This week our friends down south, castrated (politically) their President by electing a Republican majority in both the Senate and the Congress, creating a truly lame-duck president. There is talk of “working together for a better America” right now, but by January, there will be talk of impeachment, and attempts to undo Obama-care as well, should make for a very interesting couple of years. US politics are always a much more interesting topic than Canada (although we do have a few nasty stories in Canada this week about Harassment, and Election over-spending too).

Vacation Photo

Me and Mrs. C8j on Vacation MANY Years Ago

For Montreal Expos diehards like me, MLB threw us a few more crumbs of hope, with the Blue Jays playing some exhibition games at the Olympic Stadium in the Spring. Might go down to watch, but I also remember just how old the concrete is at the Big Owe, so maybe I’ll just watch it on TV.

Remember that November is Financial Literacy month here in Canada, so look for Tweets with the #FLM2014 on them, for interesting stories about financial literacy. I am also growing back the Big C8j Mostache for Movember (I shaved it off, and four people thought I was Jim Watson, and no I can’t help you with the parking problem on your street in the Glebe).

Stephen Poloz the new Bank of Canada Czar had a novel way for todays youth to get jobs, that is to work for free. I have always wondered about this whole Intern Works for Free scam that has been going on at many companies, but Mr. Poloz thinks his exact quote is:

“When I bump into youths, they ask me, you know, ‘What am I supposed to do in a situation?’ I say, look, having something unpaid on your CV is very worth it because that’s the one thing you can do to counteract this scarring effect. Get some real-life experience even though you’re discouraged, even if it’s for free,”

I see where he might be coming from, and it does somewhat make sense (i.e. better to have experience working for free than, “I sat at home and played X-Box” as a statement about that time in your CV ) maybe he could have put it in a way that the media talking heads didn’t have such an easy talking point?

Mrs. C8j and I were immortalized on the Twitter, talking about my retirement plans (currently, not being dead by age 65 is the first thing on the list). Nice picture of us on our last vacation together in 1992 (yeh, that’s 22 years ago). The tweet is at the bottom of this article.

My Writings for Week Ending November 7th

Christmas ads are in the air, it’s dark at 4:30 PM, must mean it is Autumn in Ottawa.

  • Given this is financial literacy month, I felt it important to start with some Key Financial Rules, and then lampoon them as best I could. Remember a penny saved, is still worthless.
  • Most folks don’t think about how much it costs when you buy something with a credit card, but you are paying for that privilege, but luckily that transfer fee is now frozen The Cost of a Credit Card Transaction, outlines that.
  • Keeping in mind it is financial literacy month, maybe you want to ask, What is Financial Literacy ?

 

Scotia Bank Value Visa

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The Cost of a Credit Card Transaction

The large credit card “companies” in Canada have agreed to freeze their “transfer fee” to 1.5% of the sales value, which is a good thing for retailers, but I am not sure if it is a good or bad thing for consumers. The transfer fee is the skim the credit card takes every time you use it to purchase a service or product, and it is paid by the retailer.

Credit Card

Frozen Fees for Now.
Image courtesy of Michelle Meiklejohn at FreeDigitalPhotos.net

This skim can be as much as 3.0% of a sale that a retailer pays (for cards like Amex and other “premium” cards), so this fee freeze will help retailers limit their expenses for allowing us the convenience of using Credit Cards for purchases at their store (or services from their firm).

The Canadian Federation of Independent Businesses says the skim adds up to between $5 and $7 Billion a year in costs for them. Who pays that? The business has to incur the cost, but they simply pass on the cost with higher prices for services and products, and this is all so that we can make payments simply.

The other interesting question is how are the Credit Card providers (i.e. the banks) going to recuperate the income they will lose with this freeze? The banks will be the ones “subsidizing” this freeze, but they will (no doubt) find a way to either deal with the lost income, or find new income streams to extract the money from consumers (and businesses alike), (that is why I like investing in banks). The other options the banks have is to lower the “Freebies” and “Prizes” they have associated with their Credit Cards, time will tell how this all works out.

 

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Key Financial Rules

“Borrow for growth, not Consumption” -Rule quoted by Financial Planner

“Blow it out your ear” -Big Cajun Man

No, I am not saying you should borrow for consumption either, you should not borrow. Buying a house is the only thing I can see as a good reason to borrow money, borrowing money to invest just strikes me as asking for a swift kick in the lower abdomen.

Simple Rules to Follow

Simple Rules to Follow

It’s interesting that I tripped across this in my archive of articles that I started and then stopped, as Robb E. over at Boomer and Echo went and asked a whole bunch of folks about this, and got some interesting answers to the Question, Should You Borrow to Invest. Lots of interesting ideas in that article (no I am not condoning the advice, simply saying that it is an interesting read).

Borrowing money to buy a single stock can be viewed as buying on margin (in a simple understanding), the advantage is that you can buy lots more of the stock with your borrowed funds, and enjoy the huge profits, however, the best way to do this is to find a sure thing that will deliver profits that out-strip your borrowing rate, and that stock is? Anyone?  In the 90’s it was Nortel, Enron or WorldCom, not sure what they are now. The con of this are you could have borrowed money and end up with a less valuable (or worse worthless) asset at the end of things.

