Is protectionism ok when we do it?
Please, everyone, get a grip. We buy their cars; they buy our lumber, machinery, and energy (and cars!); and everyone wins. That's how international trade works.
It's not the job of Ontario Lottery and Gaming to stimulate the auto industry, and I think Smitherman is way out of line in his criticisms.
Update: The protectionism isn't over yet. Apparently MPs are now supposed to drive Ontaio-made cars only. Given the outrage we all heard over American protectionism so very recently, this hypocrisy is almost unbelievable.
Update 2: I'm glad I'm not the only one who feels this way.
Update 3: Here we go again. They're closing the barn door after the horse has left. They ought to ask themselves why Canada's manufacturing sector can't out-compete China in the first place.
Mar 10, 2009
Feb 23, 2009
The auto bailout: wrong in so many ways
Michael James hit the nail on the head today in his comments regarding the auto bailouts. I've made the same point about boosting EI rather than writing a vast cheque to a mismanaged company that makes inferior products.
It's importat to realize that the Canadian government is indebted to the EI system (at least morally, if not fiscally) to the tune of $51 billion anyway, so it seems perfectly fair for them to pay out an extra few billion in EI benefits to auto workers to tide them over until new jobs arise. It would also seem reasonable to fund re-training for the auto workers, and tax incentives for successful manufacturing companies (say, Japanese auto makers) to set up plants in Ontario.
All of this would seem more likely to succeed than to deliver billions of buckets to the crew of the Titanic.
I'd like to add that the way the Canadian bailout was determined also shows a startling lack of leadership. Queen's park decided ahead of time that they would pay 20% of whatever figure the US government arrived at, thereby abdicating our nation's fiscal sovereignty on one of its largest expenditures. This is just the latest in a string of actions since parliament was prorogued against all logic in December, all of which show that the current federal government is a rudderless ship.
It's importat to realize that the Canadian government is indebted to the EI system (at least morally, if not fiscally) to the tune of $51 billion anyway, so it seems perfectly fair for them to pay out an extra few billion in EI benefits to auto workers to tide them over until new jobs arise. It would also seem reasonable to fund re-training for the auto workers, and tax incentives for successful manufacturing companies (say, Japanese auto makers) to set up plants in Ontario.
All of this would seem more likely to succeed than to deliver billions of buckets to the crew of the Titanic.
I'd like to add that the way the Canadian bailout was determined also shows a startling lack of leadership. Queen's park decided ahead of time that they would pay 20% of whatever figure the US government arrived at, thereby abdicating our nation's fiscal sovereignty on one of its largest expenditures. This is just the latest in a string of actions since parliament was prorogued against all logic in December, all of which show that the current federal government is a rudderless ship.
Feb 1, 2009
ETrade's inactivity fees
I'm not happy with ETrade. I opened trading accounts there a couple of years ago, but until recently I only used the self-directed RRSP account. The regular trading account that you get along with the RRSP account sat idle.
Then, in October, Pizza Pizza (PZA.UN) shares dropped to the point that the distribution yield hit 14%. Now, the percentage yield is only interesting if it's a percentage of a large number, or if it's compounding; but at 14%, it meant I could buy 100 shares (for $640, which I had lying around) and the monthly distribution would be more than enough to buy one additional share every month. I transferred the cash, put in the order, activated the synthetic DRIP, and by the end of the year, the three distributions I had received had already covered the (rather pricey) $20 trading commission.
When I checked the account in January, I was in for a surprise: they had charged the account a $25 "inactivity fee". I thought at first there was some sort of mistake, but it turns out they charge regular accounts (not registered accounts) $25 each quarter in which you make fewer than two trades. There is an incredible irony in charging me an inactivity fee the very first time I used this account.
I was not impressed. At this point, I think my letters to ETrade speak for themselves:
Out of respect to the service agent, I won't name him or post his reply, but perhaps you can infer what was said from my response:
As expected, they did not waive the fee, and the service agent seemed to become somewhat personally affronted by my emails, which prompted me to say this:
Naturally they were unable to waive the fee. What I have done is open a TFSA at ETrade and move my shares there. The TFSA is a registered account and is not subject to the inactivity fee. With any luck, that $25 fee is the last money I'll be paying ETrade for a very long time.
What do you think? Am I being unreasonable?
Then, in October, Pizza Pizza (PZA.UN) shares dropped to the point that the distribution yield hit 14%. Now, the percentage yield is only interesting if it's a percentage of a large number, or if it's compounding; but at 14%, it meant I could buy 100 shares (for $640, which I had lying around) and the monthly distribution would be more than enough to buy one additional share every month. I transferred the cash, put in the order, activated the synthetic DRIP, and by the end of the year, the three distributions I had received had already covered the (rather pricey) $20 trading commission.
