Debt train

BINGO modified

“I’m an accountant,” Elaine says. She reads this blog. And she worries a lot, mostly about her clients.

“So many clients drowning in debt. Even people who had previously paid off their homes have used their home equity lines of credit to do crazy things like invest in failing businesses, invest in schemes to earn high interest rates with no guarantees and just generally take money out to buy frivolous things like vacations and do home renovations.”

No surprise there, Elaine. Lines of credit, especially those backed by a house, have been the fastest-growing pile of debt for several years now. How much? Currently the banks hold almost $250 billion in HELOC (home equity line of credit) loans. That’s equal to a big 12% of the Canadian economy – compared to just a third as much in the US.

So, just like the Yanks did when their housing market bloated and everyone bragged how much their inflated properties were worth, Canadians are sucking off their equity gains and doing stupid things with it. Like renovating. Or buying a cottage. Or an investment condo. Yup, more real estate exposure. And more debt.

Back to Elaine:

“I had lunch with a fellow accountant the other day and I asked her if she’s seeing this as well in her clients. I was floored with her answer: “Me too! I’m drowning in debt too! I bought my house thirteen years ago for $180,000 and now the mortgage is well over $300,000!” Her house is worth about $400k, so any correction in the market would wipe them out (she’s in her late forties). Hate to say it, but I still have a feeling that the Canadian economy is doomed. Everyone has jumped onto the debt train and there’s no going back now.”

As you know, HELOCs are easy to get. The banks push them hard with rates around 3.5%, and are happy to hand over 65% of your equity. The payments can be interest only, making them cheap to carry. And if you use the money to invest in something paying taxable income, then 100% of the interest-only payments are deductible from your income.

In other words, if you’re sitting on a $1,000,000 paid-for shack in Vancouver, you could borrow $600,000 to invest in a balanced portfolio making 7% (just an example), giving you $42,000 in tax-efficient income, while the annual cost was $21,000, or about $15,000 after the tax break. Of course, there’s risk here. Nothing goes up forever, including stock markets or your house.

Or, you can borrow against your inflated home equity, run up a bunch of debt, and piss it away on a vacation, a boat, or a rental condo on which you’ll have a negative tax flow. This was the American experience – people using houses like ATMs to drain off their boom-market equity gains, figuring real estate values would never dive. They did. You know the rest.

HELOC loans are all variable, and the rate of interest is tied to the bank prime. That, in turn, reflects the Bank of Canada’s overnight rate, which hasn’t budged in a few years. So it’s safe to assume the line of credit cost will remain static for another year or so, as the economy remains somewhat diddled.

But there’s a negative correlation between rates and houses. So when rates rise again (they will, like the sun), real estate prices will fall. This is not a happy thing if you happened to take a lot of equity from your house, for two possible reasons: (a) the bank can call your HELOC because you’ve exceeded the loan-to-value threshold of 65%, meaning you have to cough up all the money you just spent on a Porsche for your mistress or (b) you have to refinance at a higher rate, increasing your debt costs at the same time your house declines.

I’ll bet a lot of the 20% of Canadians who have a HELOC today don’t quite understand the rate isn’t fixed, that higher payments can be demanded arbitrarily, or the credit yanked if your house value falls. And while interest-only payments are sexy, you might end up after years of payments with a debt as big as when you started. Or worse.

Now, a word about GICs. They’re the favourite investment in Canada, and one big reason why most people are going nowhere financially, and have gambled so much on a capricious housing market. Not smart.

To earn 2% at RBC, for example, you must hand over your GIC money for five long years, where it is non-redeemable. If this isn’t inside an RRSP or TFSA, the interest is added to your taxable income and fully whacked at your marginal rate. For most people, this turns the yield into less than 1.5%.

This week we heard the latest inflation news, with the cost of living now rising by 2.4% annually. Hence, GICs suck. Even sheltered inside an RRSP you’re losing money. So why not put the cash into the preferred shares of your bank instead of the bank itself? They are far more stable than common shares, pay about 5%, and do it in the form of dividends – which are taxed at half the normal rate. That boosts the average pre-tax yield to more than 6% – or three times that offered by a pathetic GIC.

Wait! [email protected] didn’t tell you about preferred shares when you went in to ask about conservative investing? She just put you into a GIC? I’m shocked.

By the way, where do you think the bank gets the money to fund those HELOCs? Uh-huh.

153 comments ↓

#1 Yogi Bear on 07.18.14 at 6:20 pm

I did not predict Quebec would separate, but pointed out a financial risk. — Garth

So when you do something, you’re pointing out a financial risk. When someone else does the same thing (albeit a different financial risk), they’re a doomer. At least you’re predictable, if not consistent, Doomer Garth.

#2 };-) aka Devil's Advocate on 07.18.14 at 6:22 pm

Paulson: Buying a house still best investment

He meant in the US. Not Kelowna. — Garth

#3 Derek R on 07.18.14 at 6:26 pm

Debt is alright in small quantities but the secret is knowing when to stop. You want it to be your servant, not your master.

#4 johnny d on 07.18.14 at 6:28 pm

The BOC will hold the overnight rate at 1% even as the statscan inflation number climbs past 4% ( which is more like 20% in real, non manipulated terms).

That was funny. — Garth

#5 Soused on 07.18.14 at 6:29 pm

There is an expectation that younger generations will be better off than their parents, gives people an ideal of what their life “should” be like. I “should” have that vacation, I “should” have a new car while ignoring stagnant wages and increasingly high cost of living.

Wages have been stagnant since the 70’s versus cost of living and everyone is using debt to fill the gap instead of agitating for better pay.

#6 view on 07.18.14 at 6:32 pm

Imagine !!!
I myself have a bundle of preferreds. Thanks Garth!!

#7 Patience Is A Virtue on 07.18.14 at 6:33 pm

Long-time reader, and I love hearing many different investment and tax shelter strategies. I’d appreciate any input from the knowledgeable.

I solely own a corporation, and I think I will start to contribute to a Universal Life Insurance plan. I will overfund when market timing is appropriate, to take advantage of tax-deferred growth. I am an autonomous investor with a 30-40 year investment horizon. Unfortunately, I am having difficulty researching insurance companies policies and the asset classes I may contribute to. Ideally, I would love to invest in market ETFs and / or laddered bonds. However, my research so far looks like I can only invest in Mutual Funds or GICs. Furthermore, the expenses have been 3% and easily higher. Does anyone have experience with a company that has a wide variety of investment options, keeps expenses low (including back-end load), and allow overfunding as needed?

Thanks in advance,
PIAV

For most people UL insurance is a mistake. — Garth

#8 Mark on 07.18.14 at 6:34 pm

A more likely scenario is that the interest rate on the HELOCs simply ratchet up as creditworthiness falls with falling equity.

We pay 19.99% rates on the credit card because there’s no pledge of collateral and credit card lending is risky. As it becomes increasingly apparent that house prices are falling across most of Canada, lenders will demand accordingly more to compensate themselves for the risk.

Most HELOC borrowers aren’t really in the position that they can liquidate assets to pay the HELOC off if such happens. So the banks will get richer, while the borrowing homeowners get poorer. Swim with sharks, don’t be surprised if you get bitten!

#9 Doug in London on 07.18.14 at 6:34 pm

Wow, bought a house for 180 grand 13 years ago and now have a mortgage of 300 grand. Are you sure that isn’t a typo error? There’s something seriously wrong with this picture. Shouldn’t you pay off your house as soon as possible then build up a portfolio and pay for vacations or renovations with cash? Doesn’t anyone believe in planning for contingencies anymore?

by the way am I first? probably not.

#10 };-) aka Devil's Advocate on 07.18.14 at 6:36 pm

I absolutely agree with you Garth that eventually rates will rise and that when they do the consequential increase in monthly mortgage payments will put downward pressure on prices. Most are payment buyers not price tag buyers. This is why I always recommend clients plug in a rate of 7% or more when calculating a homes monthly cost and affordability. Worst case they can use that increased monthly payment to pay down the mortgage faster under the current historically low interest rates.

On the other hand better than 50% of the transactions I have been involved in this year to date have been cash with no mortgage financing required (older demographic of course) .

And I do believe this current market exuberance has legs and will last a couple years. We are in the 7 to 10 year cycle. I know you think that is all coming to an end but you’ve been saying that for years now and it hasn’t quite panned out as you have predicted. But I would not give up if I were you because eventually you will be right and we will be forced to endure repeat of 2008. What year is it? Ah, 6 years into that 7 to 10 year cycle thing….

SHIFT happens.

};-)

#11 };-) aka Devil's Advocate on 07.18.14 at 6:39 pm

Paulson: Buying a house still best investment

He meant in the US. Not Kelowna. — Garth

bu, bu, bu, but I thought you said we were no different? Haven’t you always said we are no different than anywhere else? I’m so confused. Are we or aren’t we?

#12 Just Me on the Coast on 07.18.14 at 6:41 pm

First. Have never cared less about being first, but some of you live wires apparently care quite a bit. ;-)

Garth, I’ve been saying the exact same thing about the home equity loans, debt etc. because I’ve been seeing it in action in my family & as a professional who has worked with families.

I was at a big panel with all of these academics from a big university here on the Westcoast re: Picketty’s new book about how wealth is passed from generation to the next. D’oh! I’m not sure why he needed 7000 pages to explain that (okay, a little hyperbole).

However I inadvertently played stump the academics when I suggested that the realistic and missing part of the analysis is that massive numbers of boomers are retiring owing debt on mortgages, with other debt, and massive debt via home equity loans.

I also wondered with these conditions AND taking care of their Millenial children, who are clinging to the edge of the cliff their parents brought them too, how on Earth they will have much left at all once the dust settles. They were all looking at each other like who is going to tackle this one, cuz it won’t be me.

One brave soul piped up & sounded rather like a politician – saying a lot of words while saying nothing specific and not answering my question/analysis.

Thanks for always callin’ things the way you see ’em. We need that badly in Canada.

#13 R on 07.18.14 at 6:42 pm

People should have taken your advice to by HomeQ in late 2011.

#14 Mark on 07.18.14 at 6:44 pm

“The BOC will hold the overnight rate at 1% even as the statscan inflation number climbs past 4% ( which is more like 20% in real, non manipulated terms).”

Why? As housing prices continue to fall, deflation, consumers spending less, is likely to be the problem. This would imply the rates should be dropping. Hasn’t the collapse in the USA taught you anything about what happens during a housing price deflation and its impact on the rest of the ‘consumer’ economy?

#15 Confused on 07.18.14 at 6:48 pm

I thought I should be worried about Deflation??

Now inflation? That banker Paulson guy says buy a house in the states.

Someone is lying!

#16 devore on 07.18.14 at 6:50 pm

Well, we’ve been saying only forever that paid off houses usually aren’t, and it’s not sufficient to look at outstanding mortgages only. In the US, it is very easy and tax advantageous to refinance debt, including lines of credit, into the mortgage. In Canada, not nearly as much, and repayment terms on HELOCs are more favourable too.

#17 Temporary Foreign Prime Minister on 07.18.14 at 6:55 pm

Called [email protected] today to remove the ‘Tap’ feature from my credit card.

