Oh, sh…

SCHOOL modified modified

Let’s pretend you’re a moron who improperly shovelled the driveway, leading you to fall one Thursday night (at 6 pm) and break four bones in your ankle and leg. Suddenly you’re unable to get to work, have meds and crutches to buy, and several comely masseuses to employ. How do you finance this?

Or maybe you’re like Mike the newlywed.

“We’re enjoying the gains from our mutual fund portfolio but we’re also nervous about having 2/3 of our savings invested. What is your advice for keeping a rainy day fund and how much to keep invested in the markets?”

If you follow the advice of the Jar Lady, or all the banks, you might think you need a stash of cash equal to three or six months’ worth of normal expenses. In fact, when baby financial advisors are trained, that’s exactly what they’re told – clients should always have a savings account full of accessible funds. Sadly, now that the TFSA is a reality, that’s what 80% of the people with them are doing. And what a waste.

Banks, by the way, love emergency funds. For example, here’s what the Royal instructs you to do:

“Having an emergency fund means having one less thing to worry about when the unexpected happens. If you find yourself in a situation like a medical emergency, an out-of-the-blue home repair, or losing a job, you don’t want to be worrying about how you’re going to manage expenses or going into debt to cover costs. An emergency fund will let you focus on getting your life back to normal.

But how much should your emergency fund be?
Most financial experts suggest you have at least three months’ salary in your emergency fund. How much is that for you?”

For the bank, this works. They get thousands of your dollars which it can lend out to some schmuck so he can buy a Kia at 8% interest with a loan that lasts longer than the car, while they pay you 1.1% (the fancy ‘high-interest’ account). No wonder they like emergency funds. But for you, it’s a ridiculous idea.

I don’t know why most advisors don’t get this. Google ‘emergency funds;’ and you’ll end up with endless rubbish like this:

Calculate your monthly expenses.
Make a list of all of your regular monthly expenses–housing costs, food, utilities, debt repayments, transportation costs, insurance and all of your other “must-pay” bills. Then, total your monthly expenses, and multiply the resulting figure by the number of months.
Open an account.
Since you want your emergency fund to remain fairly accessible, a savings account, money market account or short-term certificates of deposit make good sense. Any one of these accounts will give you the liquidity that you need, while still earning you some interest.
Determine how much you can afford to save.
If you’re like most people, it’s going to take time to build up your emergency fund–probably even a lot of time. Look over your finances, and determine how much you can afford to put towards your emergency fund each month.
Set up automatic deposits.
Make saving easy by scheduling automatic deposits to your emergency fund. Then, sit back and watch as the balance grows month-after-month.

Okay, so why is saving money for an emergency a bad idea? How is this tried-and-true advice so flawed? Why do I believe any advisor telling you this should be covered with Saskatoon berry compote and fed to fire ants?

First, we’re in a low-yield world and will be for some time. Money in a savings account is dead money, barely able to keep up with inflation and certainly not growing your wealth. Second, the greatest risk we all face today is not being able to cope with an emergency, or losing money in a bad investment, but running out of income. Given the fact most people have saved or invested peanuts, you certainly should not be sitting on thousands of dollars doing nothing.

Fourth, almost all intelligent investments (which excludes the worst of the worst, such as locked-in GICs) are liquid, and can be turned into cash in a few days. If you have an investment advisor and an actively-managed account, there will be cash there that can be immediately deposited into your bank account.

Fifth, most importantly, this is why God made lines of credit. You can go to the bank, arrange for a LOC for $10,0000 or $50,000 or whatever they’ll give you at reasonable rates. If you have a good credit rating and a house, an unsecured line should come at 3.5% or 4%. If you’re homeless and go to the bank wearing a garbage bag and unmatched flip-flops, expect to pay a bit more.

The point is a LOC costs nothing to set up and zero dollars to maintain. If you never draw upon it, you never have debt. But if an emergency befalls, all you need do it dash off a cheque. In the meantime all that money the Jar Lady would have you sitting in a plastic bag in the tank of the guest bathroom toilet can be invested in growth assets within your TFSA.

Now, go salt the damn driveway.

158 comments ↓

#1 Happy Renting on 01.20.14 at 8:23 pm

Aw, shouldn’t the Amazons be shoveling your driveway?

#2 Suede on 01.20.14 at 8:24 pm

Pythagoras’ theorem is how i seduce my wife ;)

“Talk dirty to me”

“Ok, the root of a squared plus b squared equals c squared”

“Shut up, House Hunters International is on”

**goes to read Garth’s blog**

#3 Steve Mate on 01.20.14 at 8:36 pm

I’ve never worried about the emergency fund (some obsess about it). This captures the reasons why. If your SO worries about it, you can put her emergency fund into a bond etf as part of a balanced portfolio – and then everyone is happy!
Good post! +1 for dispelling financial myths!
Take it easy on the meds g-turn.

#4 Chris L. on 01.20.14 at 8:37 pm

The old lady next door has me but a phone call away. I shoot over the ice, grab her tin can of gravel (because salt will ruin her freshly tarred drive) and carefully sprinkle a path to her pre-warmed auto.

You have much to learn about the ways of the elderly Garth!

Today I broke it to her; the guy across the way is selling his house and she’ll need to hire a yard-guy. She was devastated. We made such a chivalrous team.

#5 Smoking Man on 01.20.14 at 8:38 pm

Long Branch South of lake shore.

100 bucks to anyone that finds a house for sale

http://www.realtor.ca/map.aspx?&vs=VEResidential&beds=0-0&baths=0-0&minp=0&maxp=0&area=lomg%2bbranch&trt=2#acr:false;ac:false;baths:0-0;beds:0-0;fp:false;gar:false;pmin:0;pmax:0;rmin:0;rmax:0;openh:false;pool:false;stories:0-0;buildingstyle:;buildingtypeid:;viewtypeid:;waterfront:false;forsale:true;forrent:false;orderBy:A;sortBy:1;LisStartDate:;mapZ:15;page:1;mapC:43.592001183001415, -79.53035116195679;curView:;curStyle:r;leftMin:false;rightMin:false;chkSchl:false;chkTran:false;chkPol:false;chkMed:false;chkWrk:false;chkFire:false;chkAll:false

#6 Liquid on 01.20.14 at 8:43 pm

Very glad to read this post, Garth. I’ve never had an emergency fund and, as long as rates continue to stay this low, probably never will. The opportunity cost of not investing the savings in a balanced portfolio is too great :D The LOC is a great alternative to cover any large emergency expenses. What I have personally done was convert my cash trading account with my discount broker into a margin account :) The interest rate is quite reasonable at about 4% and I can use that backup money any time. I just have to be careful how much margin I’m allowed to borrow lest I get a margin call :)

#7 Son of Ponzi on 01.20.14 at 8:50 pm

Einstein would have proudly worn this T-shirt.

#8 omg on 01.20.14 at 8:53 pm

Victoria Housing Finally showing Weakness

Went to a few open houses on the weekend just for fun.

Most seemed to still be 10% to 15% over what I sold my place for in early 2007, but a couple seemed to be pretty competitive with 2007 prices. Most of the open houses had been on the market for over 30 days.

Not worth thinking about jumping back in yet but just an indicator of things to come.

BUT YIKES taxes are crazy – seem to be up about 30% from 2007 levels and we have not even seen a sniff of the $400 to $700/yr increase due to the new sewage treatment plant.

#9 Soylent Green is People on 01.20.14 at 8:53 pm

Video – Bibi & Tarta were standing on edge of a raised platform waiting for Harper’s car. When Harper got out, Steve was forced to shake hands / photo-op with Bibi towering over him. OMFG SO FUNNY, Harper is P.O. !! Does an end run around to hoist himself up.

http://youtu.be/Qh92x-wi-kA

……………………….

Tibi said Harper didn’t mention the Israeli settlements in the West Bank and East Jerusalem.

Canada officially opposes Israeli control over territories occupied in 1967, although Harper has refrained from criticizing Israel for its apartheid policy.

http://www.cbc.ca/news/politics/ahmad-tibi-why-i-walked-out-on-stephen-harper-s-speech-1.2503975

……………………………..

If you read just one article re Harper’s visit to Israel, LET IT BE THIS ONE:

By Gerry Caplan: All they will see is one particular dimension of Israeli reality, the one their Israeli government hosts want them to see and which, as it happens, is also the one they want to see.

http://rabble.ca/blogs/bloggers/gerry-caplan/2014/01/harper-travelling-to-israel-to-delude-himself

…………………….

Reading through the list is an eye-opener. It includes 21 Jewish rabbis and more than 56 reps from various Zionist lobbying groups and –> private Jewish schools.

10 reps from evangelical Christian groups which unconditionally support the most extreme Israeli positions: the Christian Missionary Alliance of Canada, the Evangelical Fellowship of Canada, Trinity Bible Church, Crossroads Christian Communications, and the Pentecostal Assemblies of Canada.

http://ijvcanada.org/2014/harpers-planeload/

………………………….

#10 John on 01.20.14 at 8:55 pm

Hi Garth,

Did you notice RBC just lowered some mortgage rates? Lets wait for realtors and their media outlets to rally the troops with “don’t miss the last chance to buy while interest rates are low” message. Just in time for spring market.

