CSI Blog & Newsroom

“Federal Reserve Chairman Ben S. Bernanke is putting investors on notice that the central bank is prepared to begin phasing out one of the most aggressive easing programs in its century-long history later this year,” Craig Torres and Jeff Kearns wrote for Bloomberg late last week. The writing team continued, “The Fed will probably taper its $85 billion in monthly bond buying later in 2013 and halt purchases around mid-2014 as long as the world’s largest economy performs in line with Fed projections, Bernanke told reporters yesterday in Washington after a two-day meeting of the Federal Open Market Committee. ‘The vast, highly unprecedented, highly accommodative monetary policy stance that’s been so supportive of the recovery has begun to turn,’ said Michael Gapen, senior U.S. economist for Barclays Plc in New York and a former economist in the Fed’s Division of Monetary Affairs. “The markets for the next several years or more will have to deal with the withdrawal of that support.’ Stocks and Treasuries tumbled at the prospect of a wind-down in bond buying that’s swollen the Fed balance sheet to a record $3.41 trillion in an attack against the worst joblessness since the Great Depression. While citing waning risks to the economy, Bernanke said curbs to bond buying hinge on gains in the labor market and a pickup in growth.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

“President Franklin D. Roosevelt set the standard for the first 100 days in office with an unprecedented whirlwind of legislative activity that sought to make good on his pledge for ‘action and action now’ to combat the Great Depression,” Michael Perino wrote for Bloomberg online late last week. Perino continued, “June 16 marks the 80th anniversary of that era, which came to a close when Roosevelt signed the Banking Act of 1933. That groundbreaking financial reform is more commonly known for its Democratic co-sponsors, Senator Carter Glass of Virginia and Representative Henry Steagall of Alabama. These days, it is mostly remembered for just one of its provisions, the separation of commercial and investment banking, designed to wall off customer deposits from the risk-taking inherent in securities underwriting. The debate over the 1999 repeal of that reform still rages. Yet in 1933, the most controversial feature of Glass-Steagall was the creation of federal deposit insurance, which has been wildly successful and has virtually eliminated the repeated bank runs that swept the country in the decades before the bill’s passage. Even the ardent free-marketeer Milton Friedman called it ‘the most important structural change in the banking system’ of the New Deal. Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

“Are free-trade agreements protectionist? It sounds like a silly question, but it’s always worth asking of regional (as opposed to global) trade pacts — like the ones the U.S. is seriously considering with the European Union and the Pacific Rim,” Evan Soltas wrote today for Bloomberg’s online news site. Soltas continued, “Economists are often mocked for free-trade worship, but they’re skeptical when appropriate. Jacob Viner, a University of Chicago economist, argued in 1950 that free-trade agreements don’t necessarily promote free trade. Trade deals have two effects, he said: They create trade by lowering the cost of international exchange, but they also divert it by the selective reduction of barriers. Whether the first or the second effect predominates determines whether the deal is good or bad.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

“Royal Bank of Canada, the country’s largest mortgage lender, is raising its rates and analysts say other banks are likely to follow suit, leaving the threat of a mortgage rate war firmly in the past,” Tara Perkins, The Globe and Mail real estate reporter wrote for the publication at the end of last week. Perkins continued, “The special rate on RBC’s four-year closed mortgages will now rise 10 basis points, to 3.09 per cent, while its five-year special rate will rise 20 basis points to 3.29 per cent. (A basis point is 1/100th of a percentage point.) The posted rate on a one-year mortgage is going up fourteen basis points to 3.14 per cent, while the posted rates on two- and three-year mortgages are each rising by 10 basis points, to 3.14 and 3.65 per cent respectively. The new prices take effect June 10. Mortgage rates became a major point of contention earlier this year when some lenders ratcheted theirs down to all-time lows, and received a scolding for doing so from Finance Minister Jim Flaherty, who has been trying to cool off the housing market. When Manulife Bank cut its posted rate on five-year fixed-rate mortgages to 2.89 per cent in March it received an angry phone call from Mr. Flaherty’s office and quickly pumped its rate back up to 3.09 per cent. Bank of Montreal allowed a special rate of 2.99 per cent to expire amid the controversy. At an event in Halifax on Thursday Mr. Flaherty said the banks are now being very ‘prudent in not reducing their rates.'” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

“The Bank of Canada now has plenty of ammunition to justify (at long last) removing its tightening bias when it issues its latest interest-rate policy statement Wednesday morning. But it won’t. The reasons may be sound, but the timing is not,” David Parkinson wrote for The Globe and Mail published online early last week. Parkinson’s article continued, “First, the sound reasons – some of which are hot off the presses. On Tuesday, the Bank of Canada published monthly data showing that household credit in April posted its slowest year-over-year growth in 17 years. Outstanding balances in both mortgage and non-mortgage debt declined; mortgage debt is now growing at its slowest pace since 2001. The overall pace of household credit growth is now 4.1 per cent year over year – roughly half of what it was three years ago, and down from 5.4 per cent a year earlier. Clearly, the efforts by the Canadian government and the Bank of Canada to cool household debt – considered by both to be the biggest risk to Canada’s financial stability – are working. Also on Tuesday, Statistics Canada reported that corporate profits in the first quarter slumped 1.2 per cent from the fourth quarter, and 3.3 per cent from a year earlier. The lack of profit momentum bodes poorly for both employment and business investment, suggesting tenuous traction for economic growth in the coming months.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

“This year’s iteration of the annual Canadian Telecom Summit, which kicks off on Monday, is pretty wanting in the consumer representation department. Public Interest Advocacy Centre director John Lawford, who is sitting in on a couple of panels, is perhaps the lone voice of the public—Wind Mobile’s two representatives could maybe be included—in what is otherwise an industry love-in,” Peter Nowak wrote for Canadian Business, published online today. Nowak continues, “The agitators over at Open Media, meanwhile, confirm they weren’t invited to take part, which is too bad because that definitely would have made for some entertaining proceedings. The event also isn’t welcoming to the average Joe, with tickets coming in at a whopping $2,542.50—a price tag specifically designed for corporate expense accounts. Still, some meaningful news sometimes comes from the event. This year, Rogers is kicking things off with ‘Connected for Success,’ a pilot project that will give some of the most disadvantaged residents of Toronto access to cheap broadband. In conjunction with Toronto Community Housing, the company will provide qualifying residents connections of 3 megabits per second and 30 gigabytes of usage for $9.99 a month. Microsoft and Compugen are also joining in on the project, providing computers at $150 a pop. Some training and technical support will also be included through the Rogers Youth Fund and Rogers Tech Essentials website.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS