Thursday, April 10. 2008
As you may or may not know, Microsoft has been trying to buyout Yahoo. The plot has thickened immensely in the last week. A disclaimer before we start, the opinions expressed in this article do not reflect the opinions of Yahoo; these are my opinions and mine alone.
Lets start by introducing the actors of this plot.
- Jerry Yang, CEO of Yahoo
- Google, needs no introduction
- Steve Ballmer, CEO of Microsoft (featured in the video below)
- Rudolph Murdoch, Evil Emporer and CEO of News Corp. Owner of the Fox Network and MySpace
- Time Warner, who owns AOL (I'm surprised that they're still around too.)
So a few months back, Yahoo had already rejected Microsoft's bid of $31/share for Yahoo. On the weekend, Microsoft sent a letter to Yahoo telling us to stop dragging our feets and accept the offer. The letter says that Yahoo has no other viable alternative. The offer would expire in three weeks. This threat was supposed to scare us into submission because many believe that Yahoo's stock will plunge from $28/share now to $19/share if Microsoft pulled the plug on the deal.
At this point, things were looking kind of dark since it looked like Yahoo was out for the count, and resistance against Microsoft was futile. It was inevitable that they would take us.
That's when Jerry Yang of Yahoo launched the counter attack.
Continue reading "Battle of The Titans"
Friday, April 4. 2008
So in my last blog article, I was talking about this blog article from the Royal Bank (RBC) blog entitled, " Just Give Me Four Walls" where they're talking about how students can get a mortgage. The discussion was about what a great investment housing currently is, and how we can take out mortgages with no down payments. One of the RBC bloggers responded by saying how great real estate was because in the last 10 years, housing value has increased by 65% (or 5.3% per year). I responded that it wasn't that great considering the Canadian stock market in the same amount of time had increased by 296% (or 11.1% per year).
A new guy named Scott decided to counter my arguments:
Home ownership is with out a doubt one of the best investments you can make. [...] What I present as my argument for the home ownership is this:
1 - Not only do you have the value of your house increasing over time, providing more cash in your pocket when you sell, but you also have to factor in the money that is not going to rent as savings in your pocket. Sure you dont see it until you sell, but future you will be happy.
2- As for Chris' point about a mutual fund being better, I must argue against that. Yes, investment products such as mutual funds are great, and you should have these as well (consult your local RBC banker for your own tailored plan), however the housing market is no where near as volatile as an index linked fund (find me a year in the last 10 where the average home price has dropped in Canada? The same cannot be said for an index fund). And if you can only afford one option, if you take your hard earned money and put it into that fund, you are still needing to pay for somewhere to live (unless you are ok with your parents basement, thought it does make meeting girls harder)so there goes any profits you could have seen in the way of rental payments to a landlord you probably don't even like.
There were several points that are completely untrue:
- The housing market is no where near as volatile as the stock market.
- Home ownership is the best investment you can make.
- The average home price has not dropped in the last 10 years.
I keep hearing similar arguments over and over, and they're just plain wrong. I decided it was time to bring in the big guns. Please help me welcome our guest blogger, Myron, who's my senior housing bear correspondent. (Housing Bear denotes someone who's negative on housing).
Continue reading "Real Estate: Bulls VS Bears Pt2"
Thursday, April 3. 2008
It was brought to my attention that Royal Bank has recently started a number of blogs which feature a bunch of hip young adults trying to juggle life and money. There was a blog post entitled " Just Give Me Four Walls", which talks about how students can get a mortgage to own a place to live.
The Mortgage Question
I had the opportunity to speak with Bernice Dunsby. She’s RBC’s Senior Manager of Client Acquisition, Home Equity. Basically, she knows Mortgages. She assures me that purchasing a home (or apartment or condo or loft, etc.) is still a stable investment in today’s market.
“Over the past ten years, there’s been a 65% increase in the value of homes,” she says. “If you think about increase value, does it mean a good investment? Yes.” [...]
I wanted to know whether it was even a possibility to for a University student to think about signing him or herself up for a mortgage.
It’s Possible. Even individuals with little income can qualify for mortgages nowadays. “In the past, banks required a minimum of 20% on the down payment of a mortgage,” Bernice tells me, “but today you can own a home with no money down. You can literally purchase with no down payment.”
While this may seem like a gift, Bernice heeds warning that 'no money down' means you are financing more over the term of the mortgage, which means it's going to cost you more in the long run. But, that may be ok depending on the way you look at it: when you start paying off your mortgage, you build equity. Equity is the value of your home in the market, less what you owe in mortgage payments. So, every time you make a payment, your house increases in value because there's less money owing on it.
This article really rubbed me the wrong way because getting a mortgage with no money down is exactly the reason that fueled the Subprime Crisis in America, and pushed them to the brink of recession. Basically you're lending money to people who you really can't afford to buy a place! They obviously can't afford it because they can't even pay the downpayment on a house.
Continue reading "Real Estate: Bulls VS Bears"
Monday, March 17. 2008
The last few days have been quite remarkable in the stock market. One of the top American investment banks, Bear Stearns (BSC) had almost collapsed. The stock chart says it all:
That's right, the stock went from $60/share all the way down to $4/share in mere days. What spawned such chaos? Bear Stearns had a lot of bad loans from the subprime mortgage mess, and people were worried that they wouldn't be able to withdraw their money from the investment bank. This is a liquidity problem which is quite scary.
Basically this is how it works, say you put $100 in the bank. The bank will then loan that money out, charge interest, and make money. They might loan out $90 of your dollars, and keep $10 back just in case you needed to withdraw some money. Usually holding back a little money is okay because not everyone's going to withdraw their cash at the same time. However, if everyone at the same time wanted to pull their money out, we have a problem, because a lot of that money is tied up in loans.