#11 Loss Of Conciousness on 01.20.14 at 8:57 pm

My impression of the problem is not that people have the wrong savings vehicle for a rainy day fund but many Canadians have no savings, liquid or illiquid for unexpected expenses.
If housing does undergo a large correction, won’t there be a general tightening of credit? Would this not make relying soley on a LOC for emergencies risky?

#12 Son of Ponzi on 01.20.14 at 8:58 pm

I was in Berlin, Germany last year.
Snow had fallen a few days ago, but no one had shovelled the snow.
Sometimes we need to look both ways before crossing the street.

#13 Son of Ponzi on 01.20.14 at 9:02 pm

Canadians are maxed out.
Lower interest will not make a difference.
Unless HAM comes to the rescue, spring will be a robust buyers market, particularly in Vancouver.

#14 David Lee on 01.20.14 at 9:05 pm

Maybe there is some hope for our youngsters:

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/why-canadas-cult-of-home-ownership-is-in-trouble/article16419965/

#15 Walter Safety on 01.20.14 at 9:07 pm

How about calling it the ” Before you learn to invest you must first learn to save account”
Three months income not so bad now?

#16 Victoria boy on 01.20.14 at 9:07 pm

#9. What the hell does that have to do with real estate or investing. Find another soap box.

#17 Dual Citizen in Canada on 01.20.14 at 9:08 pm

For those who have elderly parents, please convince them for you to have a look at their finances. I did this for my parents about a month ago and found them invested, from advice of the bank, into crappy GICs. Promptly told them to cash it in, top up their TFSA contributions for this year and invest the rest. Don’t let the banks give them 1% while making 20+% on their money!

#18 Smoking Man on 01.20.14 at 9:08 pm

Falling yields, who called it in Sept BATMAN

http://business.financialpost.com/2014/01/20/here-we-go-again-with-dropping-mortgage-rates/

Same guy who warned everyone to go long on USDCAD when it was 1.02

And prozak will be calling for a BOC rate cut shortly as called by the…. well Me……

See even Rosy catching on

http://business.financialpost.com/2014/01/20/david-rosenberg-expects-bank-of-canada-to-signal-rate-cut-boosting-canadian-bonds/

The question I have is. How do I keep hitting these out of the park when I am obviously very sick and insane.

The force or something like that.

Even found a way to legally cheat at Mississippi stud.

#19 sheane wallace on 01.20.14 at 9:12 pm

or just have few gold coins aside….

#20 Figmund Sreaud on 01.20.14 at 9:15 pm

Dear Garth,

Your choice of a picture, today, is bit presumptuous. No big trouble, …

The fact remains, however, that to be truly educated – today, a person must have learned the basic facts of history, geography, science, mathematics – including Pythagorean theorem, and a language.

Once all that is mastered, … the person must be taught the rules for clear thinking, … and then must be motivated to continue the learning process for as long as he or she remains sane.

History, for example, is important because the already ongoing earthly adventure started long before one was born – we must understand what happened before we got here! Its important. Geography is important because we are creatures of places. For political propaganda purposes, people are praised or blamed for what is really a matter of geography – we must not be ever fooled by such machinations, … hence geography is important! The basic knowledge of chemistry, physics and biology is all that is generally necessary to understand other earthly things, … unless one wants to be, say, microbiologist. We need mathematics in order to count, weigh, measure and calculate. We need language skills because a human being’s survival depends on communication.

I was taught all that in high school! [It’s all there, trust me, even in today’s Alberta high school curriculum – my son graduated recently, and I read his text books for an entertainment!]

Anyway, … the main point I’m trying to make is, I don’t like your choice of a picture today!

Speedy recovery, btw!

F. S.

#21 ronh on 01.20.14 at 9:18 pm

I have a LOC, but have never used it. Last month the bank sent me a letter suggesting I should use it or lose it.

#22 DaleFromCalgary on 01.20.14 at 9:21 pm

The fallacy of relying on a LOC for an emergency fund is that debt compounds if you are off work a long time. A self-employed financial advisor laid up for a couple of weeks with a bad ankle can still work at his computer. A tradesman badly injured in a construction accident can be off work for a year (and I’ve seen that often), especially when contractors are laying off. Investments with liquidity? Sure, if you’re selling in an up market, not REITs or ETFS during a downdraft.

By the way, as most tradesmen can tell you, the Pythagorean theorem has a very common and practical use. It’s how you square off a building foundation, wall, or landscape feature quickly and easily. Just measure one side at 3 units (feet or metres, it doesn’t matter because it’s a ratio), the other at 4 units, and when the hypotenuse is 5 units, then you have a right angle. I’ve done it many times while others stand around waiting for the surveyors to show up.

#23 Retired Boomer - WI on 01.20.14 at 9:23 pm

EMERGENCY FUND. Yup, got it right here…in my interest bearing checking account at my local credit union. Pays me just 2.5% a year but, that is more than the short term bonds yield here in the US. It will pay that only up to 20 grand on deposit in one’s checking but, that should cover most “emergencies” os silly impulse purchases that I am want to make every now, and again.

No, not an “investment” that money is merely protraction against the unknown.

For investments we have individual stocks, and funds of varying types all designed to be held from 1-5 years or, more. Pretty diversified there, too.

Moving money from taxable to tax free as income brackets make it feasible to do so. Life is good, no debt helps. Freedom is more desirable than anything else for this time.

#24 Jordy on 01.20.14 at 9:32 pm

Perfect Tshirt, our educational system is nfg. Looked at an open house on the weekend, realtor said there was a “small crack in the foundation, that the 20 something, single lady just discovered, sad, really sad, she just wants to get out of it.” I go down and have a look, the whole basment wall is calapsing and has pushed in 12″ in the center. Plus the concrete never came up to ground level, rotting wood for 2′ under ground. Realtor said she bought it 3 years ago. A blind village idiot could have spotted this one…..

#25 bobdog on 01.20.14 at 9:38 pm

I think its time for a mobile friendly greater fool web site! Its what all the cool kids are doing these days. Its hard to read on my phone.

#26 PROTEA on 01.20.14 at 9:47 pm

to # 9 keep your political comments to yourself otherwise one could show their ignorance. By the way GT’s column was on the merits of having a rainy day fund.

#27 will on 01.20.14 at 10:02 pm

Yeah I always thought emergency funds were bull shit.

A few years ago I read this little book called Watch Yourself: Why Safer isn’t always Better, by Matt Hern. The book has lots of quotations including this one, attributed to Tennessee Williams:

“Security is a kind of death.”

#28 Cowpoke on 01.20.14 at 10:05 pm

Garth! Your T-shirt says it all dude.!. You guys don’t really want a bunch of smart asses out here do ya.??. What you boys up top really want is to use intimidation, and mind control, on an obedient docile work force full of
manageable employees and egar consumers with
fixed habits of responses to your authority!

#29 Ayn Rand Army on 01.20.14 at 10:06 pm

Retired WI Boomer, don’t get me wrong, i like America and Americans, (and Canadians) they’re great customers where i usually sell the majority of my sales, so I was referring that sales were dead as is the economy there, IMO, anecdotally speaking.

But yes, i am distressed too these days. Over the past five years the bulk of my sales tend to occur between Oct to April but this year has been horrible. And Canada being non-existent in my world also meant in terms of sales. However, i did actually sell a few here this time last year finally.

#30 TheCatFoodLady on 01.20.14 at 10:06 pm

Amen! The only cash we keep over & above monthly running costs is the minimum required in our bank account to keep monthly bank fees at… zero. Even not owning a home we have an LOC with a reasonable rate of interest that could keep us going for quite a while. Push comes to shove, a credit card with a not so nice rate of interest we could dust off.

It’s a ‘rule’ of G V-O’s I disagree with – the readily accessible ‘cash or cash equivalent’ you could tap easily. It is a wasted earnings opportunity to have that much mouldering in any low interest investment. The only one that made sense was the minimum in the bank account to kill bank fees. Not paying bank fees ‘earns’ us more, way more than an equivalent amount in GICs, etc.

On another note – I spent much of last year reading your blog, other sources & carefully correcting investing mistakes – high MER MFs, unloading the rest of a GIC & making sure I was properly balanced & diversified. Our main source of income is my Main Squeeze’s ODSP & that comes with stringent rules about the amount he can have in assets. It’s been an intriguing challenge growing MS’s money within the rules.

But by Gawd, it’s happening. It’s rebalancing time & profit taking season. I’ve, (for now), held on to flat & slightly down holdings – never lock in a loss, right? Some of those losses are slowly creeping back up so yup, patience can be rewarded. Following ‘rules’ helps me keep a grip on the emotional aspect of investing & I’m too new to this not to have to some emotion – I’d be lying if I pretended I could be all sophisticated about it.

I’m thinking markets are due for a correction before some go up again. I ran my numbers, then again & again. You bet I fear making mistakes, even though I accept it happens – ask me about my impulsive purchase of Blackberry… I took those profits at an after tax return on %18.75. If I’d decided to sell out of everything, I still would have been up 8.5% after taxes.

