Welcome to the CAPCORP Comment
… for the week of August 30^th, 2010

The housing market is in rough shape across the border, but retail sales are edging up here at home. You'll find these stories in addition to our market update, closing comments and this week in history. A reminder that our office will be closed on Monday September 6th for Labour Day.

Market Update

Major Indexes
Returns YTD
TSX: +1.14%
Dow: -2.66%
Nasdaq: -5.09%
S&P 500 –4.53%
Dax: -0.11%
Hang Seng-5.83%
Nikkei -14.75%
FTSE -3.90%

Closing prices
$1Cdn =$.9502US
Gold: $1,235.00
Oil futures: $75.55

Bond Yields
10-yr Cdn. 2.87%
30-yr Cdn. 3.48%
10-yr U.S. 2.64%
30-yr U.S. 3.69%

Financials lead TSX gains

The S&P/TSX composite index surged 226.54 points or almost two per cent to 11,879.72 on Friday, gaining 158 points, or 1.34 per cent, on the week. The financials sector was the strongest advancer, up three per cent following a mixed bag of quarterly earnings reports from four of the big banks. CIBC and National Bank handed in earnings that beat analyst forecasts while Bank of Montreal and Royal Bank missed estimates. But all banks were higher Friday as investors realized that despite a couple of misses, the banks are very strong players.

In the US, the U.S. Commerce Department said GDP grew at an annualized rate of 1.6 per cent. That's down sharply from the original reading of 2.4 per cent growth, but better than the 1.4 per cent that the markets had expected. Comments from U.S. Federal Reserve chairman Ben Bernanke also helped send stocks higher. Bernanke, speaking at the central bank's annual conference, reaffirmed his outlook for economic growth next year and said the Fed was ready to take extra steps to stimulate the economy if needed. New York markets were also positive following the GDP report, with the Dow up 164.84 points to 10,150.65, but still dipping 63 points or 0.06 per cent on the week.

Salaries to rise in 2011

Canadian employers are cautiously optimistic about economic recovery in 2011 and an increasing number of organizations are projecting salary increases in 2011, says Towers Watson Data Services' '2010/2011 Salary Budget Survey Report.' The survey found 98 per cent project salary increases for 2011, up from 95 per cent in 2010 and 70 per cent who actually gave increases in 2009.

And, more organizations are expected to adjust salary range midpoints in 2011 versus organizations that already adjusted or plan to adjust salary range midpoints in 2010. It also found within organizations that plan to grant increases, average salary increases are projected to be higher than those budgeted for 2010. Base salaries are expected to rise next year by an average of:

• 3.1 per cent for executives;
• 3 per cent for management;
• 2.9 per cent for professional/technical and administrative/support groups and,
• 3 per cent for the hourly group.

Ontario pensions due for enhancements

Ontario Finance Minister Dwight Duncan wants to make changes that he says will stabilize and strengthen the province's pension system. Some of the changes apply to Ontario's pension benefits guarantee fund, which provides pensioners with up to $1,000 a month if a private-sector plan fails to provide its full benefit, or any at all. Ontario is the only province that has such a fund, and the government has repeatedly said that it's dramatically under-funded. Mr. Duncan says he won't follow through with a recommendation to provide pensioners with up to $2,500 a month, but he is proposing to increase the contributions that companies must make to the fund.

He's also proposing some temporary relief for certain pension plans in the broader public sector by offering them more time to pay down solvency deficits, as long as they meet certain conditions. Mr. Duncan also wants the government to review the pension system every five years, given that these are the first major changes in 20 years. The Minister had warned the changes would be more controversial than the ones he made in December, which were technical in nature.

The proposed changes will be introduced in a bill this fall.

US housing market in dire straits

Sales of previously occupied U.S. homes plunged last month to the lowest level in 15 years, despite the lowest mortgage rates in decades and bargain prices in many areas. July's sales fell by more than 27 per cent to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said. It was the largest monthly drop on records dating back to 1968, and sharp declines were recorded in all regions of the United States.

Sales were particularly weak among homes priced in the lower to middle ranges. For example, in the Midwest, homes priced between $100,000 and $250,000 tumbled nearly 47 per cent. As sales have slowed, the inventory of unsold homes on the market grew to nearly four million in July. That's a 12.5 month supply at the current sales pace, the highest level in more than a decade. It compares with a healthy level of about six months.

Prices have fallen in part because foreclosures are running about 10 times higher than before the housing bust. Though the average rate for a 30-year fixed mortgage has sunk to 4.42 per cent, many people can't qualify because banks have tightened their lending standards. The drop in July's sales was led by 35 per cent plunge in the Midwest. Sales were down 30 per cent in the Northeast, 25 per cent in the West and 23 per cent in the South. The median sale price was $182,600 (U.S.), up 0.7 per cent from a year ago, but down 0.2 per cent from June.

