The $700 Billion Bailout

So let's say that they strike a deal and the government buys up all that bad paper. Then what? People still can't make the mortgage payments and the defaults continue? I don't understand why the lenders don't just renegotiate or freeze the interest rates to keep people from defaulting on their mortgages. Propagate the lower earnings from those mortgages up the food chain into the ABCP. Everybody ends up getting less, except the little guy ie. the homeowner gets to continue living in their home and make payments towards eventually owning it. Have the government issue coupons attached to the mortgages, the value of such coupons dropping each year. This allows both the homeowner and lending institution to be weaned out of the situation slowly. This also avoids needing to have all the $700 billion up front, apart from having to buy up enough of the currently worthless paper to keep the system afloat right now

Scary Financial Times

With the collapse of so many financial institutions looming in the US, and the Fed stepping in with $100 billion+ dollars of prop-up funding, one has to be very worried. The US is already running yearly deficits close to $500 billion, so this extra prop-up cash has to be coming from the printing presses (ie. from out of thin air) and/or via loans from other countries such as China. The Fed did not cut interest rates this week, so that tells me that they're likely worried about the printing presses fueling inflation.

Some people may see these times as a great buying opportunity, but I don't recommend trying to catch a falling knife. Wait until things settle out, and cross your fingers that they do. If you're looking for a decent GIC rate, ING Direct just came out with a 1.5 year GIC at 4%. I think it's a time limited promotional rate since it beats the rates on all their other GICs except for the 5 year which also has the same 4% rate.

Saving Money on Cell Phone Use in Canada

Since there's been a lot of hype recently in the cell phone market with the launch of the iPhone, I thought I'd point out an easy way to potentially save yourself a couple of hundred dollars on your cellphone bills every year. It essentially hinges on how much you use your phone and when. If you're a heavy user, just continue to regularly examine your cell phone use and shop around, assuming you're out of contract of course. If you're a light user, then consider using a pay as you go or prepaid plan. For example, I'm on Roger's Paygo. I use their virtually unadvertised $100 (+ tax) prepaid card, since it has 365 day expiry time. I'm also on their 1 cent evenings and weekends "plan" with it. This does last me an entire year. So I'm paying $8.33 (+ tax) a month for a cell service and it includes call display and optionally voicemail. If I put more money into the account before the time expires, it all rolls over into the next 365 days. They allow you to build it up to a maximum of $500 I think. Any Roger's phone can be turned into Roger's Paygo, once out of contract of course. They may even give you some free airtime to get you going.

I'm not running a Roger's commercial here, but they do use the technically superior GSM for their network. I wish we had another GSM competitor in this country. But there's also a few other reseller deals using Roger's network that are also very good value. The first is 7-11 stores, with their Speak Out Wireless offering. The second is Petro-Canada Mobility.

If you're stuck with no option but to use Bell's network, then please have a look at Virgin Mobile.

How Much Do You Spend on Coffee?

Starbucks has just announced that they're closing 600 locations in the US. While you might joke that this only represents one city block, it is actually significant and impacts a lot of their employees. When times start to get tough, people start to cut back on discretionary spending. But rather than deny themselves some of those simple pleasures, they tend to look for cheaper alternatives. Today I'd like you to take a moment and think about how much money you're dropping on coffee in the course of a work day. If you are spending $5 a day on coffee at work, then that's $100 a month. Over the course of a year, that's $1200. For many people, that's a week on a beach in Cuba.

You can make your own delicious cup of coffee quite cheaply. For example, a kilo can of Hills Brothers medium roast coffee is under $5 at Price Chopper. Use 18% cream (not 10% coffee cream) and you can have a cup that will be at least as good as Tim's if not better.

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.