A very satisfying year for me.

Now to watch the markets & underlying economies closely for a time before putting that money back in; very carefully.

It was hard some times not to REACT, very hard if I’m going to be frank. When I got twitchy, I’d come back here & read & reread the fundamentals. There’s nothing terribly sexy or exciting about sound investing, I’m learning. I’m not sophisticated or wealthy enough to open a margin account, short anything or buy complicated products. My rules is – if I can’t explain what I’m looking to buy as well as its tax implications to a 12 year old in a comprehensible way, I’ve got no business buying it.

Nope, no sexy shorts except in my underwear drawer, nothing exotic or exciting. But boy, there’s all the excitement I need knowing by following, (mostly), Garth’s patient & repeated advice, I was able to sleep at night & turn a robust profit.

And for that, as well as your astute turn of phrase, heartfelt thank yous.

#31 nnso on 01.20.14 at 10:09 pm

What we missed in the public school is covered at Khan Academy
rent vs buy (US version). make a Canadian version.
http://www.youtube.com/watch?v=s8GjDRT2MI0

http://www.youtube.com/watch?v=C4sX3Mpp2xs

http://www.youtube.com/watch?v=mtL_plJXv3c

#32 b on 01.20.14 at 10:15 pm

Soylent Green is People, just wondering if Garth is going to zap your arse for sharing your political musings of your financial/RE wisdom.

#33 Evidence Based Real Estate Voyeur on 01.20.14 at 10:16 pm

I hope this isn’t old news. Research by Steve Pomeroy, a housing consultant and research associate at Carleton University, found home ownership rates among people aged 25 to 34 decreased from 1981 -1996 then increased from 45.8 per cent in the mid-1990s to a historic peak of 52.4 per cent in 2011 (This is just above 1976-1981 levels). “Home ownership levels in the entire population also increased, but not quite as much”.
This gives credence to young first time buyers driving the market and no sign of them being price out of the market. Up until 2011 at least. Likely taking advantage of low interest rates and Ma and Pa’s HELOC.

http://www.focus-consult.com/wp-content/uploads/2013/11/Refuting-expectations-Blog-Nov-23.pdf

Found link here:

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/why-canadas-cult-of-home-ownership-is-in-trouble/article16419965/

#34 Danno on 01.20.14 at 10:17 pm

Hey Garth. A friend of mine and i read your blog regularly and love when you rip on Kias. We made a bet on what kind of car you drive. We both think you drive American. He thinks youre a pickup guy. But you do some time in the city and trucks suck there so Im going Chrysler 300. I get a free hamburger if i win. So come on, help a brother out??

#35 Smoking Man on 01.20.14 at 10:20 pm

#28 Cowpoke on 01.20.14 at 10:05 pm
Garth! Your T-shirt says it all dude.!. You guys don’t really want a bunch of smart asses out here do ya.??. What you boys up top really want is to use intimidation, and mind control, on an obedient docile work force full of
manageable employees and egar consumers with
fixed habits of responses to your authority………..
………………………………………..

No…..this can’t be so, how dare you insinuate that the education system has a hidden agenda that goes over the head of every teacher.

That’s just tin foil thinking :)

#36 Smoking Man on 01.20.14 at 10:29 pm

So the bank dropped the 5 year 10 basis points.

In Sept when I called the turn. 5 year was around 2.45 today 1.96 and dropping.

so if you have a renewal coming up, you have wiggle room, fight for it.

#37 Serpico on 01.20.14 at 10:32 pm

Awesome pic
I agree 100%. I have a 53,000 LOC with a balance of zero. Should cover a yr of expenses easily. Plus sick leave benefits and long term disability benefits from my work kick ass. Every drop of cash is invested.
Money is dying in sock drawers and 1.75% TFSA’s all around us, thanks to the jar lady and [email protected]
Stop the madness.

#38 Cowpoke on 01.20.14 at 10:36 pm

Charity begins at home Garth. Our Canadian shoulders are to small to carry this world. Don’t forget to mention this to your top cronies in this country. Read your history. You ain’t nothing without us! None of you are.

A bit of history:

Jefferson’s assertion that Britain had forced slavery on the colonies.

Nothing short of ‘usury’ in this country.

#39 Shaun of the Dead on 01.20.14 at 10:42 pm

Did you just dis Saskatoon berries?

OK, it’s ?#@!$# on, now, buddy.

(Great note, as always)

#40 lawboy on 01.20.14 at 10:43 pm

Wow. A realtor admits a buyer failed to close:

http://www.yanguru.com/55afton

This Beaconsfield village property was for sale in early November, “as is”, and the realtor was so desperate to sell asap he ran open houses on a MONDAY in November. I think it was listed for $889k. You had to walk past a uhaul truck backed into the front yard, and over some other renos in progress to get to the front door.

What happened I wonder. Did the buyers get cold feet or did the bank balk.

#41 TheCatFoodLady on 01.20.14 at 10:44 pm

Another bone to pick with emergency funds & emergencies. I’ve read a lot of authors who tell you to do what Garth posted – add up all your monthly expenses, multiply by the number of months you feel necessary & start saving until you’re up to that amount.

There’s a lot more thinking involved, or should be. Most emergencies are going to cost you something – that’s part of the reason they’re called emergencies. Whatever your plans for funding entail, be realistic about your lifestyle during the duration of the emergency. If you limit your spending to needs rather than wants, your resources will last longer & remove some of the stress. No one wants to cut kids’ activities but it needs to be done sometimes & an honest family discussion, helping them feel part of the solution will teach valuable lessons for later in life.

If you don’t want to use credit, look at selling some non-registered investments. Look at every asset you can bring to bear & do that thinking well before any emergency crops up.

#42 Bobby on 01.20.14 at 10:45 pm

For # 8 omg,

No, the Victoria market has been showing weakness for awhile. I also was out looking at homes this weekend. Many overpriced, in need of lots of updating and have been sitting on the market for months. Some properties like town homes and condos are brand new, never lived in but a few years old. One unit I looked at was still for sale and had been built in 2009. Realtor still wanted me to believe the appliances were new and on full warranty. Sure.

CFAX had a few people from real estate sectors on the other morning. They spoke of prices going up 4.4% this year. Ya, right. Assessments are down 5-10% and inventory is just sitting.

Be careful who you believe.

#43 Tri-Guy on 01.20.14 at 10:50 pm

My brother just bought a boat @ the boat show. A 8 foot kayak for $800. Doesn’t even come with a motor or paddle.
Tiger balm the leg Garth.
Heal quick

#44 GenXer on 01.20.14 at 10:51 pm

“Money in a savings account is dead money, barely able to keep up with inflation”

Or very shortly, maybe not.

http://m.theglobeandmail.com/report-on-business/economy/poloz-unlikely-to-cut-rates-despite-deflation-concern/article16402247/?service=mobile&cmpid=rss1

Having some cash position isn’t a terrible idea right now.

#45 eddy on 01.20.14 at 10:52 pm

#5 Smoking Man on 01.20.14 at 8:38 pm

Long Branch South of lake shore.

100 bucks to anyone that finds a house for sale

—-

There’ s a lot of 416 areas like that, no listings.
Anyone awaiting a drop in 416 entry level house prices should remain in indoors. One bungalow at Islington and Bloor just came out at 699,000. Of course they’re holding off offers for a week, and the listing says ‘no bully offers’ The arrogance of that statement says it all – wait, get in line, register, prepare to be disappointed.

#46 Smoking Man on 01.20.14 at 10:52 pm

#34 Danno on 01.20.14 at 10:17 pm
Hey Garth. A friend of mine and i read your blog regularly and love when you rip on Kias. We made a bet on what kind of car you drive. We both think you drive American. He thinks youre a pickup guy. But you do some time in the city and trucks suck there so Im going Chrysler 300. I get a free hamburger if i win. So come on, help a brother out??
……………………………………

He lives in tree hugging central. A 300 would make his neighbors shun and talk about him behind his back. A Vespa or smart car he would be considered cool. A pedal bike and he’s a god.

I imagine the Harley is carefully camouflaged and out of sight.

His paper boy delivers the financial post hidden inside a decoy copy of the Toronto star.

#47 Shawn on 01.20.14 at 10:54 pm

Emergency Fund

Let’s see, about three credit cards should do nicely for that.

If you do lose your job be sure to phone all your lenders immediately about your change in circumstances in case they want to cancel your line of credit.

It’s just the right thing to do before something REALLY BAD happens, like a bank suffers a loss on your loans.

#48 Notta Sheeple on 01.20.14 at 10:57 pm

Morphine button in one hand and computer mouse in the other.

Impressive, young Skywalker.

PS. If a Lamb broke a leg in the forest, and no one was around to hear the sound, would anyone give a sh!t ?

#49 jenn on 01.20.14 at 11:03 pm

Sorry to hear about your fall and I hope that you are feeling better soon!

I can add another reason why you shouldn’t have an emergency fund set up in a savings account comes from my own personal experience when I started working after uni. I set up an emergency account, but then I would self-justify spending the money on “want” expenses. A trip down south in the winter, new clothes for work, a nice dinner out after a stressful week of work all became “emergencies”. I quickly learned that I could self-justify spending the money in the account, so changed my plan and bought stocks. Being honest with myself was the key!

