Canada Pension Plan and the Insurance Companies

1967   The opposition especially from the Insurance Companies to the Canada Pension Plan was formidable!!!

1967

• Average income for males over age 65 was $3044
• Average income for females over age 65 was  $1566 – $200 below the poverty line

A failed financial website

A few years  ago, but no longer,  I participated in a prominent Financial Website.  Participants clearly had investment expertise,  market smarts and workplace experience.  They assisted each other and those who entered their website with questions.

The organizers and their disciples  lacked  foresight.

1. They did not want to hear anything about life insurance
2. They leaned towards self insuring on all parts of their lives  including disability, illness, their homes and cars – where this was  allowed.
3. They failed to understand how life insurance can replace a capital gains hit.
4. They failed to understand how life insurance can assist a widow, a widower, and their families with tax free $$$ when $$ are needed the most.
5. They did not want to hear from anyone who knew more than them on a subject

 

They failed.

A decade best forgotten?

A decade of investing 2000-2009

Source CBC News  May 6  2010

Some of the largest one day swings on the  TSX  markets

FOR THE DECADE JUST ENDED

Sept 17  2001    684 points     7%  down     DOW  (terror attacks)  – similar down  on  TSX

Sept 29 2008    841 points      7% down

Dec 1  2008       846  points      9% down

Oct 14 2008     890 points       10% up

Oct 9, 2008      456  points       5% down

Oct 15 2008     631  points       6% down

Oct 28  2008    614 points        7%  up

Nov 13  2008   430 points       7% up

AND BEFORE THIS DECADE

Oct 19  1987     407 points   11% down

Previous large downs and ups were in the period  1929-1933

For the decade just ended the following also occurred

1. Advisors had continual leaning curves  on new and replaced computer software systems
2. Regulation was increasingly imposed by the Mutual Fund Dealers Association
3. The number of mutual funds available increased from close to 2000 to 10,000
4. The banks entered the mutual fund business in an increasingly bigger way
5. Smaller mutual fund  dealers were being bought up by larger mutual fund  dealers
6. Many mutual fund companies were bought out by larger mutual fund companies
7. Many mutual fund managers lost sight of their investment mandates
8. Personal computer investment trading became increasingly popular
9. Many new investment products became available
10. The regulatory arm in mutual fund dealerships became larger than the sales and marketing arm in companies

 

This was not an easy decade for most advisors and many clients.  More investment turbulence occurred in this decade than in all others combined.

Listening to Experts?

I just had a mutual fund representative call me to ask if I was interested in having clients invest in their Global Opportunity Fund!

Opportunity?   If I had listened to mutual fund representatives and mutual fund managers for the past five  or more years  I would have had many clients invested globally –  excluding the emerging markets.  At the same time these representatives   were  also suggesting  investments  in the United States.

These managers and  fund company representatives  were wrong.   All of them.   Well maybe not all.  That might be too unfair.  But most.   I did not listen to them.   Investors would have lost on their investments and also on the currency.  Two losses.  OUCH. 

My clients are the richer for my not accepting their advice.  

Buffalo- Rochester N.Y and Kingston Ont

I shared lunch with a retired general insurance agent.  He, a United States citizen, and his family, spend 6 months in the lake district north of Kingston Ontario and the other 6 in his home  in Rochester New York.  He has been coming to the  Kingston  Canadian lake district for 25 years.   He is well qualified to speak about some of the differences between Canada and the United States.  He had this to say.

“The population of Buffalo is 610,000 .  The population of Rochester is 220,000.  Rochester is New York State’s third largest city after New York City and Buffalo.  Rochester, in its golden years,  used to have 65,000 employees working at Kodak.     Today it has 6500!”

He commented conclusively that Kingston Ontario,  population 117,000 was a much more vibrant and business oriented city than either of these two.

We need to think about this.

Greece – European Union – The Euro

From Gwynne Dyer a London-based independent journalist whose articles are published in 45 countries

“The (mostly discouraging) history of previous attempts to create a common currency argues that political union must precede monetary union, because only a strong central authority  can really make  the decisions  that are needed to defend a currency in times of crisis.  And the crises always come, sooner or later: wars, revolutions, depressions, oil embargoes, and other unpredictable but inevitable upheavals”  He goes on to make the point  ” that the weak European countries were not economically fit to join. The way these countries traditionally dealt with their productivity deficit was to slowly but steadily  devalue their currency, thus keeping the prices of what they exported competitive.  Once they were locked into the euro,  a one – size – fits –  all currency , they could no longer do that.”

“Greece will likely have to withdraw from  the single currency  and default on its debts within two years.”

Banker’s Comment

At lunch,  a banker  made the remark that the sale of  home mortgages are much more competitive than a few years back. 

 Our discussion was around the fact that many mortgages are now issued under more liberal terms than used to be the case.  The result can be serious for the person holding the mortgage if interest rates increase, jobs are lost, capital is eroded and the economy takes a prolonged downturn.  He remarked that if the banks did not issue mortgages with these somewhat  liberal terms the consequences are that  many more non bank companies would gladly do so.  In other words they have to make some concessions  to retain the business.

This comes very close to a situation in my own financial practice.  One client who bought and sold a number of  homes in a very short period  asked me if another home should be sold and bought.  I was quite clear that enough was enough, and  because of a spousal death,  if this  practice continued this clients capital would be eroded.  I remarked that only the legal and real estate connections were making money and they would never be saying NO.

The outcome  was that another home was bought and likely another financial advisor, not knowing the background, easily allowed it to happen.

If one professional says NO  another professional will say  YES.  I know that.

 

1958 News!!

“The largest reserve of oil known to man, the Athabasca oil sands of northeastern Alberta, may yield only a tenth of 200,000,000,000 barrels of oil it is believed to contain, the Alberta Research Council said Tuesday.

In a surprisingly low estimate of ultimate recoverable oil from the sands area, the council calculated that only about 23,000,000,000 barrels will be produced from the region.”

Toxic Sector?

Troubled Canadian newspaper assets held by Canwest were just bought by an investor group headed up by Paul Godfrey.  He was the publisher of the Toronto Sun and more recently The National Post.   His view is that this is going to be a succesful venture into newspaper publishing.  He is well aware that a big component of  any success will  lean towards  changes occurring in the internet. 

This will be worth watching.   How will any mult million dollar company deeply engrained in failing  newspaper publishing  leave that behind  and  move towards the internet?  That industry and many others for that matter have embedded costs in bricks and mortar, staff and other capitalized components.   They will have to move away from these fixed costs,  embark on some new but perhaps ultimately cheaper ones,  capture market share and public attention.  At the time of the purchase the comments from the new owners were that no newspaper’s would be shut down and that staffing would remain in place.  Oh yeh!

I may or may not be an example of  the marketplace.  I now only purchase the two major Canadian newspapers on Saturday.  I buy them for their analysis and content and if they fail in this regard I will pass on this ritual.  I suspect that there are many others like me who simply do not have the time, and  now have other resources to pull down any news from our computers including our hand-held devices.

Is the newspapers industry toxic waste?  Will Paul Godfrey and his well-heeled backers pull this off successfully?  One thing is for sure and that is that if anyone can do it  he can.