Finance and Economic

A new task force on financial literacy will develop a national strategy to help Canadians learn the basics when it comes to financing a new home, balancing the cheque book and saving for retirement.

"Our economy is built on millions of everyday financial decisions by Canadians. Recent events have shown us that financial decisions carry risk," Finance Minister Jim Flaherty said in Toronto yesterday.

A foundation of financial literacy "will make the Canadian financial system more stable, more competitive and make the economy stronger," he added.

Donald Stewart, chief executive of Sun Life Financial Inc., will serve as chair of the task force. It has 13 members, drawn from business, education, community organizations and academia.

"Our focus is going to be on practical solutions for real people in real life," he said.

While education falls within the provincial domain, he expects co-operation from all sides. "It’s very important that the government get the best advice available and do this with the co-operation of the provinces," Flaherty said acceptance car insurance.

The task force is expected to deliver its findings in the fall of 2010.

Task force member Bill Schwartz developed lesson plans for "The City," a website that helps teachers teach and students learn financial life skills. The program, which took more than five years to develop, is mandatory learning for Grade 10 students in British Columbia.

It can be a challenge to convince education ministers "that teaching financial life skills is as important as teaching reading and history," said Patricia Bowles, director of communications and education for the B.C. Securities Commission, which spearheaded the program.

"It’s way better to graduate young people with those skills as they go into a job or post-secondary than to try to teach somebody in mid-life."

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WASHINGTON–Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending.

The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending.

The Commerce Department said Friday that consumer spending rose 0.3 per cent in May, in line with expectations. But incomes jumped 1.4 per cent, the biggest gain in a year and easily outpacing the 0.3 per cent increase that economists expected.

The savings rate, which was hovering near zero in early 2008, surged to 6.9 per cent, the highest level since December 1993.

The income increase reflected temporary factors relating to the $787 billion economic stimulus program that President Barack Obama pushed through Congress in February to fight the recession. That program included one-time payments to people receiving Social Security and other government pension benefits.

"Personal tax cuts and government income support have brought consumers back from the dead, but the recuperation period promises to be a long one," said Sal Guatieri, an economist at BMO Capital Markets.

The big jump in the savings rate also made Wall Street investors nervous. The Dow Jones industrial average lost about 60 points in morning trading. Broader indices also edged down.

The stimulus package also featured reductions in payroll tax withholding designed to get people to start spending more money and boost the economy. Those factors helped increase after-tax incomes 1.6 percent in May. However, without the special factors, after-tax incomes would have risen just 0.2 percent.

The savings rate, which is a percentage of disposable income, rose to 6.9 per cent from 5.6 per cent in April. Last month's savings rate was far above recent annual rates, which dipped below 1 per cent from 2005 through 2007 as a booming economy and soaring home prices pushed Americans to spend most of what they earned.

Those factors have been reversed amid the longest recession since the Second World War. Triggered by a housing bust, the downturn has depressed home prices by the largest amounts since the Great Depression.

Still, private economists viewed the 0.3 per cent rise in spending in May as encouraging after no change in April and a 0 payday loans.3 per cent drop in March. April had originally been reported as a drop of 0.1 per cent. It was the best monthly performance since spending rose by 0.4 per cent in February.

Consumer spending is closely watched because it accounts for about 70 per cent of total economic activity. Economists are hoping that improved spending will help support a rebound in economic activity.

Nigel Gault, chief U.S. economist at IHS Global Insight, forecast that consumers would remain cautious going forward but that even dampened increases in spending should be enough to jump-start economic growth.

"We do expect spending to creep slowly higher in the second half of the year as the labor market deterioration becomes less severe," he said in a research note.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 5.5 per cent in the January-March quarter, slightly less severe than the 5.7 per cent decline estimated a month ago.

However, the 5.5 per cent drop in the first quarter followed a 6.3 per cent decline in the last three months of last year, the worst six-month performance for the GDP in more than a half-century.

Economists believe that the 0.3 per cent rise in spending in May will help bolster the economy in the second quarter and will translate into a smaller drop in GDP of around 2 per cent during this period. Economists believe that GDP will begin growing again in the second half of this year, signaling an end to the recession that began in December 2007.