When I checked the account in January, I was in for a surprise: they had charged the account a $25 "inactivity fee". I thought at first there was some sort of mistake, but it turns out they charge regular accounts (not registered accounts) $25 each quarter in which you make fewer than two trades. There is an incredible irony in charging me an inactivity fee the very first time I used this account.
I was not impressed. At this point, I think my letters to ETrade speak for themselves:
Hello,
You have charged my cash trading account a $25 "low-activity admin fee". I would like it to be refunded immediately please. My account ID is XXXXXX.
I find it absurd and infuriating that you charge me $25 specifically for providing me with no service. Your trading fees and currency exchange rates are already among the costliest in the industry, and they are only tolerable because I don't trade frequently. If you insist on charging me $25 per quarter to do nothing for me, I will be closing my accounts, transferring my holdings to a brokerage with a sane fee structure, and publicizing my displeasure as widely as possible.
I don't mind paying for service, but I refuse to pay for a lack of service, and I suggest you take a moment to reflect on the wisdom of surprising your customers with this mean-spirited, punitive fee.
Out of respect to the service agent, I won't name him or post his reply, but perhaps you can infer what was said from my response:
Dear Xxx,
Thank you for your reply, but I'm afraid it doesn't stand to reason. Why does ETrade need to charge this fee if I make one trade, but not if I make two? Why does ETrade encounter these back-office expenses if I have $4999 in my account, but not if I have $5000? It is absurd. I think the real explanation is that ETrade wants to guarantee themselves a minimum revenue stream from each customer regardless of the level of service provided. This is what happens when you let accountants run your business.
More to the point, other discount brokerages don't charge this fee. I would rather part with $125 for closing my account than get hit with this infuriating fee every quarter, or pay $160 every year for trades I don't want to do.
I think ETrade needs to consider carefully whether they want to lose people like me as customers. Certainly, my account balance is tiny now, since most of my assets are elsewhere, and I am at the start of my investing career; but I'm looking for a broker to use for the next three decades until my retirement, and I'm not going to choose one who charges me for nothing.
I will not pay this fee again. It is up to you whether that is because you have waived it, or because I have closed my account.
As expected, they did not waive the fee, and the service agent seemed to become somewhat personally affronted by my emails, which prompted me to say this:
Dear Xxx,
I didn't mean to accuse you personally of setting the policy. I made an effort to refer specifically to "ETrade" separately from yourself, but if I wasn't clear enough, I apologize.
Nonetheless, the inactivity fee is unacceptable to me. I am aware of a number of discount brokerages that have no such fee, so charging me a fee for no service is not only unethical: it also puts ETrade at a disadvantage relative to its competitors. I will be exploring my options before the time comes that ETrade can charge me that fee again.
I do not want to switch brokerages (partly because I don't want to pay the $125 ransom to get my assets back) so I would sincerely appreciate it if you could find a way to help me get this "fee for nothing" waived.
Naturally they were unable to waive the fee. What I have done is open a TFSA at ETrade and move my shares there. The TFSA is a registered account and is not subject to the inactivity fee. With any luck, that $25 fee is the last money I'll be paying ETrade for a very long time.
What do you think? Am I being unreasonable?
Jan 6, 2009
Thanks, Larry!
On October 27, Larry McDonald posted an article on saving money by defending yourself against traffic tickets, rather than paying an agent several hundred dollars to represent you.
The following evening, I was pulled over by a policeman and given a number of tickets for administrative matters. I can't be too specific, but it was a pretty expensive evening. Worst of all, the convictions would disqualify me for my current hallowed status with my car insurance provider, and would lead to increased premiums for years to come. This seemed manifestly unfair to me, since I believe my poor administrative skills have no bearing whatsoever on my actuarial risk.
My first thought was not to take chances: to hire an agent to represent me and get the convictions dropped; but after reading Larry's article, I decided to go it alone.
Early in January, I attended my appointment with the prosecutor, and with a wave of her pen, my life got a whole lot easier.
I saved myself four convictions, three demerit points, and over $500 in fines, all at no cost besides my time.
Thanks, Larry!
The following evening, I was pulled over by a policeman and given a number of tickets for administrative matters. I can't be too specific, but it was a pretty expensive evening. Worst of all, the convictions would disqualify me for my current hallowed status with my car insurance provider, and would lead to increased premiums for years to come. This seemed manifestly unfair to me, since I believe my poor administrative skills have no bearing whatsoever on my actuarial risk.
My first thought was not to take chances: to hire an agent to represent me and get the convictions dropped; but after reading Larry's article, I decided to go it alone.
Early in January, I attended my appointment with the prosecutor, and with a wave of her pen, my life got a whole lot easier.
