A lot of people have recently lost heavily in the stock market and real estate market. The nice part ablut it is…it isn’t real money. The really important thing is your month to month income. If monthly your income stays the same you can maintain the lifesyle you are in. One problem I see with investing in the black box of mutual fund sales is that most people have no idea how much they would need to “earn” from their investments to maintain the lifestyle they want. Funds sales people bandy about terms like rule of seventy two and come up with obscure numbers like you would need six-hundred thousand to retire. Problem is, these numbers don’t account for unknowns like how high will rising taxes be when you retire, how much will staples cost, what will energy costs for heating be, what will inflation rates really be, will new technology alter the need. The truth is, no one knows how much you will need to retire because:
A: No one know what future costs will be.
B: No one knows how much money you will have in your mutual fund account after having several hundred or thousand people pool their money for a fund to mutually benefit the money manager.
C: No one know what kind of annuity you will receive once you convert your RRSP to a RIF.
D: No one knows what taxes will be taken from you by the government.
My advice. Start a budget now, start investing in things that give you monthly income today and build that. Don’t go in for pie in the sky money managers and fund sales people pitches…ask them for details on their retirement and see if it doen’t include YOUR money.
This is a story all full of bad news. This is a story with no good news at all. Except for my wife and me and our son. David Wolfe comments, “That means belts are going to have to be tightened - governments, companies, consumers. The whole whack.” Well for us there is no more belt tightening to do. Our budget is worked out and I just changed jobs resulting in a rise of after-tax income of nin-hundred dollars. Hopefully, through these times I will keep working with a two-thousand nine-hundered dollar surplus and we will be able to take advantage of the discounts of this time.
These are peculiar times. The TSX fall to 2004 levels because oil fell to 2006-07 levels. Wierd huh. The rate cut is half of what analysts expected and stocks fall. Half the economic stimulus expected translates into a reversal of the rally of the last two days. So had analysts gotten the half point they expected stocks would have gone up? Really this is a really dumb thing to involve oneself. Trying to predict which stocks are going up and which are going down. And it’s funny too that I have never met a speculator in the stock market. They all day trade, but they are all long term. It’s never them that need a bailout, always someone else. So why is a .25% cut in the overnight lending rate better than a 0.5% cut? Because the analysts were wrong and the result was a deflationary effect on stocks. It pushed them down a little further and prevented buyers from becoming exhuberant for the day on a nothing announcement and prevented the derivative markets short sellers taking advantage. Having more sellers show up in the market place means more people are collecting cash to pay off debt (hopefully) and a little bit more of the cost of the past many years is paid back. By the way, I think short selling should be illegal myself. Where else in society can you “borrow” someones property without asking, sell it and then replace it before they know it is gone and not be charged with theft. I have heard that there is a way to prevent this but I don’t know how yet. Even plus or minus less than one hundred.
It was peculiar at work last night. I have taken a job working night-shift in construction. I prefer nights, no public, no tourists-the people who come and tour the facility they are building, paying to have built, or bureaucrats when it’s a government job, and no bosses for the most part. The job is great and I am glad for it, I’m sure it will get me and my family through this recession. But it was peculiar because of who I am working with. The others, with the exception of the bosses are a curious bunch of odd-balls. In particular a short, old little Frenchman from northern Quebec who told me in a single sentence, “I can build things for so cheap, so much cheaper than anyone else, but I need the money to do it.” And, “If I win the lottory then I will not tell you and I will move to an island to live.” It was the certainty in his voice that winning the lottery was something that wasn’t a distant possiblity but something as real as recieving a demand for payment in the mail from the utility companies. He was a man without a plan, well other than lottery tickets to a one off payday and we all know money comes easy it goes fast. But long term wealth, the type I believe is attainable needs to be approached with the idea of your assets providing enough money periodically to provide funds necessary for your lifestyle in the same period. With that in mind I want to talk about my “One House a Year Strategy for 25 Years”. The idea is that if you buy one house a year for twenty-five years and then sell those houses off for the next 25 years you will be completely fine. Provided the following;
The mortgages are 25 years long.
