RRSP Loans…Now More Than Ever

With Christmas around the corner, the last thing most people are thinking about right now are taxes and RRSP contributions. That being said, this season is the perfect time to start thinking about saving taxes and building your retirement nest egg.

A recent survey has shown that most Canadians have not contributed to RRSP’s in the last couple of years with the recession and poor equity markets in 2008 as the major culprits. Another sobering statistic is that Canadians closing in on retirement in the next 5 years are those that have stopped contributing the most which will lead to a more difficult retirement.

We have just received our details for RRSP loans for this 2010 season and the borrowing rates are lower than ever starting at 3% on loans up to 24 months. Considering investors can borrow at these low rates and get higher returns on corporate bonds, it becomes very attractive to build back your savings and save some taxes at the same time.

To contact us for more information, you can click “HERE“. Your feedback is always welcome.

Canadian Investment Idol Competition

We would like to congratulate Mr. Joseph Weisz of Montreal, Quebec for winning the first Rothenberg Capital Management Canadian Investment Idol Competition powered by Claymore ETF’s. Mr. Weisz had a return of 15.02% over the eight week time frame.

To view all of our weekly winners, you can click on the link HERE.

 

Have a great week.

Claymore Gold Bullion Trust – A Great Way to Buy Gold

With India adding 200 tonnes of gold to their reserves, gold has hit an all-time high. It was highly anticipated that China was going to purchase this block of gold. With China publicly expressing its wish to increase its gold reserves over the coming years, one can only imagine that gold might appreciate significantly over time.

So what is the best way to play gold? You can buy gold producers but that takes on the risk of an individual companies performance. Some will outperform bullion while others won’t. For those that want exposure to bullion, consider the Claymore Gold Bullion Trust. The symbol is cgl.un on the TSX.

The units trade at a discount to its Net Asset Value (NAV). Today’s closing price was $10.00 and the NAV is roughly $10.40. Most Gold Trusts trade at premiums. Claymore will convert the units into an exchange traded fund if the units trade at a 2% or more discount to its NAV for 10 consecutive trading days starting at the end of November. Once this happens the discount should disappear.

If you buy gold outright as a retail investor, expect to pay a premium over what is quoted in the press. Couple that with any storage costs associated with buying bullion and you will see that Claymore’s product has merit. Another benefit for Canadian investors is that the units are hedged into Canadian dollars.

Typically, commodities move inversely with the US dollar. As gold goes up, the US dollar goes down potentially negating any upside to Canadian investors. In the interest of full disclosure, I do own some of the units personally.

Your thoughts about gold and where its heading are greatly appreciated.

 

 

Life Settlements in Difficulty in Canada

I have seen some ads in the Calgary Herald advertising life settlements yielding 10%. The ads definitely peaked my interest as this was something different than real estate, commodities, equities or even the bond market.

To have a different asset class paying a 10% yield would be quite attractive. Of course, with the rash of real estate deals going south and ponzi schemes rearing their head, one can only be skeptical.

The underlying concept behind life settlements is that a company offers an individual that is diagnosed with a life threatening illness a lump sum while they are alive in return for the proceeds from a life insurance policy upon death.

The company raises money from individuals paying them the 10% interest rate. They are supposed to pay the individuals from the proceeds of the policies which is difficult to pinpoint as they cannot guarantee when a policyholder will die.

The industry is growing in the US with about $12 Billion in policies sold in 2007 according to an article in this weeks investment executive. In Canada, the purchasing of policies is illegal in most provinces so the ones being offered for sale are from jurisdictions outside of Canada.

The main issue that is now plaguing this sector is similar to other unregulated industries. The individuals selling the policies are not registered to do so and are not offering proper documentation to potential investors outlining the risks.

Two companies in Ontario selling these policies have been shutdown while one in Alberta is currently being investigated.

All one needs to do is visit the Ontario Securities Commission or Alberta Securities Commission websites and do a search on life settlements to get more details on some of the issues.

If you have had any positive or negative experiences in this area, your feedback would be greatly appreciated.

 

 

 

Headline Deflation Number Not Worth Reporting

Media outlets have been reporting that inflation was -0.9% for the last 12 months in Canada. Many people will listen to that one number and not look any further.

The headline number includes food and energy prices with energy prices being the main reason for the decline since a barrel of oil in July 2008 was trading as high as $147 a barrel compared to $70 today.

As a result, gasoline prices dropped 28%. The decline in energy prices was quick and steep and will quickly disappear from the deflationary number being reported.

Core inflation which excludes these items was 1.8% and right in line with the 2% target of the Bank of Canada. There was nothing in this report to indicate a change in Bank of Canada interest rate policy.

Going forward, expect energy prices to contribute to the headline inflation number. Just like my post of a couple of weeks ago disecting the jobless numbers, it is always important to read more than the headline in order to say informed.

Your comments and inquiries are always appreciated.

Bonds Are Not Stocks

Bonds are not stocks.

The title of this post seems quite obvious in nature yet the amount of calls we received after Manulife cut the dividend on its common shares and how it affected the pricing and interest payments on their corporate debt was quite astounding.

Earnings per share for the company increased to $1.09 in the second quarter compared to $0.66 for the same quarter last year which is a positive.

The dividend cut will save the company $800 million per year. The savings is a positive for bondholders as there is more money available to make interest payments on their debt and pay principal back at maturity.

Unlike common shares or stock where a company can cut the dividend as it sees fit, the company cannot decide to stop making interest payments as part of a change to its strategic plan.

This is why bonds of a corporation are safer than common shares of the same corporation. There is limited upside but you have layers of downside protection. So what happened to the bonds on the day of the announcement? Not much. Manulife’s 10 year bonds dropped about 1% compared to 15% on their stock.

Corporate bonds move up and down in value based on several factors including interest rates, creditworthiness, and the spread between government bonds moving up or down. To learn more about bonds and how they differ from stocks, you can click on the following link HERE on our website that has an educational piece on bonds.

Your comments are always appreciated.

Jobs Numbers Better Than Headlines Suggest

The latest monthly job numbers in Canada showed a 44,500 decline while the economic consensus was a 15,000 exepected decline. The National Bank Financial Economic & Strategy Group pointed out some figures that suggest some very good takeaways.

Half the job losses were in the food and accomodation area in Quebec. The decline was also among 15 – 24 year olds in the province as harsh weather conditions contributed signficantly to the decline.

Ontario on the other hand created 13,700 jobs, the best number since September 2008. The other very interesting number is that total hours worked in Canada increased for a third consecutive month by a robust 0.3% contradicting the job loss number.

These number suggest that Canada is on track to show 3% GDP growth for the quarterand National Bank expects the employment situation to improve in the next couple of months.

The moral of this post is that it is important to read more than the headline. Your thoughts and comments are always appreciated. Have a good weekend.