Wednesday, May 27, 2009

What did I say about Budgets?

I have not posted in a while, but by February I was seeing a $50 billion deficit and they have only come out and admitted it now.

I entered adulthood at the end of the Trudeau era, when the next government inherited a mess where government spending was $39 billion dollars more then tax receipts without considering interest on the debt.

I knew nothing but a sluggish economy, grossly declining wages, poor job prospects, companies in serious trouble (it only occurred to me recently that none of the businesses I worked for from 1979 to 1987 survived), excessive housing prices, high tuition and much of this can be blamed on fiscal policy that went wild with spending that greatly improved the lifestyle of some at the gross expense of others.

I was never a big complainer of the high taxes and I truly believed it would come to an end with a stronger Canada, which it did, however, the morons currently elected are throwing all that hard work and sacrifice away and putting Canadian finances back on a perilous path.

Our current leaders truly deserve to have sewage plants named after them, but even that would be more tribute then they deserve.

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Sunday, September 28, 2008

Election confusion

This is one election that I am not looking forward to, indeed, I doubt it makes any difference as there isn't a true leader out there. There are the tax cut and the spending promises, but I have news for you, there isn't more money to spend and thanks to Harper's narrow view Canada's got its first deficit in what, 10 years? When the year is up expect it to be in the range of $6 billion.

So Layton is promising a bigger child tax credit, to $400 per month. Layton obvious can't add or subtract either. Giving the parent the money to spend now that has to be borrowed is a really lousy idea and ensures those children will only know really high taxes for their lives.

I am not against supporting children, but not with tax money that isn't there. Additionally, you get a huge increase in the birth rate with something like this so it way more expensive then anticipated, and you can end up with people having kids for the wrong reasons. In Britain the teenage pregnancy rate is through the roof. A teenage without much education's best prospects is to have a baby.

Who is going to balance the budget? Right now cuts are required, not spending and I haven't seen a thing that gives me confidence that our next leader won't take us down the kind of path the Bush has taken the Americans, spending money you don't and making the children pay it back.

And we haven't seen any news what-so-ever on our Canada Pension Fund, which is invested in this dire market. It was $120 billion. Any bets that it is worth $90 billion now?

Children haters.

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Monday, August 04, 2008

Where Did The Perception That Banks Were Good Investments Come From?

There is no question that if you look at banks historically you can see the factors that investors promote when looking for a "good" investment. My friend that encouraged me to invest at the time was waiting for a huge market correction. That was back in 2006 and he was already more then half cash. One that he mentioned he wanted to pick up was HSBC, and his price was in the $65 range. The reasons, years of growing dividend, expanding into emerging economies, steady in their years of showing growth, etc. There is a list somewhere, I am sure.

He also talked about how dividend stocks tend to bounce back better after a downturn, at least that's what happened with the last down turn.

There is no question that banks had a very good run, but I doubt what was known to be true historically is going continue to be true moving forward.

When I look at where the increasing profits came from a see a sector that will have years upon years of disappointment to investors that fail to think this through.

You have the maestro idiot who for more than a generation gradually stepped interest rates down. So, what exactly does that do for bank profits? Consider that the dollar value of loans have been increasing over the years much more then wages. Banks are increasing their profits as that dollar value of loans increased. This has gone on since the 80s. It has enabled some troubled borrowers to refinance at lower rates and avoid the messy businesses of defaults, and of course there is an enormous fee that goes with this. Heck, there were borrowers that weren't in trouble that refinanced and just paid the penalty. I did so twice as it was in my interest to do so, and there was up to 3 months interest penalty on my mortgage each time.

Banks also added those fancy securitization products which they made a bundle on.

Well, now that there is a rate reversal in progres, so just what are all the ways that banks will lose out on in terms of how they were increasing their profits?

Loans aren't going to be getting bigger. Wages will finally have to catch up. Just how many years do you think this will take? A decade or two would not surprise me. Moving forward banks will have decreasing values of loans. Trying to increase profits through increasing rate spreads will simply increase this effect. So years of declining loan values is a given.

