When I heard that Michael Moore had a new movie called Capitalism: A Love Story in the works I knew I had to see it. I am not a big fan of Moore’s work having had enough of his style after seeing “Roger And Me” twenty years ago. But I knew I would have to talk about the movie given my take on capitalism so as I learned as a Boy Scout in Troop One I wanted to be prepared.

“Capitalism: A Love Story” follows the same theme of Moore inserting himself into a story and then dragging the poor unfortunates he finds along the way into the story telling. He spends a lot of time going to office buildings and being denied entrance and having conversations with security guards. He hammers home the theme that life for the average Joe isn’t fair. Thanks for the insight.

He gets some of the facts right. Yes, there was massive mortgage fraud in the US housing market and yes George W was possibly the worst President in the history of the United States. Further yes there was a practice in the US of corporations buying insurance on the lives of their employees without their knowledge.

But is it the capitalist system that is flawed or the people. I would say in every case of corruption its the people who go along to get along who are responsible. When congressmen and senators are going along to get along with the industry that they are supposed to regulate you can expect problems.

Capitalism is not perfect but compared to all other systems its a virtual paradise.

Happy Capitalism!

Hey Lou,
I have a nice amount of cash sitting in GIC’s and it’s been there for a couple of years earning, as you know little interest. I love the security of cash but do you think I am losing out by not investing this money in something else. Is there anything else that I would think is safe?

JM

Hi JM,

I get a lot of investors asking the same type of question and I think that what is most important to all investors is to know your own self. I have a power point presentation that I developed for the Financial Forum in 2008 called “The 7 Steps to Successful Investing”  that I would be happy to send you or any reader that is interested. Just send me an email.

The core of the presentation is that it can be so destructive to your capital to go against your basic investor profile. If you have built up a nice bag of dough in guaranteed income certificates it says that you are have a degree of risk aversion. You have chosen reduced income for reduced risk. There is absolutely nothing wrong with that. You have made a decision based on your central investor profile.

When you chose lower returns for reduced risk there will always be potential better returns somewhere else in the investing universe but for the most part you will have to assume greater risk to achieve higher returns. Before you make any decisions on where to investment your nest egg ask yourself are you prepared to take on greater risk for potential greater reward.

And lets not look down on the returns offered by GIC’s. They did better than many portfolios in the last while because they achieved one of the most important goals of investing. Preservation of Capital! You didn’t make a ton but you didn’t lose a ton either.

One thing you should know about GIC’s is how they are made. Banks buy portfolios of bonds – mostly Government of Canada issues that generate a certain rate of interest. They then slice those portfolio of bonds up into GIC’s and keep a piece of the income for themselves. You could achieve better results on your investments without increasing your risk by owning the bonds yourself.

Be true to yourself and if you are really ready to change your investor profile make sure to undertake a course of study so that you are fully prepared for the experience.

Happy Capitalism!

How can you tell which men are fathers?

Generally, as they are the workhorses of the economy, a good rule of thumb is, if they have harness marks on their shoulders from pulling a heavy load over a long distance with some rough patches along the way and for a very long period of time that have earned the esteemed title of Dad.

Fathers are the economic engines of our capitalist democracy and on this day they deserve our thanks, respect, and gratitude for having divested themselves of most of their personal desires and invested their time and resources into their families and communities.

Father’s Day is the holiday that celebrates accountable men who might appear old to their children but are, in fact generally young men who have willingly accepted tremendous social and economic responsibilities.

Through their selflessness fathers help their children develop so they can participate as contributing members of society. They also give generously outside the home. Some of the bounty we enjoy in our communities can be directly attributed to the efforts of fathers working in concert.

They volunteer and donate money to make sure that there are healthy sports leagues, community associations, historical societies, PT A’s, and other activities that help children learn the necessary basics of discipline, team work, self respect and community spirit.

Fathers make extremely long term investments in their children.

The regular expenses related to providing a child shelter, food, clothing, education, supervision, transportation, and entertainment, to age 18 is significant to say the least.

When the fees for post-secondary education and the opportunity cost of raising a child are taken into account, the final tab is in the range of $600,000 per child. No wonder fathers often refer to their children as priceless treasures.

The relationship between fathers and the economy is best described as the relationship between the keeper of the magic wallet, that never seems to be run out of cash, and the suppliers who want to satisfy the needs of his family.

Imagine the reduced cash flow to piano teachers, skating coaches, driving schools, George Lucas, and Tim Hortons without the regular sponsorships of Dads.

