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May 15, 2020 | Filthy Lucre

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.

‘No cash.’

Anti-social signs like that cropped up everywhere after the virus came to town. Just one more way of building walls between people. Masks. Jumping off the sidewalk when someone approaches. Plexiglass shields. Sheltering at home. All of this has created a new reality. Covid, 1. Humanity, 0.

Cash money isn’t exactly social glue, of course, and many doubt its continued existence. But telling people how they must pay for services or goods you sell is a losing strategy for retailers. Besides, it’s just another slice of the dare-I-eat-a-peach world that we now inhabit. Fear rules. We’ll probably live to regret this.

But is cash dangerous? Does it give those nasty invisible bugs a way to leap between humans?

The Bank of Canada says not. Folding money is harmless, we’re told, and has benefits over digital currency. No transaction fees. Private and anonymous. No trail. Always there when the lights go out, the power grid fails and the dog ate your debit card. Plus cash is universal, legal tender everywhere. Not only are retailers wrong to reject it (no right to do so) but not accepting cash disadvantages those who lack the skills or credit to have payment cards.

Health Canada says you’re being an alarmist weenie if you fear cash. Covid is spread by sneezing, spitting, drooling on or smooching others. Not by handling bills or coins, especially if you keep your hands clean. The cash-is-toxic meme is just as ill-founded as the belief you can no longer pet your neighbourhood dog, because she may have germy fur. The WHO agrees. “There is currently no evidence to confirm or disprove that COVID-19 virus can be transmitted through coins or banknotes,” it says.

Now despite this, cash is likely doomed over the long term. The virus will merely speed the process.

Since the pandemic arrived the number of contactless debt card tapped transactions has jumped. Currency e-transfer payments have soared more than 60%. And, of course, credit cards are de rigueur for all of that online shopping we’re doing. About one in 10 Canadians no longer use cash, ever. That’s almost the mirror opposite of Swedes, where 85% of people never use folding money as that country moves to a fully cashless society. But the times are changing. The Canadian Payments Association says the move from paper money to digital transactions is dramatic, as we shop with debit cards, credit cards, e-transfers and the new stuff like Google and Apple pay.

So, no doubt smartphones will eventually replace all else. Then say farewell to emergency readiness and anonymity, while hoping your grid always stays lit.

Meanwhile ‘no cash’ deserves ‘no sale.’

$     $     $

Almost 750,000 people have asked for their mortgage payments to be deferred. That’s a fifth of all indebted property owners. Astonishing. As you know, these payments are not being waived, but are added onto the debt itself meaning there’s a bigger nut to finance at the next renewal date – when rates are likely to be stiffer than today. Plus interest is accumulating on the deferred payments, further engorging the principal.

The fact people are willing to end up owing more in return for less cash flow today suggests (a) they can’t pay their loan, thanks to the virus (or own too damn much house) or (b) they don’t get it. This is not helping them financially in the long run.

But wait, says this blog dog. There are other reasons which validate not paying the home loan.

“I am one of the over 700,000 Canadians not paying at the moment.  Lately you have been bashing those deferring as not having any savings and just spending on Netflix and N95’s and completely house poor.

We have a home worth about $850k and a $265k mortgage.  $300k invested in a relatively B/D self directed portfolio and $20k in cash. No other debt. Could I pay?  Yes.  But why be in a hurry when money is so cheap?

My reasoning behind not paying is:
1. Our variable rate on the mortgage is 1.45% – why cash in my BMO stock paying me 6.24% divvies to pay down a mortgage at 1.45% (coincidentally with the same bank)
2.  We will be putting a new roof on this summer as well as sending a child off to Uni in September.  If we kept paying the mortgage, by late fall – the cash in the bank might be depleted and we might have to dip into our investments.
Cashing out some of the investments now or in the fall would force us to take a loss.  Should I really have more than $20k in cash and be opting to continue to pay BMO? Not sure you’ll reply but wanted to give you my perspective.  Am I nuts?”

Well, that’s a cogent argument. But let’s not forget a $265,000 mortgage at 1.45% has monthly payments of only a few bucks over $1,000. Cheap. And most of that is principal repayment. So six months of deferral will save you six grand, but increase the outstanding amount to more than $270,000, plus interest.

Besides, if you have a portfolio of dividend-payers, that income stream alone should be enough to make home loan payments. The overall point: with a mortgage carrying a rate that’s historically low – less than inflation – meaning a huge chunk of the monthly is debt repayment, (and we know rates will rise when the recovery comes) why not take advantage of this to trash the loan? Why not just put your kid on the Trudeau Dole? Sheesh – get with the program.



Remember when I said this was not a virus blog?

I lied. Everything is virus now. We are obsessed. Overwhelmed. Immersed. Inundated. Drowning in Covid-19 coverage. So it’s time this pathetic blog jumped the shark and got right into it.

Here it is. The Virus survey nobody else has had the courage (or stupidity) to publish. Results Sunday.

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May 15th, 2020

Posted In: The Greater Fool

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