Posts by Preet

Data visualization of Eurozone debt over time

Posted by Preet on Mar 13, 2012 | 7 comments

A reader asked if I could give perspective on the Eurozone debt problems taking into account the relatively small size of Greece and relatively big trouble it’s caused for the world. Specifically, what is the risk of “contagion” or similar problems happening with bigger countries. I’ve been toying with Google’s motion charts lately so I thought it would be a good medium to demonstrate the Eurozone debt situation over time using various metrics.

It’s a busy chart, but it shows the change in Debt-to-GDP, Total Debt, and Total GDP between 1997 and 2013 (the 2012 and 2013 numbers are projected numbers).

• Total GDP is on the X axis – so as data moves right, that country’s economy is expanding
• Debt-to-GDP is shown on the Y axis – as data moves up, that country is getting into a more dangerous debt load
• The colour of the data points also “heats up” to reflect dangerous levels in the Debt-to-GDP ratio (Blue is safe, green to yellow is getting high, and red is… Greece)
• The size of the data points also vary with Total Debt of that country – so if a big bubble was red, that means Greece would look like a candle compared to the sun (as Greece is relatively small)

Note: You have to press the Play button on the bottom left of the chart to see how each country changed over time.

You may have to refresh this page to see the chart. It’s flash based, so it may not work on some mobile devices.

You can actually play with the chart to visualize the data in multiple ways. By clicking in various spots you can change what data is shown on the X and Y axes, and you can also control the size and colours of the bubbles to correspond to different variables as well.

Data Sources:

European Commission Eurostat Statistics

GDP in Euros from 1.1.1999, in ECU up to 31.12.1998; Gross Domestic Product at market prices
Debt in Euros from 1.1.1999, in ECU up to 31.12.1998; AMECO Dataset, General Government consolidated Gross Debt

Volatility of food and energy prices versus core inflation

Posted by Preet on Mar 11, 2012 | 3 comments

With buying groceries and filling up at the pump being regular occurrences, we’re probably most attuned to changes in prices for food and energy than most other items that are measured in the headline Consumer Price Index (CPI) numbers.

Core CPI strips out the price of food and energy and the usual reason for citing the utility in core CPI is that it allows economists to peel back the volatile items to get a second perspective on inflation of prices in general. However, from the chart below, you can see that the volatility of food and energy is on a whole different level since 2000. You can see from 1960 to 2000 that headline and core CPI moved virtually in lock-step. But since 2000, the volatility of food and energy has been increasing, and it looks like that increase is accelerating.

Note that this chart is looking at US figures. However, the story is not much different in Canada.

Chart courtesy of J.P. Morgan Asset Management

Sitting on your hands to avoid costly trading mistakes

Posted by Preet on Mar 9, 2012 | 0 comments

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

I have written before about the lack of volume in the markets. Low trading volume can kill even the best trading ideas. When volume returns, as it did slightly this week, make sure to notice what brings it back. The market has been drifting higher on light volume for months. On Tuesday, troubles in Greece gave a reason to those who think the market is too high, to sell it down. Volumes were up that day about 30% from the average we have been seeing lately.

There is a widely used trading term, “ Sitting on your hands”. Its meaning is pretty straight-forward in that traders know that they should do what ever it takes to prevent trading out of boredom or with no clear idea of they want to do. When nothing is happening in the market to create a trading opportunity, traders need to ‘sit on their hands’ if they have to to avoid making costly mistakes.

The longer a market trades with light volume and few opportunities, the more the demand for a reason to jump in builds and builds amongst traders. Do not think of it like a bear sleeping through hibernation in cave, but more like a lion crouched in the prone position in the grass, waiting very patiently for an opportunity. Sometimes a small up tick in volume can bring even more volume to the markets and snowball the effects. The greater the volume, the greater the options available and market participants will then ‘stop sitting on their hands’ and start jumping in. As many traders are direction agnostic, the sell off is seen as a positive. (My apologizes to my comrades who came in long. It worked for most of the quarter)

Overall this week, traders were looking for an increase in activity, and they got it. Sellers showed up with a vengeance Tuesday and traders were more than happy to oblige. As traders were waiting for volume, other market participants appeared to have been waiting for a reason to sell the high market down. All it took was some terrible economic news to bring the markets to life, from a trader perspective anyway.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Guest Post: Strategies for pricing your home for top dollar

Posted by Preet on Mar 6, 2012 | 9 comments

This is a guest post by Ross Taylor.

Interestingly, not much has been written on the topic of pricing and presenting your home in such a way as to attract multiple competing offers, with a view to generating a price at or near the top of the range for comparable homes. We recently discussed this subject with Boris Kholodov, a successful Royal LePage realtor, who focuses his practice on downtown and central Toronto. Boris shed a good deal of light on the subject.

