Rational Advisor

‘Few people succeed in the market, because they have no patience. They have a strong desire to become rich quickly”
- Jesse Livermore

I don’t know why Canada doesn’t follow this rule. it would make tax preparation way easier.

In the US you can contribute to your IRA (same as an RRSP) up to the tax filing deadline. This deduction can be used towards last years returns much like the RRSP.

What’s the advantages, no rushing to do an RRSP, you can fill in your tax return, and calculate exactly what you need to do in retirement savings and do it then.

Why won’t the governmetns do it - Financial institutions don’t want it - they want to separate as far as possible finances and taxes - since most financial institutions are not involved in tax planning.

While I recognize the economy is currently suffering under the weight of debt problems, many which may take years to fully resolve, I don’t believe it’s Armageddon

The media and the scaremongers would have you believe that the world economy is coming crashing down, that the end is near. But it’s not. It seems just like every time that the media said the world was going to end, it didn’t.

And this time, all I’ve heard is how much like the great depression this is, and we are heading into the most miserable depression ever.

Well… it’s very unlikely that the great depression will happen again - at least not now.

In the 1930s, the government raised interest rates and tightened the money supply. They increased tariffs, which angered trading partners and isolated the rest of the world from North America. Finally, they raised taxes. That squeezed businesses and individuals, hard. They’re not doing that now. well, everywhere except Ontario.

The final “nail in the coffin” during the depression was when the US federal government let their banks fail. It was just too much for the system to take. They’re not doing that now.

Today is a different story. Globally banks are being bailed out, and interest rates have been slashed over the past 6 months.

In fact, most investors should be looking at our current market with optimism, even though that’s not what you’ll hear - the mainstream media is still sadly focused on whether we’re entering another Great Depression!

It seems as if investors are running to cash - Cash is king, the Queen and the whole freakin Royal family, cash holdings are at 1990 highs in the US …that’s $8.85 trillion, earning less than 1%! That’s a ton of money waiting to flood into the market. Is 1% really the long term return now! It’s insane that we are so bad off that the best place to invest is T-Bills, those investments that pay the lowest interest rates. These people are storing away cash to protect from the storm, as soon as they start spending again we will see a recovery. This cash will not sit forever there. Cash will move and look for yield, and when it does it will be a tremendous amount of buying power. This surge of buying power would move the markets to recover much faster than people expect in this current level of pessimism.

So despite the harshness of the current recession and the unfortunate investor emotional breakdown in response to it , I do see the outlines of an escape path beginning to take form.

The natural and inherently self-correcting mechanisms always at work within a capitalistic system, do work out in the end. The problem is getting clarity - moving from fears of what is in the closet to actually defining reality. And I believe that the only way out of this crisis is less a dramatic, old-fashioned method led by one of my favorite economists good ‘ol Adam Smith.

A rise in wall street, would boost economic confidence improving economic activity which in turn would loop back to boost Wall Street - this is what is known as a positive feedback loop or Adam Smiths invisible hand (look it up)

Remember all companies and governments are predicated on growth. If they don’t have growth they will fail. If governments don’t spur growth, their countries will fail. And nobody wants that,e specially Obama and Harper.

One of the things we need to do is replace that cold word “Stock Market” to “Businesses”. Because that’s all a stock market is a collection of businesses. Businesses that you see and use every day. Then we can decide if we don’t want any part in these American or Canadian businesses.

Let’s look at some recent activity - Drug takeovers, Merck bought Schering Plough for $41B, Pfizer bought Wyeth. Why? Because lots of drugs are coming of patent, and these companies have to have more drugs in their pipelines. Another reason is Obama admin is doing drug reform. This will bring drug prices lower, even more reason to merge and keep costs down.

Recently GE’s CEO Jeff Immelt bought $400,000 of GE, and the head of GE Capital spent as well. We also want to see GE buy back its own stock. We’d like to see companies buying other companies for cash, because that would show that they are not worried about what it will take to weather this – this is one of the best indicators that the market is coming back.