“Why?” she asked.

“Too dangerous”, I said, “should I misplace my wallet and my credit cards fall into the wrong hands.”

“Oh, don’t be alarmed, sir” she read from a script. “We have special monitoring and software in place to prevent credit card fraud on your behalf.”

“Thank you”, I replied, “though I would like to go ahead and remove the ‘Tap’ feature just the same.”

“Okay, I can do that for you” she said, switching to a different script. “And while I have you on the line, sir, could I interest you in some credit card fraud protection for the low price of $7.95 per month?”

Banks. On the food chain, slightly below E. coli bacteria.

#18 totalinvestor.com on 07.18.14 at 6:55 pm

Too much debt, what could possibly go wrong?

http://postimg.org/image/r8zhkkxy7/

#19 Smartalox on 07.18.14 at 7:00 pm

@ Soused,

If a Vacation and a New Car are withing my budget, and I pay for them (or pay them off) promptly and on favourable terms, then why shouldn’t I buy them?

#20 zee on 07.18.14 at 7:14 pm

hi garth

can you provide a few ets with preferred shares at net 5% yield, i cant find any and you keep mentioning this here. i am ready to buy some.

#21 Smoking Man on 07.18.14 at 7:15 pm

It’s the weekend…. :)

Be back after a few

#22 Ford Prefect on 07.18.14 at 7:19 pm

This blog often details mainstream media’s mis-reporting of financial events, to put the matter politely.

Today’s example is the Comox Valley Echo. It reports that $231.5m of 32.3 year term “Green Bonds” which it refers to as “climate themed bonds” were issued to finance a 3P ( often referred to as “Plunder the Public Purse” ) hospital. That is the hospital will be built and owned privately and leased back to the BC Government.

The Echo reports that “There has been significant interest in these “green bonds” of the past couple years, as investors are looking for products with an ethical bent”. Previously the paper reported that these investors were “taking a haircut” to support green initiatives.

Wherein lies the misrepresentation? Green Bonds are absolutely tax free to the purchasers. These at 4.39% are far above the current 30 year US Bond rate of 3.26% and that would be taxable. In fact for a purchaser in say the 39% tax bracket the Green Bond yield exceeds 7%! Some haircut. And needless to say the tax free angle has been studiously avoided in the local media.

The Echo did report that “Insurance companies and fund managers snapped up the financial product, including some new buyers, in an oversubscribed sale.” What a surprise!

#23 cdn flier on 07.18.14 at 7:25 pm

I met a guy at a bar and he said his cousin’s neighbour had a realtor friend who sold a house in Vancouver to an asian. See Garth, that’s proof that HAM exists! Why do you keep denying it with such solid proof as I’ve shown?

#24 Shawn on 07.18.14 at 7:28 pm

Garth mentioned Nothing goes up forever, including stock markets or your house.

*********************************
That is certainly true in the short term. But looked at in the long term the stock market basically does go up forever.

If you buy the index or a portfolio of solid profitable companies they tend to go up in the long term. Heart stopping ride at times but the general direction is up. Forever.

Here are examples that I have personally tracked:

Stantec inc. Up 2512% since I first looked at in September 3, 1999.

Canadian Tire up 345% since February 4, 2000

Canadian National Railway up 772% since August 22, 1999

Canadian Western Bank up 714% since August 5, 1999

Melcor Developments Ltd. Up 659% since December 20, 2002

Alimentation Couche-Tard up 407% since March 31, 2005

FirstService Corp up 310% since June 14, 2002

Wells Fargo up 372% since February 22, 2009

Constellation Software up 372% since February 5, 2011

Those gains are as of July 12 as I have not yet updated my spreadsheet for this week.

Those starting dates are not random. Those are the dates I first started tracking those particular companies.

Profitable companies keep going up because they retain some of the earnings and keep reinvesting for more growth.

Good profitable companies rise basically forever.
Those gains and losses I mention all exclude dividends.

Have I tracked some losers? Of course. Some that went to zero, down 100% though that has not happened to me in quite a few years now.

The biggest loser on list, Bombardier down 73% since November 10, 1999. Second biggest loser, Liquor Stores N.A. down 35% since April 12, 2012.

I would bet money that all of the big winners I mentioned above will double again in the next ten to fifteen years or at least most certainly will be higher.

As for what they will do in the next year. They could all fall a lot. That is always possible.

#25 rower on 07.18.14 at 7:28 pm

Selling our trailer was an eye opener.

One couple was going to cash in an investment that a parent had set up for them to buy a 26 year old trailer. I can’t imagine cashing in a money making investment to buy a deflating asset like a 26 year old trailer.

Another said the money should really go to the government, but “they can wait.”

We expected lowball offers, but a couple were downright ridiculous.

People are spending money they don’t have on stuff they don’t need. This won’t end well.

#26 backwardsevolution on 07.18.14 at 7:31 pm

#2 Devil’s Advocate – Paulson is another salesman. He would l-o-v-e for house sales to increase in the States so that he can short them again. Paulson is the man who made himself a fortune betting against subprime mortgages. Why he isn’t in jail is beyond me!

“In a civil suit filed Friday, the Securities and Exchange Commission charged Goldman Sachs with fraud for helping hedge fund manager John Paulson create collateralized debt obligations that he had secretly designed to self destruct. That is, Goldman Sachs, at the direction of Paulson, hand-picked mortgages that were certain to go bad, and stuffed the mortgages (or rather, “synthetic” derivatives of the mortgages) into collateralized debt obligations that temporarily masked the true value of the loans.”

http://www.deepcapture.com/goldman-sachs-john-paulson-and-the-hedge-funds-that-pumped-and-dumped-our-economy/

Hand-picked mortgages. How can you lose? Read Michael Lewis’ book “The Big Short”.

#27 I stand corrected on 07.18.14 at 7:39 pm

@doug in London. My pal bought his house in 2000 for $94,000. He just got divorced and had to refinance with a new mortgage of $280,000 to buy her out on a house that is supposedly worth $320,000 in Regina of all places. Sh$t happens.

#28 mic on 07.18.14 at 7:40 pm

#23 cdn flier

The guy at a bar’s cousin’s neighbour’s realtor friend’s Asian client bought a house …what? And you’re conclusion is HAM? You’re funny.

Happy week-end all …and thanks for the entertainment. :-)

#29 backwardsevolution on 07.18.14 at 7:43 pm

#5 Soused – “Wages have been stagnant since the 70′s versus cost of living and everyone is using debt to fill the gap instead of agitating for better pay.”

Yep. The problem is INFLATION. It’s never what you earn, but what you can buy with what you earn. The Federal Reserve is handing out virtually free money to banks and corporations (no, we don’t count). Money is sloshing around out there looking for a place to park. Simple supply and demand tells us that when too much money is chasing goods, prices will increase.

Instead of going after the root of the problem – INFLATION – we all just want more money. This cycle keeps repeating, and pretty soon we’ll be buying a loaf of bread with a $100.00 bill. You might make more money, but things will just keep going up in price.

I wouldn’t care if I made $10,000.00/year, so long as prices did not continue to rise and I could buy what I needed.

Please, people, don’t get sucked in thinking we all just need bigger raises. If you get a raise, prices will just increase, and you’ll be back asking for a raise again.

I agree that everyone has been using debt to fill the gap, but why do we have a gap in the first place? It’s inflation. Lobby your representatives. Stop the never-ending inflation, and you won’t need a raise.

#30 El Barto on 07.18.14 at 7:47 pm

Garth, you said,”Or, you can borrow against your inflated home equity, run up a bunch of debt, and piss it away on a vacation, a boat, or a rental condo on which you’ll have a negative tax flow. “… wouldn’t that be negative CASH flow, as opposed to TAX flow? poTAto poTATo, negative flow is negative flow I guess. :)

#31 LH on 07.18.14 at 7:50 pm

Dear Garth,

You correctly identify the Canadian middle classes as “drowning in debt”. Of course, that means that the 99% would be absolutely pooched when the Bank of Canada (eventually) raises rates. IT IS FOR PRECISELY THIS REASON that rates can no longer shoot up as they used to, as indebtedness levels are at unprecedented levels.

Now what is the opposite of debt my friends? That’s right, assets, primarily held by les gros bourgeois. Not just the 1% like many of you blog dogs, but the 0.1%, and so on and so forth. So while Poloz is unlikely to ever hike rates in his tenure, I am shoveling money back to repay my debts (all for investments, not consumption) asap. Because this credit super cycle like all before it will come to an end (eventually), and we need to get ready for the proverbial seven years of lean. Good luck to all!

LH

#32 Sheane Wallace on 07.18.14 at 7:59 pm

Let’s not underestimate the significance of the incident with the Malaysian airlines.

http://www.paulcraigroberts.org/2014/07/17/sanctions-airliners-paul-craig-roberts/

If by any chance there was no missile (as the pictures clearly imply) or the plane was blown by non-Russians we are toast.

Even UK is realizing it with Cameron being very careful in his statement. North American media? Completely biased. We are going to pay a very high price and that immediately if this was a non-Russian job.

The fact that a totalitarian government can outsmart us adds insult to injury.

Let’s hope it was the Russians or the result of investigation is inconclusive.
Otherwise…

#33 Sheane Wallace on 07.18.14 at 8:07 pm

By the way the current swift system that operates in US dollars can be replicated very quickly, the technology is very simple, all you need is settlement accounts and eventually clearing houses (optional), hey China just created such in Europe…

So unless somebody comes to their mind rather quickly and stopped playing childish games we are facing some very serious troubles.

I respect all the ‘don’t bet against America’ but right now I ma very shaken, I don’t intend to sell my US stocks yet, however Europe is starting to look suddenly much more attractive.

I really hope they come to their senses and strike a deal.

Otherwise…

#34 Sheane Wallace on 07.18.14 at 8:10 pm

#31 LH o
————————————
Poloz is a puppet.

The interest rates will be determined by the events in Ukraine and BRICS.

#35 -=jwk=- on 07.18.14 at 8:19 pm

so cleared 145k USD selling two florida houses. Will ge teh other 28k when we file taxes enxt year. I don’t want to convert CDN right now. RRSp full. TFSA full. Sitting in a non-registered plan.

What can I buy in USD to a) get some return and b) minimize taxes headaches?

Term is until we want to buy a house here, which could be a long time away. Let’s cal it 3 years minimum.

Tickers, please!

#36 Mr. Reality on 07.18.14 at 8:20 pm

So we have 1.1 trillion in mortgage debt and another 250 billion in HELOC’s on top of that?

That’s crazy

Mr. R.

#37 Ilona on 07.18.14 at 8:30 pm

#20 zee on 07.18.14 at 7:14 pm
hi garth

can you provide a few ets with preferred shares at net 5% yield, i cant find any and you keep mentioning this here. i am ready to buy some.