However, the rebound is expected to be subdued. That's because unemployment, already at a 25-year high of 9.4 per cent, is expected to continue rising, pushing worried households to save even more against the threat of further layoffs.

Reduced spending has been tough on the nation's retailers, who have been forced to lay off workers and shut stores. Drugstore operator Rite Aid Corp. said Wednesday that it narrowed its fiscal first-quarter loss by closing stores and trimming other operating costs as it works to eliminate $6 billion in debt.

Still, the weak economy has kept a lid on prices. An inflation gauge tied to consumer spending edged up 0.1 per cent in May compared with April.

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Dr. John P. Lynch was named vice-president and chief medical officer at Barnes-Jewish Hospital. He will assume his new post on July 1.

Lynch, a faculty member of Washington University School of Medicine, has been on staff at Barnes-Jewish Hospital since 1995.

Lynch is board certified in internal medicine, pulmonary medicine and critical care medicine, as well as being a Fellow of the American College of Physicians cash advance no fax.

Lynch received his medical degree from Georgetown University. He completed his residency at the former Barnes Hospital and a fellowship in pulmonary and critical care medicine at Washington University School of Medicine.

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Stifel Financial Corp. says 95 percent of its clients stuck with auction rate securities have signed up for the firm’s three-year buyback plan. But Missouri Secretary of State Robin Carnahan calls that plan "drawn-out and inadequate," and she’s continuing her suit against the firm.

The case involves 1,200 Stifel clients whose investments were frozen early last year when the auction rate bond market collapsed. Clients now own $170 million in bonds they can’t sell, although the bonds are still paying interest.

Stifel, parent of the Stifel Nicolaus & Co. brokerage, has offered to buy back the investments at the original price over the next three years. About 40 percent of clients will have received all their money back when the first phase of the buyout is completed by June 30, the company said.

Ron Kruszewski, Stifel’s CEO, said the high client acceptance rate is a "clear endorsement" of the company’s buyback plan affordable health insurance kentucky. But Carnahan said clients signed up "not because it’s a good offer, but rather because Stifel has given them no other choice."
She is suing to force Stifel to buy back all the bonds immediately.

Stifel blames the situation on other, larger investment firms that ran the bond auction. Those firms knew there was growing danger of collapse and didn’t tell smaller firms such as Stifel, Stifel says.

Carnahan rejects that explanation and notes that 20 other firms have bought back the bonds from their clients.

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The U.S. Justice Department may drop a legal case aimed at forcing Swiss bank UBS AG to reveal the names of 52,000 wealthy American clients suspected of offshore tax evasion, the New York Times reported on Tuesday.

Swiss Finance Minister Hans-Rudolf Merz said at the weekend that U.S. authorities could be willing to strike a deal after Switzerland agreed a new double taxation treaty with the United States last week aimed at fighting tax evasion.

The case could be dropped before July 13, when Judge Alan Gold of the United States District Court in Miami, is expected to hold a short trial on the issue, the New York Times said, citing a United States official briefed on the matter, adding that a deal could still collapse.

“We hope it’s true but we also have to look at what conditions are attached,” a Swiss finance ministry spokesman said, adding it wanted to see official confirmation.

UBS, the world’s largest wealth manager which has seen big client outflows over the U.S. case, declined to comment on the report, while the U.S. Justice Department could not be immediately reached for comment.

“After both governments agreed on a new double taxation treaty last week it now seems as if a compromise could also be found for this case. This would be highly positive news for UBS,” said Kepler Capital Markets analyst Dirk Becker.

However, he added that most of the damage had already been done to UBS’s reputation.

Swiss Economics Minister Doris Leuthard was quoted on Tuesday as saying it will take some time before UBS — one of Europe’s banks hit hardest by the financial crisis — is back to health, but its situation has improved under new Chief Executive Oswald Gruebel cash advance.

UBS shares were up 3 percent at 14.20 Swiss francs by 0745 GMT (3:45 a.m. EDT), outperforming a 0.1 percent lower DJ Stoxx European banking sector .SX7P.

BERLIN SUMMIT

The Swiss agreement last week of a new tax treaty with the United States comes ahead of a summit in Berlin on Tuesday where ministers are expected to renew pressure on nations like Switzerland to weaken bank secrecy and increase tax cooperation.