Now, say that loan goes bad, and the bank loses that $90. You hear about this, and you want to pull your cash out, but they don't have the money on hand to give you back the cash. So, what good is a bank if you can't get at your money? This situation basically undermines the trust in the financial system. This is what is happening right now, and that's why Bear Stearns is on the verge of bankruptcy.
What's absolutely remarkable is the Federal Reserve's stunning move to save Bear Stearns. They guaranteed a loan of $30 billion to JP Morgan Chase to buy Bear Stearns for $2/share. This is what I call bailing out a corporation, and it's insanity. Shouldn't a company that takes on way too much risk their money (ie loaning to subprime) be punished for it's actions? On top of that, the Federal Reserve has cut interest rates again to try to prevent another massive drop in the stock market. The interest rate cut will only devalue the American dollar more so, and everything's going to go up in price.
AP News is carrying an article entitled, " Fed Set For Big Rate Cut Amid Market Turmoil." This is quite the mess.
The only safe places to invest in stocks right now seems to be oil, gold, agriculture, and the classic defensive stocks (Johnson & Johnson, Coke, Proctor & Gamble, etc). Any financial stock currently is absolutely poisoness and can't be touched at all.
Cash is king right now.
Wednesday, March 12. 2008
Yahoo News has a story about how you can lower your credit card interest rate by simply calling your credit card company, and asking nicely. The article is entitled, " Skeptics Surprised After Negotiating Lower Credit Card Rate."
The experiment was hardly scientific, but the outcome should give hope to people struggling to pay off their credit card balance every month.
Ten shoppers were approached by the CBC at random at a Winnipeg mall and given a script to read to their credit card company, asking for a lower interest rate.
Six were promised a lower rate by identifying themselves and simply following the script: "I think I've been a good customer. I'd like to stay with you, but I really want you to lower the rate on my card. Can you help me?"
If the initial response was no, they asked to speak to a supervisor and make the same case again.
Shopper Leanne Goose seemed skeptical at first that haggling would work, but now says she's "very pleased" that her rate has gone from 18.9 per cent to 10.9 per cent.
"It hadn't even occurred to me to ask," she said. "When they sent the card and told me what my rate was, you just kind of of accept it and get on with your day."
This financial gem could save you hundreds of dollars! Act now if you have credit card debt!
Sunday, March 2. 2008
Last week, the Conservative Party of Canada introduced the Tax-Free Savings Account (TFSA) in their latest budget. I think this is an awesome concept because it provides an incentive for Canadians to save more money.
Canadians are being encouraged to save for life's big events, not just retirement, with the introduction of the Tax-Free Savings Account (TFSA) in the 2008 Budget. Starting in 2009, Canadians aged 18 and older can contribute up to $5,000 annually (from their taxable income) to a TFSA. The investment income, including capital gains, earned in a TFSA will not be taxed -- even when withdrawn. The plan also allows an investor to withdraw funds from the TFSA at any time and for any purpose.
"You can use the plan to save for a special purpose -- a down payment on a house or to buy a car," said Scott. "It provides an incentive to put money away for that purpose (and) you get the tax break of not having to pay tax on the income that's earned on it while you're saving."
As an example, an individual contributing $200 a month to a TFSA for 20 years, at a 5.5 per cent rate of return, will earn about $11,045 more in savings than if the investment had been made in a taxable savings vehicle (unregistered account). [...]
How the Tax-Free Savings Account Will Work- Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward.
- Contributions will not be deductible.
- Capital gains and other investment income earned in a TFSA will not be taxed.
- Withdrawals will be tax-free.
- Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits.
- Withdrawals will create contribution room for future savings.
- Contributions to a spouse's or common-law partner's TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death.
- Qualified investments include all arm's-length Registered Retirement Savings Plan (RRSP) qualified investments.
- The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
I think this is a huge win for Canadians, as we don't save nearly enough money. This is especially true about my age bracket. I would say that the majority of my friends in my age bracket definitely don't save enough money. It's downright scary.
Continue reading "Introducing Tax-Free Savings Account"
Saturday, October 27. 2007
Lately I've been getting requests to write more about money since I've been fairly light on this subject for a while. This is probably partially due to the fact that I had been unemployed for a good part of the year, so I really didn't have a lot to talk about in the subject other than wishing for more of it  . However, my cash flow is positive again, so back to our regularly scheduled program.
I am again in the market for credit cards since my Canadian ones won't work in many cases. As Chad discovered while he was in California, he couldn't pay with his credit card at the pump because the machine asks for your zip code. Being a Canadian, we don't have zip codes, so the transaction couldn't go through. I've run into similar situations, and it has been a pain in the butt. Therefore, it's time to get an American card.
So, it's timely for me to blog about credit cards. It's definitely an important topic as many people, both young and old, run into problems with credit cards. It can be a great financial tool or a great financial burden.
PBS ran a great documentary entitled, " The Secret History Of The Credit Card." It goes over everything you should know about credit cards, and how to take advantage of them. In addition, it goes over some of the really nasty things that credit cards can do to you like raising your interest rates if you miss even one payment.
I strive to be like Ben Stein, who milks the credit card companies for all they're worth. He doesn't pay a cent in interest to them because he always pays off his balances, and he milks the company by getting all these rewards and points. It's an awesome system. Spend your own money, and some company gives you free stuff. That's why I use my credit card for everything.
Fight the system, fight the man. Pay off your credit card balances.
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