.8%    8.1%    7.8%
 Previous survey   8.0%    7.9%    7.9%    7.8%    8.0%    7.7%
---------------------------------------------------------------
CPI YOY%           1.8%    2.0%    2.1%    2.1%    1.7%    1.9%
 Previous survey   1.9%    1.9%    1.9%    2.1%    1.7%    1.9%
===============================================================


                    3Q      4Q      1Q      2Q      3Q      4Q
                   2010    2010    2011    2011    2011    2011
===============================================================
Overnight Rate    1.00%   1.00%   1.00%   1.00%   1.50%   2.00%
 Previous survey  1.00%   1.00%   1.00%   1.50%   1.75%   2.00%
---------------------------------------------------------------
Three-month bill  1.25%   1.00%   1.18%   1.33%   1.69%   1.98%
 Previous survey  0.93%   1.10%   1.20%   1.45%   1.75%   2.10%
---------------------------------------------------------------
Two-year note     1.38%   1.48%   1.62%   1.83%   2.20%   2.53%
 Previous survey  1.40%   1.60%   1.75%   2.00%   2.25%   2.58%
---------------------------------------------------------------
Ten-year bond     2.76%   2.83%   2.90%   3.10%   3.40%   3.53%
 Previous survey  2.93%   3.00%   3.15%   3.40%   3.55%   3.70%
---------------------------------------------------------------
30-year bond      3.36%   3.50%   3.60%   3.68%   3.80%   3.95%
 Previous survey  3.50%   3.53%   3.65%   3.90%   4.00%   4.10%
===============================================================

To contact the reporters on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net; Ilan Kolet in Ottawa at ikolet@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Fighting the new ‘normal’

Jonathan Chevreau, Financial Post · 

The topic of a “normal” retirement age is getting more than usual media attention lately because of the increasingly violent French protests about pushing theirs back to 62 from 60. Pity hard-working Germans, who retire at 65 but are being asked to wait until 67.

In the United States, normal retirement for Social Security purposes is already 67 for those born after 1959 [66 for those born between 1943 and 1954; 65 if born before 1938], but early reduced benefits can start as early as 62. Even then there are fears it can remain viable once the Baby Boomers retire en masse.

Here in Canada, there is no longer a mandatory retirement age. Until various provinces removed it, many otherwise willing workers were forced out the door at 65. That’s still considered “normal” retirement age by employer pensions. It is also the age Old Age Security benefits commence and the usual age to start receiving Canada Pension Plan (CPP) benefits.

True, you can take CPP as early as 60 (with reduced benefits) and many employers provide “early” retirement on their pensions, especially public sector defined-benefit plans. That’s the only place the pipe dream of Freedom 55 becomes reality, outside London Life commercials (or its successor, Freedom 55 Financial).

You can also delay CPP benefits to as late as 70. There will be more incentive to do so once new rules are fully in place in 2016. Early

CPPers once took a 30% benefits cut, while late CPPers got a 30% benefits sweetener (relative to taking it at 65). By 2016, taking early CPP at 60 will mean reducing benefits by 36%, while postponing it five years (to 70 from 65) will boost it by 42%.

BMO Retirement Institute director Tina Di Vito says the maximum monthly CPP benefit will be $1,326 for those who wait until 70, plus inflation adjustments. Compare to Social Security, which pays US$1,790 for those waiting till age 67 and US$2,370 for those who wait till 70, according to Vancouver-based financial advisor Adrian Mastracci.

BMO has released a report — When to Retire, Age Matters — that may cause Canadians to emulate Germany and keep working as long as possible. This is counter to a brief vogue when Canadians sought earlier retirement. In the 1970s, the median retirement age was 65, which fell to 60.6 by 1997. But it edged up to 61 in 2005.

Most public-sector workers can retire in their mid to late 50s, while those in the private sector keep going well into their 60s. No surprise that, as pension consultant Greg Hurst notes, 85% of public-sector workers have employer pensions, versus 25% for private-sector workers.

This is why the pension-less must save as much as possible inside RRSPs and TFSAs. But as financial planner Jim Otar shows in his books, private savings can soon be depleted, either by bear markets like 2008 or by withdrawing at too high a rate.

BMO ran a scary chart showing how $250,000 in an RRSP performs if you fully retire at age 55, semi-retire at 55 or keep working till 65. They assume conversion to an RRIF with withdrawals of $25,000 a year, taxable at 20%, investment growth of 6%, 2% inflation and life expectancy of 90.

Those who start drawing down an RRSP at age 55 run out of money by 65 (although OAS would then kick in and GIS if no other pension or investment income). Those who postpone withdrawals or keep adding to the RRSP run out of money much later or not at all, if markets co-operate.

Note the implied 10% withdrawal rate is more than double the “safe” rate of about 4% (adjusted to inflation) suggested by U.S. financial planner William Bengen. The only failsafe retirement plan is to “just keep working,” preferably adding to savings throughout rather than depleting them. This not only reduces the number of years money must last, but lets you save more and gives portfolios more time to grow.

Also, the longer you wait, the better your pension payouts, whether from employers or government. There are several proposals to broaden pension coverage, most based on enhancing the CPP.

Ms. Di Vito agrees with Morneau Sobeco actuary Fred Vettese, who argued in a paper that the simplest fix would be to raise — perhaps double — the base annual earnings on which CPP is calculated. Currently, it’s around $47,000. Doubling it to $94,000 would almost double benefits but not the required contributions from employees and employers.

Do that and Europeans will be directing their pension envy to Canadians.

Bank of Australia surprises with rate rise  Wayne Cole, Reuters  SYDNEY – Australia’s central bank surprised markets by raising its key cash rate to a two-year high of 4.75% on Tuesday, saying a modest tightening was needed as a pre-emptive strike against inflation.