And, now that interest rates pretty much went as low as they could go, well, just how are those troubled borrowers going to refinance? I suppose those with massive credit card debt at high rates might be able to, but what about troubled mortgage borrowers? Or over extended big car loan borrowers? Now some of the defaults that were traditionally avoided by refinancing aren't going to be avoided. I suspect it will be years of higher defaults then historically. There will be a large wave to start and then a much higher steady stream as life's challenges hit people that were doing their best but had no room for those life's challenges -- relationship break-up, job loss, unexpected pregnancy, illness, natural disaster and so on... So, years of higher defaults for banks is a given.

You think the securitization of debt market is ever going to be as profitable again? I don't. So years of reduced profits from secutitization is a given.

Then of course there is the massive dilution of stock as banks work to raise capital. So, you have this declining profit environment on this growing equity base.

It seems to me that there is going to be a move to less debt in this environment, so not only will loan values be smaller, people will go back to the "old fashioned" way of making purchases, saving a good portion before borrowing. If you think it through what the stepping down of rates did to housing, well, it increased the loan amount that people qualified for and the responsible saver who wanted 20 or 25% down was forever finding that out of their reach. It lead to the masses jumping in early in terms of saving for a down payment because you could never earn in wages what you'd lose in equity as home values went up. They watched the market go up for 2-3 years they were wanting to buy and finally jumped in. It is what happens to young people.

Generations just young enough to miss this massive bubble will learn from the financial hardships they see around them. Many will wait and they will save for a proper down payment.

So, where do I see banks? I think loan values will cut in half and raising equity to cover losses will double the number of shares out there.

I can't see the business sector of banks doing much better.

And then there is the investment side of it. I think so many people are going to be hit hard by the markets there will be a trend back to safer investments. My idiot investment advisor argued with me over an investment I wanted to make and then I was charged $400 on the one trade. This garbage is already on the decline. Look at all the competition for $10 trades now.

So, no kidding banks were a good investment. There many things happening in their favor that whoever was running them would have to be worse then Bush to screw it up. But now the reversal comes and it isn't just reach a bottom and go back to business as usual. Moving forward the business environment is going to have those things that worked in banks favor working against them, and it is going be years of challenges and little opportunity for profit growth.

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Friday, July 25, 2008

Harper - Trudeau the second

Harper's a moron. He is destroying all of Canadian's hard work and saying no to unaffordable spending to make Canada a strong country.

Thanks to a moron named Trudeau I entered adulthood in an environment of high taxes and a sluggish economy for years to pay for his excesses.

Harper is screwing young people today as much as Trudeau screwed my generation.

Congratulations Harper, you managed to undo 24 years of Canadian pride in controlling our deficit in record speed. The deficit is massive. You had no business reducing taxes we were all used to paying and mortgaging the next generation's future. Trudeau screwed my generation over royally. We've spent our lives paying the taxes that weren't paid in the 70s.

This is an exert from an unanswered letter to this moron that I wrote at the beginning of October last year. Unfortunately these morons do things and the time it takes for their gross incompetence to show up, well, usually it is the next guy being blamed, much like Mulroney is unrecognized for what he did for Canada in working to clean up Trudeau's mess.


I read the linked article, http://www.ft.com/cms/s/0/e24d696a-6d33-11dc-ab19-0000779fd2ac.html , where it implies that you have indicated there will be a round of tax cuts and I became grossly concerned.

We have come so far in Canada and I have always felt that Brian Mulroney was our greatest Prime Minister for setting the stage so that there would one day be surplus budgets again. This is his victory, not yours and to reduce taxes would be to undo that which is once again liberating Canadians from debt.

We have an aging population and if anything, we need to further reduce spending. We have a tax system that has indoctrinated into a beliefs a system of draconian policy that takes away from youth and gives to age. It has resulted in gross division of wealth.


It is already a hard economy and Harper is ensuring that those coming of age will have a much harder time.

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Saturday, June 28, 2008

Do You Remember Where Your Career Was 28 Years Ago?

It looks like Big Picture is my favorite blog of the day today. In a post he mentions the 28 year low on sentiment, or I guess 1980.

If you are old enough, do you remember where you were in your career 28 years ago?