Retail sales in Canada edge up

Retail sales edged up 0.1% in current dollars to $35.9 billion in June despite lower prices at gasoline stations and new car dealers. Statistics Canada reported that retail sales rose in five of 11 subsectors in June but were down overall in six provinces. The largest increase in dollar terms was a 2.1% rise at motor vehicle and parts dealers. New-car dealers reported gains of 2%, reflecting higher sales of new motor vehicles, while sales at used car dealers were up 4.5% and automotive parts, accessories and tire stores rose 1.8. Also of note:

• Sales rose 5.1% at electronics and appliance stores.
• Furniture and home furnishing stores sales increased 2.3%.
  
• Sales at building material and garden equipment and supplies dealers increased 0.5%.
• The largest decline was at gasoline stations, which fell 2.7%.
• General merchandisers were down 1.7%.
• Sales at clothing and clothing accessories stores fell 1.1%
• Retail sales declined in all of the Atlantic provinces except Nova Scotia, where sales rose 3.1%.
• Sales increased 0.3% in Ontario and dropped 0.2 in Quebec.

This Week in History

• 1864 – Five delegates each from the Maritime Provinces of Nova Scotia, New Brunswick and Prince Edward Island convene the 'Charlottetown Conference' to discuss union. They will welcome representatives from the government of the province of Canada to discuss the union of British North America.
• 1888– Jack the Ripper claims his first victim as the body of Mary Ann Nicholls is found in London
• 1901 - US Vice President Theodore Roosevelt makes his famous "Speak softly and carry a big stick" speech at the Minnesota State Fair
• 1922 – NYC law requires all "pool" rooms to change name to "billards"
• 1942 - Frank Sinatra begins his solo singing career
• 1955 – The Church of England in Canada changes its name to The Anglican Church of Canada.
• 1963 - The Hot Line phone linking the White House with the Kremlin is installed
• 1971 – Dave Scott becomes first person to drive a car on the Moon
• 1972 – US Olympic swimmer Mark Spitz becomes the first person in history to win seven gold medals, winning the 400-meter relay at Munich, Germany
• 1985 - All of Australia's 1,645 domestic airline pilots resign after the airlines threaten to fire them and sue them over a dispute.
• 1988 - Canada's Vicki Keith staggers ashore from Lake Ontario, ending her marathon swim of all 5 Great Lakes and setting the women's world distance record of 38 km for the butterfly stroke; Keith started her marathon on July 1.
• 2006 - Stolen on August 22, 2004, Edvard Munch's famous painting 'The Scream' is recovered from a raid by Norwegian police. The paintings are said to be in a better-than-expected condition

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Closing Comments – Post-retirement healthcare costs a 'scary' unknown

When you envision old age, you may think about cruise vacations, leisurely visits to a market, and generally leading a healthy life. There is something fundamentally wrong with this picture --- It doesn't make allowances for the unpredictability of life. The truth is, you could well be restricted to a wheelchair staring out the window, not quite sure where you are, and not being able to perform the basics of everyday life.

Planning pundits agree that healthcare costs and long-term care are big considerations when planning post-retirement income needs, though opinions do differ on the scale. Regardless, Canada's world-class healthcare system is no guarantee that the future cost of healthcare won't eat into the retirement money in another bucket. Canadians are becoming increasingly aware of that.

Indeed, a recent study conducted by the Canadian Institute of Actuaries, a national organization of the actuarial profession, suggests that older Canadians doubt that the current public system will make the delivery of services available to them, and that they will have to rely on private delivery at a cost that is not known. "There was a lot of uncertainty surrounding their ability to get into, and pay for, long-term care facilities if necessary," the report said.

And, the Canadian Medical Association's '2010 Report Card on Health Care in Canada found 80% of Canadians are worried that the quality of healthcare will decline due to strains caused by the aging baby boomer generation, and 79% are worried the system will not be able to offer the same level of coverage it does now as more baby boomers reach retirement age.

Increased longevity is another factor people struggle with when planning for their retirement. And, an individual's health will likely deteriorate as they get older --- the problem is that many live in denial of this reality.

Post-retirement healthcare can be an unpleasant topic. That is perhaps the biggest hurdle to becoming better educated about medical costs. If you have concerns about your situation, give one of our planning experts at CAPCORP a call today to learn more about protecting your future!

This newsletter contains general information only and is intended for informational and educational purposes and has been provided to clients and potential clients of CAPCORP Financial Corporation (CAPCORP). While information contained in this newsletter is believed to be reliable and accurate at the time of printing, CAPCORP and Advisors working for CAPCORP do not guarantee, represent or warrant that the information contained in this newsletter is accurate, complete, reliable, verified or error-free. This newsletter should not be taken or relied upon as providing legal, accounting or tax advice. Obtain personal and independent professional advice, from your lawyer and/or accountant, to take into account your particular circumstances.