It's Almost Official: The Dow is now in a Bear Market

As reported Friday in the Globe and Mail here, the Dow has now fallen 20% past its peak. But it closed on Friday just above that mark, so while technically it is not the official start of a bear market, it is highly likely to happen this week. I remember being in Spain in March 1999 when the Dow first cracked the 10,000 mark. It is now going on close to ten years, and it only up about 10% from there. I do wonder how long this bear market is going to last, since the price of oil and the Iraq war are fueling inflation. Add in the subprime crisis, and it isn't looking good, at least for our largest trading partner. But there is speculation that our housing market is headed for a large correction as well. One has to wonder if there's enough foreign demand for our commodities to keep the TSX out of bear territory. I guess basically what I'm trying to say in today's posting is be very prudent with respect to your finances right now. Things aren't looking very rosy.

It's BBQ Season. Save Money on Propane

Here in Ottawa I notice a proliferation of places that sell "swap" propane BBQ tanks. The idea is that you simply drop off your empty tank and take a full one in its place. A lot of places have these tanks including many gas stations. They are stored outside of course, typically in a locked cage. Cost to swap your tank at one of these places is about $27. Cost to fill your tank instead of swapping it is about $16. That's a 70% premium folks! Many people think that once they have a swap tank, they have no choice but to go and swap it when they need a fill up. But many places will refill swap tanks, as long as the date stamp on it indicates that it is less than 10 years old, same restriction as any other tank.

Actively Managed Funds Continue to Lag

In today's Globe and Mail there is an article pointing out that fund managers continue to do poorly compared to index funds. There really isn't any reason to invest with active managers, and the data continues to support that. Of index funds, I personally like the TD Efunds due to their low MERs and green approach of not mailing out paper. Also the iShares exchange traded funds are extremely good value if your investing patterns cause the brokerage fees to not be an issue. ING's Streetwise Funds are ok too but they do have MERs close to double what they should be.

Buying a Desktop Computer? Save a lot of money.

Here in Canada, the best deal by far on a "new" desktop computer is a refurbished HP Media Center machine on sale. You cannot even build one yourself for less money. These HP machines also use solid good name brand components such as ASUS motherboards, and Seagate hard drives. By refurbished, they simply mean that the computer has had to go back to factory for some reason. If the box is simply opened in the store, then back it goes to factory for refurbishment. By factory, I mean an authorized outlet for examining/troubleshooting the machine. These machines are also current, meaning that they are not "lease returns" that have been used for a couple of years.

So where do you find such machines? Futureshop and Best Buy both carry them on a regular basis. But like I said earlier, wait for them to go on sale, where you can scoop one for less than half the price of new, saving you upwards of $500. Yes, it is well worth paying the shipping charges.

Also, the refurbished HP Pavilion and the Compaq machines are also good deals, but nothing beats the sheer value of those Media Center machines with their better graphics cards and hdtv tuners built in, and typically huge hard drives.

The only downside I see with buying refurbished is the shorter warranty period of 90 days. But misbehaving components usually show up within the first 30 days anyway. Also, HP should be using beefier power supplies in their machines.

Need Foreign Cash for a Trip?

We are entering the summer here in Canada (northern hemisphere to be correct) and it is the main travel season for many people. This travel is often far overseas, as much of the charter aircraft used for Caribbean travel are shifted instead to Europe. So you are headed overseas and need a few hundred dollars worth of foreign cash? Many people don't feel comfortable travelling without having some foreign cash on them. This is a prudent move, as you may have problems finding an atm that works with your bank card upon landing in the distant land. And then there are the service charges. Ten years ago I used bank machines in places such as Poland and Austria, and was only charged $2.20 per PLUS system transaction. Today, that same transaction will probably cost you between $5 and $10 dollars just in transaction fees. So much for technology making things cheaper. But of course these transaction costs are simply a bank gouge. They also get you on the exchange rates although those rates are usually pretty decent.

If you decide to bring a lot of foreign cash with you, please consider going to a foreign exchange place instead of your bank. Here in Ottawa we have Accu-Rate. They fairly consistently beat the bank exchange rates, and you can pay with your bank card as an interac direct payment. By going there, you can easily save $10-$20 or more depending on what you're buying and how much. Also, the foreign exchange place is likely to have the foreign notes that you're looking for. The banks only carry a small selection and it is not uncommon for small branches to run out of the popular currencies such as Euros.

To somerize, all I'm trying to say is do shop around a bit, as most of these places including the banks do post their rates and update them throughout the day. If you spend 20 minutes online and find a $20 saving, then your time was well spent at $60 per hour, as long as you don't have to drive a long way to the establishment. Also ask your friends and coworkers if they have any favourite place to exchange money. Sometimes friends have some foreign cash that they haven't exchanged yet and are willing to give you a good deal. You can both win on such transactions as the buy/sell spread is usually a few percent.