Yeah, took me a while, too, to realize that Garth keeps quoting yields from some time ago – you can still buy some individual preferred shares yielding 5%+ at a premium: http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=TD.PR.R-T But after reading this blog: http://prefblog.com – I’m glad I just bought ZPR (less yield – less headache :)

But at least Garth doesn’t ask you to pay $50 to tell you what to buy like for example this guy: http://www.moneygeek.ca/weblog/2014/07/17/short-course-investments-episode-15-saving-money ;)

Lots of yields around the 5% mark available. — Garth

#38 Mark on 07.18.14 at 8:37 pm

“What can I buy in USD to a) get some return and b) minimize taxes headaches?”

Probably not much. Why not convert it to CAD$ and buy XIU or something, where you’re still getting a fairly decently low valuation, good dividend income, and tax-preferred Canadian source dividends. Interactive Brokers will convert the money for you at a small fraction of what the banks charge for the conversion.

#39 Freedom First on 07.18.14 at 8:38 pm

An Accountant? Shows to go you that people from all occupations can be financial deviants.

Imagine the $$$$$$$ the average working person pays in all taxes and interest in their lifetime that is not tax deductible. Now, this is sad enough without counting the interest paid by the people paying the interest on credit cards and payday loans. That there is the 99% and the 1% is no longer shocking.

Thank you for always telling it like it really is Garth. No wonder you get so many hate mails from the people who are screwing the public.

#40 Nemesis on 07.18.14 at 8:46 pm

#HisCasinoPrivelegesRevoked… #AnElderlySmokingMan… #TakesHis’MedecineShow’… #ToTheFinalRefuge… #OfScoundrelsInDepends™.

http://youtu.be/qwnbMt7MWF4

#41 Nemesis on 07.18.14 at 8:58 pm

#@-=jwk=-/35. #NotSoSureAboutTaxEfficiency… #ButTheAuctionWasOversubscribed. #RumouredToSignificantlyReduceYourWaitingTime… #AtAllBorderCrossings,Too.

http://sacramento.cbslocal.com/2014/07/13/tanks-and-military-vehicles-auction-rakes-in-10-24m/

#42 Ilona on 07.18.14 at 9:07 pm

Lots of yields around the 5% mark available. — Garth

Garth, I know by now that you never admit that you are or were wrong, and thanks to you (no sarcasm :) I read a 56-page paper on preferred shares – so sure, there are, but after getting through all the mumbo-jambo with their ratings and types, none seemed to be worth buying. So I bought some AT&T and BCE shares (both yielding 5.1% on dips) instead :)

#43 Ralph Cramdown on 07.18.14 at 9:08 pm

#35 -=jwk=- — “What can I buy in USD to a) get some return and b) minimize taxes headaches?”

– US dollar issues of Canadian stocks with dual listings.
– Stuff that pays no or low dividends so returns come in the form of capital gains. Warren Buffett runs a fund, and his management fees are very reasonable, plus there’s a million ETFs with very low yields.
– There’s various issues on the TSX that trade in USD

#44 backwardsevolution on 07.18.14 at 9:26 pm

#24 Shawn – “Profitable companies keep going up because they retain some of the earnings and keep reinvesting for more growth.

Good profitable companies rise basically forever.
Those gains and losses I mention all exclude dividends.”

Rock on, Shawn. What happens to things that “basically” keep rising forever? And it’s all because of what the companies have done? Nothing to do with government policy? How old are you?

#45 T.J.BONES on 07.18.14 at 9:31 pm

To Sheane Wallace: Rumour has it that a plane, was in the area, of one Vadiur Putin! He was travelling to the east. So one can see one pished off government, or onother, would take a shot at him. As a soldier, he’s expected to die. As with his condolences to the people one that flight, he knew that they took his bullet. See Huffington post today.

#46 JSS on 07.18.14 at 9:44 pm

In January 2004, I lost my job which paid $55K/year. Was a single earner with a wife in university. Two weeks after I lost my job, RBC called me in to their main branch to update my client profile. The RBC Manager asked me if I was still working with my previous employer. I said “No. I’m currently in between jobs”. The manager then got off her seat and went to the Branch Manager’s office, and they both came to see me and told me that they have to cancel the HELOC immediately. Reason was because I no longer had a job. I was lucky that I had no outstanding balance on the HELOC.

As a result, I have no faith in any HELOC. I spent the last ten years establishing a portfolio that has given me enough freedom and liberty to get a good night’s sleep.

#47 LifeXpert on 07.18.14 at 9:46 pm

#7 Patience Is A Virtue on 07.18.14 at 6:33 pm
Long-time reader, and I love hearing many different investment and tax shelter strategies. I’d appreciate any input from the knowledgeable.

I solely own a corporation, and I think I will start to contribute to a Universal Life Insurance plan. I will overfund when market timing is appropriate, to take advantage of tax-deferred growth. I am an autonomous investor with a 30-40 year investment horizon. Unfortunately, I am having difficulty researching insurance companies policies and the asset classes I may contribute to. Ideally, I would love to invest in market ETFs and / or laddered bonds. However, my research so far looks like I can only invest in Mutual Funds or GICs. Furthermore, the expenses have been 3% and easily higher. Does anyone have experience with a company that has a wide variety of investment options, keeps expenses low (including back-end load), and allow overfunding as needed?

Thanks in advance,
PIAV

For most people UL insurance is a mistake. — Garth

———————————————————-

Use term insurance to cover your needs, only use UL for estate planning.

Overfunding only works if you exhaust your TFSA limits.

Industrial Alliance has a wide array of investment options but the MERs are between 2.5 and 3.5%. You are better off investing in a fee – only balanced portfolio.

#48 backwardsevolution on 07.18.14 at 9:51 pm

“Microsoft is cutting up to 18,000 jobs, about 14 per cent of its staff, over the next year as it works to cut down on management layers and integrate the Nokia devices business it bought in April.”

18,000 good-paying jobs – gone. Don’t buy the spin that the U.S. economy is picking up because it’s not.

The company took on 20,000 employees with the purchase of the Nokia division. This was utterly expected, and proves zip. — Garth

#49 Macrath on 07.18.14 at 9:51 pm

#31 LH
Of course, that means that the 99% would be absolutely pooched when the Bank of Canada (eventually) raises rates.
——————————
They don`t care what happens to the debt slaves. They will just scoop up all the assets for pennies on the dollar
and lock up the dead beats in Harper’s privatized new debtors prisons.

George Carlin They Don’t Care About You
https://www.youtube.com/watch?v=BK3nmXZp9Ig

#50 Joseph R. on 07.18.14 at 9:57 pm

#20 zee on 07.18.14 at 7:14 pm

Prefs shares more like bonds than common shares: Like bonds, prefs have little or no potential to increase in value unless interest rates fall (and they will fall in value if rates rise).

But, if you have no choice but to hold fixed income in a non-registered account, they may be a better choice than high-yield corporate bonds, simply for the tax dividend credit, as explained by the Bearded Wonder. The argument for holding them in an RRSP or TFSA is less strong however.

Just remember that preferred shares rank below bonds in the event of a company’s insolvency.

So buy bank prefs. — Garth

#51 backwardsevolution on 07.18.14 at 10:00 pm

Re Microsoft/Nokia – “The company took on 20,000 employees with the purchase of the Nokia division. This was utterly expected, and proves zip. — Garth”

Still 18,000 people out of a job. It might have been utterly expected, but it’s not zip

The US created 288,000 jobs last month and 1,000,000 in the last five. Zip. — Garth

#52 Shawn on 07.18.14 at 10:03 pm

Backwards Evolution asks me:

Rock on, Shawn. What happens to things that “basically” keep rising forever? And it’s all because of what the companies have done? Nothing to do with government policy? How old are you?

***************************************

What happens is they make their long-term owners rich. Are you not among us?

It is true that government policies have helped companies grow with business friendly policies and also low interest rates have boosted share prices at this time.

I am old enough to have been investing since 1989. The initial dollars I invested that year ($2000) are up about 20 times, which only takes 12.2% per year compounded to achieve in 26 years.

#53 Scully on 07.18.14 at 10:04 pm

Lenny: Homer, how can you afford this Mardi Gras party every year?
Homer Simpson: Well, it’s a little thing called a home equity loan. I spend all the money I want, and the house gets stuck with the bill. He he he he! Sucker.

#54 Realtor # 1 on 07.18.14 at 10:08 pm

in 2010 bank of canada said rates would rise in two years

its now 2014 and again wait till 2016.

No one believes that rates will rise.

Bond market still strong

#55 wayne on 07.18.14 at 10:13 pm

Of course, that means that the 99% would be absolutely pooched when the Bank of Canada (eventually) raises rates. IT IS FOR PRECISELY THIS REASON that rates can no longer shoot up as they used to, as indebtedness levels are at unprecedented levels.

What is the #1 mandate of virtually every single central bank in the world?

Control inflation.

The Bank of Canada does not have a jobs mandate like the Fed in the US. If inflation continues to exceed targets, the BoC will have no choice but to take action. Here is the BoC’s mission statement:

“The Bank of Canada’s responsibilities focus on the goals of low, stable and predictable inflation; a safe and secure currency; a stable and efficient financial system in Canada and internationally; and effective and efficient funds-management services for the Government of Canada, as well as on its own behalf and for other clients.”

#56 safe as houses on 07.18.14 at 10:16 pm

With all due respect. Turning a paid off ‘asset’ into a debt churning albatross is insane advice.

“In other words, if you’re sitting on a $1,000,000 paid-for shack in Vancouver, you could borrow $600,000 to invest in a balanced portfolio making 7% (just an example), giving you $42,000 in tax-efficient income, while the annual cost was $21,000, or about $15,000 after the tax break. Of course, there’s risk here. Nothing goes up forever, including stock markets”

I have been trading in the market as a professional investor over forty years and would never consider risking the roof over my head on a stock market bet. The stock market trading floor is bloody sticky with the brains of blown out super smart pro’s would did exactly what you suggest, and lost it all. Are you as smart as the suits who pound the trading floor for a living? That’s what you have to ask yourself.

If you’re getting ready to retire and income is limited, the market could tank at the same time as interest rates go up, you’re screwed. You might not live long enough to see the recovery. 2008- 2014 was a long time to wait, if you didn’t already bail from the stress and need to sell at the lows to make the bills at the end of every month.

Better you sell and change communities. Selling for $1 million in Vancouver means you can buy in many other communities ( Qualicum or Abbotsford, Port Alberni) for a third of that , and then invest the remainder conservatively in low beta dividend paying blue chips. It’s easy to get 5% plus some capital gain across 5 economic sectors with beta lower than 1-1.

This way you have zero debt keeping you awake at night every time the market crashes, and it will, on a regular basis.

I do not counsel buying individual equities, but rather a balanced and diversified portfolio, including ETFs. That (40-60) recovered from 2008 in one year. It took the TSX over five years. But as I said clearly, leverage carries risk. — Garth

#57 AisA on 07.18.14 at 10:20 pm

Peak credit will be achieved WAYYYYYYYYYYYYYYY before peak oil.

I repeat, rates don’t mean a damn thing, when no one can spare a dollar, and nobody has a dollar to spare… it all goes one way.

I think it’s time to give the Realtards a break and start hammering it to the Ratetards.