#50 Andrew Woburn on 01.20.14 at 11:05 pm

#13 Son of Ponzi on 01.20.14 at 9:02 pm
Canadians are maxed out.Lower interest will not make a difference. Unless HAM comes to the rescue, spring will be a robust buyers market, particularly in Vancouver.
=============================

Not sure why HAM would buy into a market where they face a virtually certain price meltdown and potential large exchange losses. Vancouver also has to be ground zero for the anti-corruption investigations recently announced by the Chinese government.

#51 Julia on 01.20.14 at 11:18 pm

#34 Danno

See http://www.greaterfool.ca/2013/11/26/the-indebted/

#52 PermaBear on 01.20.14 at 11:18 pm

Get well soon, Garth.
But it seems you’ll be out 4-6 weeks on the IR.

#53 Matt on 01.20.14 at 11:20 pm

This occurred to me recently as well. Historically, I’ve kept about $8k in my savings account just in case. Meanwhile, my $20k LOC sits there, never used but always present. Why?? That $8k could have earned me nearly $1k last year if I’d kept it with my other investments. Instead it earned a taxable $82.

I drained my savings account of all but 1 month’s expenses a few weeks ago. The world has not ended.

#54 Bottoms_Up on 01.20.14 at 11:30 pm

Garth you had me bust a gut with your opener. Hope the 4 breaks heal properly and quickly.

Thanks for the heads up on the unsecured LOC rates. We’ve got a great credit rating and a house. I guess we’re getting hosed at 6% –RBC said it was the best rate they could offer.

#55 Bottoms_Up on 01.20.14 at 11:31 pm

#34 Danno on 01.20.14 at 10:17 pm
————————————–
Google “Garth” and “Hummer” and you’ll get your answer.

#56 Ontario's Left Coast on 01.20.14 at 11:35 pm

[email protected] offered me a secured line of 100k when I paid my house off. It’s a no brainer, and I do exercise it now and again before paying it off in full. I do keep a few bucks in the orange guy’s shorts, but it’s a fraction of what’s salted away in a balanced portfolio between maxed RRSPs, TFSAs, RESPs and non-registered investment accounts. Man, I’m glad I was born a saver!

#57 Victor V on 01.20.14 at 11:47 pm

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/why-canadas-cult-of-home-ownership-is-in-trouble/article16419965/

“Last year, in a class of 29 students, a clear majority said they would buy,” Prof. Harris wrote me in an e-mail. “I was surprised because I had spent a lot of time speaking about the dangers of price bubbles, and about the opinion of most experts that the markets in many Canadian cities had moved, or were moving, into bubble territory.”

This year, only five of 23 said they’d buy and 18 chose to rent. “Although the assignment was the same and the content of my lectures pretty much the same, the pattern of response was very different,” Prof. Harris wrote.

#58 Son of Ponzi on 01.20.14 at 11:49 pm

Debt borrowed at 2.5% is still debt not equity.
Idiots.

#59 Smartalox on 01.21.14 at 12:05 am

@ Soylent Green:
Gerry Kaplan’s piece is full of half-truths and cherry-picked opinions. It’s no wonder he chose to express his views in that blog, and not through any legitimate media outlets. He must be desperate for work, the quality of his fact-checking has clearly suffered.

The thing that I want to see come from Harper’s visit to Israel this week is whether or not Canadian Parliamentarians will follow Tibi’s lead, and storm out of the house the next time Harper and his cronies amp up the BS and obfuscation to attempt to avoid answering for their scandals and misdeeds.

#60 Victor V on 01.21.14 at 12:07 am

http://business.financialpost.com/2014/01/20/bank-of-canada-interest-rate-wednesday/

“Governor Poloz can’t be anything but pleased with the loonie’s recent weakness,” says economist Benjamin Reitzes at BMO Capital Markets.

Wednesday’s interest rate statement “will try to be as dovish as possible, stopping short of signalling potential cuts.”

#61 the jaguar on 01.21.14 at 12:10 am

Hard to know why I find comfort in knowing that Garth took his tumble while shoveling his driveway.
I guess because I know that Bandit would have started barking madly, Mrs. T would have heard it, and help was on the way.
I had some small fear that it might have occurred farther from home. Not that distance lessens the calamity, but I didn’t want to think of Garth alone and waiting for help. It’s just reassuring to know help was nearby.
A thoughtful post tonight. Most people think that bad things happen to other people…not them. I know from experience this is not the case. We all need an action plan. Never waste a day. It’s so true in so many ways.

#62 T.O. Bubble Boy on 01.21.14 at 12:11 am

I’ve slowly whittled down the “emergency cash” sitting in the orange guy’s shorts… I actually started moving a certain % every couple of months as soon as Scotia bought ING, and I plan to take the final $$$ out this year.

If I really feel the need to keep cash, I might as well use the “TD Investment Savings Account” No Load Mutual Funds (they buy and sell like funds, can be held in your investment accounts, and pay essentially the same interest rate as say ING). For example, TD’s TDB8150 currently pays 1.25% (ING is 1.35%). A summary of a few of these “savings funds” at various discount brokers can be found here:
http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/

#63 Jack Ass on 01.21.14 at 12:18 am

Did you break your leg on purpose just for a story angle?

#64 Retired Boomer - WI on 01.21.14 at 12:22 am

329 Ayn Rand Army

Sorry to hear sales are down. Yes, the US and Canada are not having their “best Boom Times” just now. Plenty of uncertainty here, no Federal budget, dysfunctional congress…the usual crap. One gets used to the mayhem after a while.

Does it get better? Unknown. I’m a survivor, retired, in a small community that can largely survive undisturbed by the goings on elsewhere. Really, urban Amish here.

#65 Entrepreneur on 01.21.14 at 12:23 am

Fifth, most importantly, this is why God made lines of credit.

Really, is that so. I don’t think God would make lines of credit.

#66 Cici on 01.21.14 at 12:32 am

My city has run out of salt and gravel for the driveways.

Crampons all the way baby…now that’s an investment :-)

#67 Mike on 01.21.14 at 12:42 am

I asked one of my professors about using a line of credit rather than an emergency fund and she recommended against it. I’m not quite sure why she dismissed it, so I’m not placing much weight on the opinion. My one concern with LOC’s is that the credit can be withdrawn for some reason. If you have $30,000 in LOC debt, is there any chance the bank can request an immediate recall of the loan? Can the bank close your line at their own discretion?

#68 Stupesing in Cabbagetown on 01.21.14 at 12:43 am

Pythagoras was a square but he knew the right angle.

#69 Wheezing Musty Basement Dweller on 01.21.14 at 12:48 am

Garth you made me a crap load of money this past year and helped me start a new and unencumbered life. Your medicine WORKS. I didn’t say thanks yet so here it is, THANKS! .. Signed, proud to be “only a renter”.

#70 Joe on 01.21.14 at 12:52 am

Heard an interesting comment from an electrician today.
The smart meters and appliances are able to run a diagnostic on more then our habits, also on the condition of wiring in the walls.

His point being that if a red flag comes up during a smart meter diagnostic such as a piece of aluminum wire in the walls somewhere down the road it’s going to cause people a lot of pain.

He said that the way things are going to sell an older house could be very expensive once it’s been brought up to code.

#71 Mikey B on 01.21.14 at 12:54 am

Wow. I can’t believe my email turned into an article. Thanks again for the advice Garth.

#72 Happyjack on 01.21.14 at 12:54 am

Hi Garth: Sorry about your fall. Would you consider the following to prevent another fall.

http://www.leevalley.com/US/garden/page.aspx?p=58247&cat=2,51676

Keep up the good work !!!

#73 EvilMagpie on 01.21.14 at 12:56 am

Next time: please be sure to fall correctly.
This afternoon while taking out the trash (I probably had 10 garbage bags full of stuff even after the movers left) I simply slipped and fell down on the ice and snow in my back lane. All that happened was a bruised knee.

Anyway, I did need to borrow some cash from myself (via my TFSA) in order to fund moving costs. It did take a few days for the selling of the funds to settle, but it took an entire business week from the selling of the funds to the cash being available in my chequing account.

#74 NotAGreaterFool on 01.21.14 at 12:56 am

TD has altered the fine print in its VRM contracts for conventional mortgages – specifically around when a spike in LTV triggers demand for a lump-sum payment or a new appraisal

http://www.mortgagebrokernews.ca/news/td-mortgage-clause-change-176155.aspx

#75 greg on 01.21.14 at 12:57 am

Garth I enjoy reading your posts but , your starting to have as much credibility as Peter Schiff.

There’s a app for that. — Garth

#76 Humpty Dumpty on 01.21.14 at 12:58 am

Here’s more salt for your wound….

