The Saving Series - My Opinions

As I established in my last post in order to have a Savings we need to start Saving.  Living in a consumerist dominated society as we do this makes it difficult to look to the future when the newest pair of Tod's are available @ Holt's or the desire to grow your Club Monaco scarf collection intensifies as more and more colours hit the shelves but the recession we are currently experiencing serves as a reminder that there is no time to save like the present. 

In the coming weeks, I will attempt to communicate what I believe are effective measures to take when saving for the future. Topics will include everything from How to start saving? to simplistically describing what a T-bill is or the difference between an TFSA and an RRSP. 

By no means, am I am an expert in this space and never will I claim to be so but I believe that our society is currently suffering from financial illiteracy. I believe it is important to make society aware of the options that are available to them in laymen's terms. Saving is not only for the wealthy is what we need to understand. 

I hope what I write will be of some use to those readers who's financial understanding is not as clear as they would like it to be.  As I write  these posts in the coming weeks please feel free to leave comments and questions. It is my hope that you will gain a better understanding of what you need to secure a prosperous future.

Saving vs. Savings...The Future of the Gen Y

Saving vs. Savings? Is there actually a difference? Are they not the same? Well as a matter of fact, No, they are not one and the same. Wikipedia differentiates the two defining Saving "as the act of putting money away for future use" and Savings as the state money is in once saved. It is obvious that you cannot have one without the other. That being said they are direct complements of one another. 

The bigger question is why do we need to save? What do I use my savings for?

Now, I know for those of us in the Gen Y category, we particularly don't care for saving or savings. That's why we have hard working,frugal boomer's for parents. As a member of the Gen Y, I think that it is a fair assumption that we have been handed most everything on a silver platter. I am not saying that there are not Gen Y's in the world who struggle day-in and day-out but for the majority of Westerners, we have lived relatively hardship free lives. 

But the day is coming that we are put out into the wild to fend for oneself. No more parents to provide free handouts such as food, shelter, and clothes. When that time comes, the first thing on our minds should be to save every last bit of our meager entry level paychecks to ensure that we are able to insulate ourselves from economic ups and downs similar to what we are experiencing right now. 

It's a fact we are very much consumers vs. savers. According to an MSN Money 2008 article, the average Gen Y is faced with over $8000 worth of credit card debt. This level of high interest debt is unsustainable for future wealth accumulation. Add-in the average student debt of nearly $40,000 in both Canada and the U.S., beginning to save becomes even more crucial. 

Even with our meager paychecks, Saving only $200/month for the next 40 years a return of 6%/a gives us $371,428.72 for retirement. It may not seem worth saving now but with maturity your savings per month will easily quadruple that plus the additional income provided by a spouse or partner. 

As a consumer generation it is critical that we start taking responsibility for our savings and start saving.

Historic Day....Madoff Pleads Guilty

Today marks a historic moment for the financial world as Bernie Madoff,  fraudster of the world's largest Ponzi scheme (over$60B) plead guilty to the 11 charges brought against him including securities fraud, wire fraud, mail fraud, and money laundering. The 70 year old Madoff is seen below entering the Manhattan courthouse where he inevitably faced his death sentence. 

Madoff's guilty plea to all charges comes as no surprise the scope of his scheme has affected investors of all types from the local blue collar worker to charitable foundations and even celebrities such as Steven Spielberg and Kevin Bacon. Madoff expressed deep regret as he read his 10 minute apology stating, "he was so deeply sorry and ashamed" for his role as mastermind behind the largest Wall Street scheme in history. 

When all is said and done, Madoff defrauded almost 4500 investors out of over $64B US worth of assets. His guilty pleas only confirm that he will likely parish into history behind bars as his charges total over 150 years in prison. As a result, we should all take the story of Bernie Madoff as a lesson learned and remember "if it's too good to be true, it probably is." 

I'm Still Rich....

Even amongst all this market turmoil Bill Gates is still able to find a way to make headlines.  