#58 Cici on 07.18.14 at 10:21 pm

#45 JSS

Good for you for taking control of the situation and your financial well being! A fine example of turning a setback into a opportunity.

#59 Cici on 07.18.14 at 10:33 pm

#49 Macrath

That guy is hilarious. I laughed my ass off, especially thinking about all of the Ford worshippers on this blog when Carlin says “people of modest means…continue to elect these rich cocksuckers who don’t give a fuck about them…they don’t give a fuck about you, they don’t care about you…at all, at all, at all”

LOL, we are all greater fools. Maybe the debt pigs have it right: spend like crazy on credit and leave the banks with your debt when you go.

#60 Nomad on 07.18.14 at 10:36 pm

A coworker bought a semi for >830k just north of Bloor and Lansdowne, one of the cities’ multiple sphincters. There’s a gelatin factor on Wallace and Lansdowne that produces a nasty odor. Their budget started at 740k. Of course parents were providing a massively backup. They’re now in it for 25 years. And it comes with expectations from the parents…

Meanwhile, every month, I add stocks to my portfolio. This week: Boeing, Cypress Semiconductors, and some XHB. Only 2 other people I know at work invest. Those who save have their money in checking accounts.

#61 Son of Ponzi on 07.18.14 at 11:08 pm

#52 Shawn
I am old enough to have been investing since 1989. The initial dollars I invested that year ($2000) are up about 20 times, which only takes 12.2% per year compounded to achieve in 26 years.
—————–
So you’re worth about 400k.
And you are bragging like you are a billionaire.
Buffet would not be pleased.

#62 Son of Ponzi on 07.18.14 at 11:15 pm

Shawn,
Buffet is giving most of his wealth to Charity.
He’s your idol. Why don’t you do the same?

#63 Playing4fun on 07.18.14 at 11:41 pm

I’m sure I’m not alone but for the sake of Garth’s well being, not everyone is drowning in debt and has succumbed to the buy all and need all consumer frenzy.
I have been fortunate and lucky to have sold my business after 20 years and retire at age 51. But I also made a conscious decision to stay in our original house and lived well, well below the means of what my business was earning, especially in its latter years.
Our portfolio is diversified and will take us to age 90 with six figures.
Sometimes it does take effort to resist that new house with a second garage when we could buy it many times over with cash. But it only takes that walk to the front door to pick up the morning paper at 9am and turn on the TV to see the rush hour traffic to make me come to my senses.
Take heart Garth!

#64 Capt. Obvious on 07.19.14 at 12:26 am

I don’t believe in free lunches. Preferred shares carry more risk than bonds due to their place in the creditor hierarchy. They are definitely not a substitute for GICs. Rates are low, you have to accept low returns for capital security. That is the way it goes. As part of a portfolio, sure, include some preferreds, but realize what you’re getting into.

#65 Jenn on 07.19.14 at 12:27 am

Hi Garth – love your blog. If it’s a slow news day and you can’t think about anything to write about, could you educate us about preferred stocks? I’ve tried to educate myself about them, but I still don’t understand them – they are like a common share, but also like a bond?? I have no idea.

Thanks!

#66 Rexx Rock on 07.19.14 at 12:39 am

288,000 of mostly low paying ,part time jobs.Great recovery if your a student living at home.They need full time high paying manufacturing jobs.

US jobless rate going down, ours going up. Worry about Canada, because the States is on track. — Garth

#67 Sheane Wallace on 07.19.14 at 12:47 am

In the world I am afraid Putin is given much more credit that the clowns advising Obama. It is enough for him just to say it behind the scene (that hew was potential target) and we are toast.

The world has nothing to do with the North American propaganda, Putin has significant credibility and the more stupidly we attach him the least credible we become.

Don’t the Europeans know who brought them Ukraine and who is trying to undermine their relationship with Russia?

Just looking at the old farts who were quick to jump on this one make me puke.
We need to get some credibility in the world and that quick.

Otherwise…

#68 KommyKim on 07.19.14 at 1:00 am

RE: #20 zee on 07.18.14 at 7:14 pm
can you provide a few ets with preferred shares at net 5% yield, i cant find any and you keep mentioning this here.

I find the WoodGundy report to be a good source of preferred share info:
http://www.cibcwg.com/c/document_library/get_file?uuid=823ffb68-e59e-45f0-817f-dcfc349fbdd6&groupId=92706

CPD and ZPR are two ETFs that hold preferreds, but they yield slightly less than 5% and not all the distribution is actually dividends. Some is ROC.

#69 Smoking Man on 07.19.14 at 1:47 am

Two extremely fat people infiltrated the smoking room. The tummys , massive, trying to visualize how they do it..

They are getting looks from salid eaters. Joggers.

How I can type after, 3 litters of wine, 26 JD, and two God finding joints…

#70 what bubble? on 07.19.14 at 2:15 am

Global housing watch
http://www.imf.org/external/research/housing/index.htm

#71 sunnybatra on 07.19.14 at 2:26 am

Hi Garth,
Thanks for sharing this stuff with us!!!
keep posting.

#72 Tony on 07.19.14 at 5:16 am

Re: #6 view on 07.18.14 at 6:32 pm

Good luck you’ll need lots of it.

#73 backwardsevolution on 07.19.14 at 6:35 am

#55 Wayne – “What is the #1 mandate of virtually every single central bank in the world?

Control inflation.

The Bank of Canada does not have a jobs mandate like the Fed in the US.”

The Federal Reserve’s stated objective might be to control inflation and jobs, but their real objective is to ensure the health of the banks. Their policies are implemented under the guise of helping the public, but they could give a crap about us. They are a private organization and they take their orders from the banks.

#74 backwardsevolution on 07.19.14 at 6:44 am

“The US created 288,000 jobs last month and 1,000,000 in the last five. Zip. — Garth”

Lots of part-time jobs.

http://www.zerohedge.com/news/2014-07-03/june-full-time-jobs-plunge-over-half-million-part-time-jobs-surge-800k-most-1993

Beats the hell out of our record. — Garth

#75 Herb on 07.19.14 at 7:26 am

#68 Smoking Man,

trust me, you can’t. Stop bragging about your alcohol uptake – there is not such thing as the high-functioning alcoholic.

#76 Shane on 07.19.14 at 8:33 am

Garth, what’s the best advice on how to use your line of credit for?

#77 Linda Pearson on 07.19.14 at 8:52 am

#61 Son of Ponzi on 07.18.14 at 11:08 pm
#52 Shawn
I am old enough to have been investing since 1989. The initial dollars I invested that year ($2000) are up about 20 times, which only takes 12.2% per year compounded to achieve in 26 years.
—————–
So you’re worth about 400k.
And you are bragging like you are a billionaire.
Buffet would not be pleased.
*****************************

Son of Ponzi: Read s-l-o-w-e-r. Shaun said the original $2000 invested in 1989 has increased twenty times. He makes no mention of whatever money he has placed in the market in each year since then.

#78 TheCatFoodLady on 07.19.14 at 9:13 am

This is far from the first time we’ve seen Canada, the US, the world; go through periods of ‘financial hardship’. Here’s the biggest difference I see in peoples’ behavior from back then to now:

When the economy turned nasty, people immediately cut back on non-essentials – family vacations, kids’ activities, going out… they had a careful look at shopping habits – ‘downgrading’ food choices, making clothing & large items last longer – holding off on non-essential purchases.

Today, too many simply whip out the plastic; choosing to use credit rather than dial back spending to any degree. That is not to say everyone does it – far from it. There are still responsible spenders out there. But too many people do just that – use credit. They fool themselves into thinking financial reverses – personal or societal, are temporary, thus permitting themselves to overextend with little thought of possible disastrous consequences.

As previously & often mentioned, many haven’t read the fine print on their credit card agreements, HELOCs or unsecured lines of credit. That lack of attention to detail can have… unpleasant results when an individual or family find themselves overextended; barely hanging on & with a fresh job loss to deal with.

It seems, by all measures of logic, idiotic to spend more than you can afford, to put so much consumer stuff on credit or tap existing net worth to upgrade your home, go on an exotic vacation or buy neat stuff.

All manner of ads suggest we’re less than worthy if we’re not buying certain brands or at certain price points. We see coworkers, family members, friends & neighbours showing up with flashy stuff & the envy can be strong. We’re captivated by the new & shiny without thinking what’s behind it.

A family member of mine is fuming – her sister just bought a sweet little car. She didn’t overbuy & the car is perfectly suited to her needs but my family member is seduced by the NEW. Seduced? Who am I kidding? She’s eaten up by jealousy. She had the gall to tell me SHE ‘deserved’ a new car too! What she won’t entertain is the fact that her sister started saving for her car several years ago, did without a lot of non-essentials & bought her vehicle for cash.

That’s how we try to spend – save up the money any way we can. The ONLY time we’ll use credit for a purchase is if it’s an item we were shortly planning on buying/replacing anyway & we hit a very good sale. The other criteria is that, at the sale price, we must be able to pay it off completely when the credit card bill comes due or no more than a months beyond that first bill.

Saves us a lot of headaches & sleepless nights.

I’m as ‘full of want’ as anyone else. Took a day trip yesterday to Wolfe Island – outstanding place for a day trip, btw. Saw some artisanal stuff I would have loved to buy – “just because”, fell in love with a sweet, tiny little motorboat & pouted over a few, small waterfront properties… & some horses. I settled for a $22 splurge at the island’s regionally famous bake shop. I know I can swing that & blueberry cheesecake, date squares, brownies & butter tarts all fresh baked, don’t need follow on investment to maintain!

#79 Ralph Cramdown on 07.19.14 at 9:24 am

#29 backwardsevolution — “Please, people, don’t get sucked in thinking we all just need bigger raises. If you get a raise, prices will just increase, and you’ll be back asking for a raise again.”

#73 backwardsevolution — “Lots of part-time jobs.”

And hey, not just part-time jobs. Precarious part-time jobs with random work schedules and no accommodation for child care, school or a second job elsewhere.
http://www.nytimes.com/2014/07/19/business/part-time-schedules-full-time-headaches.html

You think somebody who wants 40 hours but is only getting 25 and could have that cut to 15 is going to ask for a raise anytime soon?

If you want low inflation, you should be CHEERING when a company like Microsoft announces 18,000 layoffs. Nothing holds wages and prices down like high unemployment.

Beating the ‘low inflation’ drum is the plutocrats’ way of saying “a raise for me, but no raise for you.”

#80 just another brick in the wall on 07.19.14 at 10:34 am

#49 Macrath on 07.18.14 at 9:51 pm
George Carlin They Don’t Care About You

Bang on!
Diane Francis wrote 2 books on who owns Canada.
Nothings changed.
Forget the Politico’s, mere puppets.
This is the best of a bunch of crappy systems.
Belly up to the bar mates.

#81 Doug in London on 07.19.14 at 11:16 am

There’s a lot of talk here about preferred shares or ETFs that invest in them. Should you buy them now? I don’t know, but for sure the last half of last year was a good time to scoop them up while they were on sale. How many of you here took advantage of those clear out the inventory now Black Friday or Boxing Week sales?

