“On December 28^th, 2011, the Quebec Government published draft regulations announcing its intentions to extend the relief measures to defined benefit pension plan registered in Quebec…”

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Happy New Year!

Every new year brings emerging opportunities and fresh challenges. But potential challenges can often be turned into opportunities when one is aware of them.

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What is Wrong with the European Union?

Similar to a car with only forward gears and no reverse the European Community (EC) was not properly designed from the beginning.  The adoption of the Euro in 1999 as a single currency created a monetary union but not a fiscal union.  The fact that EU countries are not part of a fiscal union has greatly contributed to the current crisis.

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 The Curse of Japan – Is This North America’s Future?

Many market watchers in North America have been convinced for some time that interest rates were low and would increase soon.  Many observers also believed that the equity markets would deliver a healthy premium over the risk free returns (government bonds).  To date both of these widely held views concerning the capital markets have proven to be incorrect.

Japan is an example of a diversified developed economy that due to demographic factors and the collapse of a real estate and stock market “bubble” has been stuck in a prolonged period of low interest rates and poor equity returns.  This situation has persisted since 1990 despite numerous attempts by the Japanese government to stimulate spending.  The Japanese population (in particular the older population) have been reluctant to spend and have increased their savings in an attempt to recover from the large losses occurred during the crash.

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Operation Twist – The Potential for Another Credit Crisis Increases

The U.S. Federal Reserve has announced a new initiative to inject liquidity into the financial markets. This plan is being termed “Operation Twist.” The Fed plans to purchase $400 billion of long maturity bonds funded by the issue of short term debt. This was announced in conjunction with the Fed’s latest views on the economy which painted a bleak view of the economy and warned of “significant downside risks to the economic outlook” including volatility in overseas markets.

In addition the Fed announced that it would be purchasing up to $250 billion in mortgage-backed securities. Both of these actions are an indirect attempt to lower long term rates. The Federal Reserve Board has direct control over short term rates, through the setting of the Fed Funds rate which is the rate charged for overnight loans between banks and the Federal Reserve Bank. It uses open market activities such as recently announced to attempt to influence the yield of longer maturity bonds.

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