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July 12, 2019 | Moving On

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

We can’t let this summer week end without drawing your attention to some things that deserve it. First up is a follow to yesterday’s hectoring post which told you to stop trying to time the markets, shut up and just invest.

Right on cue: the melt-up.
As predicted. US equity markets have soared to new records. They did it decisively, methodically and solidly. If you own ETFs pacing the Dow, the S&P 500 or the Nasdaq, you’re a happy camper. And there’s more to come, it seems.

The Dow hit a few highs this week, and sits 17% above its level of just six months ago. The return over one year is 12%, and that takes into consideration the 20% rout at the end of 2018 which had the steerage section changing its Depends every few hours. The S&P is even more dramatic so far in 2019 – ahead 20%. Bay Street is struggling with those flaky weed stocks and wonky oil, but has also rewarded investors with a 15% return. Preferreds are up about 3% in a month, and pay a dividend (tax-efficient) of almost 5%. Beats the pants off a GIC. Even pathetic government bond ETFs have given about 4% so far in 2019. Overall, a balanced portfolio is ahead about 10%.

This doesn’t mean the second half of the year will repeat this, of course. But it does mean those who bucked the advice here last autumn and sold into a storm were fools. At the time I chronicled a couple of them – people who ignored my pleadings and ran for the exits, turning paper losses into real ones. So while prudent portfolios have given low-taxed, double-digit returns, they’re parked big money in low-yield GICs ravaged by inflation and fully taxed.

This is what emotion does. It steals your money.

While an economic slowdown at some point is inevitable, the best strategy is to ignore it – unless your portfolio’s peppered with individual stocks, lacks diverse fixed income assets or isn’t global. Review the weightings published here. They work.

Why houses go up
Not a week passes, it seems, without BC politicians trying to push public opinion into a xenophobic stupor. This time is was ‘news’ that the ill-named speculation tax (on people with second properties) raised more money from offshore owners and ‘satellite’ families than, say, Albertans. Of course, the spin was large, but the numbers were not. Both the spec tax and the empty houses tax in Van are high-profile (due to their arbitrary unfairness) but meaningless. It wasn’t Chinese dudes who goosed prices in Vancouver or Toronto to historic high levels. Rather it was historic low interest rates, which caused Canadians to borrow an historic amount.

Don’t believe me? Here ya go…


Source: RateSpy

Vox Canabis mortuus est
This past week we heard from a number of brave Blog Dogs who took up the challenge to share a post with me. Most of them were mercilessly skewered in a pique of unbridled cannibalism by their fellow deplorables. We may do this again, but not soon.

Thought you might be interested in a comment from Jake, one of the posters who tried to defend and ennoble being a measly little socialist. It didn’t work.

“You asked today whether or not the Vox Canibus should continue,” he says. “I’m going to vote yes, but not because of what people are posting, but rather because of the experience.

After my opinion was shared on Friday, the steerage section certainly rose to the occasion – bash the uneducated for having an opinion! Forget manners and decency, go grab the pitchforks! I’m curious to see what the deleted comments had said… maybe it’s better that I don’t know. It was a rather humbling experience, and something I had not really considered before: you put up with that crap on a daily basis, and have done so for years.

I think the Blog Dogs section should continue, to allow others to experience the steerage section feedback. As a “snowflake millennial” (I think that’s what I heard some wrinklies call us the other day) it is a good practice to develop tougher skin. I can’t say I’m used to being bashed so efficiently, so maybe I should offer more comments in order to develop a thicker skin.

Perhaps my next 500 word essay should be about what’s right with the world – people like Garth who put up with commenters in order to educate and inform those of us who need it. At least I’d know my opinion was right that time (it clearly wasn’t on Friday).

I’m sure you don’t hear it enough, but thank you for blogging every day and for helping us little guys understand the world a bit better. It truly is appreciated, regardless of what the vocal crew say in the comments.

Okay, Jake. You can rejoin the pack. In your place.

What emergency?
Finally, with interest rates in the ditch and likely heading lower over the next year, money is cheap. Loans are a gift, costing barely more than inflation. Borrowing money to buy something, of course, creates debt. But arranging to borrow in case you need the funds costs nothing. And that’s the beautiful thing about standby lines of credit.

This is worth mentioning in light of the experience one regular reader just had after being savaged by the nimrods on Reddit.

I made the mistake of posing a question on a “personal finance” sub-Reddit (I should know better…): “Why do so many people advocate large cash reserves for an emergency fund. Often $15,000 to $20,000 or more for 3-6 months of living expenses just sitting in a HISA making less than the rate of inflation, when an LoC can be used instead?”

Oh boy I was downvoted and torn apart by ignoring that particular financial gospel and arm-chair internet financial experts. My reasoning was crazy, irresponsible and, gasp, reckless!

In the event of a serious emergency, such as extended job loss, I can simply immediately use my LoC as needed, then if more months go by, withdraw some RRSPs at $5 a trade. Why would any sane Canadian keep such large emergency cash reserves, unless they have no LoC and no financial portfolio to fall back on? Am I really the crazy one loosing touch with reality here?

Not loco at all. Firs, people who assiduously maintain an ‘emergency fund’ realize after a few decades that an emergency never happens. It’s a myth for most people. So sitting on tens of thousands earning nothing – and ending up spending it on shoes and new taps – is no way to achieve financial independence. If you have money, invest it. Don’t save it. And especially in something as dumb as a ‘high-interest’ bank account.

Second, this is a perfect use of a LOC. It costs nothing to set one up, nor are there recurring charges to keep it in place. The interest rate charged on outstanding balances is irrelevant since this is money for an emergency that will never happen. If it did, then (as the dude said) merely sell off an asset and pay it back. The key is to keep your funds working at all times, safe in the knowledge that if an asteroid did hit your home you could just write a cheque.

The real danger, of course, is Reddit. Maybe we could send that women-voting guy over there?

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July 12th, 2019

Posted In: The Greater Fool

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