At this point we are at that delicate juncture where hope encounters doubt and buyers’ resolve meets buyers’ remorse.

How this tussle is won will depend, ultimately, on investors’ belief in corporate profits through these trying times, and two looming catalysts could help decide that turn.

Banks will report first-quarter results come April, and their ability to show a profit before the familiar downer of asset losses and write-downs will help restore investors’ sorely-tested faith.

Come April, the US government will also have completed its “stress test” of 19 major banks. Traders reckon at least one bank — preferably more — must fail for the test to be credible and achieve its objective: Imposing a stiff-enough hurdle so banks that pass can gain our trust. How the US government capitalizes test failures and handles their stockholders can make the difference between Buy or Sell.

how persuasive are stocks this time around? Four times during this bear market, stocks rallied more than 10% before gusto gave way to grief. What’s different about this fifth attempt?

Unlike its predecessors, this charge is spearheaded overwhelmingly by financial stocks. Exxon Mobil accounted for the S&P’s heftiest gain in each of the four prior bounces, but this time that task is shouldered by J.P. Morgan, followed by Wells Fargo, General Electric and Bank of America, notes Birinyi Associates. Financials led us into this quagmire and peaked four months before the market did in 2007, so might financials not lead us out?

There were other signs: Comparing early momentum, market breadth (or the brigade of advancing stocks versus declining ones) was strongest this time. Europe and emerging markets also rallied but with less chutzpah than before, a hint this rally is largely carried by the U.S., the country that tipped the world into the credit crisis.

Most important, the 18-month-old decline is more mature now, and the cumulative weight of fiscal stimuli far greater by this fifth bounce than at any time before.

Markets like history don’t always recognize game-changing events or, in the lingo of Wall Street, inflection points. Such a change, I think, took place in early march when the US Federal Reserve announced its plan to pump more than a $1 trillion into the economy by the purchase of $300 billion of long-term U.S. Treasury securities and an additional $700 billion or so into Fannie Mae and Freddie Mac guaranteed mortgage-backed securities and other debt. Please note, they didn’t drop interest rates - how much further could they have dropped them anyways.

In effect, what they said is, “no more interest rate drops”, so, if businesses are waiting for lower interest rates to borrow - too bad. borrow now, and do your acquisitions and build your businesses. Now the government will stimulate by buying their own bonds back! This is a crucial message lost on most people.

This is the beginning of a financial surge by the Fed that not only will bolster the economy by bringing long-term interest rates down, but also augurs well for stock prices in the months ahead.

The news alert flash caused a “Holy Volatility Batman” comment from me, and the announcement kicked slowing financial markets into overdrive. Stocks and bonds rallied and crude oil futures went ballistic. The American dollar went into an immediate tailspin lower and before the end of the day our dollar would jump 3%.

Am I concerned over the Fed’s printing new money and thereby creating inflation and weakening the dollar. Not really, looming deflation is now the bigger enemy. Fed buying is the only game in town in the wake of the seize-up in private credit markets and the huge wealth destruction that has taken place in both the corporate and consumer sectors. Now, at least, there’s some hope for both the economy and the stock market. And it’s about time.

We are currently seeing some of the best opportunities in our lifetime. The problem is that it could be a better opportunity next week or the week after. But in five or ten years, whether you bought it this week or the next week or the next month won’t matter much. You don’t have to buy at the very best day.

If I had to guess, I would say that somewhere in the next 12 to 18 months we will have a record 12 month return. Mainly because of the flood of cash that will come back, that’s currently on the sidelines.

Twelve-year lows are rare, at least for the trendsetting Dow Jones Industrial Average. Thomas Lee, U. S. equity strategist at JP Morgan, says the event has only happened twice, on April 8, 1932 and Dec. 6, 1974. The 12-year low in 1932 was three months before the end of the bear market, while the 1974 low turned out to be precisely the low.

Most investors angst had been generated by the fact that they didn’t have a strategic investment plan with comfort ranges. The absence of strategy allowed extreme excursions in their portfolio and the cumulative emotional impact caused them to react irrationally.