Regulated derivatives usage follows strict guidelines for leverage and margin usage as well as requirements for complete transparency. Current estimates of the leverage usage in unregulated OTC derivatives that underlie the economies of the western world range from $600 to $700 trillion in notional value, far eclipsing the liquidating value of the banks that generally back these derivatives. The exact extent of the obligation is unknown due to the lack of transparency, but to provide perspective to the scope of leverage being used, the world economy is valued at $72 trillion. If these derivatives were to implode, as they did in 2008, it would literally wipe out the world economy several times over. Derivatives are like insurance contracts. The large banks have underwritten this insurance, most of which is tied to interest rates. If interest rates were to rise rapidly, which is possible given the government debt situation, it could trigger many of these derivatives and create a domino effect type economic crash. Paul Singer is not addressing an outlier event, but rather a situation that many inside the derivatives industry consider a probability.

http://www.valuewalk.com/2014/01/paul-singer-davos-speech/

#77 seglo on 01.21.14 at 1:06 am

What if your emergency is losing your job? Your loc interest rate is going to be one more thing to worry about while trying to find work.

Many people can’t afford to max out rrsp and tfsa so withdrawing from these registered accounts come with their own problems.

Finally, what if god forbid, you lose your job during an economic downturn? Not an unheard of scenario. You would be forced to liquidate part of your portfolio while it’s low.

Although many people have differing opinions on emergency accounts I think the main deciding factors when choosing to set one up and with how much monies depends on your work stability, income level, recurring liabilities, etc. For most people earning a median wage in volatile industries I believe your advice is short signed.

#78 GsAmazon on 01.21.14 at 1:08 am

i’ll say it out loud…..this is one of the few ways I cheat on the jar lady. tee hee

#79 Wheezing Musty Basement Dweller on 01.21.14 at 1:15 am

#25 bobdog on 01.20.14 at 9:38 pm
I think its time for a mobile friendly greater fool web site! Its what all the cool kids are doing these days. Its hard to read on my phone.
≠============
Maybe look at getting a new phone

#80 T.O. Bubble Boy on 01.21.14 at 1:16 am

Garth – Harper may have thrown you out of his inner circle, but I think he secretly wants to be you:

http://ca.finance.yahoo.com/news/need-investment-advice–ask-harper-211724887.html

Here’s a question for the blog dogs: what would Stephen Harper’s Financial Blog be called?

A) Deficits4ever.ca
B) CalgaryGoodTorontoBad.ca
C) ExpenseYourRetirementLikeASenator.ca
D) other?

#81 Rational Thinker on 01.21.14 at 1:23 am

The most successful investors almost always keep cash available to take advantage of opportunities when they arise.

It is always important to be diversified and allocate your portfolio to match your unique personal situation. Selling fluctuating assets into a down market is not a good idea. Cash provides a buffer in case you need liquidity.

In a crisis I would assume that financial institutions will suspend line of credits and cut credit limits to preserve their capital.

Lack of cash is a pretty large financial risk to most investors if not prepared. We can’t expect that bonds will maintain their value in the next crisis since they are at all time historical highs.

The market rarely behaves how most people think it will. NOBODY likes to hold cash right now. That fact alone may make it the most opportune time to start raising your cash in your portfolio. It pays to not follow the crowd.

#82 Humpty Dumpty on 01.21.14 at 1:57 am

Oh Sh.. you say…

An official government report by Fisheries and Oceans Canada proves that radiation from the Fukushima nuclear disaster in Japan, is hitting the U.S. and Canadian coasts RIGHT NOW. It began striking southwest Alaska in 2012 and arrived at Vancouver Island, BC, six months ago but Fisheries and Oceans Canada did NOT reveal this despite knowing the radiation gets worse by the day. They continued to keep silent even after their own official report proved these facts in October, 2013. We have the official report; now you do too.

http://www.turnerradionetwork.com/news/131-mjt

TRN must surely be related to you G…

#83 jane24 on 01.21.14 at 1:58 am

Disagree on this one.

We have had some ups and downs in life, the same as the other 99% of the population. Plus have lived through stock market crashes and house price declines. There has been enough stress in our lives to teach us to we keep one year’s expenses in the bank.

We may lose money but we sleep very well. Debt equals stress to us. Stress kills.

Let the fabled 1% be totally invested.

#84 Tony on 01.21.14 at 2:05 am

Who needs an emergency fund? You just sell a sports car or get the bank to wire you money from an offshore tax haven.

#85 Kilby on 01.21.14 at 2:09 am

#23 Retired Boomer – WI on 01.20.14 at 9:23 pm
EMERGENCY FUND. Yup, got it right here…in my interest bearing checking account at my local credit union. Pays me just 2.5% a year
______________________________________________
Which credit union? The best I have seen at any CU is 1.1% plus another .011 in profit sharing…

#86 Sir Shovelalot on 01.21.14 at 2:23 am

Time to get with times Garth.

Either wear some sort of cramp-ons when out on the job, or better yet outsource the work to a neighbourhood kid.

The latter is more economically efficient as the kid learns some life skills, and gains disposable income, while you free up your precious time for these high value-added activities like blogging.

#87 Marco Polo on 01.21.14 at 2:25 am

Ok,

Far too many posters here wondering why Garth can keep a KIA only as far as he needs to push it.

KIA are, by far, a low-cost, hence low-quality vehicle, with most of them manufactured in Korea, and sold to unknowing buyers here, funded with our cheap credit.

KIA, Hyundai, and Samsung all offer ‘stuff’ at a low price. The unpaid cost is the lack of local manufacturing jobs here in Canada, lack of development of technology here, little support from KIA to our health care costs or our tax base (the big three give benefits and pensions to their Canadian workers).

That said, a few decades ago, one would have said Japanese cars were junk, and terrible. They now have the best reputation today.

#88 Andrew Woburn on 01.21.14 at 2:33 am

Maybe we’ll have to be more respectful of Kia now.

http://www.wired.com/autopia/2014/01/kia-stinger-concept/

#89 Happy Renting on 01.21.14 at 2:37 am

#21 – ronh
Yeah, I think my bank closed my LOC because I never used it, too.

The constant emergency fund preaching is foremost directed at people living paycheque to paycheque with zero resources saved/invested should their income stream be interrupted. There aren’t likely to be any existing hand to mouth among Garth’s blog dogs, especially with so many of the younger ones making 7+ figures a year by being so smart and hard-working… Or by being realtors! :P

#90 Brian Ripley on 01.21.14 at 3:05 am

To: #33 Evidence Based Real Estate Voyeur re: Home ownership levels.

Owner occupier levels in Canada, according to the StatsCan 2011 Census is at a level that corresponds with the peak in U.S. levels of 2005. Canadian national home ownership was 68.4% in 2006 and 69% in 2011 spurred on by a high-rise condominium boom; 30.9% of owner households in Canada live in condos and in Toronto it’s a very high 67.4% of homeowners that do. But household formation it is not. Single non-family households make up 45.5% of condo owning dwellers in the top 10 Canadian metros. This, along with the underemployed is perhaps Canada’s Freeter class.
My Chart mashup is here: http://www.chpc.biz/2/post/2014/01/freeters.html

The post also includes a chart of the distribution of owner-households by household type, for owner-occupied condominiums and other owner-occupied dwellings in 10 Canadian Metros.

#91 Dean Mason on 01.21.14 at 3:32 am

To #11 Loss Of Consciousness

This is what exactly happened in the U.S. during the 2008 to 2009 financial crisis.

A lot of people got letters from banks, mortgage companies, lenders that their line of credit is being cancelled.

They had no longer any credit available, period.

#92 Roland on 01.21.14 at 3:43 am

A situation in which many people might need emergency savings might also be the sort of situation that features falling investment values, tightening credit availability, and rising unemployment.

Perhaps it’s better to have some idle cash than to liquidate investments at a significant loss, or to find the bank calling in your revolving credit at the worst possible time.

#93 Kevin on 01.21.14 at 8:39 am

Fifth, most importantly, this is why God made lines of credit. You can go to the bank, arrange for a LOC for $10,0000 or $50,000

Right. Because when you lose your job, the smartest move you can make is to immediately dive into tens of thousands of dollars of additional debt.

Of course not. But you have another immediate and effective option which costs nothing to have in place. How hard is that to comprehend? — Garth

#94 OttawaMike on 01.21.14 at 9:10 am

#82 Humpty Dumpty on 01.21.14 at 1:57 am
Re:Fukishima Radiation

Do you really believe the N. American govts. are covering up a radiation leak to not scare us??
California is the 8th largest economy in the world and arguably the engine of America’s economy.So is the US govt. is going to really sit idly by and allow its coast to be contaminated.
The top nuclear scientists in the world work in the states, ever heard of Lawrence Livermore Labs? Do you not think these experts have been commissioned to assess the threat?

I have booked an upcoming cheap vacation to Japan, partially due to the scare mongering as in your dodgy posted link.

#95 Linda Pearson on 01.21.14 at 9:28 am

#86 Sir Shovelalot on 01.21.14 at 2:23 am
…you free up your precious time for these high value-added activities like blogging.
***********************

There isn’t any more “value-added” activity than walking your own dog. However, Garth might consider wearing something more winter-friendly than cowboy boots.

#96 bguy1 on 01.21.14 at 9:35 am

Just don’t tell Suze you said that (she might break your balls)

#97 gg on 01.21.14 at 10:04 am

JC Penny … massive layoffs in US.

