Canadian Personal Finance Blog

Canadian Government Leaps into the Mortgage Biz

Jim Flaherty announced on Wednesday that the Federal Government will buy up almost $75Billion worth of mortgages (CMHC insured) to help out the liquidity market. I am assuming these mortgages will not be “high risk” mortgages since we didn’t really have those in Canada, however, if they are insured with the CMHC the mortgage principle was over 75% of the value of the houses, so the mortgages are high(er) risk mortgages. Is this a good investment for the Government? Maybe, I don’t know, but it is worrisome that the Government must use my money to make sure these loans “happen”.

Evidently the Government still thinks they will have a modest surplus this year, even with this spending, we shall see if that is really the case.

Another Down Day on the Markets

Markets and the loonie continue to swoon this week, which is good if you are waiting to buy and bad if you have already bought stocks. Dropping commodity prices is evidently what is killing the Loonie, and with oil dropping like a stone, makes you wonder when the bottom is on that price?

Canadian Dollar’s ups and downs too

Church Bazaar and Uncluttering

T-Rex is like decluttering?

In our continuing attempts to de-clutter our lives we are now attempting to give away many toys our children do not play with by giving them to our Church’s Bazaar (on Saturday, for those in Ottawa). This is a great opportunity to get rid of clutter, as long as you don’t go to the Bazaar and buy new crap to replace the crap you gave away. Hopefully the number of “Groovy Girls” and “Polly Pockets” in our house will drop significantly.

Trying to get rid of crap by selling it yourself can be a money making endeavor, not for me. I tried to sell some crap on E-Bay and found out you are not allowed to sell old copies of Playboy (after 1980), who knew? If you wish to rummage through my garbage, my old collection will be in my recycle box next week. All of this in the name of making more space (or just getting rid of crap).

What does a T-Rex have to do with all of this? It goes with the photo thematic premise this week.

Lies, Damn Lies and Stock Price Trends

To paraphrase Benjamin Disraeli. One of my favorite times of the year is here, with the opening of the N.F.L. season and with baseball coming down to the end of the season, the orgy of numbers coming from both games is astounding and quite satisfying for a number nut like me.

As a kid I reveled in the numbers from Baseball and loved collecting them and comparing them, but even as a kid I learned that all the numbers in the world are only telling you what happened in the past (which can be very important), but these numbers do not necessarily point to what will happen in the future. It is important to know what has happened in the past (because we do not wish to re-do our previous mistakes) but to know the future is what we all crave.

Football is awash in numbers to the point where there is an entire industry that has been created to use the statistics created by football games (Fantasy Football leagues), which astounds me, that you create a game from a game (is that recursion?).

Financial analysts do the same things to investors. They have mega-tonnes of data on every single stock and what it has done since it’s inception, and there are entire companies making fortunes analyzing these numbers, predicting what stocks “might” do by doing this analysis.

My understanding of the stock market, is that it has no conscience and no memory. Each day is a new day, and it’s like a Simpson’s episode (i.e. most of what happened yesterday isn’t relevant and it is forgotten) on the Equities market.  The simple fact a stock went down the previous day does not mean it will drop the next day (that fact alone, there may be other much better reasons, but the previous drop means nothing).

I have to laugh when I hear about “downward trends” and “upward trends” being reasons alone to buy or sell stocks, you may as well base your purchases on your lucky rabbit’s foot if you are going to think that way.

Keep crunching those numbers, but remember the numbers alone are meaningless without the context of why the numbers happened.

The Fed taking over IndyMac in the U.S. made me wonder about whether this kind of thing can happen in Canada. Of course the simple answer is no, it is not likely to happen, however, it is still amazing that this kind of financial failure can happen in this day and age.