No further leveraging is required.
The costs are covered, mostly, by the rents.
Then sold at almost any cost the house is a gain.
I’ll talk more about it later.
These recessionary times we are experiencing are unlikely to have a tremendous effect on the younger generations. Those being gen x and below. Since we aren’t planning to retire in the next few years what we have is a great opportunity for bargain hunting. By picking up the stocks and investments that have been discarded from portfolios to pay for losses incured in high risk mortgage investments the preperation is made to be able to cover the debt incurred to own them free and clear quickly, since in most cases now these assets are changing hands far below their value. The more quickly an asset is free and clear the sooner it begins to take care of it’s owner. Even the older generations who are not heavily leveraged should be digging around amongs the offerings in this world wide stock market rummage sale. These times don’t last forever and they don’t last long. And unlike a labour day sale where yesterday’s style choices are blown out to make room for the next fad, good assets like stocks and real estate never go out of style. I hope that you recognise this is not a catastrophe. It is the creative destruction that takes place before you rebuild. Take hope, take control of your budget, find a place to make changes to save money, open up an online trading account and start hunting for good strong companies and buy them. It’s a simple plan. But it is a plan. Most people let events happen to them and without having an idea of what they will do, they haven’t got a chance to make alterations that will take them to a goal. Having any plan means that you have an idea where you are going and how to get there. That also means that you are able to take action when things happen to thwart your plan…since you actually have a plan to be thwarted. But without a plan, this time of opportunity will pass you by.
There is a country song I like by Alabama (incidentally the best country band and ultimately the best band ever!) called Song of the South. One of the stanzas goes like this;
Well somebody told us wall street fell
But we were so poor that we couldnt tell.
Cotton was short and the weeds were tall
But mr. roosevelts a gonna save us all.
So you see, in this situation news didn’t get to this family, much like how the Great Depression of the thirties really was contained to North America. News wasn’t instant like today and peoples attitudes couldn’t be corrupted in a few minutes by a steady stream of bad news or good news. These days though, it’s all bad news. But when I think about it, the news is reported by people living their lives, some of these reporters writing their stories are embroilled in this fiasco. Some have houses going into foreclosure. All of them have to make a living writing interesting pieces that capture the imaginations of the people reading them. Or they won’t be paid and they won’t make their mortgage payments. Currently the flavour du jour in journalism is that the sky is falling, depression, or maybe just recession is coming…but it is going to be bad. People are running scared and more news to scare is just what they WANT. Yes people want more bad news stories. But the news reports on what has happened not what is happening. The credit crunch already happened, it isn’t happening, the recession was built years ago, the effect is today. Now what is happening is people are becoming more sane. Spending is reining in. People didn’t lose their houses today they lost it when they signed loans they couldn’t afford for things they didn’t need. People lost fortunes in the stock market not when it crashed but when they bought it without paying attention to unrealistic valuations. It was a game of hot potato with a live grenade and an unknown fuse. If you are losing now, look hard in the mirror and ask if you played that game. Speculation is a suckers game, if you look around the table and don’t know who the sucker is, it’s you. Paul Newman.
But the story of what is happening today is that the markets are back in balance. Good buys are available and the seeds of a prosperous future are available…TODAY.
That is the news.
