Entries from June 2020 ↓

Dr. Garth

We have the vaccine! Four consecutive doses of this pathetic blog will cure acid reflux, ennui, cat-fancying, impotence and house-horniness at the same time. No Lysol injections required, unless you’ve bene exposed to Brad Lamb or Don Campbell. So strip off that mask, face shield, Nitrile gloves, codpiece and plastic over-booties. Dr. Garth is here, your public health wonk. It’s all good.

“I enjoy your blog and am happy to learn about finances from someone with experience and knowledge. Certainly not a strength of mine. (I’m not one of the crazies.),” writes Ian.

I owned a little place in downtown Oshawa. A nice “addict-friendly” neighborhood. When housing took off, we sold it for a big profit and rented a lesser home with a lot more property. We invested the profits in bank stocks and watched it grow until “Pandemania.” It will grow again and we are being patient.

I’m sorry to say that I’ve given up on EVER owning a home. I would read your blog and it would accurately foretell all the difficulties the housing market faced. I kept waiting for prices to go down, and they just never did. Not because you were wrong, (heaven forbid) but because the government would step in and do anything to keep the real estate cash cow grazing. I never foresaw interest rates going down to what they are now. Am I wrong? Will the day come where I can buy a house that won’t be a million-dollar anchor holding my family down?

Maybe you have some advice for someone waiting for prices to come back to Earth? It sure would be great reading. Clicking on your blog in the evening is the high point of my day. Thanks for all you do.

Sounds like you cashed out of your druggie-infested hood at about the right time as local values peaked three years ago. Good work. But why stick all the proceeds into individual stocks? This therapeutic blog never suggested that strategy. And banks were whacked by the virus. More whacking could be coming, too. A B&D portfolio made significant gains last year and has been healing nicely after the Covid crushing in March.

Whither GTA real estate prices? Nothing has changed. Mini-fervour now as pent-up demand clashes with re-opening, fueled by 2% mortgages, then a drag later when the deferral cliff hits and CERB peters out. Property taxes are going up. Insurance is rising. Condo fees, too. The virus has upset the financial stability of society in general, and real estate will not be spared. In fact, it’s a target. Landlords in negative cash flow. Rents falling. Airbnb imploding. Credit tightening. Just wait. In the meantime, dial back the testo and dump the stocks.

“Love the blog, and have learned a lot from it. You’re doing us all a real service,” says Tim, in his MSU.

A question for you…. I am trying to make sense of some bafflegab that my Ontario public-sector defined-benefit pension plan is handing us about how they have to cut benefits “to keep the plan sustainable.” (Which should itself be a warning to anyone counting on seemingly secure DB plans instead of taking on the risk of cashing out the commuted value and managing it oneself.)

They’re bragging about the pension fund getting an 11.4% net return in 2019. I’d like to know, what was the return on a balanced 60-40 portfolio a la Dr. Garth? (If it matters, their effective MER is about 0.63% as far as I can tell, which is not as bad as some mutual funds but not, as far as I can tell, exactly great either.) Feel free to use this email as fodder for the blog if you see fit. Again, I really appreciate your efforts to drop the science on us.

It’s always worth remembering, Tim, that pension funds are businesses and throw off a ton of cash flow to the managers, administrators, portfolio dudes and sponsoring body. They want you to buy back time, to be obedient and unquestioning and (especially) never cash out through a commutation. But, of course, the reasons to commute are huge – more personal control, lower potential taxes, family financial security and usually better returns.

So last year a balanced & diversified 60/40 portfolio of the kind prescribed here and extensively canine-tested, delivered 15.22%. The nine-year average is currently 7.24%. We’ll see what 2020 delivers, but it’s looking okay. This portfolio is far less volatile and more predictable than one based on equities and honours the two goals most people have: (a) achieve a reasonable rate of return and (b) preserve capital. If that’s what you want, get vaxxed. Don’t be a cowboy (like Ian).

New here’s Will. Excuse him. He’s in love.

“Thank you for all the years of sharing your knowledge. I met you, shook your hand and got your autograph in your book one sunny day at the Victoria Conference Centre a good many years ago. The woman who attended with me as my wife is no longer my wife. We share a beautiful daughter together though and I cherish the lessons that union taught me.

I know that one piece of financial advise you extoll is to stay married to the same person for life. I wonder what your advise would be for a not so young anymore man that is in love and considering a lifelong commitment including marriage. Aside from the love, companionship and support that a special person can bring into another’s life what are some of the financial reasons I may or may not want to get married again? Am I best to stay “single” and enjoy my life with this amazing woman or am I better to tie the knot as after two years of cohabitation we are in the eyes of the law married anyways but without the potential financial benefits.

I make close to $100,000/year and she makes $50k. We have investments totaling a few hundred thousand and my pension with the Prov of BC. My job is very secure. She of course wants a house/townhouse/condo and I have asked her to wait at least twelve months. I am 49 and she is 46. My daughter is 9 and her two kids are 15 and 18. Their Dad is a professor at UVIC and is not a deadbeat Dad and everyone gets along well.  Any wisdom you can share would be greatly appreciated!

Okay, Will, we get it. She’s da one. You’re smitten. What now?

Since 2013 couples in a ‘marriage-like relationship’ in BC are actually considered hitched. Same as married. Chain. Ball. The works. That means if you break up there must be a 50/50 split of all shared assets and debts, including that house she wants. This also extends to your pension, as well as your registered retirement assets and other accounts.

