Briefly:

Previous Brieflies this week: | MON | TUE | WED | THU |

(October 16, 2008) Advisors might be excited about the new Tax-Free Savings Accounts that come into effect on January 1, but how about your clients?

According to a new Investors Group poll, only 46% of Canadians plan to open a TFSA, while 17% of those expect to invest the full $5000 amount.

The poll found that the main reason why people weren’t planning to use the savings tool is that they don’t know enough about the new accounts, with 46% of those surveyed saying they were uncertain about how it worked. Only 21% of people said lack of funds was the reason they weren’t going to open a TFSA.

Of the people who were planning on using the TFSA, 78% said they were doing so in order to save taxes.

Besides the tax savings, the purpose of the TFSA differed with age. Twenty-five percent of young adults, aged 18 to 25, said they were going to use the account to help them save for a down payment or for education (22%), while older Canadians revealed that retirement savings was the main motivation to invest in a TFSA.

The report also found that 60% of people said they would seek out an advisor to help them open and manage their TFSA.

• • •

American recession worse than expected

(October 16, 2008) By now it’s clear the American rescue plan didn’t have the positive short-term effect on the market that most people had hoped for. If anything, equity’s downward spiral proves that the U.S. economy is in worse shape than anyone thought.

Sherry Cooper, chief economist at BMO Nesbitt Burns, says the economy is heading toward a “deeper and more protracted recession than expected,” pointing out that in the last couple of days, statistics have shown that retail sales, industrial production and employment have all fallen.

Over the last three weeks, America has seen declines in shipping, homebuilding, auto sales, manufacturing, trucking, technology and restaurants.

She says unemployment is on pace to hit the 8% range, and the credit crisis has hit businesses hard.

Still, the rescue plan could help, though it won’t happen quickly. “While very dramatic actions have been taken by financial authorities worldwide, it will take some time before the free flow of credit emerges, and even more time until the economy recovers,” says Cooper. “It is painfully obvious that the ‘decoupling’ of other economies and financial markets was wishful thinking. The housing and credit bubbles have popped; now the stock market shock is adding to consumer and business woes.”

Unfortunately, the worse America gets, the tougher it will be for Canada to stay above water. Throw in the declining global interest in commodities, and the “boom has turned to a bust.”

Cooper says Canada is headed for a recession and will need to revisit deficit spending. “We are not immune to the global difficulties, and the sooner we realize that and take action to mitigate the domestic damage, the better,” she says. “We have a very sound banking system, and far more prudent households [than in the U.S.], but we are fully globalized in our financial and economic dealings.”

Canada’s recession won’t be as bad as the States’, but 2009 will be challenging, she points out, adding that we can expect a “multi-year adjustment to the new world of reduced leverage. The current crisis will mark the end of an era.”

• • •

National Bank and Desjardins settle dispute

(October 16, 2008) National Bank Financial and Desjardins Securities have come to a settlement in a case involving advisors who defected from one company to the other.

In 2004, several investment advisors left National Bank to join Desjardins, which caused National to pursue litigation.

In a joint statement, Luc Paiement, co-president and co-CEO of National Bank, and Germain Carrière, president and CEO of Desjardins, said, “Under the present circumstances, it is better to prioritize both our human and material resources. We believe it is more important to devote our energies to helping our clients and employees deal with the current period of turmoil in the financial markets. With this in mind, we decided to put an end to this dispute and turn the page.”

• • •

BoC should lower overnight rate to 2%: C.D. Howe

(October 16, 2008) The Bank of Canada’s overnight interest is already low, but the C.D. Howe Institute wants to see it drop even more.

The organization says that the BoC should lower its target for the overnight rate to 2% when it makes its next announcement on October 21.

C.D. Howe’s Monetary Policy Council says Canada faces falling real GDP growth in 2009 and a stagnant nominal GDP growth, so something needs to be done to support the country’s financial system.

Besides a rate cut, the council supports a government guarantee of interbank lending. “Notwithstanding the relatively strong position of Canadian financial institutions, members noted that government guarantees in other countries threatened to make Canadian institutions look like less attractive counterparties, which would exacerbate the stresses and high spreads afflicting the interbank market,” said the MPC in a release.

A lending guarantee would create a more “favourable environment for environment for monetary stimulus” by the BoC, says C.D. Howe, and it would ensure that “movements in the overnight rate exerted their desired effect on interbank, business and consumer lending rates.”

(10/16/08)