Report the news fairly.

http://rinf.com/alt-news/breaking-news/jc-penney-intel-announce-massive-layoffs-closures/

#98 Ben Dover on 01.21.14 at 10:11 am

#5 Smoking Man on 01.20.14 at 8:38 pm
Long Branch South of lake shore.
100 bucks to anyone that finds a house for sale

Why would anyone want to find a home near you?
Long Branch is tucked between the sewage plant on the west side, the crack houses to the east and the Cancer causing factories to the North. 100 bucks to anyone that finds Smoking Man instead.

#99 tkid on 01.21.14 at 10:18 am

Do you really believe the N. American govts. are covering up a radiation leak to not scare us??
California is the 8th largest economy in the world and arguably the engine of America’s economy.So is the US govt. is going to really sit idly by and allow its coast to be contaminated.

**********

Yes, they are covering up the radiation leak. Why? There is not a damn thing that they can do to fix it.

Fukushima is still pouring radiation into the Pacific. Latest scare was last month when their readings went sky-high.

#100 Holy Crap Wheres The Tylenol on 01.21.14 at 10:44 am

Garth my feeling on putting any money in a emergency fund bank account at today’s interest rates is pretty much summed up in this video. I decided to invest in some easily cash-able investments, however I also decided to take out a HELOC on the home for $950K if I need some emergency cash or my company needs some support between accounts payable and accounts receivables to float a project its there.

http://www.youtube.com/watch?v=CEeqCbEFIJw

#101 Marty Mcfly on 01.21.14 at 11:20 am

Just found out a house I went to see sold in 5 days for $610,000 in Mississauga. The problem was is the house was infested with TERMITES. We ran as fast as we could but not others i guess they need the company. I also found out Termites are a huge problem in the GTA. Smoking Man you better check your home. Im gonna rent for sure now.

#102 Retributor on 01.21.14 at 11:49 am

Garth, much love, but this is poor financial advice for the masses.

LOC are granted, revoked and repayable at the will and whim of the lender. The precise moment that using one as an emergency fund becomes most attractive and necessary (when emergencies such as job loss occur) also happen to be precisely the time that the individual represents the highest risk and least attractiveness as a creditor. What if you lose your job during a financial crises when lending has dried up? What if the bank demands full repayment on your LOC before you have regained your feet (as they are entitled to do). What if you are invested “growth” assets with equity risk with emergency fund capital and are forced, by an emergency, to cash out after a major decline? Recession based job losses and market crashes tend to go hand in hand.

I agree that today’s environment is a low rate environment, but that doesn’t obviate the need for safe and readily accessible cash. I would consider the building of a multi-step emergency fund. The first step (easiest to access, safest and first to cash out) should be in a savings account, a second step might be cashable GICs, a third a combination of (maybe) preferred share/short term bond etfs.

#103 what bubble? on 01.21.14 at 11:51 am

#13 “Canadians are maxed out.
Lower interest will not make a difference.”

The government wants Canadians to refinance at low percent – that will let that economic model based on consumer credit to run a little longer, but that won’t change the outcome – miserable for Canada. Do the officials know about that? – I think, they do, but they want to be re-elected – the destiny of the country is not their major concern.

#104 Enthalpy on 01.21.14 at 12:30 pm

credit can definitely be a useful tool if used wisely.

#105 raginnn on 01.21.14 at 12:37 pm

Here we go again:

MONTREAL — Bombardier said Tuesday it plans 1,700 layoffs from its aerospace division, mostly around Montreal.

The layoffs represent 6% of the Bombardier Aerospace workforce.

http://business.financialpost.com/2014/01/21/bombardier-inc-job-cuts-tuesday/

#106 Toronto_CA on 01.21.14 at 12:39 pm

Bombs away!

“Canadian company Bombardier Inc. is going ahead with massive layoffs across North America.”

http://www.cbc.ca/news/canada/montreal/bombardier-lays-off-1-700-employees-in-canada-u-s-1.2505013

Look for TD to announce “restructuring” soon as well.

#107 Devore on 01.21.14 at 12:56 pm

#89 Happy Renting

I agree, I think the message is aimed mostly at people who have no savings to begin with, and appealing to their safety/security instincts just might be what does it. “The Jar Lady”, which Garth never fails to take a shot at, is also targeted at the same demographic. These people don’t need financial advisers, they need the most basic of basic personal finance skills, like saving any money at all.

Of course the method of delivery is self-serving; banks love people with fat savings accounts. But the message is sound: it’s better to have some savings than no savings, and before you can start worrying about a balanced portfolio, you need to have a few bucks to spare.

#108 Victor V on 01.21.14 at 1:00 pm

Bombardier plans to lay off 1,700 workers from its aerospace division, mostly around Montreal. The layoffs represent 6 per cent of the Bombardier Aerospace work force.

http://www.theglobeandmail.com/report-on-business/bombardier-laying-off-1700-from-aerospace-division/article16426856/

#109 Victor V on 01.21.14 at 1:01 pm

http://www.theglobeandmail.com/report-on-business/economy/housing/canadian-home-prices-stable-but-still-too-high-fitch/article16426869/

Fitch Ratings thinks that Canadian home prices will manage to stay flat or dip just a little bit this year, despite its belief that they are 20 per cent too high, because of the strength in the housing market.

The expected decline in the pace of home price growth, coupled with high consumer debts, will likely lead to a rise in mortgage delinquencies, although they will remain at relatively low levels, the rating agency added.

#110 Chickenlittle on 01.21.14 at 1:05 pm

Hi Garth. I hope the surgery went well.

I work with kids and when they fall they just bounce back. When we fall we break.

Well good luck on the recovery!!

#66 Cici:

Where do you live?!? That stinks!

#111 IM in C on 01.21.14 at 1:09 pm

Here is an article in the LA Times explaining why it’s different in Canada:
http://www.latimes.com/business/hiltzik/la-fi-mh-canada-20140116,0,6261576.story?source=Patrick.net#axzz2qai02XbG

#112 Retired Boomer - WI on 01.21.14 at 1:09 pm

#85 Kilby

Altra Federal CU in La Crosse, WI has that deal tied to their A+ “share draft” checking account. No fees under normal use and the 2.25% interest rate – such a deal!

I mis-spoke current interest paid is 2.25% not 2.5% (it was there but lowered awhile back) but still a sweet deal

#113 Ohno on 01.21.14 at 1:10 pm

Bombardier just announced laying off 1,700 people, 1,100 of them in Montreal…

#114 Bryn on 01.21.14 at 1:13 pm

Amazing to see how many people have completely missed the point with using a LoC for an emergency fund.

The idea is you keep your cash invested – you still have the “3 months salary” (and hopefully quite a bit more) invested in ETFs which can be sold at a moments notice. The LoC is just to deal with the immediate “oh crap, I need $5,000 TODAY or the world ends”. You write the cheque then deal with selling off what you need to with a calm, rational hand. The money is repaid back to your LoC within a week at most meaning your interest costs are basically nil.

The LoC is not to “fund the emergency”, it is to bridge the gap between extracting funds from your investments and the immediate need to disperse cash.

If at the end of a week you are sitting with “thousands of dollars that you need to pay interest on” you are doing it wrong.

#115 Vermithrax on 01.21.14 at 1:16 pm

Sure, I’ll leap to Gail’s defense on this one. Pretty sure her jar advice isn’t for the majority of us here. It’s for people so far gone in debt and Wal-Mart shopping that they can’t find their own donkey with two hands and a flashlight. …Let alone have enough firing neurons in their skulls to figure out how to maintain a balanced portfolio within a TFSA. “Jar” they can understand. Balanced, liquid investments? You time would be better spent explaining thermodynamics to a chipmunk.

#116 T.O. Bubble Boy on 01.21.14 at 1:32 pm

Here’s why those 5.5%-6% bank preferreds are golden… the new issues from the banks are at 4%!

RBC announced the 4% “Series AZ” today:
http://online.wsj.com/article/PR-CO-20140121-908284.html

An interesting side note: RBC are calling these “Basel-III Compliant” Preferred Shares. My understanding was that pretty much all Rate Reset Preferreds didn’t qualify as Tier 1 Capital, so I’d be curious to know what wrinkle RBC threw into these ones to make them “Basel-III Compliant”.

#117 Republic_of_Western_Canada on 01.21.14 at 1:34 pm

Pythagoras was a square but he knew the right angle.

Actually, the pyth. theorem is only a very specific, limited instance of a more general method to find corresponding lengths of the sides of triangles. i.e. not limited to just right triangles. I believe you’d start out with sin^2 (x) + cos^2 (x) = 1, but it’s been a while. (I don’t mean use of the [non-calculus] sine or cosine law, which requires measurement of one of the angles).

Calculus would also be useful to find their areas, or the volumes of 3-D solids. Or the total weight of a complicated solid having varying density from top to bottom or inside out for example. Or the present value of a stream of payments. Any intermediate undergraduate calculus course will cover those.

The value of understanding a lot of high-school math is that it provides a base for learning the really useful stuff later on at the undergraduate level. At that point, difficult things are covered so fast you won’t have time to back-and-fill the basics which should have been learned in grade school.