Mutual Funds: Cutting the Number of Unitholders Lowers the MER

In today's Globe and Mail, columnist Rob Carrick points out that mutual funds with a high barrier to entry have better returns. By a high barrier to entry, we typically mean a large initial investment. Are these fund managers any better than the norm? Perhaps yes, but Rob does point out that these particular funds do have smaller MERs. He speculates that such funds have fewer investors, and so mundane costs such as statements and mailings are less and thus is reflected in the lower MERs. In my opinion, this finding just provides more support for funds such as TD efunds which cut the paper mailings to zero and passes the savings on to investors in the form of low MERs. I have heard that a typical mutual fund account incurs printing/mailing costs on the order of about $50 per account per year. Seems high, but does anybody out there have a better number? On an average investment of $5000, that's a full percent.

Velocity of Money Theory for this Round of Inflation? I Don't Think So

In today's Globe and Mail, Avner Mandelman has a column which you can read here. Avner Mandelman is president and chief investment officer of Giraffe Capital Corp. He is stating that inflation is very under reported in the US right now, then goes on to explain why he thinks that inflation is raising its ugly head again. He states that he believes that it is due to the velocity of money. In previous postings, I have stated that money has to move in order to do work, and if it is not moving (equivalent of being stuffed in a mattress for example) it may as well not exist. Avner thinks that this round of inflation is mainly due to money moving faster than it has in the past. He claims that this faster movement is being caused by technology. Click a mouse and voila, money has moved. While I agree to some extent that yes, money can move faster and thus might contribute to some rise in commodity prices, I feel that this effect is a minor one. Money has been moving a bit faster for quite a few years now, but I don't think anything radical has happened here to explain inflation.

I'll tell you what I think is happening. I think that large pools of offshore US dollars are making their way back into the mainstream US economy. If US dollars are used extensively as a medium of exchange in other areas of the globe, especially areas that don't do a lot of trading with the US itself, then those dollars may as well not exist as far as the US is concerned. US dollars are widely accepted all over the planet and have been used as a major medium of exchange outside the US. For example, El Salvador uses the US dollar as its official currency. Those dollars can flow all over El Salvador as a medium of exchange, and as long as El Salvador doesn't chase US goods or services or bids up commodities (such as oil) that the US is also trying to buy, then those dollars may as well simply not exist as far as the US is concerned. Of course El Salvador does a lot of trade with the US so in reality this example doesn't really apply, I just use it as a hypothetical one to illustrate my point.


So why are these previously isolated dollars now starting to find their way home? Well, in one simple word, the Euro. The Euro is a relatively new currency that is an alternative to the US dollar since it is also being widely accepted worldwide as a medium of exchange. A lot of foreign entities, formerly holding US dollars, are now opting to hold some Euros instead. Those displaced US dollars are now starting to come home to roost. Also remember all the spending on the Iraq war, much of it done in newly "printed" US dollars? Those billions of dollars spent overseas are also finding their way back to the US. This whole thing has been fairly obvious as we watch the US dollar fall with respect to the Euro.

To "somerize" lol, all this, the money supply doesn't have to actually grow to cause inflation, it just has to effectively grow with respect to the particular economy where you are measuring the inflation. Velocity changes just don't cut it, in my opinion anyway.

Getting More Out of a Tank of Gasoline

With the price of gasoline reaching ridiculous levels of over $1.30 a litre, I thought I'd share with you a few tips to stretch your mileage. The usual motherhood statements of drive less, and plan your routes to minimize travel, still obviously apply.

• Optimal mileage is reached at about 80 kph (50 mph). So slow down when you're on the freeways. Get in the rightmost lane and do the speed limit or a bit under.


• Acceleration costs you gas, significant gas. Try to time your speed as you approach red lights to avoid actually having to stop, and thus reduce acceleration. Yes, this means coasting. Coast as much as possible instead of active braking. Active braking is a indicator that you stayed on the accelerator pedal too long. Simply try to time things such that you're doing less active braking, more coasting, and thus less accelerating.


• Maintain your momentum as much as you can without compromising safety. Try to know your car and don't unnecessarily slow down when you don't have to, especially around corners.


• Use the downslope of hills to your advantage to help you get up the other side. Allow your speed to bleed down somewhat on the upslope, don't press down a lot more on the accelerator just to maintain your speed going up hill. Gently accelerate back up to speed once you're over the crest.


• Keep your tires inflated to the level indicated by the sticker in your car. Under-inflated tires will hurt your mileage.


• Check and change your car's air filter at least every 6 months. Reduced engine airflow will hurt your mileage.


• Use your air conditioning sparingly. Turn up the temperature in your cabin by a couple of degrees. The compressor puts a significant load on your engine.


• Accelerate gently. Hard acceleration sucks a lot of gas.


• Only fill your tank to the halfway point. By leaving out those extra 25-30 litres of fuel, you have effectively taken 40 lbs out of your car. In fact, if everybody did that, it would create a temporary glut of fuel and prices would come down, at least for a little while.

