Being a Canadian I obviously keep a close eye on the financial scene here in Canada. The RRSP deadline is fast approaching tomorrow March 1, 2010. This deadline means you must have your registered investments purchased by end of day if you want to claim them against the 2009 tax year. This is quite a hectic day for mutal fund advisiors and pretty much any financial planner that offers some type of registered investment.
Many Canadians will just speak with their personal financial planner or go to a bank and purchase whatever mutal fund they are currently promoting. Many of these funds have very little upside wich is offset by high fees. they may not tell you about these fees unless you ask. Since the fees are taken from your balance after you purchase the finds you generally do not notice them missing. So yes, you can be starting your investment down 1-3% regardless of market conditions. Each year these fees will be deducted from your account once again. These fees can eat you alive while they destroy any possible gains and can significantly decrease your retirement potential when calculating the year over year expense.
Combined with a heavy taxation rate when withdrawing this money during your retirement may cause many people to rethink their savings strategy. Some of the reason I mentioned are why the folks at the Divident Growth site refuse to be sold mutal funds.
The image of banks locking their doors to keep customers from making withdrawals during a bank run is what immediately came to mind when we heard that Citigroup was telling customers it has the right to prevent any withdrawals from checking accounts
for seven days. Read More
A bank run (also known as a run on the bank) occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent. As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy (or positive feedback): as more people withdraw their deposits, the likelihood of default increases, and this encourages further withdrawals. This can destabilize the bank to the point where it faces bankruptcy.
Roosevelt declares bank holiday
When Franklin Roosevelt started his first term in the White House in 1933, he inherited a nation in the depths of the Depression. A record 13 million Americans were unemployed and businesses were drowning in red ink. Perhaps even more pressing was the head-spinning string of bank failures which had triggered a frantic run on the nationÝs savings vaults. The wave of withdrawals by panic-stricken depositors further dried up banks’ already-depleted supply of liquid assets and pushed the nation’s banking system to the brink of disaster. On March 5–the day after being sworn into office–Roosevelt stepped into the breach and declared a “bank holiday,” which, for four days forced the closure of the nation’s banks and halted all financial transactions. The “holiday” not only helped stem the frantic run on banks, but gave Roosevelt time to push the Emergency Banking Act through the legislative chain. Passed by Congress on March 9, the act handed the president a far-reaching grip over bank dealings and “foreign transactions.” The legislation also paved the path for solvent banks to resume business as early as March 10. Three short days later nearly 1,000 banks were up and running again.
This past week we saw the release of numbers that show which country holds the most US treasuries. Too some surprise it was Japan not China. The question to ask Is China dumping US debt or is Japan buying? According to a Bloomberg article China sold 34 billion dollars worth of treasuries in Dec 09 and has not purchased any in the last 8 months. It appears the China has lost its lust for US debt and may seek to invest elsewhere. Does this make sense if the US is their biggest exporter?
Some would say these two countries need each other to survive while other think China could begin selling its products to its own people. Other news items shows China putting massive amounts of money into gold and silver.
Here is a video from Chinese news station pitching silver bars.
Not too long ago when you wanted a safe investment you could invest your money into bank stocks and sleep fairly well at night. In the past year or so things have changed. Big banks around the world were and some still are on the edge of bankruptcy. Amongst the ashes Canadian banks arose looking strong and stable.
The chart below lists the write down the major global banks took in 2009. The top four all all Canadian banks. A couple more like Royal Bank of Canada and CIBC are also listed a but further down.
Many people may think the Canadian banks are too conservative and take small risks. Those people would be correct. Profits for the big 5 Canadian Banks (TD, RBC, CIBC, BMO and Scotiabank) are smaller than what you would expect from most majors banks mostly because their exposure to risk is much less. This great ability to manage risk is done in a country that does not have a required reserve ratio on deposits. Kinda strange since the US banks have a 10% reserve ratio and nearly collapsed a year ago.
If not for the stock price and security alone you may want to look at the Big 5 dividend history.
