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Category: FYI/Blog

What Ontario’s new probate rules mean

“Valuing an estate for probate used to be relatively simple in Ontario: executors entered the total value of the estate on the application for probate, signed an accompanying affidavit stating the valuation was correct, and that was usually that.
Not anymore. As of January 1st, Ontario executors (known as estate trustees) must file an Estate Information Return detailing the valuation of specific assets in an estate, which affects both executors and testators.” – Advisor to Client

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‘Close call’ for Poloz as rate decision looms

18:23 EST Sunday, Jan 17, 2016

A year ago at this time, Bank of Canada Governor Stephen Poloz stunned the financial markets with a surprise interest-rate cut in the teeth of a tumbling oil price and a slumping economy. Now, with oil’s renewed slide threatening to derail Canada’s 2016 economic prospects, the markets are steeling themselves for a repeat performance from Mr. Poloz this week – though it’s far from a sure thing.
“Consensus is divided. Markets are increasingly expecting a cut. Nobody is telling a story with great conviction. Governor Poloz doesn’t sound like he’ll cut, but maybe he will. It’s not the least bit clear that the benefits outweigh the costs,” Bank of Nova Scotia economist Derek Holt wrote in a research report.
The Bank of Canada will announce its latest interest-rate decision on Wednesday, the first of eight scheduled rate announcements throughout the year.
Up until a couple of weeks ago, it was assumed that the central bank would leave its key rate unchanged at 0.5 per cent, where it has sat for the past six months after a pair of quarter-percentage-point cuts in January and July, although the bank was expected to trim its outlook on the economy. But after a week of further losses in oil and the Canadian dollar, as well as new evidence of the growing unease weighing down Canada’s corporate sector, central bank watchers have come around to a real possibility that Mr. Poloz will cut his rate again this week.
The market is still fairly split on the matter: The yields on overnight index swaps in the bond market imply that traders, as of Friday afternoon, were pricing in a 62-per-cent chance of a cut in Wednesday’s decision.
“It’s still a close call, one we would not day-trade on,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce.
But just a week earlier, they were pricing in a 15-per-cent chance of a cut. The sea change in thinking was triggered by last Monday’s release of the Bank of Canada’s quarterly Business Outlook Survey. The report revealed a marked deterioration in sentiment among Canadian businesses, as the ill effects of the global commodity slump are weighing on investment and hiring intentions, as well as inflation expectations, and are increasingly infecting the non-resource economy. That put the possibility of a near-term rate cut firmly on the table, as Mr. Poloz has always given considerable weight to business sentiment in his approach to monetary policy.
Heightening those concerns is the continued slide of oil prices. Conditions for the energy sector, and everything affected by it, have worsened considerably since the Business Outlook Survey was conducted in late November and early December. In the six weeks since the survey was completed, the price of West Texas intermediate crude has fallen by nearly $8 (U.S.) a barrel, or more than 20 per cent. That has triggered another big sell-off in the Canadian dollar, which dipped below 69 cents on Friday – sparking new concerns that a currency-related rise in costs for imports, especially food, will squeeze Canadian consumer spending.
Still, in recent public comments, Mr. Poloz hasn’t given off the sense of a central banker who’s leaning toward cutting. In his news conference following a Jan. 7 speech, he remained relatively upbeat about Canada’s prospects for an economic recovery fuelled by non-resource export growth. And in the speech itself, he stressed that a flexible exchange rate is the most effective tool to help absorb the shock Canada’s economy is going through. The implication is that he may consider that the currency’s most recent declines will provide the needed stimulus to foster that non-resource export resurgence – perhaps making another rate cut not only unnecessary, but counterproductive.
“The Canadian dollar has already taken a mighty blow, and a further rate cut would risk a much deeper slide … which could ultimately do more harm than good for the economy,” Bank of Montreal economists Douglas Porter and Benjamin Reitzes said in a research note.
At least as important as the interest-rate decision itself will be the bank’s Monetary Policy Report, its quarterly update of its outlook for the Canadian and global economies, which will be released simultaneously with the rate announcement. The bank’s estimates for Canadian economic growth contained in its October MPR – 1.1 per cent for 2015 and 2 per cent for 2016 – now look overly optimistic, given the economy’s deteriorating fundamentals. Most economists now think the economy will be lucky to grow by more than 1.5 per cent this year.
If the Bank of Canada’s forecast agrees with that view, it would suggest that the economy will grow below the pace necessary to absorb the economy’s excess capacity. That would imply that even if it doesn’t cut its rate now, another cut would soon be in the cards unless conditions improve.
“Even if the bank doesn’t actually cut, they will certainly use language to convey a much higher likelihood of a rate cut ahead,” Mr. Shenfeld said.

