July 2, 2009, 5:31 am

Is Variable Interest Rate Going Back up?

by: The Financial Blogger Category: Banks and You, Pay off your Debts

As the economy is pretty slow and most governments want to stimulate the economy through stimulus package and by decreasing their one day interest rate, we are currently benefiting from the lowest interest rate of the last decade (… century?).

We recently observed a small raise on long term mortgage rate (4 years and 5 years). Only a few months ago, it was possible to get 3.55% for 5 years in Canada. Now, we are back to about 4% if you can find a great deal.

So several people are asking: is variable interest rate going back up as well?

The short answer (and the long) is NO. So tell me why mortgage rates went up? Aren’t they following variable rates? Then again, the answer is no.

Long term mortgage rates are following the bond yields as they are similar (important debt amortized over a long period of time with a security attached to it). Since we recently saw an increase of yield in long term bonds, long term mortgage rates followed.

However, the variable rate depends on a totally different thing; the FED in the US and the Bank of Canada. Those entities have control over the monetary mass and the one day “inter-banking” rate. This is the rate at which banks borrow from each other at the end of each day in order to cover (the shortage) or lend (the excess) of money they have in their accounts. Historically, banks variable rate follow (almost) exactly the fluctuation ordered by the FED of the Bank of Canada. Therefore, if the Bank of Canada would raise its interest rate by a quarter, the next morning, all Canadian banks would follow by increasing their variable rate.

So is the variable rate will increase?

Over a short term period, the answer is clearly no. Bank of Canada expressed its wish to maintain the interest rate until June 2010 in order to give a chance to the Canadian economy. On the US side, many experts claim that the raise in the interest rate will only appear in 2011!

But if you want to go further, you must know what the main effect of a rate increase is on our economy. Imagine that you are driving a car at 100mph on the highway (and that cops (regulation) are having a drinking on you so they can’t stop you ). If you brake a little it, your car will slowdown. If you jump on the brakes like a maniac, you might crash your car in the landscape. Then, imagine the economy as your car. When you are driving too fast (and regulators our not “available”), one of the only way to slowdown the economy is to increase the interest rate by a few points (just hitting the brake gently). This is exactly what the Fed refused to do a few years ago thinking it would make our economy crash in the landscape.

But what if you car is driving 20 mph? If you brake, you will completely stop. And this is exactly what would happen in our economy right now. To be more accurate with my analogy, I would have to say that you are driving at 20 mpg, climbing a hill and if you ever brake, you will start going the other way!

So this is why I don’t expect to see the variable rates going up over the next 12 months…

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July 1, 2009, 5:00 am

I Hate Canada Day!

by: The Financial Blogger Category: Uncategorized

Here we go, now you are reading my title and you think “this guy, this little Quebequer who hates his country…. Such a shame!”. Not quite right. In fact, I am very proud to be Canadian and if ever Quebec separates, I’ll be moving in Western Canada for sure!

However, Canada Day is pretty special in Quebec; this is also called “Moving Day”. For some unknown reason, most rent expires on July 1^st and then, most people move on that date. The thing is that I always have a friend that moves on that date as well!

Therefore, again, today I am stuck driving to Montreal, get stuck in traffic and move furniture and boxes the whole day. The great part is that I have to work tomorrow morning…

However, I really love the new Olympic Vancouver 2010 Maple Leaf Poster:

So I leave you enjoy your Canada while I’ll be sweating and swearing all day!

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June 30, 2009, 5:34 am

4 Stocks for 2009 Competition: Another Quarter, Another Champion!

by: The Financial Blogger Category: Investment, Market and Risk, Trading

As you probably remember, a few personal finance blogger and I entered into a friendly stock picking competition on January 1^st 2009. The purpose was to pick 4 stocks each and pray that we are lucky enough so we can create a positive return at the end of the year. As 4 stocks is definitely not enough to maintain a well balanced and diversify portfolio, this is far from being a scientific competition and I do not encourage you to take our picks for granted.

What is really interesting to see into this stock picking competition is the ranking from one quarter to another. After the first quarter result in March, I was second and most of my fellow bloggers were showing negative returns. However, now that the market surged from March to beginning of June, the ranking has completely changed.

Some people who had “bad stock picks” for the first quarter saw their very same stocks (we are not allowed to change our picks… unfortunately!) soared during the second quarter. We had a few bloggers that decided to bet on the price of crude oil. Since there was a lot of speculation lately (it went from $35 in December to $70 during last month), they are showing a much better portfolio yield now!

As for my own choice, Google (Nasdaq: GOOG) keeps doing well this year. There is a lot of changes in the techno world and betting on a highly liquid cash company is definitely a must. Google can easily survive this economy crisis and grow stronger from it.

Com Dev International (TSX: CDV) is not doing much right now and it is definitely not helping my portfolio to outperform others ;-). However, we still have another 6 months ahead of us and I strongly believe that it is a good pick (maybe for 2010 ). The thing about stock picking is that you must be patient!