The local dollar shot a cent higher after the Reserve Bank of Australia (RBA) lifted rates by 25 basis points at its monthly policy meeting. The central bank had already led the developed world in hiking 150 basis points between October and May.

“The board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent,” RBA Governor Glenn Stevens said in a statement.

Many investors had thought the central bank would skip a hike for a sixth straight month, given data out last week had shown core inflation had moderated to 2.5%, in the middle of the RBA’s long-term target band of 2 to 3%.

The move also stood in sharp contrast to loose policy in major developed nations and comes just a day before the Federal Reserve is expected to announce a fresh phase of quantitative easing in the face of unbearably high unemployment.

Yet Mr. Stevens said surging export earnings and a lack of spare capacity in the economy meant inflation risks ahead were to the upside, no matter the recent benign outcome. Analysts took this to mean further moves ahead, though likely not until February. Interbank futures fell sharply across the curve but showed only a one-in-10 chance of a move next month. The RBA board does not meet in January.

“The Reserve Bank’s capacity to surprise continues,” said Michael Blythe, chief economist at Commonwealth Bank. “At this stage we’ve got the next hike pencilled in for February and we’ve got the cash rate at 5.75% by the end of 2011.”

The pace of official tightening could be slowed by leading home lender Commonwealth Bank of Australia’s decision to raise its own mortgage rate by 45 basis points. Other major lenders are considered likely to follow, citing higher funding costs.

Mortgage rates have a big impact on spending power in a nation obsessed with home ownership and where over 90% of home loans are on floating rates.

“We’ll still get another four hikes next year, that hasn’t changed,” said Stephen Walters, chief economist at JPMorgan.

Homebuyer Tradeoffs: What Will You Have To Sacrifice?

When you’re buying a home, whether it’s your first home or your third, you want it to be perfect. Your home affects every aspect of your life, from your financial stability to things you do in your free time to the people you spend time with. It’s also probably the most expensive purchase you’ll ever make. Yet it seems like you always have to sacrifice something when buying a home. Here are the tradeoffs that homebuyers most commonly face. 

1. Location
   Location is the one thing you can’t change about most homes. Where you choose to buy affects the job opportunities available to you, your commute, your safety, the resale value of your home, where your kids will go to school, how much peace and quiet you will have and dozens of other things.

   Since location is so important, you might be thinking that your ideal location is something you should never compromise on. However, people compromise on their ideal location all the time – they move further out into the suburbs even though they work in the city because they want a larger/newer/nicer house for a lower price, for example. Sometimes it’s worth making a tradeoff on location to get something else you want. 

2. Privacy
   The type of dwelling you choose – house, condo or townhouse – will have a major impact on how much privacy you have. Will someone always notice when you’re coming and going and whether you’re home or away? Will you be able to play your music at the volume you want, turn up the TV and have parties without disturbing your neighbors? Will your neighbors be able to see what you’re doing even while you’re indoors or in your backyard?

   Keep in mind that privacy goes both ways – do you want to be subject to the intimate details of your neighbors’ lives?

   If you buy a home in a multi-unit building, your level of privacy will vary with the overall size and layout of the building, the quality of construction materials used, your unit’s location in the building and the behavior of the community (do people keep to themselves, or does everyone know each other?). In a single-family house, factors such as lot size, number of stories, fence height, vegetation, the location of the home’s windows and doors and whether the home is on a cul-de-sac or in a gated community can all impact its level of privacy.

   A house will usually offer more privacy than a condo or townhouse, but not always. Homeowners who want to live near the heart of the city often trade off privacy for location since urban areas tend to be more densely populated than suburban areas. 

3. Dwelling Type
   Whether you choose a house, condo or townhouse will also affect your lifestyle, your home’s resale value and your monthly finances.

   If you choose a condo, it will be difficult-to-impossible to have a backyard barbecue or a nice patch of grass for the dogs – in fact, it may not be possible to have dogs at all.

   Condo life means your exterior maintenance responsibilities are limited – there’s no repainting the house, replacing the roof or mowing the lawn – but you’ll still have to pay for all of these things in the form of monthly homeowners’ association fees. You’ll also have to pony up extra cash if a major repair comes up and the homeowners’ association is short on funds. So while many people think that living in a condo alleviates the burden of having to suddenly pay for major home repairs, whether that ends up being true actually depends on how well your homeowners’ association is managed. 
   Also, condos and townhouses can be more difficult to command top dollar for when you go to sell because there may be other units for sale that are identical to or very similar to yours. The larger your building, the more true this becomes. The same can also be true in neighborhoods of tract houses, but even tract houses with the same floor plan will often have more distinguishing features than condo units within the same building.

   Since condos and townhouses are often cheaper than houses, first-time homebuyers commonly make the tradeoff of choosing the former over the latter.

4. Price
   The cost of the home ranks at the top of most people’s lists in importance. A better location and nicer amenities will increase a home’s price. If you’re not wealthy, you’ll have to sacrifice some of the things you want to stay within your budget. Be realistic about what you can get for your dollar and remember to rely on your own calculations of what you can afford, not your lender’s estimate. 

The Bottom Line
It’s rarely possible to find a completely perfect home for your needs, tastes and budget, and it’s OK to make tradeoffs. Think about your priorities before you start your home search, but be flexible and willing to change your mind once you see what your true options are – viewing actual properties can shift your priorities. And remember that if you can only find places that require too many compromises, it’s OK to wait – new homes come on the market every day http://financialedge.investopedia.com/financial-edge/0810/Homebuyer-Tradeoffs-What-Will-You-Have-To-Sacrifice.aspx