This is a very good thing. It is euphoric Canadian consumer confidence that created this mess we now find ourselves in. In truth, a recession is a good thing. recessions aren’t evil things that creep up unannounced on unsuspecting hardworking populations. Recessions are the result of runaway ambitious greed. Recessions are the result of peoples expectations going beyond what they are willing to work for. Economies run at optimal rates. When stock prices soar outside of normal expectations, when real estate prices leave the common man behind and lenders have no expectations for jobs to cover the payments or any down payment to ensure buyers have a personal interest in the asset, things are gone astray. This exuberant expulsion of money from the loan accounts of people demanding more and more goods created huge demands on infrastructure, manufacturing, raw materials and retail. It created huge demands for workers that don’t even exist, the workers that do are run ragged trying to keep up with the work and inflation. Salaries rise but just as soon so to do costs, it becomes a sprint, rising costs, rising wages racing one another and all for borrowed money and then as soon as one payment is missed more and more are missed and the default trickle quickly becomes a torrent. All the pretty things people buy are gone, all the mad money is used up and everything falls below the norm as the market sorts out who over-extended themselves and who was more caution in their optimism. I say more cautious because I have met very few who weren’t caught up in the euphoria. There were angry contrarians but I say angry, because they were only pissed they got left behind and the contrarian stance in any bubble, rally, bull market if they cry out “THE SKY IS FALLING” long enough will see it come to pass. And now I will be contrarian to all the cynics and bears in the market. This too will pass. Markets will rise and confidence in the future will be restored and the further confidence falls the better for it is in the tightening of fiscal restraints of each and every one of us that the seeds of economic rebirth to the more sane and stalwart growth trends are built. One other thing that makes me happy. This happened in eighty-seven, and eighty-two and ninty-nine, it is amazing how fast these cycles happen, next big bubble should be coming around the corner about 2013. Be ready to sell into it like a madman running against the tides of joe sixpack buying it all up. But to prepare, start your buying now, while ever joe six pack is running for the exit.
My wife and I are giving our son a head start in the world by investing money into an RESP for his future education. He’s very cute now and will be 18 years from now, but cute doesn’t usually get a person ahead but brains usually do. So we are investing by setting up an online trading account, using Q-trade. Q-trade has some affiliation to the Alberta Treasury Branch. A Q-trade account runs an annual fee of fifty dollars and each trade is usually around thirty dollars. As well the governments federal and provincial contribute funds to the RESP in the first year, for us total one thousand five hundred dollars, provided we contribute a thousand. Total grants for a child will total seven thousand five hundred dollars by the time they are eighteen. So even if you never do more than contribute the first thousand with a thirty dollar trade fee and nine hundred in annual fees, your child would end up recieving seven thousand five hundred cash for education the day they graduate. That is one nice Grad present.
It is late and I am going to be tired for work. But I need to get this done before the clock rolls over. Today at the militia nothing happened, rarely ever does. But congratulations to Big Roger Luard on becoming Chief Warrant Officer. I probably won’t be able to be there much longer so I thought I’d try to think about the best thing to come out of being in the militia. And bar none it is the friendships. Not everyone there is my friend, I’m not a friendly guy. But these are people who I really like and who I think are some of the best non-pretentious people around. To join the milita in Canada is to join with really good, civic minded, self-sacrificing people. The pay sucks, the hours are difficult but the friends there make it all worthwhile.
Chimo
You know, when people ask me about voting what I always say is that elections are like police line-ups…except you are picking out the one who is going to rob you! That said, I kind of like the current line up of Tories in a minority government position, very little happens and life goes very well. What we need now is a set election date, written in stone that can only be change through the human sacrifice of the leaders of whatever political party can do it. That way, the nation would be garanteed 5 years, ever year of ineffective government since the only good government is an ineffective one. Ever time these morons put their heads together the populace gets it in the ass. The only thing they can agree on is to raise their salaries and raise our taxes. I am so happy that we have managed to shut out the liberals again. Though I am disappointed in Newfoundlands left swing. Oh well, whatever. Happy to hear Elizabeth May can be swept into a closet til the next election with her broom…witch! Happy day Canada, looks like another few years of minority government, they’ll be squabbling with each other instead of steaming into us, taxes a flying. We should set our elections in October ever five years. Yes, yes and yes!
Oh and if ever there is a candidate that takes up the cause to outlaw all landfills and replace them with recycling facilities they have my vote.