Bank of Nova Scotia (TSX: BNS) is still doing fine but the bank rally seem to be over. I guess I won’t get much out of this stock this year. If it would be include in my own portfolio, I would have to decide if I keep it for its good dividend yield or I sell it in order to cash in my profit. There was definitely a misevaluation of Canadian bank stocks at the beginning of the year but the results from the last quarter seemed to have brought all investors on the same pace.

Unfortunately, my “safe pick”, Johnson and Johnson (NYMEX: JNJ) was not a great one considering that we just went through a stock rally (bull market? Who knows!). Therefore, this one is slowing me down in the competition… for now ;-). What influences my results compared to a real portfolio is that I don’t get to count the dividend (from JNJ and BNS) in my returns. It would have contributed to give me a few additional percent ;-).

So here’s the ranking and their latest post about the contest (will be live at the end of the day!):

1	FourPillars	48.83%
2	IntelligentSpeculator	43.32%
3	WildInvestor	41.45%
4	Wheredoesallmymoneygo	28.52%
5	TheFinancialBlogger	13.29
6	Million Dollar Journey	4.76%
7	DividendGrowthInvestor	0.70%-
8	ZachStocks	-3.04%
9	MyTradersJournal	-11.36%

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June 29, 2009, 5:36 am

Life After The MBA

by: The Financial Blogger Category: MBA

I’m shortly starting the month of July, my very first month as a free man! Ok, I am ignoring the fact that I still have to write a final paper but it doesn’t matter; I got my weekend back, I got my life back. So what’s next? Where is my promotion, my bigger office and my new BMW? Huh… not quite there yet apparently!

Will I change job?

Funny enough, spending 2 years with managers and learning how to become one gave me all the reasons in the world to not become one! Ok… I am exaggerating a bit. However, looking at the number of hours worked by manager around me makes me wonder why do accept such responsibilities if it’s to be paid per hour as a burger flipper? Is it for power? Is it because they just love their company? Or maybe they would love to own their own business and this is the closest they found with a (virtual) “guaranteed income”. So will I change job after my MBA to become a manager? Hell no!

However, I have built a hell of a network and I can easily get myself better employment conditions as a financial planner ;-). I have made great friends and I also learned how to “play” their game. If you know how a manager thinks before he hires you, you can get much more (Fred, please ignore this line ;-0 ).

What is my next big project?

NONE! Huh… then again, a little bit of exaggeration from my evil me. I actually have 3 huge projects in mind:

- Taking care of my wife and my family (which is by far the most important thing I will do!)

- Keep losing weight and getting in shape (this is definitely happening already so I should succeed by the end of the summer by weighting 170-180lbs and get rid of all my fat!).

- Bring my business to another level. I really would like to wonder if I keep working or if I can simply live from my online income… I think that by putting more effort into it, I’ll be able to achieve this goal within the next 2 years…. This would be amazing!

If I had to do it again, would I do it anyway?

If I had the power to go back in time in August 2007, I would still come to my first class and do my MBA. This was a painful experience where I almost lost my sanity and my family. However, this brought me where I am, this helped me become who I am today and this will surely be helpful in the future. So I would still do it, knowing what was coming for me!

What is the next step once you have done your MBA?

Take a deep breath and relax!!!! I am actually considering taking more days off and going on vacation… I’ll see if I can manage something with my manager

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June 27, 2009, 6:25 am

Financial Ramblings

by: The Financial Blogger Category: Financial Rambling

Man! I think that if my life with be included in the VIX (volatility index), I would make the index soars to new highs in the past months! There are some important movements within our internet company and we are currently thinking about making some important moves. I guess I have to find something else to get busy with since I’m almost done with my MBA! I can’t tell you more about it right now as we are not quite sure what we are doing with our company anyway ;-).

I keep going to the gym and I try to resist as much as I can to ice cream (we all scream for ice cream!). I must say it is easier to go to the gym than saying no to a delicious blizzard (vanilla ice scream with bits of Crispy Crunch and Coffee Crisps…. Aaahhhhh). Nonetheless, I stick between 182 and 185lbs… slowly going down toward the 180 lbs psychological bar… At this rate, I should go under 180lbs sometimes in July… This is quite exciting! I also noticed that the more I work out, the less I want to eat junk food and sweats. I even surprised myself to stop eating my Tim Horton morning breakfast halfway. I tasted the enormous quantity of salt inside and I throw it away.

Here’s a few good read for the weekend:

The Credit Tool Box tells what a good Beacon Score is.

The Dividend Guy bought some more fixed income.

The Digerati Life provides some useful money saving tips.

The Simple Dollar comes with his rule#2 of investing: don’t over-think your investments!

Intelligent Speculator introduces us to managed account.

ABC’s of investing is giving us more information about dividend stocks.

Four Pillars tells that good debt is truth. (all debts are good even the one to buy a plasma TV ;-)!… just kidding!).

Where Does All My Money Go comes with a credit card payoff calculator.

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