Friday, May 29, 2009
Below is how the the banks fared versus last year's Q2, on an earnings per share, excluding extraordinary items basis. This is a measure of how their continuing operations are holding up amid this recession:
Bank of Montreal (BMO) = Down 25% from last year
Canadian Imperial Bank of Commerce (CIBC) = Down 12% from last year
Toronto Dominion Bank (TD) = Down 7% from last year
Bank of Nova Scotia (BNS) = Down 16% from last year
Royal Bank of Canada (RY) = Down 10% from last year
All dividends were maintained, and none were raised.
Wednesday, May 27, 2009
If you choose to use online tools in order to give you this information, please avoid using this one: Canadian financial news source The Globe & Mail runs a great website called globeinvestor.com. On this website down the left panel in the 'resources' section you'll find a link called 'Mortgage Snapshot'. This link contains the latest mortgage rates from various lenders as well as a chart titled 'How Much Can You Afford'. The chart indicates that if you earn a gross income is $120,000 you can afford a mortgage of $461,808, which provides a home worth $615,744 using a 25% down payment of $153,936 and a 5.8% interest rate. What!
Let's look at this a little closer. Let's assume this gross income is made up of a dual income couple earning $60,000 each per year. After tax, Employment Insurance Contributions, and Canadian Pension Plan Fees they would bring home about $44,000 each, or $88,000 per year. Let's remove RRSP contributions of a responsible 10% of gross income ($12,000 total). Let's also remove a conservative property tax amount of $2,500 per year, heating of $1,500/year, and electricity/water of $1,500/year.
We now arrive at a value of $70,500 for the money our lovely couple will actually have access to, after the tax man, heat, power, and retirement are all taken care of. This is $2,712 bi-weekly.
Using the 'What Will My Payments Be' calculator on BMO.com we see that this couple's bi-weekly mortgage payment would be $1,333. Taking their mortgage payment as a percentage of the money they'll actually have access to, we arrive at 49%. If they decided to make accelerated bi-weekly payments instead to reduce their amortization time to under 25 years, the figure becomes $1,450 or 53% of their accessible funds. So more than half of their disposable income would go to mortgage payments, and this is not even accounting for other fixed costs like groceries and insurance. This situation would be far from ideal. In fact, it might not even be possible. Considering vehicles, daycare, clothes, gifts, cable tv, maternity leave, vacations, and a broken furnace, this mortgage does not seem feasible in the least.
The source for this information on the globeinvestor website is not listed. I believe that this chart is very poor resource for home buyers and it is irresponsible of The Globe & Mail to provide this resource to reader.
Monday, May 25, 2009
- Capitalism is dead, and no longer works as an economic system
- More regulation, and less leverage is always better.
- Everyone took on too much debt, and the recent crash will cause everyone to be very debt averse forever; let the de-leveraging begin.
- The right thing to do with your money all along was to play it safe, and sock it all away in a savings account; assets with risk associated with them should be avoided at all costs.
- Don't speculate, don't invest in stocks, don't buy real estate, don't take risks in starting a new business venture or making any kind of investment where loss is a possibility
...and my personal favourite:
- 'Buy & Hold' as an investment strategy is dead.
All of these new postulations are the result of the human instinct to remember the most recent painful experience and alter one's thoughts and habits to correct for this. What has happened is akin to falling of your bicycle and breaking your arm. Perhaps walking is a better idea. Maybe you can't get places faster on your bicycle. The government should ban biking. Better yet, perhaps we should all stay in our houses. Do you want to buy a video game that simulates riding a bicycle? The real thing is far too risky and provides no real benefits to anyone.
Of course people are now saying that 'buy & hold' is dead. It's easy to think that buy & hold is a bad idea when the current 'hold' experience involves watching your investments fall by 40%. That hurts, for some probably more so than falling off of that bike. Does this in itself mean that buy & hold dead? I think not. Equities have been the best asset class to own over the long term, and I don't believe that will change. Try not to do all of your buying at the peaks and all of your selling in the valleys, and buy & hold will probably work out for you the longer you hold shares of quality firms that provide the goods and services that people want.
The best time to draw inferences about what works is probably not during and post a large market crash. Ask yourself, what biases are those making these calls prone to? For the vast majority of us, the market crash will turn out to have been a good thing long term. That is if we avoid buying into the inferences drawn by those with broken arms.
For those interested, my other financial advisor is Kanye West.
Tuesday, May 19, 2009
Why Your World Is About To Get A Whole Lot Smaller
"I think it will really restructure the economy in ways that people haven't even begun to imagine," he said. "But I think, ironically, it's going to be a return to the past ... in terms of the re-emergence of local economies."
Friday, May 15, 2009
Net worth results for the 2 Months Ended May 15, 2009:
- Debt/Asset ratio dropped to 0.51 from 0.56
- Net Worth jumped up 18.9% (to a record high)
- Total Assets rose 5.9% (to a record high)
- Total Liabilities shrunk by 4.3%
- House Value/Total Assets fell to 66.4% (a record low)
- Non-Registered Portfolio grew 20.5%
Calendar Year to Date Gain/Loss: +10.6%
2008 Fiscal Year Gain/Loss: +4.6%
This was by far our largest bi-monthly net worth gain ever. It feels good to be up this much after several months of weak net worth changes. The markets were in a deep hole in mid March and have climbed out of that hole to much higher levels today. We have also paid off about $5,700 of debt over the past 60 days.