Forbes.com, recently released its coveted Top 50 Richest People in the World and despite losing $18 billion in the las 12 months, Bill Gates remains at the top. You would think Windows Vista would of knocked this guy down a couple of notches? I guess not. 

Can you Trust your Financial Advisor?

These are the thoughts that are currently going through the minds of millions of people around the world. Can I trust my Financial Advisor? Many people seek the advice of an investment professional because they either don't have the time to monitor their situation or do not have the knowledge to make wise investment choices. An investment professional is like a lawyer or doctor in that they are specialists in their own field. Many would agree that they wouldn't consult a lawyer to perform surgery or vice versa. 

However, given the current mess that we are in the credibility of investment professionals has been tarnished. Alas, the losses that you are experiencing are not solely the fault of the investment professional's advice. 

The mess that we are currently in is not on the advice that has been given but the advice that they have been given. As advisors, they base your investment portfolios on the advice of the research that has been conducted by their research department as well as the various portfolio managers that run their asset management portfolios. 

Add-in the lax government policies in the mortgage and complex investment vehicles that only a handful of people can begin to comprehend and voila we have the current crisis. The investment professionals that we deal with day-to-day are not too blame as they are merely selling you products that fit your needs based on recommendations that they have received. They are at a primitive level sales people. 

So next time you want to yell at your advisor, just remember that the key to Sales is that you only need to know a marginal amount more than your client to succeed.

Twitter the New Discount Brokerage?

Scanning the Financial Post as I do most days, I came across this article published last Saturday, February 21, 2009 titled Twitter new source for stock tips, headaches for regulators: http://www.financialpost.com/news/story.html?id=1313295

For those of you who are not familiar with this tool, "Twitter a service for friends, family, and co–workers to communicate and stay connected through the exchange of quick, frequent answers to one simple question: What are you doing?" (twitter.com) Essentially, Twitter is a microblog allowing users to "tweet" up to 140 characters to friends, followers, etc... informing them about their daily events. 

The phenomenon of Twitter is giving rise to users providing services such as stock information. For example, services such as Piqqem and Stocktwits are offering investment expertise to all investors from basic knowledge to sophisticated investors. As investors continue to sit in limbo with their current advisors and portfolio options, more and more of them are turning to unconventional sources to gain information. To emotionally distressed investors, Twitter's ability to provide this information at no-charge comes as a godsend. Twitter is serving as a free means for investors to access advice for equities. 

However, securities regulators believe that there is cause for concern as Andy Poon, spokesman for the British Columbia Securities Commission explains (Financial post,2009) 

Twitter, which encourages users to attach themselves to others and follow their communication with a network of other users, could probe to be a useful tool for investors - or it could be the next new shiny penny [that] enables some of the bad guys to reach a lot more people a lot more quickly and at a lower cost. 

The anonymity of Twitter's users could prove to be a safe haven for 'pump and dump' stock promoters and other scams (Financial post,2009). But  with over 15,000 users using Stocktwits providing more than 3,000 unique tweets/day, Twitter could also prove to be a saviour to investors amidst the present market turmoil.

UBS hires new CEO

Amidst the turmoil of the credit crisis, one bank has hit the headlines more often than not. The United Bank of Switzerland (UBS) is at the center of the financial crisis with over $15B in mortgage backed securities writedowns, a $780M charge and disclosure of some names of Americans that they helped evade taxes, plus much much more. 

 

As the largest wealth management provider in the world, UBS seeks to regain the credibility that was once bestowed upon them. Today, UBS AG announced the hiring of former Credit Suisse executive (Oswald Gruebel) to return the bank to profitability as well as save face.

 

According to Sanford Bernstein & Co Analyst, Dirk Hoffmann-Becking, "Oswald, or Saint Ossi as the Swiss call him, is credited with the turnaround of Credit Suisse after the Winterthur debacle". Gruebel's successes include doubling Credit Suisse's profit between 2004 and 2006, selling off the Winterthur Insurance Co., unit and implementing a "One Bank" strategy similar to that of UBS (bloomberg.com).

