How "safe" is YOUR pension?

Unlike some 85% of company pension plans in the US that are underfunded and with no real resolve in sight, we’re not nearly that bad off here in Canada.

The reasons for this are, yes, the obvious of stock market declines but add to this the perfect storm of longevity and the current massive wave of retiring baby boomers. Its a perfect storm of increasing and extended benefits and recipients and less and less employees contributing.

OMERS posts $4.3B net gain on investments in 2009, or 10.6 per cent return rate
By The Canadian Press

TORONTO - The Ontario public-sector pension manager known as OMERS says it booked a $4.3-billion net gain on its investments for 2009, with a 10.6 per cent rate of return on its assets that marked its move back into positive returns after a dismal performance a year earlier.

OMERS says the average rate of return for the past five years now stands at 6.6 per cent. That's above the five-year average benchmark return of 5.8 per cent.

Crowley of OMERS said that has pulled its deficit to a deeper $1.5 billion for the year ended Dec. 31, down from a comparable $279 million the previous year.

"Like the majority of the large plans, pension obligations have been increasing at a greater pace than contributions."

He added that another $4.95 billion in net losses from 2008 will continue to affect its overall deficit for the next four years.



Saverio Manzo
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Unemployment Progress? – Impact on Interest Rates, Inflation

My initial intentions were to write about my views on the Canadian Federal Budget just released last night. But as it turns out, it was truly a non-event, so I thought I would focus on the state of employment and people’s ability to earn an income.

Today’s U.S. employment headline: The Household survey showed a decent 308,000 increase in February.

"The chances that we are about to see employment conditions stabilize are high. However, job losses still stand at a massive 8.4 million since the recession began in late 2007. The size of the workforce is no higher now than it was in September 1999 and yet the economy is one-fifth larger (as measured by real GDP)."

The total unemployment and underemployment rate stands close to 17% and a record 40% of the unemployed have been without work for over six months.

Businesses see what we see — a recovery that has been engineered by massive bouts of fiscal and monetary stimulus that is likely to be unsustainable. So, against that uncertain backdrop they are opting to tap staffing firms to skate them for now rather than make a commitment to hire full-time staff.

The bottom line is that the U.S. economy is currently about 12 million jobs shy of being at full employment and as such it will likely take anywhere from 5 to 10 years to get back to the prior pre-recession peak in the employment-to-population ratio. This is a signal to us that deflation will be the primary theme for some time to come.

Now although this is a U.S. concern, it will unquestionably affect us, the little brother, here in Canada.

Safety and income at a reasonable price (SIRP) will be one way to play this theme.

What does DEFLATION mean to you?
- low or sustained low interest rates (mortgages and investment)
- Wage pressure non-existent (little if any increases to our pay)
- Our ‘Standard of living’ will only advance marginally

Data Source: David Rosenburg, Gluskin Sheff + Associates Inc.



Saverio Manzo

Canada's Hot Growth: What this means

The Canadian economy grew at a 5% rate: how will this affect interest rates, stock markets and the Dollar?

The Canadian economy boomed back in the fourth quarter of last year, pushing well past expectations and raising the likelihood that the Bank of Canada will start to raise interest rates this summer.”

Real gross domestic product grew at an annual rate of five per cent, a full point above what analysts had expected and the largest quarterly increase in nearly a decade, Statistics Canada reported Monday.

Buchanan predicted the bank will begin tightening interest rates in the third quarter of 2010, when Canadians can expect a rise in the key lending rate to one per cent.

The Bank of Canada and other central banks, particularly the U.S. Federal Reserve, have kept their key lending rates at, or near, the lowest levels possible in order to reduce the cost of borrowing and stimulate spending.

"I think the other thing that was a surprise was the continued strength of household spending and that's clearly a positive sign for the economy going forward and I think it shows that Canadian consumers... are in a bit better shape than their U.S. counterparts," he said.

From the beginning of 2010, we said that we believe the total return on Canadian equities — dividends/distributions plus gains — in 2010 will be higher than the total return on fixed income/Bonds and on cash. In other words, we are ‘somewhat’ bullish on Canadian equities for this coming year.

We are positive on Canadian equities because we believe that the Canadian economy will gain strength in 2010. Be careful about what that means. Our economy had started to recover by the end of 2009, and all indications that we see are that the economy will be more solid and stronger in 2010 than when it began its recovery.

With the economy being stronger at the end of 2010 than it was at the end of 2009, the TSX deserves to be higher at the end of 2010 than it was at the end of 2009. And higher by enough that its return will be better than the returns on fixed income or cash.

Now, be careful with what this means: I have written on several occasions before that logic and the stock markets are not always in sync. So while logic leads us to believe that with a higher GDP throughout 2010 should lead to a higher TSX by year end, “sentiment and emotion” of the markets can have a very different outcome.

Source: The Canadian Press - Rebound from recession: economy logs strong five per cent growth in Q4 2009



Saverio Manzo