I believe a well-defined investment strategy is the single most important element in achieving financial success. It establishes the checks and balances necessary to keep the portfolio in line and creates the discipline required to remove emotion from the process.

We’ve had many bear markets, but remember that crashes, panics and slumps are the investor’s friend. High returns were attained by stepping up and buying during crashes.

We do not remember another time when virtually “all” risk assets prices seemed as ridiculously cheap-priced as they do today?

This may be the end of the McGuilty government - I think the Fiberals have lost the next election - Not that they really cared, I mean after a few sessions in parliament, those MPPS get a lifetime pension - why should they really care about us the mere peasants.

What have these fiberals done for Ontario well in 2003 when they were elected the debt in Ontario was $110B, now it’s $220B - that’s a doubling.

In this recent budget even the corporate tax advantages they’ve given really favour more exporting companies than manufacturing domestic companies. Also do you really think the corporations will pass on the tax savings to individuals - No!

And people are getting blinded by the $1000 or so, the governments giving back to them, without realizing that the government willg ain around $4.3 Billion from all of us.

It is difficult enough to deal with all the financial stresses that this recession has inflicted without having the government digging deeper into our pockets. The last thing Ontarians can afford is an increase in taxes, and that is what you are getting. I can’t understand why, if they were going to harmonize taxes, to simplify things, they didn’t just reduce PST first and then harmonize! Oh, No, that would be helping the public too much.

The problem here is that politicians only listen once every four years - so, they really don’t care what you have to say about it!

So, tell me why as soon as British Columbia’s commitment to Ottawa’s Harmonized Sales Tax is complete, they’re opting OUT as quick as possible? It is a cash grab that costs taxpayers more and gives the Province less. BC realized too late!

Let’s look at this HST - or the OVAT (Ontario Value Added Tax - where is the Value!)

What is a Harmonized Sales Tax?
Ontario plans a major tax reform that will combine both the provincial and federal sales tax on products and services. The combined tax of five per cent GST and eight per cent Ontario sales tax won’t change the price on most items. But many items that used to be exempt from sales tax will no longer be so.

What is no longer PST exempt?
Consumers are most likely to notice an increase in the price of gasoline and heating fuels. Electricity will no longer be exempt from provincial sales tax, nor will tobacco, personal services like haircuts, membership fees for clubs and gyms, newspapers and magazines, taxi fares and the professional services of lawyers, architects and accountants. Real estate commissions will also be taxed.

Your gas in the car goes up
All fuel costs to transport goods to Ontario go up, which means the cost of your food and everythign else that needs transportation goes up

Will anything remain exempt?
Not a lot. Children’s clothing and footwear, children’s car seats and car booster seats, books, diapers and feminine hygiene products will remain exempt from the provincial portion of the single sales tax. So, as you can see not a lot for the masses.

Basic groceries, rent, condo fees, prescription drugs, and medical devices remain exempt from both PST and GST. Although they will be affected by the increase in transportation to get them into Ontario! so, they will also go up.

Purchase of resale homes will remain exempt from PST, although real estate transaction fees will be taxed - bad for real estate agents.

Why is Ontario doing this?
Simply, they want $4.3B more money, becasue they increased our debt. The provincial government is BSing us by saying that the implementation of the single sales tax would bring Ontario into line with “what is viewed as the most efficient form of sales taxation around the world.” The finance ministry says the single sales tax would reduce the cost of goods that Ontario exports - not true, since it woudl add to the transportation of those goods, making the province more competitive and boosting a sector of the economy that has been particularly hard hit by the economic downturn - again ot true, this has not helped Atlantic Canada or Quebec become more efificent. Apparently it’s better for us, better against who, Somalia!