Fiscal 2008 was extremely weak, as we grew our net worth by only +4.6%. This is completely attributed to the weakness in the stock market. The markets are down by 38% over the period. So against that headwind, I'll consider that not half bad.
We'll continue to do what we can on the savings front and either invest the money or pay down debt, depending on the level of the stock market. I don't claim to know where the market is going but lately I have felt it appropriate to pay down debt instead of investing at these levels.
Thursday, May 7, 2009
Despite the extremely weak economy Yellow Pages announced results that were virtually flat to slightly up from Q1 2008. Organic online growth was up 30% and directories were essentially flat. YLO's consolidated net earnings actually rose 3.6% in the worst advertising market in years. This company continues to show their resiliency in unprecedented market conditions.
Since this stock was yielding 20%, the market was telling us that they were going to cut this pay out. Some analysts that I have heard believe that each and every income trust will have to cut distributions going into 2011, despite what management says. Count this as one, because YLO's management did claim that they would keep the current distribution through conversion and the financial crisis has proven that forecast to not be met.
Sunday, May 3, 2009
We recognize that finding the answers to your questions on topics of personal finance can be difficult in the best of times; they should not be hard to find in the worst of times.
With the abundance of material published online and in print media on topics of personal finance we are holding a clinic to tackle your best questions on a variety of financial matters. Best of all no health card or credit card is needed.
Questions can be on topics that include personal savings, net worth, budgeting or investment fundamentals.
Readers simply need to send their question with identifying name to personalfinanceclinic@ gmail.com before May 31st, 2009.
Canadian Capitalist, the moneygardener and Nurseb911 will each select an equal share of questions from all submissions based upon our readership, personal knowledge and ability to seek research on the topics asked.
Responses to specific questions can not be guaranteed to be 100% accurate.
Canadian Capitalist, the moneygardener and Nurseb911 are not certified investment professionals and are not licensed to provide financial advice. We hold no liability for responses and our answers are intended for educational purposes only.
When possible we will supply references and/or links to articles, content and alternative tools.
We cannot guarantee that all questions will be answered in the clinic due to both the number of responses and the limitations of our personal time.
We will not provide recommendations on specific investments or their potential for investment. We will not accept questions on any specific stock, mutual fund, ETF or financial product and their investment potential for a reader.
Saturday, May 2, 2009
Frog of Finance's net worth move up moved up 10% bringing him to par with his highest net worth ever. Real estate value increases, stock market gains, and debt repayment had all to do with the nice gain.
Million Dollar Journey's net worth moved up 4% thanks to the market's gains. That is a 6.7% year to date increase for the Maritime Super Blogger.
My Findependance Day saw his net worth jump by 10% as well. The market gains and an increase in his savings drove the healthy gain.
I update my net worth and associated ratios bi-monthly on or around the 15th of the month. My next update is two weeks from now on May 15. Here are the ratios that I like to track in my bi-monthly reports:
This is a ratio that shows me what kind of fundamental financial condition condition we are in. It would be great for one to have a million dollars in assets but if one also had a million dollars in liabilities I would not be as impressed. The aim is to use debt as a tool to grow our assets. For example our recent use of leverage in our non-registered investment portfolio is intended to provide fuel to grow the asset value of the portfolio as the market picks back up. The benefit of receiving dividends earlier is also a perk of this strategy. Our last Debt/Asset ratio was 0.56 (meaning we had $1.00 in assets for every $0.56 in debt)
House Value/Total Assets
I want our net worth to be made up of a diversified set of assets. I find it interesting to see what percentage of our total assets is the value of our primary residence. For now, the lower the better as I am aiming to diversify more into the ownership of dividend paying corporations in various sectors. Currently our House Value/Total Assets is about 70% (meaning that 70% of our total asset value is the value of our humble abode).
Friday, May 1, 2009
What investor’s have been through over the past 2 years is nothing short of one of the steepest, gut wrenching stock market declines ever. The S&P 500 index plunged from an all time high of around 1,562 in October of 2007 down an astonishing 57% to around 666 in early March of 2009. Most of this precipitous decline came after September 15, 2008 when global financial services firm, Lehman Brothers Holdings Inc., which was founded in 1850, filed for Chapter 11 bankruptcy marking the largest bankruptcy in U.S. history.
Since early March a fairly significant relief rally has been built on the back of optimism for economic stabilization, and mild recovery. The market seems to be telling us that the next great depression and other worst case scenarios have been ruled out. The financial system is not collapsing, and some sparse ‘green shoots’ of recovery are starting to poke through the dirt and dead matter that toxic debt and upside down mortgages have left strewn around the world. The S&P is now up a full 30% from the depths of March. Some financial stocks like Wells Fargo, General Electric, and Manulife Financial are up as much as 156% from their single digit lows. If that wasn’t the bottom, this is a ride that investor’s will probably want to get off of.
For long term investors that were buying stocks as they fell, or maybe well into the market bottom they took heart in the fact they were buying when pessimism was abound and stocks were surely cheaper than they were at any time over the past decade. How those same long term investors are feeling now that stocks are 30% to 156% more expensive in the case of Wells Fargo is how psychology really wrestles with us as investors. I would imagine that many investors are now feeling frozen, and their appetite for buying into this market has waned. It is a little bit like a deer in the headlights, or better yet a deer that just got hit by a semi and survived.