Given the tremendous investment fathers make in their children and communities, it begs the question what do they expect in return?

Not much really.

A little peace and quiet every once in a while, an occasional round of golf with some pals, children who grow up to be people that they like, communities that are safe and clean to live in, an enthusiastic and vigorous relationship with their spouse. And generally less headaches.

To all the fathers who make this world a better place to live keep up the good work and enjoy every second of your special day, it only comes once a year and is always too short!

Happy Capitalism!

Hi Lou:

Love to listen to you every morning and hear your wise and witty comments.

I don’t think anyone has addressed the problem of senior citizens already retired who have no company pension.  My husband and I, like many others, are living on our RRIF and CPP.  Our RRIFs are in mutual funds with an insurance company and these funds lost 35 to 40% last February.  That’s when we panicked and got out.  The remainder of what’s left of our money is now in Money Market and Bond  mutual funds.  Do you have any advice to give those of us (who probably expect to live another 10 years) as to how to allocate our assets?  Thanks for any help you can give.

Dianne

Hi Diane,

From what you have told me you are at least 71 years old which is the age that you have to begin to wind up your RRSP and convert to a RRIF. The allocation that you have now is very conservative and frankly at your age it should have been in place before. I have said many times that the only senior who should be invested in stocks is Warren Buffet.

Now I say that because when you are older there is a less time to make up for losses and usually the capital  you have invested is providing supplemental income to support your retirement lifestyle.

But none of that helps answer your question of what to do now. My guess is that at this point you want to find some way to recover your lost principal as quickly as possible. 

One  thing you could think about is to use a variation of the barbell strategy where you combine long term assets such as bonds and very short term assets. Now the variation is that instead of using money market funds for the short term portion of the investment you trade higher risk stocks. We often say that if you can’t afford to wait you have to speculate.

The implication of using a variation of the barbell using a trading strategy is that you allocate the bulk of your assets into safe investments while ramping up the risk on a smaller portion in an effort to grow the smaller pile sufficiently to replaced the lost capital.

Given that your assets are now invested in mutual funds with an insurance company you might want to consider using say a small cap fund for the smaller growth portion of your portfolio.

Another consideration is to see how you might make use of the new Tax Free Savings Account to generate tax free gains. Under RRIF rules you have to start withdrawing capital so that the government can start collecting its deferred taxes. You are allowed to invest $5,000 a year into a TSFA . Do some calculations as to how much you can withdraw at the lowest possible tax consequence and make use of the tax free provision of the TSFA for the growth strategy implied with a variation of the barbell. You can even use the TFSA to generate tax free income from more conservative investments like bonds.

Make it a great Summer Diane and Happy Capitalism!

I recently had to face a hard dilemma that  involved my 6 year old daughter Madeline.

She is the center of my life and I would do anything for her, but when it came to getting her a dog I had to say “no”. Neither my wife nor I are pet people. We’re not plant people either as evidenced by the withered remains of potted things that litter our porch.

I tried to reason with Madeline but she was set on owning a pet and was wailing and crying in anguish. She  told me that she wanted to give her love to a pet and that she was ready to take care of a dog. I had been saying no to her for a couple of years regarding owning a pet. We bought some time with Goldie the gold fish – who lasted one day.

I had gone to a Leafs game and when I came home Goldie was floating at the top of the water. Unfortunately my wife and daughter had given Goldie her evening meal. It turns out there was enough food in the water to feed a run of tuna . Next we got a beta fish, Coral, who lasted about four months before doing the one-eyed side stroke at the top of the tank.

I heard Madeline’s need to connect with a pet in a new way when she was crying. She is an only child and doesn’t have brothers or sisters to engage and because of the busy street we live on there’s no community of kids playing out front of the house she can run with. Her tears almost brought me to tears as her pain overwhelmed me.

The long term commitment of a dog got me searching for a somewhat less long lived mammal that might meet her needs and reduce the years of indentured servitude that I as the beast-keeper would have to endure. Which brought me to the guinea pig.

The guinea pig is a member of the rodent family from the Andes, as I learned from Wikipedia. They estimated that it could live for between 4-7 years. The guinea pig has a need to socialize with others so the recommendation is that you have at least two so the rat doesn’t get bored and start chewing the enclosure that you have built to keep them from going about and chewing up the cords to computers or lamps.

I would have to say that the best part of the Wikipedia entry was the section on guinea pigs as food.

Yum!