I graduated high school in 1979, and my age cohort was the largest of the baby boomers. Birth rates increased until 1961 and then they started to decline, so I entered the job market with a double whammy against me, the largest numbers of entry level workers ever, and the lowest job sentiment in years, and going into what turned out to be fairly hard economic times, at least here in Vancouver the economy was very bad, also hit with massive government cut backs.

Writing and looking back at my own personal history has really helped me to understand things that were completely out of my control, and to actually be quite shocked about what the economy was for me. For example, not a single business that I worked for between 1979 and 1986 is around today. What are the odds of that? I knew that my work references seemed to be dissolving almost as quickly as I moved on to another job, but I never considered how utterly shocking it is to have a 7 year work history at several companies just disappear.

The working environments were not pleasant, you knew the businesses were in trouble and it meant that I faced declining wages pretty much while I was still an entry level or very early level worker. I was making more in 1981 then in 1985. And, this was happening in an era where you were negatively labelled for job hopping if you didn't have a reasonable length of employment time with a business, yet when I look back, the nature of the economy left you lucky to have a job and moving kept you one step ahead of being laid off or coming to work and seeing a sheriff's "closed" sign on the door, and that did happen as well in my job history.

It was awful, and something that was never recognized for the extreme challenges that new young workers of my generation faced. I remember far more sentiment that "today's youth was lazy and unwilling to work," yet I also remember every job competition for low paying jobs had dozens of applications for each job.

The media was sympathetic to "age discrimination" against older workers, but what a farce that analysis was. Older workers were being replaced with workers willing to work for less. There was no age discrimination there what-so-ever. Any older worker willing to work for 30% less, wages equal to what younger workers were getting, had a job. Employers obviously did not value the "experience" to the degree that the older workers valued it.

I truly see the economy going into the same kind of scenario, only on a much, much bigger scale. Only this time the older workers have already been working with less disposable income and less wealth building ability so it isn't so easy for employers to just slash wages by 30%. So, today's older workers, while better off than those climbing the economy chain below them, are already below the economic security level of workers above them. The wage cuts will be less because there is less padding and their tighter economic situation means they will be more motivated to continue working.

It's going to be very, very ugly for younger workers. The least that the rest of us can do is not blame them for their unfortunate position in the pecking order in the economic food chain.

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Sunday, May 11, 2008

Hudbay Mineral - A $6 stock priced at $18

I first looked at Hudbay Mineral when I contrasted it to Blue Note just over a year ago. I saw nothing but downside to it, although I wasn't overly critical, yet. Blue Note that I liked has yet to perform, and with the retraction of zinc price it is unlikely to perform.

I anticipated a retraction of zinc prices, but simply not to the degree that they have retracted. Zinc was at $1.53/lb and the Canadian US dollar means that was about $$1.80 Canadian. It was $1.18 for the last quarter and it is now down to $0.96.

I made a prediction on Hudbay in the fall, and I specifically said the problems would not show up until this quarter.

Hudbay minerals looked to be valued at about 2-3x the valuation of Blue Note when I looked at them together. Today Hudbay's earning look to me like they are heading to the 50c/share for a full year range, and that won't show up on the next quarter, but Q1 2008 would have earnings in the 10-13c/share range based on today's metal prices and exchange rates. Q4 already has some better metal prices rounded into the quarter. I saw some serious reasons to see earnings declines when I reported on this stock and they have shown up and further declines will likely happen.


I missed on my prediction as they came in at 17c/share. It looks like they did well on their silver, "silver production increased 24.0% owing to higher silver content in the purchased concentrates processed in Q1 2008." That would account for about 2c that I'm out. They also produced 23,000 ounces of gold and an extra say $200/oz is an extra $4.6 million, so the gold and silver holdings off set the reductions I predicted.

So, gold, silver and zinc are all down right now compared to Q1, so expect earnings to go lower. Just to give some reference for how far Hudbay has fallen, news on the 4th quarter showed:

Canada's third-biggest zinc and copper producer earned C$28.5 million, or 22 Canadian cents a share, in the quarter ended Dec. 31, down from C$165.8 million, or C$1.29 a share, a year earlier.

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The Problem With Storage

The enormous problems in the US housing market has an even sadder story about what to do with your stuff while you try to get back on your feet, as featured in this news story.

