Rate hike draws near & carmakers say 'adios' to Canada: BUSINESS WEEK WRAP
We began the week with a great piece by Amanda Lang, looking at the hollowing out of Canada's auto industry. Once a major power on a global scale, Canada has lost a lot of production capacity and investment over the years, and many of those jobs and assembly lines are moving to one place: Mexico.
America's southern neighbour now makes twice as many cars as it did a decade ago, and more than Canada now does. Carmakers are attracted to labour costs that can be as much as 10 times lower than they are in Canada, but there's more to it than that, Lang reported.
Thanks to trade deals with 44 countries that cut down on red tape, carmakers can save as much as 10 per cent per car when building them in Mexico and selling them on the world market.
That's just one of the factors that will keep Mexico a force in the global supply chain, even as wages inevitably creep higher over time.
Who still buys savings bonds?
Another story of ours that really resonated with readers this week was this one on Thursday about why the government says it has no plans to nix the sale of Canada Savings Bonds, despite a government-commissioned report from KPMG advising them to do exactly that.
The program is "no longer a net source of funds" for the government, the consultancy says, and actually costs $58 million a year to administer — on top of the costs of paying out interest to investors.
Not that the interest amounts to much. The latest series issued in April pays out a microscopic one per cent. So $1000 loaned to Ottawa to bring back a piddly $10 in profit in a year's time. That's a pittance compared to what it used to be: an eye-popping return of 19.5 per cent in 1981.
Ottawa says there's still almost $8 billion worth of the bonds out there, and they're still owned by 2.5 million Canadians. But at interest rates below what you could get at any basic savings account at a bank, we can't help but wonder: who's still buying these things?
Rate hike coming (or maybe not)
Speaking of rates of return, it was a busy week in the world of interest rates — if you ignore the fact that nothing actually happened.
On Wednesday, Janet Yellen, the chair of the Federal Reserve, released the central bank's latest decision on interest rates. The Fed didn't do anything as drastic as moving rates away from the record lows they've been at since 2008, but did send one of it's strongest signals yet that it is leaning toward raising rates at some point sooner rather than later.
After almost eight years on the sidelines, market watchers are now expecting a rate hike as early as September, and many say a second one before the end of the year is possible. "The first decision to raise rates is something that should not be overblown, whether it is September or December or March," Yellen said, but the Fed chief foresaw rates rising one percentage point a year over the next few years, as Don Pittis wrote this week.
A one percentage point increase doesn't sound like much in the short term, but the numbers can add up fast. Imagine a $300,000, 25-year mortgage. Let's say you're currently enjoying a three per cent rate. If you take the full 25 years to pay it off, you'll end up paying $426,790. But if that rate jumps to 4 per cent, you're up to $475,053 — $50,000 more.
The headline rate has only gone up by one percentage point, but the actual amount you're paying every month has jumped up by 11 per cent from $1,423 to $1,584. If it goes to five per cent, you'll end up paying just under $100,000 more, and your monthly payment is up by more than $300 to $1,754 every month.
Considering how debt-laden most Canadians are, it seems like all the more reason to pay down that principal while rates are affordable.
E3 goes indie
The Electronic Entertainment Expo is often the video game industry's biggest bacchanal of the year, and this year's festival that kicked off in Los Angeles this week was no different.
Except things are a bit different this year. Sure, there was excitement around flashy virtual reality technology, but instead of the big boys like Microsoft doing the showing off, the real buzz was reserved for small-scale indie gamers.
Toronto game developer Benjamin Rivers was there, showing off his latest creation, a game called Alone With You. Far from wowing the industry with new levels of graphics or other digital doodads, Rivers is impressing gamers with intentionally primitive graphics and instead relies on a simpler style of storytelling that's best described as a "psychological romance adventure" with a sci-fi twist.
"Now that a game like mine can come out on a PlayStation platform, as well as a multi-million dollar humongous blockbuster title, people don't treat them so differently," he told the CBC's Kim Brunhuber this week.
Brunhuber's piece is well worth your time for a fascinating look at one of Canada's most innovative and fastest growing industries.
Other stuff
Those were just a few of our most read stories this week. For more financial news, be sure and check out our website often and don't forget to follow us on Twitter for all our latest stories. In the meantime, here's a day-by-day list of some of the stuff our readers really responded to this week.
Monday:
- AMANDA LANG: How Mexico is winning the car manufacturing war
Tuesday
Wednesday
Thursday
- Don Pittis: Fed chair Janet Yellen tells Canadian home owners to watch out
Friday