Here are some excerpts from a few of the sites regarding their dividend history.
Scotiabank’s practice has been to relate dividends to the trend earnings, while ensuring that capital levels are sufficient for both growth and depositor protection. This practice, coupled with the Bank’s strong earnings growth, has led to dividend increases in 37 of the last 39 years – one of the most consistent records for dividend growth among major Canadian corporations.
Dividends are generally increased in line with long-term trends in earnings per share growth, while sufficient profits are retained to support anticipated business growth, fund strategic investments and provide continued support for depositors. BMO’s policy is to maintain a dividend payout ratio of 45% to 55%, over time.
With most mutal funds and RRSP investments going nowhere these days you should consider getting into DRIP’s or SPP’s. Here is a link to a great list of Canadian DRIP’s and SPP’s.
This is a huge 1600 km pipeline that was not supposed to be ready until this July. The Canadian oil giant Suncor has agreed to use this pipeline to ship oil from the Alberta oilsands to Wisconsin.
Despite what anyone in the media says, Canada is a major exporter of oil to the US. Currently The US imports almost twice as much oil from Canada then the next country on the list. See for yourself.
Interesting post on moneyourmoney.info suggesting people move their money from the large banks to the local ones. Sites like this are popping up all around the web promoting small local businesses as a better option than large multi-national corporations. A local bank is never too big to fail nor can they get away with paying their employees large bonuses. Ideas like this promote a more stable and healthy economy.
People all over the country are choosing to move their money out of bigger banks and into smaller, community-oriented financial institutions that generally avoided the reckless investments and schemes that helped cause the financial crisis. Fueled by the personal initiatives of thousands, it’s a grassroots effort that has the potential to shift power in the financial system away from Wall Street and to Main Street. Check out the video, read up on what inspired the idea, connect with others through Facebook and Twitter and then use thetools and links provided to find a community bank or credit union in your area.Move Your Money
The below is a link to the Transparency International Consumer Perceptions Index for 2009. This list ranks how corrupt countries are perceived according to a list of surveys. Interesting to note that New Zealand is the least corrupt and Somalia is perceived as the most corrupt.
Below is a piece of an article I found on noagendanews.com that discusses how the US Federal Reserve financed roughly 80% of US debt in 2009. This number is so high mainly because the US debt has grown substantially in 2009 and fewer countries are willing to service this debt for obvious reasons. But the real question is “Where does the Federal Reserve get the money from?”. The answer is “They make it out of thin air!”. Think about that for a while…
Provided the Fed actually reveals their true accounting practices it will be interesting to see where this money came from when bill HR 1207 is passed this year.
Here’s the problem that the U.S. Fed’s “exit” poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total – perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. Of course they purchased more 30-year Agency mortgages than Treasuries, but PIMCO and others sold them those mortgages and bought – you guessed it – Treasuries with the proceeds. The conclusion of this fairytale is that the government got to run up a 1.5 trillion dollar deficit, didn’t have to sell much of it to private investors, and lived happily ever – ever – well, not ever after, but certainly in 2009. Now, however, the Fed tells us that they’re “fed up,” or that they think the economy is strong enough for them to gracefully “exit,” or that they’re confident that private investors are capable of absorbing the balance. Not likely.
My last post titled “Nightmare Before Christmas” may have been a bit premature. On Christmas Eve the US government decided to lift the 400 billion dollar cap it previously thought was enough to cover the Freddie and Fanny screw ups. Of course this was not really mentioned in the mainstream media and pretty much ignored since it was so close to the holidays. I find it funny and sad that a country that praises its Capitalist ways must continue to fork up tax payers money to bail out large corporations. Just like any parent knows, without rules and structure a kid will mis behave until they are forced to suffer some consequences. Yet Fannie and Freddie can continue to make bad decisions knowing the government will always be there to bail them out. In a real capitalist economy companies go bankrupt when bad decisions are made. This is how the system separates the good from the bad.