You (and she) can protect yourself somewhat if married with a pre-nup agreement that clearly states what things you have individually brought into the relationship and should be excluded if it fails. But if you buy a home, both go on title and arrange financing as co-signatories, that’s a joint holding. If you split, one partner will likely have to buy out the other, or the place is sold and the proceeds split. Simple: under family law couples share whatever they acquire while together.

As for tax planning, common-law or single matters not. Income can be split with a spousal RRSP (to which you can contribute, claiming the deduction, and she gets to withdraw at a reduced tax rate after three years), through the means of a spousal loan (at the proscribed 2% rate, which drops next week, tax-deductible, no attribution) or by sharing pension benefits. You can, and should, have a joint non-registered investment account as well as a joint bank chequing account. Failure to merge finances is a big mistake lots of second-marriage folks make, thinking they’re retaining independence and flexibility.

Nope. Ignore what all those female advisors tell you. No secret bank accounts allowed. No mad money. For relationships to work, you need transparency, honesty, cooperation and, above all, trust. If you make it through this life with one good friend, you’ve won. That comes only through the surrender of self.

We’re done. Congratulations, you’re immune.

The nothing burger

The financial media briefly had a cow yesterday when Canada lost its perfect credit rating. This blog chose to bury the news in a riveting post about, well, we forget the topic. Anyway, it was outstanding.

Why kinda ignore the Triple-A thing?

Because it was so inevitable. We may be the first western economy to get slapped around by a bond-rating agency over Covid, but nobody here should be surprised. The Trudeau government has spent more money than Drake did on his new bathroom – a deficit of maybe $300 billion by the time the year’s out. The accumulated debt will pass $1 trillion. Mr. Socks-&-Whiskas will go down as the spendiest PM ever.

In response to the news from Fitch the Canadian dollar swooned a little, but shrugged it off. The next day Bay Street had already forgotten, and stocks traded higher. Bond yields actually went down, which was the opposite of normal. Downgrades should mean higher interest rates. Not this time.

The raters said this: “Pandemic lockdown measures and depressed global oil demand will cause a severe recession of the Canadian economy.” Our debt-to-economy ratio will zip from 88% to 115%. So, yes, the country’s finances are starting to look just as pooched as those of most Canadians.

But wait. This sounds serious. So why is even the Parliamentary Budget Officer – a wily, suspicious, dark and rebellious figure – saying, “it’s not that big of a deal in my opinion, and not something that comes up as a big surprise”?

Because it’s not. We keep an AA rating with Fitch and a better one with the other two big credit-rating agencies. Ottawa will have no more difficulty flogging its debt. The dollar wasn’t too whacked. Of course, long-term, somebody has to shell out to pay the servicing costs on over a trillion in debt, but the Boomers couldn’t care less. It won’t be them.

So if Mr. Market isn’t vexing over credit ratings, historic debt and your financially-eviscerated grandchildren, what’s the focus on?

The restoration of economic activity. Period. Jobless claims numbers in the US announced on Thursday were okay. No big surprises. The virus is ripping through a few US states faster than anticipated, but that has not seriously stopped any of those regions from lifting social and business restrictions. In Canada the Royal Bank is lauding Trudeau’s CERB bucks, saying that they’ve moved us towards a “V-shaped recovery,” – exactly what the stock market’s been telegraphing.

Latest stats show a surge in consumer spending in the fist half of this month, as eight million people took their two-grand-a-month pogey and blew it. “We didn’t expect it to come back that fast,” says the bank’s CEO. “We’re positively surprised…”

No wonder. So far CERB has flowed more than $52 billion into the hands of those who claim to have been impacted by the virus – lost incomes, sickness, caring for others or child support. The impact has been astounding – from an average -25% income drop before CERB and when Covid hit, to a +16% jump in cash flow and a hike in spending.

“They are actually helping to simulate the economy with some of the extra cash flow,” the bank boss told a certain TV network that you should never watch (BNN). “So, from that perspective, you’re seeing those CERB recipients continuing to spend and not just save the money.”

Of course, it’s what Canadians do. Spend. Forget savings or paying down the debt that creamed you in the first place. The tat parlours are open again. How can you not go?

Well, there is a problem, however. The economic recovery may be moving ahead and will gather much more speed when Ontario lifts its state of emergency order and travel restrictions ease, but what about when the CERB ends? What happens to people making more moolah staying home than going to a job? After all, a husband and wife both on the Trudeau virus dole, plus collecting enhanced CB for a couple of kids can have a monthly (untaxed) income of almost $5,000. No daycare costs, either. No commuting. Not princely. But not poverty. Enough to ignite a V-shaped spending boom, apparently.

It’s also enough for people running restaurants, grocery stores, pizza palaces, factories and retail outlets to have jobs go begging. Enough for students to work a few weeks then quit to collect during the rest of the summer. Enough to do serious damage to the work ethic. Just as masks and distancing are shredding the social one.

The dawn is coming, yes. Do not discount the cost.

About the picture: “I’m a long time reader and fan of your wit and wisdom,” writes Enzo. “We’re tucked away in the southern gulf islands between YVR and Victoria weathering the storms comfortably thanks to your sage insights.  My nephew sent me this photo and claimed that it was taken after the brushing.”