Evidently this lending institution has been in trouble for a while, and the FDIC stepping in was inevitable, but seeing the panic’ed clients standing outside of the Bank Offices was scary (to me). Evidently there are over 10,000 people who have more than $100,000 in the bank (from CNN), deposits are only insured up to $100,000. The other question is, how much is this going to cost the U.S. government? Numbers bandied about on the weekend were $7-8 Billion, which isn’t cheap!

CNN was abuzz the entire weekend about this, and analysts were on all asking, “How could this happen?”. The simple answer is greed, and incompetence, someone tried to make money the wrong way, and no one stopped them, as simple as that.

The U.S. Government took the extraordinary step to assure folks that Freddie Mac and FannieMae will both remain solvent. This whole thing sounds like it is going to get a lot more interesting before it all resolves.

For immediate release

The Board of Governors of the Federal Reserve System announced Sunday that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary. Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is intended to supplement the Treasury’s existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets.

Makes you feel all warm and cozy doesn’t it?

Why do I see that scene from “It’s a Wonderful Life” being replayed when folks were trying to get their money out of the Bailey Savings and Loan? Monday should be an interesting day.

Anyone else care to add their comments or opinions, I am eager to hear what my readers think of this.

TSX Forward to the Past

Thanks to the latest bit of market jitters, the TSX composite index closed Friday at where it started 2008 (on January 2nd). This means if you had an index fund for the TSX composite, you are breaking even this year.  Guess it could be worse, but it has been a topsy turvy kind of year on the markets.

Banks are certainly taking a beating, and I await the moment to get into them more (my opinion, not a recommendation). I note Nortel is below $7 but BCE is managing to hold it’s price above $39.00 for now as well, so that is a good thing too. Bombardier should be interesting to watch as well, maybe Larry MacDonald will have something to say about that :-).

Tomorrow: A review of the book Smoke and Mirrors 2008 by David Trahair

Yesterday I revealed that carrying debt is making me sick (no not figuratively, but physically). I think people who know me aren’t surprised, but I am impressed that I confessed this truth about me.

In my situation it is better to be paying off my Mortgage and debt in a faster fashion, than worry about my retirement savings. My statement (as has many of my commenters) is that this choice is a personal choice and you should choose what makes you comfortable.

What other reasons makes paying my debt or Mortgage off a better choice for me, let’s run through a few points.

Investing in RRSP is Better Started Early

While this is true, it also assumes you know how to invest, and where to put your money. For my regular readers you realize my early endeavors in the area of investment have been at best mediocre and at time disastrous (remember my top 5 investment regrets). If I had put the money I had “invested” on my debt I might well be much closer to being out of debt, than I am towards being able to retire.

If you are confident in your abilities to invest, or have a system you think you can rely on, starting your retirement savings at an early age is a good thing (if you don’t carry debt already).

Early Retirement is an Option

For me, I think this is not likely, unless I came into a very large amount of money, and even then, I think retired would be a relative statement, since I would do volunteer work full time instead. I have a very young son (almost a second generation in our family) and by the time I will be 65 he will be 21, so my guess is I will need to keep an income of some kind (other than retirement income) for a lot longer than I thought I would 10 years ago.

Debt Reduction as an Investment Vehicle

The best investment I know I can make right now is on my debt, since I can figure out exactly how much money I will save by paying it down, whereas, I couldn’t tell you what the price of any stock might be in 6 months.  Given I am paying about 5% on my debt vehicles, I know I am getting at least that much money in savings on the money I am paying into it (i.e. I am paying that much more on my principle).

Personal Conclusions

As I have been saying all along, debt repayment is a much better thing for me to be doing at this moment in my life.  I have some equity invested in my retirement (not nearly enough I know, but some), however the ill effects of carrying debt and my aversion to that fact points me towards a more aggressive payback schedule for these debts.  Whether this plan of attack can be fully implemented remains to be seen, as the only way to tell if a plan was successful is to look back after it’s implementation.

I am always open to hearing about personal achievement stories in these areas, so please feel free to leave a comment about your successes (or failures) in this area.