#82 High Plains Drifter on 07.19.14 at 11:50 am

I love it when people save their whole lives for a broken down old age. They never get in my way and yet they are the backbone of the economic system. Hail the 1%, their plans are our plans.

#83 Setting the Record Straight on 07.19.14 at 11:52 am

“So we have 1.1 trillion in mortgage debt and another 250 billion in HELOC’s on top of that?

That’s crazy

Mr. R.”

A trillion here, a trillion there, pretty soon we are talking about real money

#84 housedoc on 07.19.14 at 12:05 pm

Is there some investor math that I’m missing?
$2,000 X 20 = $40,000

*******************************************
#76 Linda Pearson on 07.19.14 at 8:52 am
#61 Son of Ponzi on 07.18.14 at 11:08 pm
#52 Shawn
I am old enough to have been investing since 1989. The initial dollars I invested that year ($2000) are up about 20 times, which only takes 12.2% per year compounded to achieve in 26 years.
—————–
So you’re worth about 400k.
And you are bragging like you are a billionaire.
Buffet would not be pleased.
*****************************

Son of Ponzi: Read s-l-o-w-e-r. Shaun said the original $2000 invested in 1989 has increased twenty times. He makes no mention of whatever money he has placed in the market in each year since then.

#85 Setting the Record Straight on 07.19.14 at 12:07 pm

@59 Cici

Do you prefer the looters who get rich sucking the public teat?

#86 What about CMHC? on 07.19.14 at 12:13 pm

http://m.youtube.com/watch?v=lrOdCG7RrvE

Life in West Bank and Israel as documented by an American Jew. This is about 1 hour long but I urge you to watch just a few minutes of this video to learn something that you perhaps never knew before.

#87 Setting the Record Straight on 07.19.14 at 12:24 pm

@62
“Shawn,
Buffet is giving most of his wealth to Charity.
He’s your idol. Why don’t you do the same?”

What a waste!

#88 Shawn on 07.19.14 at 12:49 pm

Son of Ponzi said:

Shawn,
Buffet is giving most of his wealth to Charity.
He’s your idol. Why don’t you do the same?

*******************************************

Ponzi, actually I was thinking of leaving a chunk to you for use to get an education. (As a few pointed out above your math skills are lacking, also you need de-programming after visiting too many doomer sites)

Buffett made his big charity pledge public in June 2006 at age 75. So I have some time left to decide. Check back in a couple decades and I will let you know.

#89 Apocalypse2014 on 07.19.14 at 1:33 pm

Folks, we’re about to see international rhetoric and positioning ramp up bigtime. Don’t be surprised to hear conspiracy theorists talk about the Ukraine deliberately shooting the plane down to spark this whole thing.

Regardless, I have a terrible premonition. I believe the world, including Canada, will be at war by summer’s end.

#90 JWFJOHN on 07.19.14 at 2:07 pm

So [email protected] called me. Congratulations were in order – I had just qualified for a 15k LOC. This bank account was my childhood savings account. It’s had 2k in it for 30 years. I’ve also got a cc with them – it’s the one I use for PayPal – never more than $100 in purchases/month. Still, lucky me – I was in line for a LOC @ only prime +3.

Me – Amazing I said. I’ll go right ahead and cancel my prime +0 LOC at my primary bank!

Bank – really? Prime +0? I can’t do that…

Me – a second ago I was a great customer, but that’s okay, I dont

#91 Tony on 07.19.14 at 2:11 pm

Re: #24 Shawn on 07.18.14 at 7:28 pm

Canadian Tire can’t double again. Canadian Tire without exception is thee most overvalued stock on the TSX. The stock at most is worth around ten dollars a share.

#92 Tony on 07.19.14 at 2:22 pm

Re: #55 wayne on 07.18.14 at 10:13 pm

The opposite is true, the central bankers around the world are desperately trying to create inflation because of record debt levels.

#93 Setting the Record Straight on 07.19.14 at 2:27 pm

Mr. Turner recognizes the dangers of financial repression for the real estate market but is somewhat insouciant about the implications for financial assets.

http://davidstockmanscontracorner.com/the-implosion-is-near-signs-of-the-bubbles-last-days/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Saturday+9+AM

What people will need, I think, is equity in good businesses, businesses that continue to produce income. I wonder if investors should make any significant allocation to bonds in a portfolio.

See also Stockman’s commentary on IBM

#94 JWF on 07.19.14 at 2:27 pm

So [email protected] called me – time to celebrate – as a long time customer, I was in line for a 15K LOC. Now this is my childhood savings account. It’s had 2K in it for 30 years. I’ve also got a CC with them that I use as my paypal link. It never has more than $100 on it, and 3 out of 4 months, has no purchases.

Bank – Congratulations, as a valued customer, you have qualified for a 15K LOC @ prime +3.

Me – Amazing. I’ll call my primary bank and cancel my LOC @ prime + zero right away!

Bank – Prime + 0? Wow! I can’t match that.

Me – But a second ago, I was a valued customer…

Bank – Well you know, even with other LOC, you never know what can happen. You can still get our LOC @ +3, just in case someday you use up your other LOC.

Me – You took a financial advisor course or something, correct?

Bank – Yes

Me – And you think I should take your LOC?

Bank – Yes

Me – So you are telling me that it would be a good idea to start borrowing @ 6% after I have already blown through my savings, plus a LOC @ 3%. #@#! you. Click.

Now as mad as it made me, imagine how many people take that advice. Imagine how many little old ladies trust these guys. It makes me sick. These aren’t duct cleaners, and they’re not hot water tank salesmen. They are screwing with people’s future.

#95 Habs76-79 on 07.19.14 at 2:41 pm

#81High Plains Drifter on 07.19.14 at 11:50 am

I love it when people save their whole lives for a broken down old age. They never get in my way and yet they are the backbone of the economic system. Hail the 1%, their plans are our plans.
—————————————–

Life is about finding better balance given each owns personal lives.

To save and save into old age without living life is just as silly as those who forgo any future wealth planning to live life merely to exuberance today.

Establishing a balance of sound principles while affording the ability to partake and enjoy life’s ventures is what each of us should be searching for.

At times one must put off thrills and pleasures today so that they will be better off tomorrow. At other times one must jump at the opportunity to live and see life for what it is and not to worry about tomorrow.

The trick is learning better as to when, where and how to do this balancing act.

Some times suffering (per se) leads to better appreciation of better things to come. Other times living on the edge of zest of life leads to memories that may last a life time and as such appreciation of these things.

#96 suede on 07.19.14 at 3:05 pm

Any banks throwing out HELOCS at prime?

#97 Andrew Woburn on 07.19.14 at 3:16 pm

Bill Gates knows and sees a lot more of the world than the rest of us. He is not a doomster.

“By almost any measure, the world is better than it has ever been. People are living longer, healthier lives. Many nations that were aid recipients are now self-sufficient. You might think that such striking progress would be widely celebrated, but in fact, Melinda and I are struck by how many people think the world is getting worse. The belief that the world can’t solve extreme poverty and disease isn’t just mistaken. It is harmful. That’s why in this year’s letter we take apart some of the myths that slow down the work.”

“The global picture of poverty has been completely redrawn in my lifetime. Per-person incomes in Turkey and Chile are where the United States level was in 1960. Malaysia is nearly there, as is Gabon. And that no-man’s-land between rich and poor countries has been filled in by China, India, Brazil, and others. Since 1960, China’s real income per person has gone up eightfold. India’s has quadrupled, Brazil’s has almost quintupled, and the small country of Botswana, with shrewd management of its mineral resources, has seen a thirty-fold increase. There is a class of nations in the middle that barely existed 50 years ago, and it includes more than half of the world’s population.”

http://annualletter.gatesfoundation.org/

#98 Confused on 07.19.14 at 3:21 pm

Garth, could you please explain this? How did you end up with 6% when you start with 5%?

“They are far more stable than common shares, pay about 5%, and do it in the form of dividends – which are taxed at half the normal rate. That boosts the average pre-tax yield to more than 6% – or three times that offered by a pathetic GIC.”

Factor in the dividend tax credit. — Garth

#99 Smoking Man on 07.19.14 at 3:48 pm

#88 Apocalypse2014 on 07.19.14 at 1:33 pm

Folks, we’re about to see international rhetoric and positioning ramp up bigtime. Don’t be surprised to hear conspiracy theorists talk about the Ukraine deliberately shooting the plane down to spark this whole thing.

Regardless, I have a terrible premonition. I believe the world, including Canada, will be at war by summer’s end.
…….

Won’t be conventional either…
Of course Ukraine did it… Doesn’t matter.

They got away with building #7 and now feel invisible.

Just wait till Russia via Snowden, gives the world the goods on 911

Those Fama camps weren’t built for illegal aliens…

#100 ed on 07.19.14 at 3:55 pm

hey Garth,

How about running a contest to predict the headlines when this bubble does finally start to deflate (not that any paper would run the truth even then). Some ideas:

“It happened here.”
“It wasn’t different after all.”
“Realtors,drywallers head back to school”
“Banks investigated for promoting HELOCS to overextended borrowers.”

Any more headlines that might fit?

#101 Retired Boomer - WI on 07.19.14 at 4:12 pm

I still like equities. Be they individual stocks, ETF’s or Index Mutual Funds with .05 to .09% MER’s.

At least I don’t have to pay big for questionable fund management. Sure 5%-10% of them might exceed the index’s over a few years, but studies have shown none exceed long term, sorry. That’s where the bulk is, I feel the need to play with a little in the stock account though.

The poor accountant whose home loan ballooned from 180K to 300K over a decade is NOT the type of accountant I want on my team. What does she not understand about the destructive power of Debt? No, it does NOT get better with age. Neither will you. Yes, at some point interest rates will change, though not tomorrow. Ha, you won’t be out of debt tomorrow either will ya Ms. Numbers?

While some on here make fun of the idea of living within your means, or being debt free or, nearly so, and staying in control of your life, I for one would not have it any other way.

i have been in debt before, it is worrisome, robs freedom, and leaves one fewer choices. In a word it sucks.
Still money is not everything, peace of mind is for me.

#102 happity on 07.19.14 at 4:20 pm

Another picture of tangible collateral leveraged out.

But the banks sell the mortgage to gamble with derivatives, rehypothecation throughout the world.

#103 Retired Boomer - WI on 07.19.14 at 4:26 pm

#77 The Catfood Lady

Your wise family member saved up for her ‘want’ a new car.
A modest one by your description, but perfectly suited to her needs. Perfectly done my wise friend. Perfectly done!

More should do this with vehicles, furniture etc. Yeah, you might need to put the new refrigerator on a crd for a few months if needed -no emergency fund.

A house, sure with 20% down and a hard fought negotiation on price to buy, be my guest.
A bidding war winner -makes a later sure loser!!
(Yeah, I’m from the US we saw this picture before, in 2008 -2010 remember??)

Watching Stupid is so MUCH FUN you kind of hate to see it end so ugly.

#104 backwardsevolution on 07.19.14 at 4:57 pm

#78 Ralph Cramdown – “You think somebody who wants 40 hours but is only getting 25 and could have that cut to 15 is going to ask for a raise anytime soon?