Ross: Do you think there are more homes attracting multiple offers now than say any other time in the past five years?

Boris: No, I think it has been pretty consistent. However I often see realtors and their clients attempting the strategy on homes that are not suited to it, and the result can be disastrous. Every home is unique, and each demands its own pricing strategy. What works on some homes would be foolish in other cases. What if you lowball your asking price and set a deadline by which to receive offers, and yet no offers are forthcoming? Now you have established a price for your home that is all wrong for your actual objective, and it could cost you tens or even hundreds of thousands of dollars.

A good realtor must recommend the most appropriate pricing strategy for you to get the best result. For example, if I were listing a downtown condo worth more than $2 million, I would not advise a ‘low ball’ pricing strategy designed toattract multiple offers. That kind of property is likely to sit on the market for weeks before generating any interest, so it is highly unlikely that would work. But if I am listing a row house (worth say $700,000) on a desirable street in central Toronto, I would expect the strategy to be very successful.

Ross: What exactly is the strategy?

Boris: Well, the ideal subject property is in high demand and not readily available on the market. And perhaps the last comparable home sold for more than the asking price. That tells me there are interested buyers waiting for new listings. I would determine a range for the fair market value of my client’s house, and I would suggest we price the home at the bottom end of the range. I don’t suggest pricing below the bottom of the range – stay at the bottom, and let the market take its course.

I suggest listing the home via MLS on a Wednesday, and advising buyers we will be reviewing offers no later than the following Monday, or maybe the Tuesday. We want to allow in everyone who may be interested in our listing before we begin to accept offers. I don’t like the “underprice and take offers immediately” strategy some realtors deploy. I want to generate as much interest as possible for my client’s listing, and I want all potential buyers to (a) catch wind of the listing and (b) have a chance to go through the property – which often happens on the weekend. But I don’t want to give everyone too much time to change their minds or go elsewhere.

Ross: It still seems like not much time for buyers to react aggressively.

Boris: That’s why it’s very important to provide prospective buyers whatever information they might need to make an informed, quick decision. The seller should have a professional home inspection done and, if available, a copy of thesurvey for buyers to peruse. Copies of utility bills should also be on hand. And if we are selling a condo, we will have a condo status certificate too.

Ross: I guess this is important because you want ‘clean offers.’

Boris: Yes, although some realtors have not yet figured this out when assisting their clients purchase a home that is favorably priced; if you are a buyer in these circumstances your best chance of success will come from an offer that has few, if any conditions. That means you should already know if you have mortgage financing lined up. From the inspection report, you should be able to estimate how much money you will put into the property to refresh or renovate it up to your standards. Whereas a typical home offer will have conditions such as five business days to arrange financing, conduct an inspection or an appraisal, this is not likely to work with one of my listings if it has been priced to sell with multiple offers.

Ross: You didn’t mention how much they should offer.

Boris: This is where a good realtor can really earn her commission. She should be plugged into the sales process as much as is permissible. She should gauge how many offers there are, and how the home is priced relative to the fair market value range. She should ask herself, if I were the listing agent, what price would I expect to realize for my clients?

I usually wait to see how many offers are registered before guiding my client in price – I like to sit back and assess the competition, and come in after I have a clear picture of the situation, knowing how many offers have already been submitted. Your realtor will give you the best advice she can, based on all the factors and variables, but it is your decision, not hers. Be rational, and don’t get caught up emotionally in the process. And understand right from the get-go that the asking price was simply there to attract your attention. You have not discovered an underpriced gem. Chances are the property will sell for considerably higher than the listing price.

Ross: Can you make this pricing strategy work even if there many homes like yours readily available on the market?

Boris: Yes, it can work quite well. For example, suppose you are selling your downtown condo which is worth around$315,000, and there are many others already on the market. You might list yours at $299,900. This attracts the interest of buyers whose budget ceiling was $300,000. Chances are your condo will look that much better to these buyers than the other properties they have been considering, and you could well attract a lot of interest. Such buyers will often make a mental adjustment and work hard to get themselves into your home, which is of course a bit nicer than anything else they have seen. They will not often stop and say to themselves, “wait a minute, if I am now prepared to spend $315,000 to win this beautiful condo, maybe I should be looking at others in that price range.”

Ross: All good advice Boris. Any parting thoughts?

Boris: This pricing strategy came into being as a means to prevent the first person to view a new listing from scooping your home before everyone else had a chance to see the property. Delaying the acceptance of offers allows more viewers, and more potential buyers.

Selling your home can be a stressful, costly, time consuming process. It is so important to have a top notch marketing strategy for your home. If your realtor strongly advises that lowball pricing is not for you, you should listen, or at least get a second opinion. If a pricing strategy designed to attract multiple offers works, you will sell your home in a very short period of time, with minimal disruption, and at a price that is assuredly at the top end of your expectations.