#118 not 1st on 01.21.14 at 1:34 pm

113 Ohno on 01.21.14 at 1:10 pm

Bombardier just announced laying off 1,700 people, 1,100 of them in Montreal…

Yup and profits will be up next quarter.

Efficiency and tech and robotics and software continue to put people out of work at a faster and faster pace. Watch the trillions of stimulus get re-invested right back into those initiatives. Anyone that thought jobs were going to come out if it was a fool.

#119 Nightspeace on 01.21.14 at 1:42 pm

I want that t-shirt!!! size small please!

#120 Aj on 01.21.14 at 1:49 pm

For the love of God, where the F$*k can I get Saskatoon Berries in Ontario?????

Excellent blog as always Garth. As someone young, sitting on cash, I couldn’t help but feel you were essentially screaming at me to move the dead cash into something more apatizing than the standard loser interest of a savings account. Point well taken!

#121 Ralph Cramdown on 01.21.14 at 1:50 pm

#181 Calgary Conditional Owner — “inflation (moderate or hyper) makes purchasing power decrease. All of a sudden, you can buy less things if you make the same amount of money. Eventually wages will try to catch up, and debt incurred in before inflation kicked in is easier to be repaid. It is not the same case with rent that you pay after inflation has hit the markets, which will go up in price along with the rest of the cost of life. If at any point in your career you are able to be mortgage free or have a mortgage which payments are not a considerable part of your cashflow, you have a lot more chances of being able to retire on the rest of your assets […]”

I consider a house to be just another income generating asset, in this case the income is the amount of rent I’d save, minus the costs to own. Currently, I see better value in other assets. You may well be right with regards to future inflation, in which case owning might well turn out to have been the better choice.

But think on these:
– Unlike in the US, Canadians typically need to renew their mortgages every 5 years or so. In an inflationary environment, you have to rent money from those who have it at the rates they can command.

– Western fiscal and monetary authorities haven’t seemed keen on tolerating inflation, which would help the borrower at the expense of the lender. We’ve already seen house price inflation at much higher rates than in the general economy; maybe you’re paying for a future increase that’s already happened?

With high leverage, low interest rates and long repayment schedules, you can put together a spreadsheet showing how owning wins, because it doesn’t take much tweaking of house price and rent inflation and interest rates to make a winning case. I think today’s marginal buyer hasn’t even bothered to fudge the numbers, believing that prices will always go up, or at least not go down much, for long. Me, I just keep buying stuff that pays me to own it.

#122 Canadian Watchdog on 01.21.14 at 2:04 pm

Here we go again with dropping mortgage rates

Falling bonds yields could push mortgage rates lower in coming weeks as banks compete in the spring housing market, traditionally the strongest real estate period of the year.

The world is awash with even more liquidity this time as central banks continue their profligacy by holding short-term yields down. Yields are getting so distorted now that five year debt swapped into a three month floating rate is now cheaper then three month interbank lending/borrowing rates (CDOR). Chart

The only way one can make sense of this all is be realizing that bond rates can go negative, as it did for Swiss debt in 2012

It's not about how bad Canada's economy is; rather how much worse global economies are making Canada look great. Alas, mortgage rates moving down means speculators pulling back from buying (less sales) as they try to time the lowest rate possible.

Think backwards and it will all make sense.

#123 Bottoms_Up on 01.21.14 at 2:15 pm

#82 Humpty Dumpty on 01.21.14 at 1:57 am
————————————————
And radiation hits you from the sun basically every second, and hospitals/universities dump radioactive waste into the sewers every day etc. Why should we be worried about a small amount of radioactivity from Japan washing ashore?

#124 Ralph Cramdown on 01.21.14 at 2:16 pm

#184 Macrath — “Is there a way to assign all our proxy voting rights to some shareholder activist or organization? From what I understand the whole voting exercise is a farce and the results are meaningless. If the share holders vote no they take it into consideration and appoint their chosen yes men.”

Nothing I know of. I think there may even be laws preventing shareholders from colluding with each other (heaven forbid that the owners unite to oust bad management!)

You have to do your research and vote by only holding the good stuff. Much as it offends me, I’d rather own shares in a good company whose management is overgenerously self-compensating than in a bad one whose management pays itself what its worth. I, too, am in it for the money.

There is an alternative. Buy shares in companies with controlling ownership. Rich families don’t generally tolerate bad management at their main source of wealth and dividend income, unless their name is Bronfman. Young Thomson isn’t in it for the prestige, nor is young Galen flogging “rich and flaky” pastries on my TV for bragging rights. The Saputos seem continually hungry. These aren’t specific recommendations, just notes that if you want management aligned with ownership interests, this is definitely an approach with merit.

#125 EB on 01.21.14 at 2:32 pm

#94 OttawaMike on 01.21.14 at 9:10 am – The top nuclear scientists in the world work in the states, ever heard of Lawrence Livermore Labs? Do you not think these experts have been commissioned to assess the threat?

Never mind commissioned – it’s a given that people in the labs have made a point of running a few samples from their gardens through a scintillation counter. They’re just as interested in staying uncontaminated as you are. Plenty of folks here in BC have done the same. No flashing red lights yet.

#126 Smoking Man on 01.21.14 at 2:38 pm

 Marty Mcfly on 01.21.14 at 11:20 am

Termites no problem, I will just send the wife to Scotland for a week.

When we were newlyweds and bought our first home.it was a dump. She went back home to
see a sick relative , I was incharge of cooking.

She returned just in time to pick her new kitchen ,roof bathroom.

The place completely rebuilt.

It was an accident, honest. Thank god few weeks before that I upgraded my insurance to full protection and full replacement value. I was going on the cheap, sales guy talked my wife into it, as I reluctantly accepted with a develish smile.

#127 tkid on 01.21.14 at 2:49 pm

Why should we be worried about a small amount of radioactivity from Japan washing ashore?

********

It’s not the radioactivity, as I understand it, but the radioactive particles that are the worry. Fish, or plants, or the local chickens eat/absorb the particles, you eat the local flora and fauna, and lo, you have a radioactive particle in your system playing merry havoc with your cells. Or you could absorb the particles and have a radio particle in your system playing merry havoc.

A lot of these particles will be dangerous for another century, some for eons, some inbetween.

Google Fukushima for more info on the disaster in Japan ( http://fukushimaupdate.com/ is a good site).

Google ‘dangers of radioactivity’ and vary your search if you want to learn more about radioactive particles and their dangers.

#128 fodork on 01.21.14 at 2:58 pm

Garth, on a tangent. MLS data continues to be fudged. Latest example is on my street (mls N2792239 ) 2 Landwood Ave, Vaughan. House sold last weekend after having been on the market for over 4 months. Sold for 575k on that new mlsid with original price having been posted in the mid 600s on a previous mls id. Sold listing shows original price at 575k and DOM as 51 days. I spoke with the agent and asked him outright why this data was inaccurate and he said it was done to make sure “it doesn’t look bad”. I asked if this was ethical and if TREB allows it? He said yes and yes. In this case, can I complain to someone about this fraud? If so, to who and will it be worth it?

#129 fodork on 01.21.14 at 2:58 pm

corrected that is 29 landwood ave, vaughan

#130 Ferrari321 on 01.21.14 at 3:02 pm

Herd mentality starting to change …
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/why-canadas-cult-of-home-ownership-is-in-trouble/article16419965/

#131 tess on 01.21.14 at 3:20 pm

#120 Aj

I grow Saskatoon berries in my Southern Ontario back yard, although generally it is a contest to see who gets more: me or the robins – the robins generally win! I have a friend that generally manages to collect enough for a few highly coveted jars of jam.

#132 -=jwk=- on 01.21.14 at 3:26 pm

#25 bobdog on 01.20.14 at 9:38 pm
I think its time for a mobile friendly greater fool web site! Its what all the cool kids are doing these days. Its hard to read on my phone.
≠============
Maybe look at getting a new phone
============

Agreed, this is already an awesomely mobile friendly sire. No screaming ads. no redirect. no pop-ups. No request for surveys. Pinch and zoom works, as does Android double tap to fill screen. That column of comments fills the screen perfectly…how could it be improved!? MotoG is all you need.

#133 Son of Ponzi on 01.21.14 at 3:37 pm

Apparently, rich owners in BC are using “bare trusts” to circumvent RE laws, mainly pertaining to Property Transfer taxes.
I understand that Ontario has closed this loophole.

#134 :):( Ying Yang on 01.21.14 at 3:43 pm

#126 Smoking Man on 01.21.14 at 2:38 pm
Marty Mcfly on 01.21.14 at 11:20 am
Termites no problem, I will just send the wife to Scotland for a week.
When we were newlyweds and bought our first home.it was a dump. She went back home to
see a sick relative , I was incharge of cooking.
She returned just in time to pick her new kitchen ,roof bathroom.
The place completely rebuilt.
It was an accident, honest. Thank god few weeks before that I upgraded my insurance to full protection and full replacement value. I was going on the cheap, sales guy talked my wife into it, as I reluctantly accepted with a develish smile.

