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November 16th, 1999, all eyes were on the U.S. Federal Reserve chairman,
Allan Greenspan. The board of governers of the U.S. Federal
Reserve voted in favor of a 25 basis point hike for its discount rate.
The discount rate now stands at 5% and the bank rate at 5.5%. More
importantly, the Fed opted for a neutral monetary policy. By adopting
this neutral policy, the Fed removes its bias for increasing interest rates
in the near future. This measure was justified by the strong economic
growth of the american economy as well as a vigorous job market.
This strong growth however, can lead to an increase in consumer prices.
Following the Fed's move on November
17th, 1999, the Bank of Canada also increased its discount rate by 25 basis
points. The discount rate is now at 5% and the over-night rate is
at 4.75%. Since the United States is Canada's biggest trading partner,
canadian monetary authorities are preoccupied with the risk of inflation
coming from the strong U.S. market. Canada's rate increase was to
decrease any inflationary pressure on our markets arising from the american
market. "The monetary policy taken by the Bank of Canada is to ensure
that the rate of growth, production and employment in Canada are sustainable",
said the Bank of Canada in its press release.
Did you know ...
According to Bill Sterling
from C.I. mutual funds, the american economy is not that expensive, even
if we compare it to anytime throughout its history. At September
13th, 1999, the future earnings of the S&P 500 was approximently 24
times, which is at an all-time high. However, Mr. Sterling explains
that the high Price-Earnings Ratio of the S&P 500 must be looked
at with a demographic point of view. For example, a higher percentage
of the labor force aged between 35 and 65 years old will contribute to
the demand for equities and therefore put upward pressure on market prices.
According to a world study done by
Merrill Lynch, international portfolio managers are reducing their exposure
to U.S. markets and increasing their exposure to European and Asian equities.
They are anticipating a slowdown in the american market. Concern
over the Y2K bug is at an all-time low for american and british money managers.
However, they remain very cautious for Y2K in emerging economies such as
Latin America as well as developing European markets.
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According
to IFIC(Investment Fund Institute of Canada), investors invested 267.7
million dollars in mutual funds during the month of October, excluding
reinvestments. This would represent a 7.5% gain compared to the previous
month where investments in funds reached 249 million dollars. Foreign
or international funds were the most popular for investors. Even
with this increase for the month of October, sales of mutual funds have
decreased by 45% on an annual basis.
News
Fidelity Investments of Canada has
filed a preliminary prospectus with the Quebec Securities Commission (C.V.M.Q.)
seeking approval for eight new funds. These new funds are actually
100% RRSP eligible funds of existing foreign funds already with Fidelity.
They are : Fidelity American Growth RSP, Fidelity European Growth RSP,
Fidelity Japan RSP, Fidelity Far East RSP, Fidelity Technology RSP, Fidelity
Health Care RSP.
In the near future, Fidelity also
intends to offer RSP versions of their Financial Services Fund as well
as the Overseas Fund.
Trimark will distribute incomes from
interest and capital gains on December 10th, 1999. This distribution
affects the unit holders of Trimark funds held outside a registered plan,
because if will affect your income tax declaration of 1999. More
information concerning their distributions can be found on Trimark's website.
Spectrum United is about to launch
three new funds that will be admissible for registered plans. They
are : American Growth RRSP Fund, Global Telecommunications
RRSP, Global Growth RRSP fund.
Larry Sarbit has joined AIC in September
1999 to lead the new AIC Focus fund . Mr Sarbit once managed the
Investors U.S. Growth.
The estimated distributions of the
Fidelity funds are available on their web site and will occur on December
17th, 1999 for the holders registered on December 16th, 1999.
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