Canada – Page 27

Questrade – Cash withdrawing is timely

Out of all the issues (1, 2) that Questrade has, cash management is not one of them. I have made several cash withdrawals through the course of late 2010 and 2011 as I have exited my debenture positions and they have been deposited via EFT to my bank account in a timely fashion.

I have been scouring the internet and have been reading nothing but trouble stories from people as they have done significant back-office migration since early February. It generally does not inspire confidence, which is why I entrust most of my idle cash balances to Ally (up to the CDIC limit!) and Interactive Brokers.

As long as you keep your transactions simple with Questrade, you should have no problem with them. If there is anything out of the ordinary or anything that could possibly warrant human interaction, then your mileage will vary – greatly.

Bank of Canada leaves rates at 1%

As predicted, the Bank of Canada leaves rates at 1%, citing:

The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand. While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes. Business investment continues to expand rapidly as companies take advantage of stimulative financial conditions and respond to competitive imperatives. There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities. However, the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.

While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank’s expectations. Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy.

This language is similar to the previous release, and suggests that at the April 12th release that the Bank of Canada, barring any major events between now and then, will be keeping rates steady at 1% for that meeting.

BAX Futures are a shade higher, although it should be noted that the June future is at 98.545, implying a coin toss for a 0.25% rate hike at the May 31, 2011 announcement.

Bank of Canada Interest Rate Projection

I am projecting that the Bank of Canada will leave the short term interest rate target at 1%. Their next policy rate announcement is on Tuesday.

BAX Futures for March are at 98.67, which suggest a low probability of a rate hike, but I stated before that I very much doubt the Bank of Canada will move until the 10-year benchmark yield is over 3.5% – with the geopolitical instability in North Africa, rates ended last Friday at 3.29%.

Especially with the Canadian currency at relative highs against the US dollar (which has a dampening effect on the export-driven Canadian economy) a rate hike seems unlikely at the moment, but the wording of the text may suggest that the next meeting may consider a hike if conditions warrant, beyond the already existing language.

Financial Literacy

The government of Canada commissioned a task force to study the issue of financial literacy in Canada. The report they released can be found here.

I will restrain my comments to say that just as how (in Western Europe) illiteracy was reduced from about 2/3rds in the 18th century to less than 10% today, I would estimate the financial literacy of Canada as being quite low.

By improving financial literacy, people will have a toolbox to make more efficient decisions. Just like literacy today, where you can be bombarded with outright false information, a financially literate population can be bombarded with financial garbage (such as scams that promote a risk-free 30% annual return), but will be better prepared to discard such trash. This is similar as to how people do not take the items printed on the supermarket tabloids seriously.

Financial literacy is a good idea in concept, but it requires a completely different skillset than written literacy – quantitative know-how. Having the mathematical know-how to properly process financial parameters is not an easy skill to teach. Genetic aptitude towards mathematics greatly helps the process.

Bank of Canada holds steady

The Bank of Canada holds the overnight target interest rate steady which resulted in a very mild decrease in the Canadian dollar as traders positioned themselves when reading the language in the statement.

Specifically:

Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the Canadian economy. Core inflation is projected to edge gradually up to 2 per cent by the end of 2012, as excess supply in the economy is slowly absorbed. Inflation expectations remain well-anchored. Total CPI inflation is being boosted temporarily by the effects of provincial indirect taxes, but is expected to converge to the 2 per cent target by the end of 2012.

This is “fed speak” that is likely “We’re not going to do anything on our next meeting as we see how things unfold.”

BAX Futures have nudged slightly up in reaction to the statement:

Month / Strike	Bid Price	Ask Price	Settl. Price	Net Change	Vol.
+ 11 FE	0.000	0.000	98.590	0.000	0
+ 11 MR	98.620	98.625	98.575	0.050	23240
+ 11 AL	0.000	0.000	98.520	0.000	0
+ 11 JN	98.380	98.390	98.350	0.040	29808
+ 11 SE	98.150	98.160	98.140	0.020	14591
+ 11 DE	97.940	97.950	97.940	0.000	13813
+ 12 MR	97.770	97.780	97.780	-0.010	6012
+ 12 JN	97.630	97.640	97.640	-0.010	1493
+ 12 SE	97.250	97.580	97.520	-0.010	814
+ 12 DE	97.350	97.410	97.370	-0.010	36

I still maintain that long-term rates maintain much more relevancy – 10 year benchmark bond rates are at 3.25%, and it is likely that in order for the Bank of Canada to raise short term rates that the long-bond will need to go higher. It is my guess that the BOC has a silent objective to keep a 2-2.5% yield spread between short term and 10-year rates.