Entries from November 2020 ↓

Here we go

Three months and two weeks ago the finance minister resigned.

“Since I expect that we will have a long and challenging recovery, I think it’s important that the prime minister has by his side a finance minister who has that longer term vision,” Bill Morneau said, politely. “That’s what led me to conclude during this time period that it’s appropriate for me to step down.”

It was a shock. In the midst of scandal. And it occurred after Morneau had a blow-out with Justin Trudeau. One man wanted prudence. The other, glory.

As we know, both were tainted by the WE debacle, now blurred by the ongoing Covid crisis and its  troublesome second wave. Trudeau allowed his family members (including his mom) to become paid shills for a dodgy charity with a penchant for buying commercial real estate in the name of its founders. Morneau carelessly accepted gifts and travel. It was an embarrassment he won’t live down.

But that’s wallpaper. The real story here is the course of the nation which today again lurches left. Morneau in July was devastated to announce Canada would have the worst deficit on record, $342 billion, as a result of T2’s virus spending and the CERB tsunami. He then argued for restraint, telling the prime minister of the need for a long-term strategy to restore fiscal health. Trudeau rebuffed him. This crisis, he argued, was an opportunity to remake society, expand the role of government, promoting social and climate justice. The spending would continue.

Bill quit. Chrystia Freeland was instantly thrust into his chair.

So let’s consider this a moment.

Bill Morneau is Old Money. If you’ve ever spent much time around OM people you know they live by a code. No wonder. The system’s been good to these folks. Capitalism works. Things are as they are for a reason. Change should be incremental. Reputation matters.

Before losing his mind and running for Parliament, Morneau headed a billion-dollar executive benefits company and earned over a million annually. He lives on a two-acre estate in the middle of Toronto and married one of the wealthiest women in Canada. Nancy McCain is an heir to the food empire of the same name. Her brother is chairman of McCain Foods. Her cousin runs Maple Leaf Foods. Her sister lives in a little castle across the street. There are two family yachts, large enough to cruise to the Galapagos, normally anchored off the family’s summer compound in New Brunswick or its holdings in Florida. There is also a chateau in Provence, in the south of France

In short, there’s nothing to prove. Being in public office is not about personal gain, advancement or brand-building. It’s service. It finished badly. But it also ended on principle.

Chrystia ain’t OM.

Both parents were lawyers with her mother running as a federal NDP candidate in native Alberta. Her BA is in Russian lit and history. Her MA is in Slavonic studies. She worked as a journalist stringer in Ukraine, and afterwards in London and Moscow. Then to the Globe and Mail and Reuters. Her major publication was a book called “Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else”, a 2013 bestseller. Then she ran for Parliament. She’s married to Graham Bowley, a former NY Times reporter. Three kids. Normal house.

An accomplished, ambitious woman. Now the second most powerful person in Ottawa. In interviews over the past few days she’s indicated a willingness to ‘spend whatever it takes’ for the Trudeau agenda of worker support and economic rebuilding to occur.

Privilege, business success, family, wealth and marriage made Bill Morneau. Justin Trudeau made Chrystia Freeland. She may well be more in sync with a nation where Millennials outnumber Boomers and social justice/climate issues trump balanced budgets. He may be the dinosaur, the last hulking carcass of fiscal restraint standing at the vault door.

   But we are now the spendiest country in the industrialized world. In a single year our deficit, as a share of the economy, has grown by a factor of 18. “No major economy,” says Scotiabank, “will show a bigger fiscal swing in 2020, according to estimates from the International Monetary Fund.”

And it’s only started, apparently.

$     $     $

Well, here it is. The shiny new (so far) Chrystia deficit number: $381.6 billion (by March). And this does not include another $100 billion in stimulus spending coming after the second wave…

Now, let’s see who in the steerage section came closest with their estimate, and will be our Guest Blogger! May God help the winner.

Debt porn

Mars and Venus. Do men and women really think so differently when it comes to money and financial security?

Are you kidding? Of course they do. At least according to the leading financial dudettes. Famous women money bloggers like Gail Alphabet, the jar lady, put the repayment, elimination and annihilation of debt at the very tippy-top of their strategy list. Females worry about debt more than males, who spend more time dwelling on facial hair and oil changes.

But while we’re a hideously-indebted and essentially pooched society, there are times when managing debt – not trashing it – can make some sense.

This brings us to an email I received on the weekend:

Drained our two TFSAs, added to savings and paid the $307k remaining in the mortgage. Emotional, not logical. Sweet relief.

Let’s parse this. Does it make sense? Is there enough emotional tingling here to compensate for throwing savings into more real estate equity? What is the actual cost of this mortgage-hating mentality?

Well, five-year, fixed-rate home loans are now available for about 1.7%, so let’s use that number to run some simple calcs. A mortgage of $307,000 would then require monthly payments of $1,255. Over five years they total $75,359, not a small amount of cash flow.

But because rates are so incredibly low, a goodly chunk of every payment erases amortized principal. In this case the repayment portion of sixty monthly cheques adds up to $51,470. Huge. So at the end of five years the debt would be reduced to $255,529.

Now, what if the $307,000 this person possesses in liquid wealth were invested, instead of thrown at debt reduction?

If stuck into a balanced & globally diversified portfolio of ETFs for five years there’s a healthy chance the average annual return would be 6%, judging by the last few decades. (Although I’d wager in a post-Covid recovery period the gains would be outsized.) Sheltering half of this inside TFSAs would also make some gains tax-free.

So after sixty months it’s reasonable to believe the $307,000 would have swollen to become $414,200, of which more than $107,000 would be growth. Here’s a summary of what that means:

Paying off the remaining mortgage balance from investment proceeds after five years would leave a balance of $158,700. Yup, have your cake (paid-off house) and eat it too ($158,700 in assets). But the homeowner paid $75,300 in monthlies over that period, so this should be deducted from the balance, leaving a surplus of $83,400. In other words, paying the mortgage off – as Venus so desired – was a costly move when mortgages are so cheap. Eighty grand, or about $1,400 a month for five years.


Inflation is currently 0.7% in Canada, which is crazy low. But it also means a 1.7% mortgage is actually costing just 1%, which is even wilder. We all know that by this time next year, as the vaccine chases the virus, the economy will be recovering, prices and wages rising and inflation plumping. Mortgage money will be essentially free. Milk it. With an amortized mortgage and blended payments, a big piece of debt disappears every month.

Also be wary of concentrating all your net worth in one thing. Even your house. The less diversification in your life, the more risk. Real estate is not immune from big fluctuations caused by property taxes, employment levels, inflation, rates, zoning or a pandemic. Putting all your eggs in one basket is a poor strategy. So stuff your TFSA and keep it that way.

Is it such a bad idea to have some low-cost leverage on residential real estate which has (because of public mania) been rising in value? Of course not. Why hasten to pay it off?

Finally, remember when you get old you can always rent a roof. You can’t rent income. It’s a complete myth that you’ll be secure in a home you own when you lack the cash to heat it or to finance a happy life. Especially if you’re a long-lived woman. Get invested. Stay invested. Be diversified. Be smart about debt. But not obsessed by it.

And stop reading sexist advice.