Deutsche Bank analyst Matt Spick said the U.S. tax agreement increased the chances of a deal but said the U.S. Internal Revenue Service was unlikely to settle early to keep pressure on UBS clients to declare themselves voluntarily.

“This means that a settlement is likely to take place close to the July 13 court hearing date. Furthermore, an unfavorable ruling is still possible, which presents a key risk to the UBS franchise and share price,” he wrote in a client note on Monday.

The Swiss government has warned it could have trouble getting new tax agreements ratified in possible referendums without the U.S. giving ground on the UBS case.

“UBS also has to make its contribution and the USA will move,” Merz told Swiss Sunday paper SonntagsZeitung. 

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Murray Harris had an energy audit done last year and spent $30,000 to install a geothermal heating system at his home in Owen Sound.

He’s not happy. Far from it.

"It is costing more to heat our 2,400 square foot home now than before, when we had an electric furnace and an air-source heat pump," he says.

"We have the hydro bills to prove the higher usage."

While Harris did get a $7,000 rebate from the ecoEnergy home retrofit program, he feels he wasted his money.

Next winter, he plans to switch off his geofurnace and use old-fashioned technology – a log splitter and fireplace insert – to heat his home.

Ron Dembo, on the other hand, is happy with the geothermal unit he installed at his farm.

"The savings are substantial," says the founder of Zerofootprint, which develops carbon management software.

"These kind of cases are very unfortunate," he says about Harris’s disappointing experience.

"Often, they are a result of improper sizing of the units and a lack of expertise on the part of the installers."

Harris contacted the manufacturer, NextEnergy, which sent the installer to check the system.

"The installer verified it was working perfectly. They would only say it is proven technology and they had no control over the cost of heating the house," he says.

Geothermal installations are expensive – typically $25,000 to $40,000 – because of the cost of drilling and burying pipes underground.

In contrast, you will pay about $7,000 to $10,000 to install solar panels on your roof to heat your water in all seasons.

So, how much will you save with solar hot water heating?

"The payback is eight to 12 years," says Rob McMonagle, a senior consultant with Toronto’s energy efficiency office quality business cards.

(He’s referring to the net cost of the investment after government grants and loans.)

Toronto is running a pilot project in the Riverdale area to encourage homeowners to install solar panels.

"We’re experimenting with interest-free loans that are longer than the payback of the product, say 10 years, so there’s positive cash flow from the beginning."

To install solar water heating, your house must meet several requirements:

• The roof must face south, southwest or southeast and must be exposed to good sun and not in the shade of a big building.
• The basement or utility room has to accommodate a large solar tank along with a conventional tank for back-up heating.

Shading will be a big issue as solar water heating grows more popular.

"Canada … doesn’t have `right to light’ legislation," says McMonagle. "There’s no guarantee that someone won’t put up a building and cut off your sun."

Only 20 Riverdale homes have taken up the city’s offer.

"There’s so much money at stake that not a lot of people want to be first on the block. They want to see their neighbours doing it first," McMonagle says.

The lesson for homeowners: Don’t buy energy-saving equipment just because grants subsidize the cost. Ask how long it will take to pay back the investment, using different estimates of future energy costs, and get it in writing.

This wraps up a Sunday series on home energy.

I’ll be back in two weeks with a new Money 911 series.

eroseman@thestar.ca

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Colombia’s central bank cut its benchmark rate by the smallest amount in five months in a bid to spur growth without sparking inflation, and said it doesn’t see additional rate changes in the “near future.”

The seven-member board, led by bank chief Jose Dario Uribe, reduce the interbank rate by half a point to 4.5 percent, matching expectations of 24 of 31 economists surveyed by Bloomberg. Four analysts expected no change, one saw a 0.75- point cut and two expected a quarter-point cut.

Latin America’s fifth-biggest economy shrank for the first time since 1999 in the fourth quarter of 2008 and a report next week may show that gross domestic product contracted again in the first quarter. The slump has cooled consumer spending and slowed inflation to within the bank’s target range, giving policy makers room to continue their longest rate-cutting cycle in more than six years.