I saved myself four convictions, three demerit points, and over $500 in fines, all at no cost besides my time.
Thanks, Larry!
Dec 9, 2008
An alternative to the dynamic lifecycle strategy
Larry McDonald commented on a paper called Dynamic Lifecycle Strategies for Target Date Retirement Funds, and of course Michael James hit the nail on the head with his response: if you guess too high on the expected market return, you will stay 100% in stocks until retirement, which is unwise.
A more sensible approach occurred to me while reading the paper. Suppose you are invested in a traditional Lifecycle fund, and then suddenly, the market takes a nosedive. You should move your money into another Lifecycle fund that is aimed at the target date at which you could expect to retire considering the market losses.
To explain what I mean, consider someone with $1 million invested, who wants $2 million in order to retire. Suppose they're in a lifecycle fund that unwinds linearly over 20 years, going from 100% stocks (at say 10% nominal return) to 100% fixed-income (at say 4% return). Suppose that he is contributing $20k per year. This person could expect to reach his $2M goal in 12 years.
Now, suppose the market crashes, losing half its value. Since our investor's target date was 12 years away, he was still 60% in stocks, so his portfolio is now worth $700k.
Going on the same assumptions as before, he would simply move his money into a fund with a 17-year target date. This move has the effect of increasing his stock exposure from 60% to 85%, which is almost as aggressive as the dynamic lifecycle strategy. If the market recovers, he can move his money back where it was.
This approach is much less sensitive to errors in the expected rate of return. If you overestimate returns by 1%, this scheme may have you making minor adjustments to your portfolio every so often as you find your actual returns diverging from your plan. In contrast, the dynamic lifecycle approach would have you 100% in stocks until the day you retire, which is clearly unwise.
It also seems more realistic to admit that your target retirement date has been impacted by the market crash and to adjust your plans accordingly, rather than try to go double-or-nothing with the market and risk your retirement entirely.
The statistical analysis of this strategy is left as an exercise for the reader.
A more sensible approach occurred to me while reading the paper. Suppose you are invested in a traditional Lifecycle fund, and then suddenly, the market takes a nosedive. You should move your money into another Lifecycle fund that is aimed at the target date at which you could expect to retire considering the market losses.
To explain what I mean, consider someone with $1 million invested, who wants $2 million in order to retire. Suppose they're in a lifecycle fund that unwinds linearly over 20 years, going from 100% stocks (at say 10% nominal return) to 100% fixed-income (at say 4% return). Suppose that he is contributing $20k per year. This person could expect to reach his $2M goal in 12 years.
Now, suppose the market crashes, losing half its value. Since our investor's target date was 12 years away, he was still 60% in stocks, so his portfolio is now worth $700k.
Going on the same assumptions as before, he would simply move his money into a fund with a 17-year target date. This move has the effect of increasing his stock exposure from 60% to 85%, which is almost as aggressive as the dynamic lifecycle strategy. If the market recovers, he can move his money back where it was.
This approach is much less sensitive to errors in the expected rate of return. If you overestimate returns by 1%, this scheme may have you making minor adjustments to your portfolio every so often as you find your actual returns diverging from your plan. In contrast, the dynamic lifecycle approach would have you 100% in stocks until the day you retire, which is clearly unwise.
It also seems more realistic to admit that your target retirement date has been impacted by the market crash and to adjust your plans accordingly, rather than try to go double-or-nothing with the market and risk your retirement entirely.
The statistical analysis of this strategy is left as an exercise for the reader.
Nov 28, 2008
Magnitude of Credit Default Swaps
Imagine being able to turn a single dollar into $7 million. If you handle it wisely, you could retire and live very comfortably indefinitely. $7 million represents more than a lifetime of earnings for most people.
Now, imagine turning each of those 7 million dollars into $7 million. That's a mindboggling amount of money, but it would still be less than the amount of money involved in credit default swaps.
Now, imagine turning each of those 7 million dollars into $7 million. That's a mindboggling amount of money, but it would still be less than the amount of money involved in credit default swaps.
Nov 14, 2008
Mutual funds: "manager risk"
A recent Motley Fool article on picking mutual funds highlighted the importance of researching the fund manager. My reaction is simply this: it is a systemic flaw of mutual funds that their performance depends so much on the skill and temperament of the individuals running them.
"Manager risk" can outweigh all other risks when picking mutual funds. If you're lucky, you get Peter Lynch; if you're not lucky, you get his successors, your funds go sideways for two decades, and you lose 10% of your assets in fees for the privilege.
"Manager risk" can outweigh all other risks when picking mutual funds. If you're lucky, you get Peter Lynch; if you're not lucky, you get his successors, your funds go sideways for two decades, and you lose 10% of your assets in fees for the privilege.
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