At the moment, businesses may not deduct the PST from the cost of materials and other products they buy; instead, they pass the cost along to consumers. But under harmonization, businesses may claim tax credits for those purchases, which some estimates suggest could save them $3-billion a year. I don’t think we the consumer will see any of these savings - they’ll just go to higher exec salaries (I want to know if Bernie Madoff was making those estimates)

The Ontario Chamber of Commerce believes a fully blended system would cost consumers approximately $905 million in additional sales taxes per year, while the GST and PST bill for companies would fall by $1.6 billion annually. (apparently Enron accountants now work for the Ontario chamber of Commerce! - it’s costing consumers now, when they don’t want to be hurt, when they are already down)

The Canadian Federation of Independent Businesses says harmonization will save business $100 million a year in reduced red tape. (Where are the numbers to justify this!)

Businesses will save a further $500-million a year on the costs of administering a single tax instead of two, according to the budget documents. This sounds very funny to me, and I’d love to see how they came up with $500 million, but it maybe filed under Fairy Tales.

Are all businesses on side?
Contractors, developers and homebuilders oppose the blending. Ontario’s Building Industry and Land Development Association estimates that a blended tax would add more than $46,000 to the price of a $580,000 new home in Toronto.

A point of contention is the impact the HST will have on Canada’s fund industry and the advisors who sell them. Advisors across Canada can expect to pay an additional 8% on the management expense ratios of most of the funds they sell - simply because most of those funds are domiciled in Ontario.

Both mutual fund and ETF trust structures are taxed as entities apart from the firms that operate them. They were exempt from provincial sales tax but will now have to pay the new 8% sales tax on the management expense and most of the operating costs they incur. Proportionally, this charge is huge when you consider that the operating costs for a fund are a relatively small part of the MER.

So, when your MERs go up - blame McGuilty, actually balme all those people that voted him in as well. Wasn’t me!

Will household expenses rise?
Yes, although the province says it will offer $10.6 billion worth of tax relief over the next three years:

Cash payments of up to $1,000 for in 2010 and 2011 for families earning less than $160,000 a year.
A new permanent $260 refundable sales tax credit for low to middle-income adults and children. An enhanced refundable property tax credit for low and middle-income homeowners and tenants. New homes under $400,000 would be exempt from the new blended tax. $1.1 billion in personal income tax cuts

So what’s the problem?
The provincial NDP says the single sales tax would leave families “feeling the pinch” from having to spend more on a range of goods at a time that many are already struggling to deal with job losses.

The Conservatives, while ideologically in favour of harmonizing, say this is no time to be raising taxes.

Is Ontario alone in this?
Quebec and all the Atlantic provinces except Prince Edward Island have a harmonized sales tax.

When does the new tax begin?
July 1, 2010.

What can you do?

Call up your local Liberal MPP, and remind them not to count on your vote in the next election. Not that they care, they’ve already locked in their life time pension!

What is your financial ancestory, what did you learn from your parents, about finance, and what are you passing forward to your kids.

We have incorrect thinking handed down to us by our parents because of the circumstances they faced. Their circumstances are not the same as ours, yet we let their investment scare and frighten us.

The banking structure especailly in Canada is much stronger than our parents time - we are unlikely to face another depression of 25% unemployment. We are unlikely to have bread lines.

Think about what you are doing to make your kids finances stronger.

in 1893 the US treasury was on the verge of bankruptcy, who cam eto the rescue - JP Morgan, and again in 1907 - he was known as the saviour of the country. After this the Us Fed was created to be the lender of last resort.

In the lat 30 years, the security act which provided transparency has become more opaque and dull. There are more things being done out of the regulators guidelines - note hedge funds, madoff.

In 1930 Roosevelt became the new president, in 1933 the new securities act was launcehd which provided greater transparency and disclosure. In 1934 came the NEw Securities Exchange Act, there was tremendous opposition to this in the US, so it was delayed. Richard Whitney was on the board of governors of the stock exchange at the time. And he had been embezzling from hsi own clients to the tune of $100 million. The publci was shocked here was a harvard grad, a governor of the exchange. He was a pillar of the community. However, within a few weeks, he was convicted and went to sing-sing prison and served 3 years. So madoff was not the first and won’t be the last.

