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Monthly Archives: October 2010

Odette Morin

The new CPP rules explained

Here is a great article and a summary of the new versus old CPP rules:

Current Rule – To apply for CPP retirement benefits you MUST stop working for a period of 2 months or your income must be below $934/month for those 2 months. That is the “Work Cessation Test”.

New Rule – The “Work Cessation Test” is removed as of 2012.  You can apply for CPP without stopping work.

Current Rule – Once you start collecting CPP retirement benefits you do NOT make any further CPP Premium contributions.

New Rule – As of 2011 a person receiving CPP monthly retirement benefits who continues working will be required to pay CPP Premiums (and the employer too).  These additional premiums will increase the person’s CPP retirement benefit beginning the following calendar year.

Current Rule – A person taking early CPP benefits will have the monthly benefit reduced by 0.5% for every month that the benefit is taken prior to 65.  So a person collecting CPP at age 60 will have their maximum benefir reduced by 30% (60 months x 0.05%) Persons who delay collecting their benefit beyond age 65 will have the monthly benefit increased 0.5% for every month that the benefit is taken beyond age 65. 

New Rule – A person taking early CPP benefits will have the monthly benefit reduced by 0.6% for every month that the benefit is taken prior to 65.  So a person collecting CPP at age 60 will have their maximum benefir reduced by 36% (60 months x 0.05%) Persons who delay collecting their benefit beyond age 65 will have the monthly benefit increased 0.6% for every month that the benefit is taken beyond age 65.  This will be phased in gradually between 2012 to 2016.

CPP_New__Old_Rules_2011_2012.PDF

Odette Morin
Odette Morin
Odette Morin

‎5 biggest financial mistakes made at retirement:

1. Retiring with too much debt

2. Not taking inflation into account

3. Depending too much on one source of income

4. Too much risk with investments

5. Not enough diversification

When planning for 20 to 30 year retirement horizon, maybe ever more, It is essential to be conservative and plan for the worst case scenario. 

Odette Morin

Tuning in the good news

Today, many Canadians are pessimistic about global economies. These feelings may be driven by headlines about slow economic growth, depressed housing prices, high unemployment and deficit problems in the U.S. and Europe.

This pessimism is amplified by the intense media coverage given to voices of gloom such as economic commentators Nouriel Roubini and David Rosenberg.  As a result, it’s easy to miss some of the good news beyond the headlines.

On September 13, 2010, at the Montana Economic Summit, Warren Buffett, GE’s Jeff Immelt and Microsoft’s Steve Ballmer all expressed very positive views about what’s happening at their companies. Given the attendees and their comments, the most striking thing about this conference was the lack of media coverage. I suspect media are so pessimistic that they tune out good news. 

Anthony, Terry and I attended a number of conferences recently.  Here are a few comments we collected for you from those who manage your money. I have added a few comments from the Montana conference as well.

From the Montana Summit

“I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board” – Warren Buffet, Bershire Hathaway

“We will see new technologies that move beyond the Internet to tie together computers, phones, televisions and data centers to create amazing new products. And the pace of innovation will increase as technology makes workers more productive.” “Business at GE is improving. Signs across the world show growth improving as evidenced by a rise in GE’s orders.” “GE is now finding it profitable to build manufacturing and service centers in the United States rather than overseas, because it is more competitive to do so.” Jeff Immelt, GE

Comments from Eric Bushell, CI Funds portfolio manager

Macro Economic overview

There will be a major public sector adjustment mostly in the US and in Europe following the bailouts.  With government having recently added having added anywhere from 10% to 30% to their debt-to-GDP ratios.  There will be belt tightening measures for the next couple of years. 

The fiscal & public sector drag will cause low growth and low inflation.

· This is a global issue not just a Greek issue.

In Europe

· Jean-Claude Trichet of the European Central Bank (ECB) is doing a very good job at fixing both the banking system and the public sector.  The 750 Billion Stability fund has not been drawn upon yet and has received a AAA rating. It will help stabilize the bond market, provide liquidity, and bring calm. The bail out comes with term and conditions attached for the countries who will need them. 

· Mr. Trichet also coordinated stress tests for European banks, and chaired the Basel Capital Committee that set out new capital regulations for banks.  This will help both private banks and public banks compete on level ground.  There will be lots of mergers happening to strengthen the balance sheet.

In the USA

· The US will not face a Japan style liquidity trap and deflation.  In Japan, it took 15 years to fix their banking system.  It is a country with no developed debt market.  The US has the most developed debt market in the world.  Also, Japan took 5 five years to get real interest rates to go negative, while U.S. interest rates were reduced to record-lows shortly after the financial crisis started.

· Ben Bernanke, Chairman of the U.S. Federal Reserve learned in his studies that to get out of such crisis, you need to overdo the stimulus. The debate is, are we in a liquidity trap? We are not currently. It is too early to judge.  Let’s be patient. Banks have repaired their capital.

· We have seen the lows of bond yields and inflation will remain low in the short-term but will go up in the mid-term.  Long-term inflation is expected to be around 2%, so yields of 2% on 10-year bonds don’t even compensate for inflation expectations.

· Expect to see a lot of buy-backs, mergers and growth from low debt, high cash flow companies.  There are a lot out there currently.  This will be good news for equity performance.

· The recovery is underway, private sector jobs will go up but the public sector jobs will go down for a while due to cuts to pay the bail out and infrastructure investments made.

In Asia

· China is on a course of continued growth.  The consumer spending story will soon take over the export story.  Consumer goods companies with dealings in China will benefit strongly.  We are in the very early phase of a very strong growth for China. 

· China has consistently been a force of stability.  They put the brakes on their own economy earlier this year by tightening bank lending and by taking measures to cool their housing market.  They also bought European government debt when no one else wanted to buy it in the spring and summer. 

In Canada

· Several Canadian balanced funds are overweight in high quality large cap equities and underweight in bonds, with some cash for opportunities.

· Now that the Basel rules are clear on what the capital (reserve) ratios are, the Office of the Superintendent of Financial Institutions (OSFI) has lifted the restriction on dividend increases, buyback or M&A activity for Canadian banks.  Analysts are predicting a dividend increase from the big banks in the near future.

· With a strong Canadian dollar and a slowing economy, Canadian interest rates will stay lower for longer.  This will help reduce stress on household finances.  However, the HST in BC and Ontario, along with other factors may soften those housing markets. 

My notes from Dynamic Conference

· Dr. Martin Murenberg – Chief Economist Dundee Wealth: No double dip in sight, the policy makers won’t allow it. The US dollar will remain weak. The current recovery will be slow at first, recovery pauses are normal but the Bull Market is a long-term trend.

· Rohit Segal – Canadian Banks are in a “sweet spot”. They yield more and are cheaper than fixed income instruments – The big story is the BRIC countries who will drive global growth.

· Oscar Belaiche – We protect capital and invest for income.  Income investing is like the dairy farmer who owns a milk cow that will produce milk for many years to come. He’s unlikely to be very concerned with what the price of beef is doing since he’s in the business of producing milk.  We see ourselves as the milk man.  We want good and steady yields from our investment without worrying about the current price of the underlying asset. 

It’s not realistic to suggest there won’t be challenges ahead, both for global economies and for stock markets. I believe today’s pessimism is overdone and remain positive on the long-term outlook for the global economy.

It is crucial that your portfolio is rebalanced and optimized periodically, at least each year.  Take the time to book an appointment or return the portfolio adjustment forms we send you periodically.

It has been a very difficult year for investment returns.  We are committed to making sure that you participate in the recovery. Thank you for your confidence!