Boris Kholodov’s website.

Over the years, Ross Taylor has been a stockbroker, fee based financial planner, income tax specialist, mutual fundscompany executive, retail banking VP, tech company executive, and has raised capital for small to mid-size businesses.These days he is a licensed mortgage broker agent and registered credit counselor, and still provides advice on mostpersonal finance matters. He writes a blog at www.askross.ca

Funny Video: The Greek Economy

Posted by Preet on Feb 21, 2012 | 1 comment

Giveaway Reminder: I’m giving away 10 activation codes for Ufile ONLINE – contest ends Friday. Click here to enter.

While this video is from last summer, I thought it was worth a second look seeing as we’ve kicked the can a little bit further down the road in the Eurozone. Enjoy!

Giveaway: 10 vouchers for UFile Canada online tax preparation

Posted by Preet on Feb 21, 2012 | 8 comments

UFile has offered to give readers of WhereDoesAllMyMoneyGo.com 10 copies (well, coupon codes for free access) to their online tax preparation software. For a description of the software, please visit their product description page for more information.

I have no relationship with UFile (Dr Tax Software) and am not receiving any compensation for running this give-away other than the free access codes to give away.

Contest runs until 12:01 AM (Eastern Standard Time) on Saturday, February 25th. That means that effectively, the contest runs until midnight this upcoming Friday, February 24th. There are multiple ways to increase your odds of winning, which are detailed in the form below. Winners will be announced on this page. You can choose to employ as many or as few methods as you like. Good luck!

For email subscribers, click here to see the entry form.

*Note: You don’t have to login with Facebook, you can enter your name and email address instead by clicking the line below the “Login with Facebook” button.

Guest Post: Tax Deductible Mortgages

Posted by Preet on Feb 13, 2012 | 11 comments

Housekeeping: TurboTax Canada giveaway is running this week. Don’t forget to enter.

Note: This is a guest post by Ross Taylor. His bio is at the end of the post.

Financial planners and mortgage professionals like to trumpet the Smith Manoeuvre, as coined by Fraser Smith in 2002. In a nutshell, this ‘program’ shows you how to free up equity in your home for investment purposes, and to do so in a tax efficient manner.

I hate to burst the bubble – as a matter of fact I am big fan of anyone who has the patience to write a book, but the notion of tax deductible investment loans has been around for decades.

I give full credit to Fraser Smith for popularizing an old concept, and even getting an entire industry and nation to name it after him.

When I started out as a fresh faced stock broker in the mid-eighties, this concept was already de rigeur. The guys at Investors Group, Financial Concept Group, Regal Capital Planners and the Principal Group were into leveraged investing in a big way. Fraser Smith himself was peddling the strategy as a financial planner in Vancouver at that time.

One person who embraced borrowing to invest was The Honourable Michael Lee-Chin, who was making his mark in the Hamilton office of Investors Group in the late seventies, before becoming regional manager of Regal Capital Planners in 1979.

Michael went on to huge success, becoming a self-made billionaire through a series of canny, gutsy business decisions in the eighties and nineties.

I recall irking one particular University of Waterloo professor client, who I had been courting for several months. One day he dumped me and said he was refinancing his home and pouring all the proceeds into mutual funds with Michael.

He said the capital gains potential and tax benefits were simply too good to pass up. I urged caution, suggesting this was a risky venture that could jeopardize his family’s future; after all, there was no guarantee the stock market would continue to go up and up. He wanted no part of my conservatism, and parted my company with a harrumph.

He had the last laugh as the stock market continued on a raging bull tear for years, and the strategy looked brilliant, and my fears for him groundless (this time).

Today the notion of leveraging your assets to invest is alive and well. True, there were hundreds of long faces in 2008 and 2009 when the markets for stocks and real estate took a bit of a beating, but that was in the past, and Fraser Smith’s ‘legacy’ continues to shine on.

Whatever you want to call it, please understand that borrowing against the equity in your home is a risky move – I said it twenty five years ago, and I still do – probably I will be right one day. What are some of the risks?

• The investments you make with the borrowed money could go down in value
• The cost of borrowing could increase if interest rates rise
• If real estate prices correct, you could end up penned into something uncomfortable – you really need to know your long term living arrangements
• Please be very prudent about investing in anything that has a sales commission attached either at the front end or the back end of your purchase
• Tax rules can change at any time in the future

If you would like to read others’ opinions on the Smith Manoeuvre, here are a few links:

Ellen Roseman

Canadian Capitalist Blog

Over the years, Ross Taylor has been a stockbroker, fee based financial planner, income tax specialist, mutual funds company executive, retail banking VP, tech company executive, and has raised capital for small to mid-size businesses. These days he is a licensed mortgage broker agent and registered credit counselor, and still provides advice on most personal finance matters. He writes a blog at www.askross.ca