……………………………………………………………………
Smoking Man I went to the Seneca Casino last night with an old friend, we were in Niagara Canada Casino. What happened over there it looks like a war zone in the middle? Wanted to buy my friend some drinks had to go to a girly looking bar. I’m ready for Vegas already girlfriend wants some warmth and fancy little drinks by a pool. Booking now, Aria here I come……………

#135 bentoverpayingtaxes on 01.21.14 at 3:44 pm

My wife and I have what we call a “Eff You” account in cash and it is both cathartic and empowering to know that any day of the week we can walk out of any situation and go play for years and years without ever having to worry about anything…..in other words…give the middle finger to the world and say ‘F-U’ to anyone and anything who might try to pee us off.

The FU account gives us power over the market, bosses, boredom, kids, choices….we don’t care if everything breaks down incrementaly or at the same time….job loss…doesn’t matter….market crash…no big deal….a big fat cash cushion gives us total power over our own lives…..and it feels good….the small income we forego is inconsequential as the fund is less than 5% of our liquid net worth. I taught my family to always negotiate from a position of strength ….and when you have a big cash pile you’re always the big dog in te room….you never have to take any crap form anyone and never have to agree to do anything you don’t want to do.

So… I don’t agree that savings should be replaced with an LOC…….cash is king baby……the LOC has to be paid back…cash is all yours with no strings attached.

I don’t consider real estate as having any value whatsoever other than a place to live comfortably.

#136 steelman on 01.21.14 at 3:50 pm

Something to think about…

http://us.spindices.com/indices/real-estate/sp-case-shiller-us-national-home-price-index

#137 steelman on 01.21.14 at 3:53 pm

More to think about…..

http://www.nytimes.com/2013/06/09/us/cash-is-fueling-quick-home-sales.html?pagewanted=all&_r=1&

#138 jess on 01.21.14 at 4:14 pm

76 Humpty Dumpty

ICIJ to reveal China’s offshore secrets
http://www.icij.org/blog/2014/01/icij-reveal-chinas-offshore-secrets

…. vulture talk have you read this
http://www.gregpalast.com/romneys-billionaire-vulturepaul-singer-the-gops-baddie-sugar-daddie/
=================
Paris Club dates back to 1956

John Perkins was for many years one of the world’s top economists. He worked directly with the heads of the World Bank, IMF, and other global financial institutions. He quit this work in the 1980s because morally and ethically, he felt it was wrong to play such a key role in creating world empire at the expense of the less advantaged around the world.

#139 Macrath on 01.21.14 at 4:54 pm

#124 Ralph Cramdown
Thanks, much appreciated. That is the problem I see with broad indexes especially Canadian. You end up investing in a lot of bad companies. An ETF like ZDV has less of them than Vanguard`s VCE plus a better dividend.

#140 Smoking Man on 01.21.14 at 5:32 pm

Ying Yang

They’re redoing the bar, it’s going to be in the southwest corner. Live bands and Vegas style go go dancers between set,opens mid Feb.

I have the best cottage in the world. Way cheaper than Muskoka.

#141 Shawn on 01.21.14 at 5:32 pm

‘EFF YOU Fund…

Per bentover at 135…

Sounds fun, so how many years household spending in the fund.

Some of us might think an ‘eff you fund is at least a million? or is is $200k cash plus invested assets of $2 million?

Whether cash or other investorments I would say you need to be financially independent to do an ‘eff you.

Financially independent can be achieved in many ways and might include little cash but self-employed or having a skill where new jobs are easily obtained.

Low spending is how some become financially independent.

A professional level normal spending type family might need $2 million or more to consider themselves financially independent?

#142 45north on 01.21.14 at 5:51 pm

humpty dumpty: If interest rates were to rise rapidly, which is possible given the government debt situation, it could trigger many of these derivatives and create a domino effect type economic crash.

well what do I know about derivatives? yep sounds good to me

humpty dumpty: An official government report by Fisheries and Oceans Canada proves that radiation from the Fukushima nuclear disaster in Japan, is hitting the U.S. and Canadian coasts RIGHT NOW.

Goodness Humpty you sure are smart! derivatives and nuclear radiation. I bet you re-program your iPhone in C!

Marty McFly: The problem was the house was infested with TERMITES.

well I suppose that in Mississauga termites could be a problem but not nearly the problem they are in Florida

Retributor: LOC are granted, revoked and repayable at the will and whim of the lender.

my thoughts exactly

Im in C: good link

#143 Cash - a call option without expiration date on 01.21.14 at 6:07 pm

Before everyone rushes to “invest” their cash into something, remember that Cash is King – especially when we have disinflation, if not deflation.

After all, Warren Buffet thinks of cash as “a call option with no expiration date, an option on every asset class, with no strike price.”

Alwyn

#144 TD coming after mortgage borrowers soon..... on 01.21.14 at 6:20 pm

TD bank now changing their clauses to cover their asses in the event of a market correction. Mortgage borrowers are gonna get pummeled. Any comments Garth?

http://www.mortgagebrokernews.ca/news/td-mortgage-clause-change-176155.aspx

#145 dog'slife on 01.21.14 at 6:22 pm

JAR LADY… Garth, you’re priceless!

#146 Blacksheep on 01.21.14 at 6:28 pm

“The FU account”

“gives us total power over our own lives…..and it feels good….”
————————————————-
Could not have said it better myself.

#147 I_AM_HAM on 01.21.14 at 7:05 pm

#50 – Vancouver ground zero for chinese anti-corruption investigations…

Hahaaaa ha hahahahhhhaaahaha!!!

And the very same central gang were going to make Bo Xilai the top dog.

#148 Toronto_CA on 01.21.14 at 7:11 pm

Why on earth would an “FU” account need to be in cash earning nothing and attracting full tax? How would that be empowering?

#149 Stoopid Idiot on 01.21.14 at 7:30 pm

#94OttawaMike

Good for you Mike… take your S.P. 10.000.000.000 with you

#150 jess on 01.21.14 at 7:43 pm

add history to that tee

John Pilger’s new epic film, Utopia, had its premiere in the urban heart of indigenous Australia, in the middle of Sydney, on January 17, 2014. The crowd filled the equivalent of two football pitches. Indigenous and non-indigenous Australians came from all over the country to hear the call for a renewed struggle for justice and freedom for Australia’s first people.

Utopia, already released and broadcast in the United Kingdom, is named by the London Film Review as one of the five best films of the year.

http://vimeo.com/79398619

#151 Time bandit on 01.21.14 at 7:58 pm

Garth, any input on this type of investment.

http://www.fdsbroker.com/fortress.htm#projects

#152 jess on 01.21.14 at 8:02 pm

116 T.O. Bubble Boy

http://www.bis.org/bcbs/basel3.htm

https://www.moodys.com/research/Moodys-assigns-Baa3-hyb-to-Royal-Bank-of-Canadas-non–PR_291014?WT.mc_id=NLTITLE_YYYYMMDD_PR_291014

#153 Freedom First on 01.21.14 at 8:18 pm

#135 bentoverpayingtaxes

Good message and congrats! Always, at all times, Freedom First.

#154 13 and cynical on 01.21.14 at 10:51 pm

I agree with you. I do think the bank tries to scam you into giving them your money to give to people to buy a car then get a lot off of them to make tons of money. with everything added up. I agree the bank uses the media to brainwash you into getting stuff you don’t need. People should know that. Everyone is in it for themselves and you can’t trust many people. Yes, I agree that you can get a line of credit at a low rate and should be able to pay it back without too much of a problem but you’re comparing very different things. Come on now,a line of credit is just a fancy way of saying second mortgage. This is for people who don’t have enough in a savings account. Some interest (a very crappy percentage) still beats having to PAY the bank for a loan. Yes, the rates may be reasonable but if (other word for poo) happens, then how are you going to pay back the loan? Remember, this is a SECOND MORTGAGE. Is losing equity in your house really worth it? I think you need to rethink your points. By the way, I know that the bank makes money off of your loans. I’m not stupid.

#155 Bob on 01.21.14 at 10:59 pm

8=============D

#156 bentoverpayingtaxes on 01.22.14 at 1:06 am

“Why on earth would an “FU” account need to be in cash earning nothing and attracting full tax? How would that be empowering?”

Nah…you don’t get it…..there is zero risk having an FU acct…..if it was encumbered any number of things could happen and you wouldn’t have the freedom to say ‘FU’…….theres no amount of greed that would intrude itself on my personal freedom. I love the fact that I can say FU at any point. I have done this at many points along the line…and taken some fantastic time for family and personal development. When you can take a year or two off for Fiji, Aussie, Thailand Texas, Europe etc….and reset, you feel like a new man…with fresh ideas…..new energy….not too mention another twenty years under your hat. Pay the tax…screw the rat race…..theres always another buck to be made when you get back to work/play.

#157 Aj on 01.22.14 at 1:52 pm

Thanks Tess #131. It reminded me that I could always buy and grow my own. Definitely something I’ll be looking into when I purchase a home in the future. BTW best of luck this summer with the Robins!

#158 Weekend reading: money tips for kids, experts' insurance, and more | AAFS Insurance on 01.24.14 at 6:29 pm

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