If you want low inflation, you should be CHEERING when a company like Microsoft announces 18,000 layoffs. Nothing holds wages and prices down like high unemployment.

Beating the ‘low inflation’ drum is the plutocrats’ way of saying “a raise for me, but no raise for you.”

Ralph, I know it’s impossible for a surplus of part-time workers to ask for a raise. The people running our governments (heavily lobbied by Chambers of Commerce, corporations, bankers) are making sure there IS a surplus of labour. It keeps their costs down, as nobody gets a raise, and they don’t have to pay any benefits when people are part-time. This is what they want.

What I’m trying to point out is that politicians and activists always put forward that the problem can be fixed by raising the minimum wage, and that works for a short time until inflation kicks in, prices go up, and we’re back raising it again. It’s a vicious cycle.

The Federal Reserve has stated that they want inflation. They are purposely engineering inflation and prices are going up. This is the problem, the intentional creation of inflation. Our wages would be just fine if we weren’t always trying to stay ahead of this “purposely engineered” inflation.

As the Federal Reserve is a wholly independent (yes, it’s not government) entity owned by the banks, they are creating this inflation (which hurts all of us) in order to bail out the insolvent U.S. banks.

As for the plutocrats, they do well no matter whether there’s deflation or inflation. They own government.

And HELOCS? Our HELOCS pale in comparison to what is coming down the line for the U.S. They were handed out like candy down there. Just wait!

#105 TurnerNation on 07.19.14 at 4:57 pm

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Reserved:
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#106 Andrew Woburn on 07.19.14 at 5:59 pm

If it is true that the US is worried about deflation, and they are willing to print whatever it takes to make it go away, why aren’t they borrowing to fix all their run-down bridges and highways? That would put real dollars into the real economy right now and should be both politically popular and financially smarter than boosting hedge funds. Does anyone have any ideas about why this isn’t happening? I mean apart from conspiracy theories.

Deflation is a threat to Canada and Europe, not the US. That’s why the Fed has cut its bond-buying program drastically, and will curtail it completely by October. The printing is ending. — Garth

#107 backwardsevolution on 07.19.14 at 6:04 pm

#97 Andrew Woburn – I admire Bill Gates, but I didn’t know this about the Gates Foundation. This tax accountant calls it a “shell game”:

“My background is finance and accounting. As a socially conscious venture capitalist and philanthropist, I have a very good understanding of wealth management and philanthropy. I started my career in 1967 with the IRS as a specialist in taxation covering many areas of the tax law including the so-called legal loopholes to charitable giving. I have known for years that a smart wealthy person could keep control of all his assets without estate or income taxes through cleverly structured charitable foundations. These foundations are perfectly legal and allow the donors to keep absolute control of all their money and power and accumulate enormous appreciation free of taxation. In 1967, the loopholes were outrageous and the law has tightened some of these tactics for the rich. However, the Gates Buffet foundation grant is nothing more than a shell game in which control of assets for both Gates and Buffet remain the same.

The only difference is that the accumulation of wealth by these two will be much more massive because they will no longer have to pay any taxes.”

http://www.commondreams.org/views06/0823-26.htm

#108 April on 07.19.14 at 6:50 pm

MacLeans magazine, Canadian Housing Crash, posted on Money Talks, CKNW July 19.

#109 Nemesis on 07.19.14 at 6:55 pm

#WhenBillToldBeatrixKiddo… #[email protected]… #HadCalledHisHeloc… #AndItWasRepoTimeForHerNewPorsche… #SheWent,Like,Totally… #HellHathNoFury.

http://youtu.be/UniRceTife0

#110 Ralph Cramdown on 07.19.14 at 7:16 pm

#104 backwardsevolution

The very rich hate inflation. Once your pile gets to a certain size, inflation is really your only concern. To beat it, you have to invest in equities (volatile) and other risk assets to try to stay ahead. If price stability was guaranteed, it’d just be a 30 year T-bond ladder. Live on 1-2% per year, and let the rest slowly grow. Heaven! Inflation is the main process that keeps rich people taking risks with their money, and sometimes losing.

Picture yourself in a world of price stability. Born without capital, you’d be unlikely to be able to borrow any at reasonable rates. Who’d risk lending to you, an uneducated person without capital and perhaps stuck in a job with no hope of wage increases, ever.

But what if we were to agree, right now, that our inflation target should be zero and rigid? This represents a huge transfer of wealth from debtors (including you, the taxpayer) to debtholders. Both sides assumed a moderate rate of inflation over the term of the loan, but now the debtor must pay, and the bondholder enjoys receiving, hard dollars instead. I hope you realize as a taxpayer that it would mean higher taxes and reduced government spending/services for the rest of your life. Mild inflation is the civilized way out of a high debt situation. Demanding repayment of crushing debt in hard money has often led to war before, either between countries or classes.

#111 Ralph Cramdown on 07.19.14 at 7:22 pm

#106 Andrew Woburn — “If it is true that the US is worried about deflation, and they are willing to print whatever it takes to make it go away, why aren’t they borrowing to fix all their run-down bridges and highways?”

The US government is suffering from a left brain/right brain problem right now. The Fed is willing and able to act, given its powers. Congress, who’d have to actually authorize spending on next year’s home repairs, is barely willing to authorize payment of last night’s bar bill. How’s this for stupid:
http://time.com/2982869/highway-transportation-bill-pension-smoothing-deficits/

#112 Dean on 07.19.14 at 7:39 pm

Let the interest rate rise. please have a look at the bacon price in Costco, almost doubled

#113 Vancouver Ground Zero on 07.19.14 at 7:59 pm

Since HAM is a myth,

Read this article if you need to bring money over to Canada.

http://www.scmp.com/business/banking-finance/article/1551510/how-elude-chinese-foreign-exchange-laws-take-your-pick-ways

Need to park it?

I am hoping to sell my condo in downtown for about $5-7 Million.

Advice to youngsters : Buy where rich immigrants will come. Play the myth card.

#114 backwardsevolution on 07.19.14 at 8:20 pm

#113 Vancouver Ground Zero – I couldn’t get your link to work, but here is another one that spells out four ways that foreign money gets out of China. They do it by using friends’ bank accounts (20 in China and 20 wherever they want to go – 20 times the $50,000.00 yearly limit gets you a million out). They also use underground money changers, private banking, or they set up offshore companies and then use fake trade contracts.

http://www.tremeritus.com/2014/07/17/how-rich-chinese-elude-forex-laws-to-move-money-abroad/

#115 backwardsevolution on 07.19.14 at 8:26 pm

#111 Ralph Cramdown – from the article you linked:

“Pension smoothing raises money for the government in the short term in exchange for increasing the debt over the long term. By reducing pension contribution requirements, pension smoothing temporarily increases companies’ taxable income to raise revenue for the government. But over the long-term, companies will be on the hook to contribute more to their pension funds, lowering tax revenue.”

And what do you bet that over the long-term the companies won’t have the money to contribute to their pension funds? I can see it coming.

#116 Shawn on 07.19.14 at 8:32 pm

Misinformed, envious and ungrateful about Buffett and Gates

Backwards at 107 said:

The only difference is that the accumulation of wealth by these two will be much more massive because they will no longer have to pay any taxes.”

*******************************************
Buffett paid precisely zero taxes on his Berkshire wealth as the shares he bought from 1964 to the early 70’s rose an average about 10,000 fold through today. He never sold a share and it never paid any dividends so the taxes were zero.

100% of those shares are going to charity with none of that going to his family. (He has a half billion or so outside of Berkshire on which he has paid some taxes and some of which will go to his family.)

The suggestion that Buffett needed to donate those shares in order to continue to control them or avoid income tax during his life is completely off base.

It IS true that by giving the shares to charity income taxes upon death are avoided.

Buffett follows the tax rules.

The road to wealth lies in emulating Buffett, not in bashing him. But few choose that road. It’s easier to bash.

#117 Son of Ponzi on 07.19.14 at 8:56 pm

#105 Turner Nation
Brilliant, as usual.

#118 backwardsevolution on 07.19.14 at 9:06 pm

“Deflation is a threat to Canada and Europe, not the US. That’s why the Fed has cut its bond-buying program drastically, and will curtail it completely by October. The printing is ending. — Garth”

Deflation was and is a huge threat in the U.S. That’s why they started their bond-buying program in the first place, providing banks and corporations with literally free money. This money, in turn, was used to buy up cheap housing (pushing prices up) and to raise stock prices. Corporations have used this money to buy back their stocks, raising stock prices, or to buy out other companies or competitors.

Had the Fed not stepped in, you would have seen one big mother of a hole, which is of course what should have happened. But since the Fed works for the banks, and since the banks were insolvent, the Fed stepped in to bail them out. That’s their primary job.

Read recently that the Fed does not want to stop, but has to because the pension funds are dying for yield. It’s been five years and they’re at the end of their rope. I don’t now if this is correct, though.

#119 bigtown on 07.19.14 at 9:10 pm

In the GTA three or four storey townhomes are very common and/or high rises and have been the main housing theme now for the past decade. As a boomer 55 plus I see why people are buying in Florida and Arizona where one level bungalows rule.

Us boomers are stuck with really nasty housing choices which are a pain for our knees; too expensive; too small; and NO WALK IN SHOWER. Never mind the parking nightmare of itsy bitsy three inches between cars.

God gave us the small Ontario towns and I guess that is where we have to go. I guess the developers and the CITY PLANNERS and the Ontario Municipal Board just done forgot that people over 45 require housing.

#120 backwardsevolution on 07.19.14 at 9:12 pm

#112 Dean – prices of goods have been steadily rising, and the CPI does not reflect this increase; it understates it by a long shot. Solution? Stop buying anything you don’t absolutely need. Starve these bastards until prices come down.

#121 Smoking Man on 07.19.14 at 9:15 pm

MSM Anchor packs it in….

Tired of pushing bull shit. What, you mean MSM anchors knowingly fib…. Well I’ll be damn.

http://nationalreport.net/msnbc-anchor-resigns-admits-spreading-lies-behalf-obama/

#122 april on 07.19.14 at 9:32 pm

Read: Ross Kay, Realty consultants ” Honing in on the Housing Market” July 14/2014

#123 TurnerNation on 07.19.14 at 9:34 pm

It just got worse:

http://www.guildhalldepository.com/

Storage for Your Gold and Silver

The Guildhall Depository provides safe, secure storage on a segregated and insured basis with no third party risk. It is located in Canada, a politically and economically stable country.

#124 Greg on 07.19.14 at 9:39 pm

Garth you are so pathetic……………..

YOu know the system ……. it is built on debt…anyway.
what is new………….

#125 Ralph Cramdown on 07.19.14 at 9:48 pm

#112 Dean — “Let the interest rate rise. please have a look at the bacon price in Costco, almost doubled”

It’s like nobody else reads the (online) papers anymore.
http://nationalhogfarmer.com/porcine-epidemic-diarrhea-virus-pedv
http://www.accuweather.com/en/weather-news/beef-prices-continue-to-spike/26596462

Combine that with a drop in our dollar which explains most of the gasoline price increase (average US gas prices are lower than a year ago)…

But sure, crank up the interest rates, boost our dollar, and kill the last vestiges of our manufacturing. It’ll keep the price of hamburger down.