“A good part of the effect of the rate reductions on the economy will be seen in the coming quarters, and with the information available to us up to now, we don’t expect changes to the benchmark rate in the near future,” bank chief Uribe said today at the central bank in Bogota after the rate announcement.

The government has reduced its official economic growth forecast for 2009 twice, from 5 percent in October to 0.5 percent now, and may cut it further once first-quarter GDP data is released later this month.

‘Fine Tuning’

Policy makers expect to see the effect of lower interest rates on the economy in the quarters ahead, as the economy recovers and inflation continues to fall toward their target, the bank said in a statement after the rate announcement.

“The central bank said very clearly it considers the current level already expansionary,” said Jimena Zuniga, Latin America economist at Barclays Capital in New York. “What we’re seeing now is fine tuning rather than shock therapy.”

Finance Minister Oscar Ivan Zuluaga, who is also president of the bank’s board, on June 16 said the economy is expected to improve in the second half and that GDP may expand 2.5 percent in 2010.

“Given the green shoots we’re observing in the global market and the up-tick in commodities, these suggest the economy will enjoy some tailwinds going forward,” said Zuniga, who expected the half-point reduction today.

Target

The economy saw record growth through 2007 when GDP expanded 7.5 percent, a three-decade high. President Alvaro Uribe’s improvements in security created a boom in consumer spending, construction and industrial output.

That in turn sparked annual inflation last year that hit 7 guaranteed approval payday loans no teletrack.7 percent, its highest in eight years. The central bank raised rates 16 times to bring prices under control.

Zuluaga said inflation should end this year at 5 percent and end 2010 at 4 percent. The board targets inflation this year of 4.5 percent to 5.5 percent. It has missed its annual target two years in a row.

After pushing the benchmark rate up to 10 percent last year, policy makers kept it at that level — the highest since August 2001 — until half-point cuts in December and January.

Before today, the bank trimmed the rate by a full point at each of the last four monthly meetings.

‘Time Lag’

Now, after seven straight rate cuts, bank chief Uribe has cautioned against keeping rates low for too long, saying that by encouraging borrowing policy makers run the risk of fueling inflation.

“We have to take into consideration the time lag in the effects of the central bank’s decisions,” said Mario Nigrinis, an economist at BBVA Colombia. “If they are lowered too much, then they will need to be raised later and that creates market instability.”

Policy makers may signal that they will pause after today’s cut or say that the easing cycle is coming to an end, Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York, wrote in a report ahead of the meeting.

“The bank has to consider 2010 inflation,” Nigrinis said.

Colombia’s consumer prices rose 0.01 percent in May from the previous month and the annual inflation rate eased to 4.77 percent from 5.73 percent in April.

Still, Camila Estrada, chief analyst at Banco de Credito de Colombia SA, thinks the economy still needs help.

Exports, industrial output and retail sales are weak and the economy expanded just 2.5 percent in 2008 as the global economic slump choked bank lending and sapped consumer confidence, she said.

Retail sales fell 7.1 percent in April from the year- earlier period, while industrial output fell 14.5 percent in April from a year earlier, the biggest decline in a decade, the national statistics agency said yesterday.

Bank chief Uribe said that output has “hit bottom,” in comments to reporters in Bogota today.

“The need for monetary stimulus hasn’t finished yet,” said Estrada, who sees the bank cutting the rate to 4 percent this year. “The economy remains in poor shape.”

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Mexico’s central bank will probably reduce its benchmark interest rate for a sixth consecutive month in a bid to revive a shrinking economy plagued by falling exports, plunging remittances and a swine flu outbreak.

The bank’s five-member board, led by Governor Guillermo Ortiz, will cut the overnight rate a half percentage point to 4.75 percent, according to 20 of 22 economists surveyed by Bloomberg. One analyst expects a quarter-point cut and one forecasts a 0.75 percentage point reduction.

Latin America’s second-biggest economy shrank the most since the 1995 Tequila Crisis in the first quarter, industrial output has tumbled for nine straight months and sales of goods abroad have fallen by more than a third in the last year. Policy makers have room for a half-point cut because they remain more concerned about the recession than increases in consumer prices, said Pedro Tuesta, an economist at 4Cast Inc. in Washington.