Selling Short is another way to borrow, where you find someone who is willing to sell their stock and you guarantee that you will buy it back for them in a prescribed time period (or when the person who loaned you the shares says they want their shares back). The exciting part on this one is you can lose infinite money with this one (if you believe infinite growth is possible in the market), let me explain:

  • I convince Michael James to sell his International Buggy Whip at $10 a share
  • The world decides that buggy whips are making a big comeback and the share price sky rockets to $100 a share
  • I decide not to buy back yet, because the market will drop out, but it keeps going up, and up….

This will never happen! Don’t know, but I bet there are folks that Short Sold Apple in the 90’s that might disagree with that statement.

I am not sure who devised this heuristic but this is one I subscribe to:

Put no money into the Stock Market that you are not willing to lose

Surprisingly when I started looking at the markets in 1981 that was one of the rules, wonder what happened to it? Anyone hear anyone espouses this “Debbie Downer” point of view of the markets (aside from the sky is falling bloggers like me)?

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Happy Halloween, Income Splitting and #BestThisWeek

Halloween is here, along with all of the money that is now associated with it. Gone are the days where a simple Jack-O-Lantern would suffice, if you don’t have a scene from a Vincent Price movie on your front lawn, you are a failure in the eyes of your neighbours. I will be out trick or treating with L’il C8j, but as usual he won’t be eating any of the candy (he likes a few things, but not a lot), that is left to me and Mrs. C8j to gorge ourselves silly. Just make sure you don’t end up with any Financial Skeletons in Your Closet after setting up your Halloween Horror House.

Scary Jack o Lantern

That Sure looks scary kids!

Word has it that the upcoming Budget may allow income splitting for families with children under the age of 18 (hopefully with a dispensation for those with disabled children, maybe allowing for this ability after the child reaches the age of 18). The splitting will really mean an ability to transfer up to $50K from one spouse to another (maximum benefit of $2000), but still will help single income families (or families where one spouse makes much less than the other). I started a discussion on reddit about this as well, drop by and be heard.

This is all due to the Government “balancing” the budget (note I put that in quotes), what “balanced” means is simply the Government is simply spending all the money that they earn (while paying maintenance on the existing National Debt). I do not suggest this as a good plan for anyone trying to lower their debt level (i.e. cutting your income).

If Halloween is here, that must mean only one thing (aside from my Daughter’s birthday of course) and that is to not forget to put your clocks back this weekend as well. Yes, it is Fall Back time, where we get an extra hour of sleep and those of us who go into work early in the morning will still get no glimpse of sunlight.

 

My Writings for Week Ending October 31st

The days are getting shorter and of course this weekend, the clocks go back, so we all have an extra hour of sleep, so more time to read my writings, and luckily it was a sparse week for me, with only two new articles written.

  • I was very happy to hear from a Twitter follower that TD Waterhouse has updated their RDSP, and I wrote about that with TD Waterhouse RDSP, a step in the right direction.
  • You do realize that it is 85 years since the great stock market crash of 1929, don’t you? This begs the important question When is the Next Big Stock Market Crash? The answer might surprise you, but some interesting data about the crash, worth looking at as well.
  • Maybe we need to make sure we Define What Debt Free Means ? I think we do, because banks think Debt-Free means you don’t owe on your credit cards.

Scotia Bank Value Visa

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The Next Big Stock Market Crash ?

Today, October 29th is the anniversary of the First Major Crash of the Stock Market, which was a large contributing factor to the great depression of the 30’s, and that begs the question, when is the next Big Stock Market Crash, and how can I prepare for it?

How bad was the crash of 1929? The following useful 10 year graph might help:

The Great Crash of 1929

The crash and it’s follow on

 

Amazing stuff eh? I looked at this and was astounded what I didn’t know about this period.

  • There was a short recovery in January 1930, and then everything went down from there
  • It took a long time to get back to 1929 levels
  • There was still a great deal of market volume along the way too

What can this teach us about today’s market? Not much.

The Economic situation back then has about as much to do with today, as it did with the great Tulip Bubble Burst, the world is a very different place. Don’t get me wrong, this kind of catastrophic drop will happen, just that comparing 1929 to now is foolish, so many things are different, not much can be learned from 1929 (other than, this can and will happen again). If you’d like PBS supplies this Useful Timeline Leading up to the Crash, if you think you can find any parallels there.

Is this another “fire and brimstone” rant about losing money, and such? No, in fact, if you are an Index’er or Couch Potato I would give the same advice as I gave many months ago (and stole that advice from our friend Preet), Live With It and Don’t Look. You will most likely have to re-balance in a while, but do that when you normally would and go back to your regular life, is the only advice I could give. Let the Hedge Fund Managers, Active Mutual Funds and Day Traders deal with it all, not much that can be done, and panic’ing isn’t going to change things.

Stock Market Crash Newspaper

Will we wake up to a Newspaper like this? No, because it will be on a News Website for one

If you “timed” the market right, good for you, it is most likely through blind luck, but good on you, if you dodge the “big one”, but it was luck (unless you are part of the inner sanctum of traders who knew it was coming, in which case you are most likely guilty of Insider Trading).

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