I put my stuff in storage while I was in university and went to jobs in Ontario and Alberta. What started as a 4 month plan turned into 2 years. It was probably a good learning experience in that I would strongly advise selling and tossing stuff as opposed to storing it.

You pull the stuff out in two years and much of it you didn't miss, so why have it? And then unless your stuff is high quality, just sell it and buy something used to replace it when you need it.

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Thursday, May 08, 2008

The Problem With Housing Development Fees

I have previous written about the unfairness of development fees and now many municipalities find themselves in trouble trying to balance budgets because of their gross irresponsibility in leveling fair taxation.

Without going back and pulling actual figures, I know that in my area (and certainly my reading of news from other areas indicates the same problem) the percent of municipal budgets coming from development fees has been increasing. New developments are paying the whole shot to bring a neighbourhood up to a certain standard on those developments at the same time taxes are paying for similar upgrades to other areas. The new developments are essentially being double taxed because these fees are so excessive.

The fees are tacked on the cost of a home. So, in Vancouver developers have claimed up to $60k of a home is development fees. Does this hurt the established home owner? Hardly, the entire stock of homes goes up a proportional amount. New and existing homes are not priced differently based on the older homes didn't have the excessive development fees and costs to build, but rather relative pricing as to what you get. So, new homes get more expensive, but so do existing homes. The established home owner re-coops that increase through the sale of their home.

The first time buyer see the cost of housing up the full cost of development fees. $60k over 30 years a 6% is $129,600. It is an extra $360/month. This is the burden transfer essentially to younger people. It would probably only cost existing home owners an extra $25-50/month to pay their fair share and not transfer this burden to youth.

But hey, youth are going to be able to pay that, their enormous student loans, the increased tax burden due to an aging population, that extra $25-50/month in property taxes that's going to come now anyways, and while we are at it, we can give them a lecture on their social responsibility while they feed their kids Kraft dinner.

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Monday, May 05, 2008

Aging Population, Canada Vs US

I was looking around on this census data site. Canada and the US are fairly similar right?

Well, what I found kind of shocked me. I started by looking at the US data and I found that the ratio of working age (20-64) to retirement age (65+) people was increasing slightly in the US from around 1995 and that in 2007 the percent was essentially the same.

The graph below actually has the US data offset by one year because I don't know how fix that in excel. A one year offset doesn't change the picture that much. With all we constantly hear about an aging population I expected that ratio to be continuously declining in both the US and Canada. It looks very bad for the US that their finances have so grossly declined and they haven't even begun to be hit by an increasing percent of their population in retirement age.


Click on graph for bigger image.

That left me extremely curious about what Canada's projections look like. At first I just looked from 1996 to 2006 and I found that the percent 65+ had increased from 12.47% to 14.6% of the population, a 17% increase. To Canada's credit, not only was this enormous increase to social programs absorbed, but $100 billion of federal debt was repaid.

But, then later I went back to look at the longer term projections. That was cause to feel ill. Canada's declining birth rate is going to be a killer in terms of supporting our aging population. If you look ahead to 2026 or 2025 in the US that ratio of about 2.4 for Canada versus 3.1 for the US means the burden per working age person is about 1/3rd more in Canada than the US.

Disaster is an understatement. Fantasy would be a good expression for people's expectation of collecting any thing near what they think they are getting in their pension.

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Sunday, May 04, 2008

Where'd the Dock Go?

You know those warning sirens you hear in the movies for warning of a bombing raid? Those kind of sirens were going in town today and I didn't know what they were for. They were going for about 30 minutes. I looked around and didn't see anything.

Well, the ice in the river broke last night and it brought about 7-10 meters thick of ice filling up the river, and it over flowed the banks for a while and flooded the homes right on the river. The sirens were to warn people to get their stuff out of the basement fast. Apparently if they come in three blasts we are supposed to evacuate the town.

I found out earlier in the week that I live in a flood plain and that it can be interesting to watch the river break up. That was amazing to me because I was down by the river looking for a place to climb down to the bank last weekend. The banks were so high I couldn't imagine them ever being filled. Well, now they are filled with ice.

This picture is where there is a driving dock to load boats. I know it is there because I saw it last week.