#126 liquidincalgary on 07.19.14 at 9:55 pm

#123 Tuner Nation

guildhall wealth.

aren’t these are the same people who pump ‘rare and coloured diamonds, pm’s’ on sunday afternoon infomercials?

#127 turning 19 soon on 07.19.14 at 10:22 pm

It’s not the olden days when you had a moral obligation to repay the debt or you’re a loser. Who gives a sh!t these days…Nobody!
In fact I’m thinking of hopping on my skateboard right now and heading to the bank with house keys in hand and telling them they can have the house and Heloc cuz I’m going BK!
Sign of the times people…”get out of jail free card” kinda stupid if you never use it.
That is after all what it’s there for, and since BK is much better on your soul then mountains of debt, I can see this becoming the new trend.

#128 Andrew Woburn on 07.19.14 at 10:22 pm

#107 backwardsevolution on 07.19.14 at 6:04 pm
#97 Andrew Woburn – I admire Bill Gates, but I didn’t know this about the Gates Foundation. This tax accountant calls it a “shell game”:
====================================

Lets see, two of the world’s richest men, neither of them noted for their taste in fast cars and women, give essentially all their money to a charitable organization which will spend it trying to help the poorest people in the world, and he’s complaining? He doesn’t like the fact that two of the smartest businessmen in the world want to personally supervise the effective use of their own money? Buffet is eighty something and Bill is in his fifties so if he’s very lucky he’s got another 40 years of control after which, a board of trustees will carry on the work, just like any other charity.

The foundation can only remain tax free as long as spends essentially all its investment income on its stated charitable purposes, none of which involve booze and hookers. The alternative is to give it to the US government so they can spend it on bombs and bullets.

Having been a tax accountant myself, both for and against CRA, I am well aware of the way very rich people use trusts to avoid the taxes that bedevil lesser mortals and I don’t think it should be legal but it is. Gates is just using these laws to make sure as much money as possible goes to the charitable purposes he supports. There is no “shell game” about it. Now if you want to talk about aristocratic families that have been hiding wealth in perpetual offshore trusts for a couple of centuries, that’s a different animal.

#129 rosie "moving forward" in the knowledge that, "this won't end well" on 07.19.14 at 10:27 pm

#121 sm

This site has more accurate info than national report.

http://www.theonion.com

#130 Ronaldo on 07.19.14 at 10:31 pm

#7 PatienceIsAVirtue-”Does anyone have experience with a company that has a wide variety of investment options, keeps expenses low (including back-end load), and allow overfunding as needed?”

You may wish to check http://www.phn.com

#131 Poorgeoisie on 07.19.14 at 10:44 pm

Great post SM, I saw some other totally true articles on that site as well.

http://nationalreport.net/geneticists-prove-existence-god/
http://nationalreport.net/cover-aliens-return-missing-airliner-russia-shoots/
http://nationalreport.net/clippers-sign-labron-announce-move-las-vegas/

But personally I prefer the onion for my news.
http://www.theonion.com/articles/environmental-study-finds-air-in-chicago-now-75-bu,36407/

#132 AB Boxster on 07.19.14 at 10:55 pm

TD Canada Trust

2 year fixed mortgage (nope not variable) @ 2.34 %.

Time to buy a house y’all.

#133 backwardsevolution on 07.19.14 at 11:28 pm

#110 Ralph Cramdown – “Mild inflation is the civilized way out of a high debt situation.”

#112 Dean – “Let the interest rate rise. please have a look at the bacon price in Costco, almost doubled.”

#125 Ralph Cramdown – “But sure, crank up the interest rates, boost our dollar, and kill the last vestiges of our manufacturing.”

I’m confused, Ralph. You appear to want it both ways. They are hiding the true rate of inflation (by changing the way they measure inflation every time it doesn’t suit them). We are getting creamed.

So let me get this straight. You are saying inflation is good, but please, please, please don’t raise interest rates to reflect that because that will hurt manufacturing? So we’ve all got to go backwards, pretend there’s no inflation, in order to help out “the last vestiges of our manufacturing”?

So inflation is good, but just don’t dare reflect it?

And others say don’t raise rates because that would harm their own particular area of interest: stocks and bonds or real estate.

Either we have inflation or we don’t. Which is it, and how should it best be reflected? I mean, once things are done in order to keep the stock market, bonds or real estate intact (because otherwise they would fall apart), it seems we have a situation where some pigs are more equal than others.

#134 Inglorious Investor on 07.19.14 at 11:32 pm

#120 backwardsevolution on 07.19.14 at 9:12 pm

“Stop buying anything you don’t absolutely need. Starve these bastards until prices come down.”

If you want to starve the real ‘bastards’, take your money out of the big banks, shun them from the real economy, and let their robots trade amongst themselves with their fake money until they eat each other alive.

#135 Inglorious Investor on 07.19.14 at 11:52 pm

“Deflation is a threat to Canada and Europe, not the US. That’s why the Fed has cut its bond-buying program drastically, and will curtail it completely by October. The printing is ending. — Garth”

You must remember [email protected]’s own paper “Deflation: Making Sure It Doesn’t Happen Here.” http://www.federalreserve.gov/BOARDDOCS/Speeches/2002/20021121/default.htm

However, if you are asserting that the risk of deflation in the US is now lower than in Canada and Europe, that’s different.

In any case, I think the biggest reason for any relative tightening of policy is to protect the US dollar as the world’s number one reserve currency. Dollar hegemony is paramount. It trumps the economy. It trumps jobs. It certainly trumps the people. Dare I say, they’d even sacrifice Goldman Sachs if it was necessary to preserve the dollar’s status, if not its actual real value.

#136 Victor V on 07.19.14 at 11:57 pm

#35 -=jwk=- on 07.18.14 at 8:19 pm

so cleared 145k USD selling two florida houses. Will ge teh other 28k when we file taxes enxt year. I don’t want to convert CDN right now. RRSp full. TFSA full. Sitting in a non-registered plan.

What can I buy in USD to a) get some return and b) minimize taxes headaches?

Term is until we want to buy a house here, which could be a long time away. Let’s cal it 3 years minimum.

Tickers, please!

===================================

FSRV
http://www.firstservice.ca/investors/why_invest/default.html

Tax Treatment of Dividends
Canada
http://www.firstservice.ca/investors/stock_events/default.html

For the purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation, all dividends (and deemed dividends) paid by the Company to Canadian residents on its subordinate voting shares, multiple voting shares and preferred shares are designated as “eligible dividends”. Unless stated otherwise, all dividends (and deemed dividends) paid by the Company are designated as “eligible dividends” for the purposes of such rules.

#137 Inglorious Investor on 07.20.14 at 12:07 am

#118 backwardsevolution on 07.19.14 at 9:06 pm

“Deflation was and is a huge threat in the U.S. That’s why they started their bond-buying program in the first place, providing banks and corporations with literally free money.”

Now that the banks and big corporations have had their fill at the free money trough, perhaps the money masters are comfortable with a change in course.

—————–

“[…] the Fed works for the banks, […]”

Agreed.

———————-

“Read recently that the Fed does not want to stop, but has to because the pension funds are dying for yield.”

Don’t agree. I think they see too much risk to the dollar if they continue with the current program. At least one more cycle of dollar scarcity to bring the rest of the world in line, and perhaps stave off foreign dreams of a global economy not ruled by the Greenback.

#138 Inglorious Investor on 07.20.14 at 12:29 am

#104 backwardsevolution on 07.19.14 at 4:57 pm

I agree with much of what you said, but don’t confuse demand pull inflation with cost push inflation.

The number one cause of inflation is increases in the money supply. This causes cost push inflation in prices, even if money velocity is low. Actual increases in global demand, and supply crunches don’t help either.

This new ‘money’, which shows up early in stocks, only later feeds through to the real economy and manifests as higher wages, which causes demand pull inflation in prices, largely through higher velocity. But the REAL or PRIME inflation is that of an inflated money supply. Which has already happened.

The best way to increase wages and salaries is to increase productivity. But I mean REAL productivity, the kind that is driven by more efficient production technology and practices, and results in actual growth in real wealth, which is then fairly distributed to those who earn it. Not illusory productivity that’s driven by longer work hours and lower wages. You’re right, this only benefits the few.

#139 Happy Renting on 07.20.14 at 12:38 am

#84 housedoc on 07.19.14 at 12:05 pm
#61 Son of Ponzi on 07.18.14 at 11:08 pm

If my memory is accurate, a few days ago Shawn posted that his portfolio returned over 30% last year, over $400k.

Without having exact figures, the very rough math works out to portfolio worth ~$1.3M at the end of last year. Figure is likely to be different as we are more than halfway through 2014.

Shawn: good for you, that’s a very nice number. I’ve noticed that you’re quick to congratulate anyone who claims to be successful, and are interested in how people can do it versus focusing on the negatives and why it’s “impossible”. It’s a great attitude and smart.

#140 Cha Ching on 07.20.14 at 1:04 am

“The BOC will hold the overnight rate at 1% even as the statscan inflation number climbs past 4% ( which is more like 20% in real, non manipulated terms).”

You are correct. Canadian real estate prices continue to rise across the board and the BOC doesn’t want to mess around with that.

Real estate prices will continue to rise and the CAD and rates will continue to fall.

Easy call.

#141 cynically on 07.20.14 at 1:19 am

To #73 backwards – The Fed in the USA acts as the central bank in that country but does not operate in the interests of the banks but is there to regulate and control the banking industry and through that, help both the government and the people keep the country running prosperously by its monetary policies. The fact that it failed along the way resulting in the ’08 debacle is more the result of politics leading up to that time-the party in power and the head of the agency.
The banking culprits which includes many of Europe’s largest banks were leveled hefty fines which to date have amounted to over one billion dollars and they will be paid or they don’t do business in the US.
Contrary to your belief, the American banks unlike the Canadian banks, do not run the country. In what other country do the banks get full protection on their mortgage loans as they do here through CMHC and it is the taxpayer who foots the bill. So whose central bank is screwing the public – certainly not the Fed as you stated.

#142 Inglorious Investor on 07.20.14 at 1:37 am

#101 Retired Boomer – WI on 07.19.14 at 4:12 pm

“While some on here make fun of the idea of living within your means, or being debt free or, nearly so, and staying in control of your life, I for one would not have it any other way.”

Agreed. Some advice, especially to the young…

1. Live below your means by as much as humanly possible. Don’t confuse standard of living with quality of life.

2. Affordability is not based on whether you can afford the monthly or not. Affordability must take into account all present and future obligations. If a purchase cuts into the savings and investments required to meet these obligations, you can’t afford it.

3. Don’t buy anything you don’t really need. Before you buy something, try living without it for a while first and see what happens. If life goes on just fine without the item in question, you don’t really need it.