As Canadian we are stronger than the rest of the world, there is Canada Envy - we are more prudent, the Canadian banking has lower leverage.

At the peak Citi was worth around $280B to now $5B. Once they were bigger than all 5 Canadian banks. Now they are smaller than all Canadian banks.

TD used to be the 15th largest bank in the world, Now they are the 4th, even after falling 50%, the other banks just fell more.

Canadian banks make money from the daily economics of life – depositing, bill paying, cheques, paying mortgages etc.

http://www.fareedzakaria.com/articles/newsweek/020709.html

http://business.theglobeandmail.com/servlet/story/RTGAM.20090306.wcover0306/BNStory/Business/home?cid=al_gam_mostview

Obama – ending Iraq presence in 18 months – 31st Dec 2011

What does this mean for the market, a very positive sentiment.

It’s now 6 years since the beginning of the War in Iraq. Perhaps a central reason for the current stock market trouble, that hasn’t been mentioned by the US media.

If Bush and Cheney had not gon ein to Iraq, Oil prices would not have gone up.

If Oil prices had not gone up, Car sales would not have slowed down.
Layoff would not have been so large in the auto industry. And jobs could pay mortgages

If Oil prices had not gone up, inflation would not have gone up. Interest rates would not have risen, Lower rates would have kept mortgages being paid, would have retained house prices.

If Oil prices had not gone up globally, cost of fuel woudl not have trickled down to food costs etc.

If Oil prices had not gone up, the Canadian dollar woudl not have bubbled and then collapsed taking along with it jobs in Canada.

All this trouble thanks to two guys!

Unhappy Birthday

NBR - is the National Business Review that American Public Radio conducts everyday

of particular interest was Market Monitor with James Stack, below is excerpts from his talk

you can navigate the nbr site to get the whoel transcript, although this is the key items http://www.pbs.org/nbr/

“Market Monitor”-James Stack, President, Stack Financial Management

PAUL KANGAS: My guest “Market Monitor” this week is James Stack, president of the Stack Financial Management and publisher of the Investech Research market letter. Jim, welcome back to NBR.

JAMES STACK, PRESIDENT, STACK FINANCIAL MANAGEMENT: It’s great to talk to you again Paul.

KANGAS: In August of 2005, you warned our viewers of an impending real estate bubble. In January of 2007, you told us a bear market was in the offing and then last July you warned of the financials and the home builders still had plenty of downside risk. Great calls, Jim, I compliment you.

STACK: Thank you, Paul.

KANGAS: So what do you think is going to happen next?

STACK: Well, if we break it down by segment, I think real estate won’t hit a bottom until 2010, but the economy, we could see the recession end by the third or fourth quarter of this year. And fundamentally speaking, that means it’s not too early to look for a stock market bottom today and I’ve seen more encouraging signs since the lows that we’ve seen in the market three weeks ago.

KANGAS: The technicals have improved, have they?

STACK: Both from a breadth standpoint and leadership. We’re seeing a sharp contraction in downside leadership, a number of stocks hitting new lows. I think fundamentally speaking, we have to look for an improvement in consumer confidence. This was a mortgage crisis. Now it’s a confidence crisis.

KANGAS: What about the Fed strategy? Can they do anything more or do you expect them to do something different?

STACK: Both the Federal Reserve and Treasury have followed the textbook example of a bailout to prevent a 1930-style scenario. Unfortunately, everyone was asleep at the switch from preventing it in the first place. But looking ahead at this point, I think if we see — if we see the stabilization in the banking system — there are going to be more failures, of course — but if we don’t have any more Lehman Brothers or Bank of America, Citigroup, those big type of potential failures, then we’ll see the - then we’ll see them have stability that resumes the confidence that we have to see both on the consumer and the investor side.

KANGAS: That would make you completely bullish, would it?

STACK: That along with ongoing improvement in our technical indicators. Right now I would say my confidence is about 60 percent that the bottom is in place. I would like to see that 70 or 80 percent over the next month or two before we increase position.