Eight reasons why a Bank of Canada rate cut is a bad idea

17:26 EST Sunday, Jan 17, 2016

For eight years, the Bank of Canada has been trying to encourage economic growth by lowering interest rates. It’s so not working.
In fact, lower rates are hurting a lot of people more than they’re helping. We have to at least acknowledge this as speculation of yet another rate cut grows. It could come as soon as Wednesday, which is the date of the next rate announcement from the Bank of Canada.
The central bank considers the entire economy when it sets rates. Now, let’s look at things from the point of view of everyday people. Here are eight reasons why the Bank of Canada shouldn’t cut rates any lower.
1. The dollar will fall even more: The most disruptive force in personal finance right now is the falling dollar. That’s because it’s hitting us all in a vulnerable spot – our grocery bill. Helpful for exporters, a weak loonie is a tax on families and snowbirds who must change Canadian dollars into U.S. currency. Last week, the dollar fell below 70 cents (U.S.) for the first time since 2003. A lower dollar adds downward momentum.
2. It’s bad for seniors: By causing the price of imports to rise, a falling dollar puts upward pressure on inflation. If you’re a senior on a fixed income, inflation is your worst enemy. Usually, we get higher interest rates along with inflation. No such luck today.
3. It’s bad for consumer confidence: Things are going wrong in so many aspects of personal finance these days – the stock markets are falling, the dollar is weak, grocery bills are rising. Cutting rates tells people that things are deteriorating even more. Worse, the Bank of Canada appears to be shooting blanks in lowering rates. If the Bank of Canada cuts its overnight rate by 0.25 of a percentage point, it would take the benchmark back to 0.25 per cent. The last time the bank reduced rates to that level was during the height of the financial crisis in early 2009.
4. It’s going to hurt savers: The usual rate cut of 0.25 of a point sounds small, but it would put downward pressure on savings-account rates that have been slinking lower for years and are well below 1 per cent in many cases. A few alternative banks and credit unions have remained above that level, but they may not hold on much longer if the Bank of Canada is cutting. Lower rates penalize people doing the right thing with their money – saving.
5. Young minds are being warped: We are raising a generation of young adults who believe that interest rates are as dangerous as puppies and kittens. Rates either hold steady or fall. Rise? Never. Millennials know we had higher rates in the past, but then again, we also had dinosaurs. The danger here is that people buy houses they can only afford at today’s low mortgage rates and then must contend with higher rates later on. Don’t laugh. It could happen.
6. It encourages more borrowing: Consumers have carried the economy by taking advantage of low rates to buy houses, cars and more. Now, we have historically high rates of debt and an economy with a wobbly recent history of job creation and wage growth. Low rates are also meant to encourage Corporate Canada to spend and invest, but an uncertain economy undercuts that enticement.
7. It provides cover for banks to pad profits at the expense of clients: When the Bank of Canada twice cut its overnight rate by 0.25 of a point last year, the banks reduced their prime lending rate by only 0.15 of a point each time. Does the Bank of Canada really intend to stimulate both the economy and bank bottom lines?
8. It would recklessly stoke the housing market: As far as housing is concerned, low rates are the finance version of performance-enhancing drugs. Pumping yet another rate decrease into the market isn’t healthy. Also, TD Economics says another cut would likely offset the effect of mortgage changes that are designed to cool hot housing markets in Ontario and British Columbia. The changes start Feb. 15 and will raise the minimum down payment to 10 per cent from 5 per cent for the portion of a house price that costs more than $500,000.

All signs point to a 67-cent loonie

“Goldman Sachs and Morgan Stanley both predict oil prices at $20 (U.S.) a barrel. Merrill Lynch economists predict the Bank of Canada will cut the benchmark interest rate by 25 basis points on Jan. 20. If this comes to pass, Canadians should prepare for a 67-cent loonie.

As the term “petroloonie” suggests, most investors are aware that the value of the Canadian dollar follows the price of oil. It’s less well known that interest rates – specifically, the difference between Canadian and U.S. two-year government bond yields play an even larger role in foreignexchange markets than oil. ”
– Globe Advisor

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As Poloz ponders, don’t rule out rate cut

The Bank of Canada’s decidedly bleak Business Outlook Survey presents a near-textbook argument from the corporate sector for another interest-rate cut.

The question is whether the central bank feels inclined to listen to it just now.
– “Glove Advisor”

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