Ice Debris

These are a few other pictures. I kid you not, last week I was wondering if the river was going to go dry, it was so low and still covered with ice. The places I could see I figured the ice was sitting on mud and there didn't appear to be many places that looked like there could be running water.

Ice Debris

Ice Debris

Ft Laird

And, not to be undone, I guess the week before last I told students to get pictures around the school for the year book. You never know what kids will come back with...

Snow Dung

UPDATE: One day later, the ice has broken and the river is flowing...


Ft Laird

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Saturday, May 03, 2008

Super Artists



My students are super artists. We are working on a yearbook and I thought I'd share some of the artwork they've made for putting students heads onto. I am in a very small school. We have 5 graduates this year, and the above picture will hold their mug shots.


Below is a sampling of other art work that will have student mug shots.

The boy who drew this one is in his later teens. He is amazing in the ideas he comes up with.










And we have a third artist who drew this one.

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Friday, May 02, 2008

The Pawn Shop Memories

Mish had a post that hit me hard for how it reminded me of the challenges of my youth.

The post features two links, one about how the pawnshop business is booming as people hand over things to get instant cash.

"We never saw so many people in here 30 and younger," Society Hill associate Damien Robinson said. He spoke as a 22-year-old Neumann College graduate walked out with a $75 loan on her Dell laptop computer. "What are young people going to do for rent now that apartments are so expensive?"


I never got cash for things from a pawn shop in my youth, but I have had to sell furnishing to pay the rent and buy food in the past. The stress of living like that is incredible, and that was happening to me in the later 80s.

Being down on your luck is hard, but the attitude in the economy when I was young was very much to blame young people for the position they found themselves in. The position I found myself in was because my mother had died when I was a child and I held some illiquid assets I had bought with insurance money. It made me ineligible for student loans. After I had sold everything in my home that I could, I was forced to make a choice between quitting university or selling those assets for 40c on the dollar.

Dealing with this kind of thing is hard enough on its own, but it was tied to my mother, who died tragically at age 32. Dealing with it brought all the pain and grief of losing her as if it had been yesterday. It was like she died twice.

But, like I said, there was a lot of blame. I was an emotional wreck. I ended up dropping one class, finding a part-time job, but I was too distraught to manage everything. I let one class slide figuring I could bring it back up when I was better able to handle it. I failed the first test miserably. My professor, Dr. Slessor, had joked with me before class daily until that test. After I was greeted with a coldness that could save the world from global warming.

After about six weeks I was getting through the days without breaking down like you do when you are in the midst of tragic grief. I suppose I'd pulled it together enough to pull an 80 on my next exam with that prof. He'd heard I was having a rough time and he apologized for his abominable behaviour, but getting that kind of kick when you are down, and from a professor that has been a recipient of an award for excellence in teaching, it really didn't undo the damage. What was the apology for, to suggest it would have been OK behaviour had I not been in distress?

And then there was the guy that helped me put my sign up on my property. I heard through someone else that lived in the neighbourhood that he'd been bragging he took my sign down as soon as I drove away as he knew I was in a forced sale position and figured he could squeeze me for an even lower price if I had no interested buyers.

So, for me, reading that post brings back the memories of selling my TV, my early generation computer games - colecovision, and all the pain that goes with it. I supposed I managed to sell enough stuff to pay the bills for about a month, but then it gets to what do you do for the next month? I got the part-time job, I had a credit card and I planned to finish my semester and then wait until I saved enough for each semester.

I've been an advocate for how bad things are for young people since the 97 census. I worked that census and I saw 3 single young people living one bedroom apartments due to under employment and low wages. I always managed to have a home where I had my own room, yet for over 11 years there has been young people who have not managed to do this, and never mind sharing a 1 bedroom unit, there were several with 3 people sharing. There are 11 years of this kind of thing getting worse.

I constantly run into people who talk about how they had to get 2 jobs when they were young to get where they are today and they fail to see the wealth of opportunity they had simply because jobs were abundant. The wages these people are making means you probably need more than 2 jobs to make ends meet.

It is interesting the comment of the woman trading her watch in for $20 for gas. She is not poor, but "middle-class."

I tend to think she grew up middle class, but her standard of living has declined.

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