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.

: Source: BLS, FactSet, J.P. Morgan Asset Management. CPI values shown are % change vs. 1 year ago and reflect August 2011 CPI data. CPI component weights are as of December 2011 and 12-month change reflects data through August 2011. Core CPI is defined as CPI excluding food and energy prices.

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

Guest Post: What’s in a number? DOW hits 13,000 but does it matter as much as we think?

Posted by Tusk Trader on Mar 1, 2012 | 2 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

The DOW has been crossing back and forth, above and below, 13,000 for a week. It finally closed the day above 13,000 on Tuesday. The loonie is jumping around parity with the US dollar. Crude got a big push after charging though $100 recently.

These nice round numbers are interesting to keep track of, but don’t confuse psychological trading levels with technical ones. Technical analysis is not about round numbers. It involves chart levels that are caused by previous trading history. Psychological levels are more of a mind game. Those levels mentioned above will cause a few headlines in mainstream media but affect very little the day-to-day trading. Every so often, a technical level will happen at a nice round number, but not usually. The only element that nice round numbers can bring to trading is that they often have large volume in the trading book at those levels. Orders that are placed in the trading book for a lengthier time than a day are often put at a nice round number. Stocks will sometimes pause at those places as it takes a little bit more volume to get through.

If you are going to follow a few technicals, ignore those nice round numbers and focus on some basics. Here are a couple of big ones that can be quickly looked at on everything from the DOW, to Oil, to a specific equity:

The 50-day/200-day cross: When the 50-day moving average crosses the 200-day moving average. If the 50-day falls DOWN through the 200 day, it is bearish. If the 50-day crosses UP through the 200 day, it is bullish.
52-week highs and 52-week lows: Very general support and resistance levels to watch out for. These are just the highest and lowest points a stock, commodity or index hits within the last year. They are simple, but critical. If a spot holds, it’s becomes stronger and more important the next time the stock gets to that level. When it does break, the move and momentum is exacerbated in that direction.

Keep your eye out for critical spots, not just round numbers.

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

Guest Post: Trading with a lack of discipline? Maybe you shouldn’t be trading

Posted by Tusk Trader on Feb 23, 2012 | 2 comments

NOTE: This week’s giveaway of 10 activation codes of UFile ONLINE tax preparation software ends Friday night. Odds are still pretty good for winning, so click here if you are interested in throwing your hat in the ring.

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

A plan is only as good as your ability to follow it.

This time of year, many people are deciding between the amount to contribute to their TFSA vs. the amount to put into their RRSP. They correctly start off by calculating the many tax differences that will affect them now and in the future. When coming up with a trading or an investing plan for yourself, make sure you factor in your own discipline level and personality so you will have an actual ability to follow your own plan. One key element of the TSFA vs. RRSP decision to consider is that an RRSP has a penalty when making an early withdrawal (the withdrawal gets added to income and taxed), but there is no penalty for the TSFA. If your goal is to create long-term savings and if you are someone who finds it difficult to prevent turning a long-term savings account into a new car in 3 years, the RRSP could offer you more value than just a break on some current taxes. It could be the help you need to not dip into a long-term savings plan.

As high fees for many financial services in Canada push people to become DIY investors, make sure your trading and investing personality is included in the strategies you utilize when making your investing decisions. Trading has an emotional component to it and at home traders need to acknowledge their own faults to be able to create an effective plan for themselves. A proper trading plan must always factor in your trading personality. Let’s say you are considering buying a volatile stock, ABC, that is now priced at $20. You think ABC will rise to $30 but you also make a plan to sell if it drops to $15. Overall, not a bad strategy, but will you actually sell it at $15 if it falls? As a trader, re-evaluating a position before making a decision is important. Some traders, however, have a bad habit of turning a “re-evaluation” into “search for a reason to hold a stock I don’t want to sell and cement a loss”. When you are making your trading plan for a particular stock, make sure it is one that you will actually follow through on.

Some traders have a hard time selling a loser. Other traders actually have a hard time selling a position that reaches their target. They convince themselves it will just keep going higher, not on facts, but just because they like being in a winning trade. Using the ABC example, that type of trader would buy ABC at $20, ride it all the way up to $30, not sell anything and then ride it back down to $20. Choosing to trade a volatile stock is a choice, and make sure your emotional tendencies factor appropriately into that choice.

If you catch yourself thinking or saying these statements about your own trading, it might not be something you should be doing on your own:

“I am down a lot but the market is just so irrational right now”
“They say this market is unprecedented, so it is impossible to make money anyway”
“Those losses were only because of a computer problem.”
“It’s not my trading causing the loses, it’s the market”

Greece is another great example of this concept right now. The Greek leaders have signed an agreement with the EU financial leaders committing Greece to cut spending to such a level that they can make the payments and changes the EU requires them to make. The Greek leaders would probably agree to raising herds of sparkled unicorns at this point, it does not guarantee that the deal will now be carried out and enacted within Greece exactly as the agreement states.

Always remember, what you actually do is what counts in the end, not what you planned to do.