As always, never compromise your safety. Don't zoom around corners if you don't feel safe doing so, and when you're coasting keep your foot ready to hit the brake and pay attention to the road. Also, be aware of drivers behind you and try not to piss them off with your frugal moves.

Save Money, Drink Imported German Beer

With temperatures here in Ontario starting to significantly warm up, I'd like to bring up a subject near and dear to most of our hearts: BEER!

So I was at the LCBO today and bought 8 assorted cans of imported German beer for almost exactly $16 including a total of 80 cents deposit on the cans. It was actually slightly under $16. I bought 4 litres of beer (500 mL cans) total. German beer is arguably the best stuff on the planet. By the way, the lowbrow comedy movie "Beerfest" is really funny....I laughed my ass off. Those who have seen me in person know that I have no ass so it must be true, but I'm starting to really digress....A case of Labatt's Blue is $38.50 at the beer store for 24 bottles of 341 mL, including deposit. That's a total of 8.18 L of beer. The equivalent price of German beer would be about $32.75, almost 20% cheaper. Given the strength of the Euro, and the shipping cost of those suds, I'm somewhat dumbfounded. Perhaps our big brewers spend crazy amounts of money on advertising/promotions and pass the lack of savings on to us. While I can certainly appreciate those girls-in-bikini ads on tv, I do not want to actually pay for them while there's other suckers out there who don't mind doing so.

Yes, more money can be saved by buying some of the "buck-a-beer" + deposit brands like Lucky or Lakeport and those are good beverages too. I do recommend buying those brands as signifcant money can be saved over the course of the summer. But even at $1 per beer, as much as 50 cents of that flows to the government as taxes. Yikes. Also, the lack of retail competition in Ontario likely has something to do with it. Prices in Quebec are lower, but one has to be careful when comparing. In Quebec, the prices do not include deposit, PST, and GST. When added in, you are still slightly cheaper, but not by much. Costco in Quebec sells beer and you can save some money, but again not huge amounts, but hey, every little bit counts. If you live in another province, feel free to do your own comparisons and report back.

Beat the Stupidity Tax - Play the Lottery For Free

We've all heard the term "stupidity tax" as it applies to playing the lottery. You have better odds of being struck by lightning as you do winning the lottery, at least the big jackpot. I do applaud you lottery players for keeping my overall tax bill down a bit though. And of course, you can't win if you don't play is a slogan often heard around the lottery. Many of you play small amounts of money responsibly and get a bit of entertainment excitement out of it. This is reasonable and ok. Hey, I'm not here to chide you about wasting money on the lottery, I'm here to help you play for free!

Now that I have your attention, I want you weekly lottery players to please consider this scheme. Every week, cut your lottery expenditures in half. Yes, I mean in half. For example, if you're spending $4 a week buying two $2 tickets, then please just buy one ticket instead. Put the weekly $2 into a tax free savings account (TFSA) that will become available to you starting January 1, 2009. This amounts to $104 a year. Put the toonies in a change jar if you have to, and get it into the bank a couple of times per year. The more frequently you deposit it, the better. Invest this money in a low MER Canadian Index fund such as TDB900. If you're in another part of the world, use the equivalent investment for your country. Over the course of 15-16 years, this money will have grown (assuming 10% annual tax free compounding) to about $4000. This should now allow you to play the weekly lottery to the same level for free, for the rest of your life. It should earn about $400 per year, but the lottery will likely be more expensive to play by that point.

If you're spending $10 per week on tickets, then instead save $5 a week into your account. This is $260 per year saved. Over 15-16 years, you will likely have over $10,000 there. If instead of gambling at all (except through the low MER mutual fund if you consider that gambling) you invested the entire $10 a week, after 30 years you'd have over $100,000 in the account.

In my defense, I didn't say the free lottery play was going to be immediate! lol . And the use of the term free is a bit liberal, considering that it fundamentally is your own money that you're playing with. But you would have, in all likelihood, lost that money anyway, that's why I feel justified in using the "free" label. I just directed you to set it aside to build a future annuity to use to play the lottery.

Eating the Sales

I recently stopped to think a bit about my grocery buying habits. What did I tend to buy and when? I came to the realization that I am not really in charge of creating my own menu. Every week, I spend a few minutes visiting the flyermall to see what the supermarkets have on sale. Loblaws for some reason doesn't like them linking to their flyer. The sales are basically dictating, to a major extent, what I'm going to be eating over the course of the week. You know what? I actually like it! I don't have to really bother thinking about assembling a menu for the week. I just buy enough of the various meats on sale, and vegetables highlighted in the flyers, to assemble my meals. Sure there are some staples like bananas and dairy products that I'm always buying but if one pays attention you can often find them on sale at one of the stores that week. Thankfully, the stores cycle through putting different things on sale all the time and that keeps my menu interesting and balanced. I figure that by doing this, I probably save around $100 a month as compared to assembling a menu ignoring prices. That's significant coin!

However, we are now in the era of high gasoline prices so I shop for food close to home. I won't bother driving to far away stores anymore for the sake of saving a few dollars, it just isn't worth it.