Given the current market situation and the troubles that UBS is currently dealing with a change in leadership could prove to be the right move for the future profitability of the bank. 

TSX Tumbles to New Low....

For those of us who have been opening their monthly investment statements be prepared to see a new low for the month of February. As if, the bottom of November 20th wasn't bad enough for the TSX. Today, we have seen a new bottom of 7647.67 basis points. 

This new bottom does not bode well for gains in the future. According to Adrian Mastracci of KCM Wealth Management in Vancouver, 

      Right now, I think there is a higher probability that markets will go down further than there is of them climbing higher because we still do not have a handle on all the problems that are out there. Stocks are driven by two things; confidence and earnings, and we don't have either.

Until investor confidence is restored the volatile ups and downs of the market will linger. 

Check out the Financial Post for more information

As Equities Bottom, Commodities Peak....Or Not?

Historically, there is an inverse relationship between the two types of assets. As equities rise, commodities fall and vis a vis. However, in the current market situation we have seen abnormal trends begin to appear.

As the TSX began to fall from its peak in June 2008 the natural inverse relationship was present with oil spiking @ approx. $140US in July of 2008 but as the market bottomed on Nov. 20th, oil too dropped below $50US.

Why is this? What happened to the predictions made by CIBC World Markets Chief Economist, Jeff Rubin that oil was to continue upward to $200?

There are a myriad of factors that have contributed to the fall in the price of oil that create a more complex relationship. To find out more, I suggest looking at Why are Oil Prices so Low?

But if Oil is so low then why is GOLD nearing its peak of Mar.08? According to Colin Cieszynski, analyst at CMC Markets Canada, "This rally, combined with a retreat in other commodities...suggests that significant fear over the global economy continues to overhang many markets and that precious metals continue to act as a haven for capital" Gold Futures Poke through $1000US an ounce

The current economic situation is giving us the opportunity to re-write the history books. As the financial markets become increasingly complex with the creation of more sophisticated investment tools there is no longer a simple solution to trend analysis.

Check this out....

I know this has nothing to do with finance but everything to do with social media. If anyone is in the Toronto area, I suggest that you check this out.

Podcamptoronto

 

Best of all for those starving students and unemployed graduates, it is FREE!!!!!!

BRANDING...

Reading through the Washington Post today, I came across an article "Phelps acknowledges photo showing him smoking pot". Normally, no one would care that a 23 year old is using illicit drugs but an Olympic Champion with a career total of 14 GOLD Medals is clearly a news story.

As a cultural icon in the American public eye as well as within the niche of the swimming community, Michael Phelps has in himself become a brand.  According to wikipedia.org, "A brand  is a collection of symbols, experiences and associations connected with a product, a service, a person o any other artifact or entity." Michael is easily associated with swimming, Speedo, Visa, and Mazda. 

The article, originally published in the Times displays a photo of Phelps lighting a "bong" to inhale marijuana smoke. Engaging in behaviour that contradicts his Olympic image has the ability to severely damage his brand image. With millions of dollars in endorsements, multinationals have invested heavily in Michael Phelps. Investing in the greatest Olympian of all time is a no-brainer and the ROI should be as safe as a T-Bill. With Michael Phelps aspirations of adding to his medal tally in 2012 looming, Could he be the worst investment of all? 

How Do We Value Art?

What I am writing about today is specific to as Why do we invest in ART? Why or How do we put a value on Art?

Walking through the AGO, I pondered, what is the lure of owning a piece of art? For basic functionality, that is easy. Everyone needs to decorate a space and I agree that art is an excellent tool to do so. But for investing purposes, how do we value something that is essentially priceless?

For example, Jackson Pollock's, No.5 1948. As of 2006, this is the most expensive piece of art ever sold @ $140M. It is easy enough to point to the Laws of Supply and

Demand, But Really?