“They can’t cut a quarter point because the economy is still a wreck,” Tuesta said. “All the data is bad. The recovery isn’t going to be robust.”

Policy makers won’t reduce borrowing costs by more than a half point after saying last month that they may slow the pace of cuts from 0.75 percentage point, Tuesta said. The bank has lowered the overnight rate by 0.75-point for three straight months.

Economy

The economy has plummeted and job losses have accelerated this year as the recession in the U.S., which buys around 80 percent of Mexican exports, saps demand for products.

The economy contracted 8.2 percent in the first quarter from the same quarter a year earlier, prompting Goldman Sachs Group Inc. to forecast that Mexico’s gross domestic product will contract 8.5 percent this year, the most since 1932.

Remittances from abroad, the second-biggest source of dollars coming into Mexico after oil exports, fell a record 19 percent in April. Industrial production in April fell 13.2 percent, the most in 14 years and second-lowest reading since March 1983. Consumer confidence dropped to the lowest level ever in May. Mexican production of cars and light trucks fell 39.4 percent last month from May 2008, the nation’s Automobile Industry Association said no fax cash loans.

The swine flu outbreak in April and May also battered the economy as the government shut schools, restaurants and theaters and foreign tourism revenue plunged. The flu may reduce GDP by 0.5 percent this year, Ortiz said last month.

Inflation

Mexico’s central bank, unlike the U.S. Federal Reserve, has only one mandate: to keep inflation in check.

Still, according to Benito Berber, an economist at RBS Greenwich Capital Markets, consumer prices aren’t a big concern for policy makers with recession choking off domestic demand.

“Inflation is sticky, but who cares,” said Berber, who is based in Greenwich, Connecticut. “The bank should only worry about inflation when it has to do with demand because that is what the rate can affect.”

Ortiz said in a June 11 interview that inflation will slow at a “rapid rate” and that a recent rise in global commodities prices is “less threatening” than when those costs reached their peak. The effect of a weaker peso on prices has mostly ended, he said.

Annual inflation slowed to within the bank’s second-quarter forecast of 5.5 percent to 6 percent for the first time in May as the monthly rate fell the most in two years. Ortiz said inflation will meet the bank’s forecast for the quarter.

The central bank forecasts an inflation rate of as high as 5.25 percent in the third quarter, as high as 4.5 percent in the fourth quarter and as high as 3.5 percent at the end of 2010.

Policy makers will cut borrowing costs to 4.5 percent by the end of the year, according to the median forecast of economists surveyed by Citigroup Inc.’s Banamex unit. BBVA Bancomer SA, Mexico’s largest lender, forecasts the rate will remain at 4.5 percent until the fourth quarter of 2010.

Lower interest rates can help prompt businesses to invest and consumers to buy on credit. Cheaper loans also can spur inflation by strengthening demand.

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some rays of hope for the unemployed. Can the recovery last? Most important: Where are the jobs?

Get the answers when Anderson Cooper and Ali Velshi host our panel of experts and check in on virtual town halls across the country.

Thursday, June 18 at 8p.m. ET

NEW YORK

Morgan Stanley is planning more changes in its prime-brokerage division to get back some of its hedge-fund clients that left the company last year, the Wall Street Journal said.

The company plans to announce as early as Wednesday that hedge-fund clients will be allowed to hold part of their assets in Morgan Stanley Trust National Association, a trust company owned by Morgan Stanley, according to the paper. Previously, such assets were held in the firm’s brokerage units, the paper added.

While Morgan Stanley’s bond and stock prices indicate that investors have grown more confident about the firm, the new option for hedge-fund clients will offer “a belt-and-suspenders approach” for those who still are concerned about protecting their assets, Rich Portogallo, Morgan Stanley’s head of institutional clients and services, told the paper fast payday loan no faxing.

Morgan Stanley is expected to charge additional fees for clients that leave their securities in the trust company, the paper said.

Morgan Stanley, which became a bank-holding company last year, lost some of its prime brokerage assets in the weeks after the collapse of Lehman Brothers that shook Wall Street’s broker-dealer model.

(Reporting by Chakradhar Adusumilli in Bangalore; By Saeed Azhar)

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