4. Only buy/rent a place that serves your actual needs, not your wants. Needs are limited. Wants are infinite.

5. Simplify life by keeping stuff to a minimum. The more stuff you own, the more your stuff will own you. Most people don’t know how to properly maintain things like cars and appliances. Don’t spread your efforts, time and money too thinly over too many things that require regular maintenance. Less clutter will keep your dwelling cleaner and better organized, which will reflect on your state of mind as well.

6. For durable goods, buy the best quality that you can afford. That also goes for food.

7. Take care of the things you own. Do the proper maintenance so they will last as long as possible and thus save you money on fewer replacements. Buy simple things. Forgo the ‘bells and whistle.’ You don’t need them and they only complicate life.

8. Only go shopping when you know exactly what you need to buy and where to get it. Do not shop for fun or as a social event. If you like hanging out at the mall, don’t bring your credit cards and only little cash.

9. Don’t fall victim to marketing. Forget about status symbols. The best status is financial independence.

10. Outside of a mortgage (see #2 above) borrow money only if you can use it to make more money. Don’t borrow money to buy a TV.

11. Cook. Bag your lunch. Only eat out on special occasions or when eating at home is not feasible. Eating out can easily cost five times more than preparing your own meals. Also, eating out does not save time. By the time you drive/walk to the restaurant, get a table, order your meal, wait to be served, eat, pay the bill and drive/walk home you could have prepared a large, tasty, healthy meal, cleaned up, and watched an episode of Big Bang Theory afterwords. And you didn’t pollute the environment with car emissions.

12. Spend more time with family and friends, not your TV or computer (unless you are commenting on Greater Fool). Get a dog if that’s your thing. Or even a cat. But let the cat out so she can catch mice.

13. Buy quality fashions that stand the test of time. Don’t fall for fads. For the ladies: don’t read fashion magazines. Not even the models in fashion magazines look as good as the models in fashion magazines. Don’t wear what looks good on (insert favourite female celebrity here). Wear what looks good on you. Too many women today are fashion victims; they waste their hard-earned money on outfits that don’t suit them. Women of all shapes and sizes can look beautiful in the right clothes.

14. Have kids if possible. They drive you nuts, but they also give you a reason to thrive.

15. Get married if you find someone you really love, and who loves you. Don’t live together. Living together is for folks who aren’t really committed, and it usually ends badly, especially if kids are involved. Don’t test your commitment by a trial period of living together. Either you’re in or you’re out. You can’t have it both ways.

16. Marry the real person, not the person you wish they’d become. You can’t change someone or mold them into your version of perfection. Perfection does not exist. Marriage is hard work. Marriage is not 50/50, it is 100/100. Both spouses must put in 100% effort. When one spouse can’t for some reason, the other must pick up the slack. Don’t complain they are not the person you married. People change. Marriage is not a contract to never change or grow as a person. It is a commitment to change and grow together.

17. Don’t have separate finances–e.g. he pays the bills, she pays the mortgage. Pool your money and work together to build wealth. Don’t work against each other. If you don’t trust ’em, don’t marry ’em. Don’t cheat or do anything to break the bond of trust.

18. Turn off your damn cell phone at dinner time.

#143 raider on 07.20.14 at 8:26 am

#35 JWK, have you looked at PFF, VNQ?
If you want to up risk and yield, look at mortage REITs, like REM.

This stuff is best held in an RRSP to optimise witholding tax. Otherwise claim the witheld tax to CRA in a margin account.

I hope that helps…

#144 Ralph Cramdown on 07.20.14 at 8:49 am

#133 backwardsevolution — “I’m confused, Ralph. You appear to want it both ways. They are hiding the true rate of inflation (by changing the way they measure inflation every time it doesn’t suit them). We are getting creamed.”

What does your basket of items say inflation is, and how long have you been tracking it? In my experience, most people who talk about inflation cherry pick items like California vegetables in a drought, or their heating bill during a long, cold winter, and never mention when items go down. Or they just point to some internet nutter’s site as if that’s dispositive.

In a battle of the ‘we’ versus the ‘they,’ I guess I’m one of the ‘they.’ Rather than moaning about getting creamed, I’ve been saving money and investing it, partially with an eye toward offsetting inflation.

“Either we have inflation or we don’t. Which is it, and how should it best be reflected? I mean, once things are done in order to keep the stock market, bonds or real estate intact (because otherwise they would fall apart), it seems we have a situation where some pigs are more equal than others.”

Some pigs have always been more equal than others. Read history. This is the system you live in, and it hasn’t changed that much since WWI. Except that these days you can actually invest in almost every one of the ‘theys’ that your precious ‘we’ blames for all its problems: JP Morgan, Goldman Sachs, you can bet for OR against sovereign debt being repaid, buy gold, silver or the miners of same, invest in real estate, equities or real return bonds. These are options that most inflation-moaners and deflation-moaners didn’t have in the eighteenth and nineteenth centuries.

And there’s an interesting thing about the gold standard: When the masses had it, THEY DIDN’T WANT IT. That’s right, here’s a man at the head of a popular movement so big that the Tea Party could only dream about it, railing against those damnable Eastern bankers and their insistence on the gold standard, to the detriment of the common man:
http://historymatters.gmu.edu/d/5354/

Either figure out how to thrive in a world with inflation much as a fish thrives in water, or join a revolution somewhere.

#145 OttawaMike on 07.20.14 at 9:07 am

#142 Inglorious Investor on 07.20.14 at 1:37 am

Good list. Thanks.

#146 nufee on 07.20.14 at 11:11 am

1st

what about newfoundland’s housing market?

#147 Chickenlittle on 07.20.14 at 11:50 am

Cat Food Lady:

Always a pleasure reading your posts! :)

Dean @ 112:

I hear you. Its hard to stick to a budget when prices are crazy. Seriously, its F*ing BACON! It shouldn’t be expensive!
Maybe the pigs went on strike demanding fair compensation for their services, hence the price increase.

Inglorious Investor:

Great list!
I especially agree with #15. I have seen too many mothers with kids from multiple men. If you can’t commit, don’t procreate.

#148 Shawn on 07.20.14 at 12:25 pm

Do as the Rich Do

Happy Renting at 139 said:

I’ve noticed that you’re quick to congratulate anyone who claims to be successful, and are interested in how people can do it versus focusing on the negatives and why it’s “impossible”. It’s a great attitude and smart.

*******************************************
Thank you.

This reminds me… I read Benjamin Franklin’s Biography years ago.

I recall there was a statement in there that for a time he attended a Friday ninth social club.

Standing order of business at the meeting (from memory):

Do you know anybody who is rich and do you know how they got that way?

I don’t own the book and years later I tried to find that quote on google and could not.

We should celebrate successful people (even if it’s your brother-in-law, although that’s hard to celebrate).

#149 jimmy dean on 07.20.14 at 1:03 pm

I wouldn’t be surprised if you took offense to articles like this…..especially when the facts are so diametrically opposed.

http://business.financialpost.com/2014/07/19/richest-seniors-ever-how-the-luckiest-generation-keeps-making-money-and-spending-it/

A quarter of seniors are elite ex civil servants and get to ride the gravy train meanwhile a majority of Canadian seniors are poorer than ever…Most have been wiped out by the Phony ZIRP and are now eating cat food, are in no way able to pay their property taxes let alone buy 10 cabins on a cruise ship. What spurious and specious crap coming out of an already disreputable media outlet. Meanwhile Prozac Poloz says food inflation isn’t his problem……just everyone elses’. I guess he eats free….or just makes so much money he doesn’t give a damn.

#150 Greg on 07.20.14 at 1:13 pm

Hi #86,

Thanks for (all of) that info link, the maps at 33.52 don’t look like the ones shown nowadays on the news here?? And at 27min the distinction that, the 3 are not the same…

Any idea what the cost of home ownership is there? Based on the info in your link, I guess it really depends…

#151 Retired Boomer - WI on 07.20.14 at 2:29 pm

142# Inglorious Investor

Excellent List!

My wife of 40 years agrees. I smiled reading the list as the common sense and practicality ooze from each item.

#16 made us both smile…. I recently bought a tee shirt that says the following:

Marriage is like a deck of cards..
In the beginning all you need are 2 hearts, and a diamond

later, you wish you had a club and a spade.

After 40 years you have had a few moments like that.
It IS part of life, growth, aging, senility, rebirth, enfeeblement, better, worse, richer, poorer, joy, and wonderment …all from the same two that began the trip 40 years earlier. it’s been a wonderful run so far!

thanks!

#152 Ayn Rand Army on 07.20.14 at 2:29 pm

#55 wayne on 07.18.14 at 10:13 pm

What is the #1 mandate of virtually every single central bank in the world?

Control inflation.
———–
You mean, Create inflation.

Fixed it for ya!

#29 backwardsevolution on 07.18.14 at 7:43 pm

#5 Soused – “Wages have been stagnant since the 70′s versus cost of living and everyone is using debt to fill the gap instead of agitating for better pay.”

Yep. The problem is INFLATION. It’s never what you earn, but what you can buy with what you earn. The Federal Reserve is handing out virtually free money to banks and corporations (no, we don’t count). Money is sloshing around out there looking for a place to park. Simple supply and demand tells us that when too much money is chasing goods, prices will increase.

Instead of going after the root of the problem – INFLATION – we all just want more money. This cycle keeps repeating, and pretty soon we’ll be buying a loaf of bread with a $100.00 bill. You might make more money, but things will just keep going up in price.

I wouldn’t care if I made $10,000.00/year, so long as prices did not continue to rise and I could buy what I needed.

Please, people, don’t get sucked in thinking we all just need bigger raises. If you get a raise, prices will just increase, and you’ll be back asking for a raise again.

I agree that everyone has been using debt to fill the gap, but why do we have a gap in the first place? It’s inflation. Lobby your representatives. Stop the never-ending inflation, and you won’t need a raise.

—–
Yeah right buddy, you sound like some kinda gold bug nut job who want’s a strong currency and higher interest rates for savers.

Don’t you know that would undermine the governments, banks and organized (legalized) thieves who run the world’s monetary system of central banks all tied to the fiat US dollar! Backed by nothing but guns and lies!

The nerve of such working class peasants makes me want to shoot them all dead! Especially after all the roads and free healthcare and education that’s provided to them for free.

Ungrateful unwashed bastards.

/sarc

#153 Josh Renning on 07.20.14 at 8:56 pm

The difference between buying a $450,000 house and say a $600,000 house over 25 years including all mortgage payments, property taxes, utilities, repairs and maintenance, insurance, land transfer taxes, H.S.T. on most of these items etc. is about $1,025,000.

This is 60% in TFSA’s, $615,000 and $40% in RRSP’s, $410,000.

This is also using 4.00% annual compound interest on all TFSA’s and RRSP’s and the annual RRSP income tax refund of $2,000.

A 50 year old couple that retires in 17 years by ages 67 will get their full C.P.P, OAS and have $2,000,000 in total investments, $1,200,000 in TFSA’s and $800,000 in RRSP’s.

Remember, they did not add anything to their $1,025,000 at 50 years old plus they are saving at least $1,000 a month in retirement paying less utilities, insurance, property taxes, repairs and maintenance, H.S.T on most items etc.

Piling on debt and more debt is not a good financial and move.