Look at this image. Does it have any significance to anything/anyone except the artist? We could argue back and forth but ultimately the value is held in the hands of the artist. We are essentially put a price on someone's artistic interpretation.

Is there value in the piece itself? Or does value lie in when the artists intent is incomprehensible to the untrained observer?

When valuing Art or even understanding it, I am at a value of [0,0]. Looking at the piece above, someone like myself would initially only see splatters of paint across a piece of material. I would not be able to value that. However, if I understood what the artist was trying to get at then there is something tangible to value.

Like everything else in the world, we value what we can't have or what we don't understand.

Brace Yourself....A Deficit is Imminent

As a fiscal conservative and potential libertarian, I feel that free markets are best dealt with through the efficiencies in the marketplace. As the current market conditions have led to much government intervention; the economic ideas of 20th century British economist, John Maynard Keynes have come to fruition. Keynes theories are based on the fact that the state should stimulate economic growth and improve stability in the private sector - through, for example, taxation and public projects (wikipedia.org).

Finance Minister Jim Flaherty is set to deliver the budget on January 27th for the upcoming fiscal year beginning on April 1st. However, today an unnamed source indicated that the budget will include a $64B deficit erasing 11 consecutive years of surpluses. According to Bloomberg.com, "In addition to new infrastructure spending,the government has indicated its fiscal plan will make it easier for workers to qualify for unemployment insurance and provide tax relief in a bid to spur consumer demand". 

Is it safe to stimulate the economy through forced measures such as tax relief? I would argue, NO. It is irresponsible to promote tax relief when it is obvious that the government cannot afford them because eventually the burden will be placed back on the shoulders of the taxpayer through income taxes or VATs. 

Is it our responsibility to provide TARP-like funds to dwindling industrial sectors? NO. Wake up people these are cyclical sectors. They call it the economic CYCLE for a reason. Peaks and trough, expansion and recession are necessary to the growth of our markets. 

Without corrections we would be stuck with inefficient corporations forever. I think we can all agree that we are better off without corporations such as Enron or Worldcom.  In the long-run, will we be so much worse off that we cannot allow GM, Ford, or RBS to fail today. Highly unlikely. 

Remember , in 1929 the DJIA was 381.2. 

CFA - Chartered Financial Analyst

As my obsession with financial markets continues to grow, I find it fitting for me to expand my educational basis through my enrollment in the CFA designation. Quoted by many as, "The Most Difficult Exam they have Ever Written!". As I am always up for a challenge, I feel it is necessary for me to attack this program with all my efforts.

For those who are not familiar with the program; it consists of 3 levels of examination each 6 hours in length. 

1. Level 1 - 240 Multiple Choice questions - testing your basic investment knowledge

2. Level 2 - 120 Item Set questions - applying your knowledge to specific case sets

3. Level 3 - Essay questions - focusing on your writing capabilities to depict situational events

Sounds easy enough. 18 hours of exam writing. Except for the fact that the passing rates for each of the levels is 35%, 42%, and 53% respectively. Needless  to say, those numbers are ridiculously low but also quite rewarding when you become one of them. 

As I embark on the 6 volumes totaling 75 chapters and weighing in at 20lbs, I feel confident that this will be both a rewarding and successful journey. However, only June 6th will tell: 139 days to go.....

New Blog, New Life...

As we are 17 days into the New Year, I felt the need for this space to reflect my current situation in life. The New Year brings new endeavours and new commitments. As I am still searching for that perfect employment opportunity, I feel the need to express my addiction to the financial markets. 

To me, there is nothing more interesting that waking up in the morning and checking out Bloomberg or the Financial Post to see what the days markets are going to bring. Always a good indicator of the days markets is the DOW Futures or how the Asian markets have performed throughout the night. 

So, as I sit on the sideline gathering more and more information, I bring you this blog.  Please enjoy and refute any information that I present to be true as the only way to learn is become aware.