Apparently the residents of the Andes region consume 65 million of the rodents every year. The meat of the beast is said to taste like the dark meat of a chicken and has a high protein value and low cholesterol. Lovely.

Now that I had found a pet that could conceivably only be in my care for 4 -7 years I introduced them to Madeline. She was enthralled. We spent time on the web looking at sites with guinea pigs and videos of how to care for them and that’s when the honeymoon ended. One video suggested that the animal could live for 10 years which was a set back.

Like a convicted criminal I could take 4-7 in a deal but 10 was too long a stretch for this old man.Now let me be frank with you my friends I did analyse what I might have to be called upon to do initiate an exit strategy if a pet was bought and absolutely had to be terminated with all due prejudice.

Angel of Death

My pal Ron was quick to tell me he offed his daughters cat after it sprayed on his computer so I knew where to go if I needed some wet work done.

And then it came to me. I’m not a farmer, pet owner, or assassin. I’m a capitalist and that’s when I realized that I could negotiate my way out of my dilemma. I started the bidding at $100 if she would forgo the residency of a pet in my home until she graduated from college. This was money that wouldn’t go into her education fund but could be used for anything she wanted. Madeline quickly rejected my offer.

Now I have to tell you that Madeline is a very special child. When she was three years old she came running up to me as I came through the door from work and asked daddy can I have some money. Thinking she wanted the change from my pocket I said of course my love how much do you want. To which she replied $20,000. Picked her up – kissed her – and said victoriously “You Are My Child”! I also went and wrote her a cheque for the amount to go into her college fund.

Over the last three years I have taught Madeline to play poker, Monopoly, Risk, Clue  and chess in an effort to help her improve her numeracy and literacy. She has gotten pretty good at these games and has been known to skin her Dad more often than not in all of the above pursuits.

I quickly raised my bid to $200. Again my offer was rejected. We went back and forth till we got to $1000.00 and by which time I put it in terms of currency she could understand. I told her she could buy ten American Girl Dolls with that amount of money. She said she needed to think about it for a day.

As I was about to leave she said “Daddy let”s close this deal”. I wrote up a Maddie-Daddy Contract and a cheque and had the contract witnessed by my wife.  Now $1000.00 may seem like a lot of money but when you calculate all the time and money spent on pets I say I got the best of a bargain.

Happy Capitalism!

PS – Reader comments can be found here.

What are your thoughts on TFSA that was introduced in the beginning of ’09?

Is there any strings attach?  Kind of sounds to good to be true.  Any help will be appreciated.

Hi Nelson,

I know its hard to believe but the Tax Free Savings Accounts that came into being in January are not too good to be true they are too good to be missed!

Any resident of Canada 18 years of age or older can sock $5,000 a year into this shelter and get tax free growth on their assets regardless if the growth comes from capital gains, interest, or dividends. If you are interested in other types of investments such as options and futures you would best be served asking your accountant for clarification as to eligibility.

The link below will give you most of the information you need directly from the Canada Revenue Agency.

http://www.budget.gc.ca/2008/pamphlet-depliant/pamphlet-depliant2-eng.asp

Make the most of this opportunity to grow wealth tax free.

Happy Capitalism!

Nigel from Mississauga, ON, writes about his LIRA taking a licking:

I am presently on my second career and have my first pension in a LIRA (Locked-in Retirement Account).  I have about 15 more years to work if all goes well.  Like others my LIRA has declined 40% in the last year.  It is invested at 70%-Canadian equity,16% US equity, and 14%-global equity.

Am I better to let it ride for the time being or make a move to attempt to stem the flow, if so what would you suggest based on the new regime in the US.  There is talk of huge investment into infrastructure perhaps this is an avenue to explore??

The TSX Composite must hold these levels

Hi Nigel,

In my experience if you are uncertain as to how to proceed stop and look for signs as to where you are and which way you are headed. You clearly are uncomfortable and that is when I advise as I have many times to go to cash. Yes you will pay commissions to get out but that’s the end of the that sinking feeling in the pit of your stomach.

The chart shows the TSX Composite building support in the 8,400 level. There is resistance at 10,000 if it breaks through this resistance it runs to 12,000 without much to stop it.

The MACD is signaling an upturn but thats not a guarantee.

Breaking Above Resistance

As far as infrastructure I`ll use SNC Lavalin as a proxy.  It looks like the stock has bottomed and is moving through resistance at the 200 day moving average. From a strategic position yes infrastructure looks to be a good place for capital not just in Canada but globally.

Make sure to watch the charts of your funds or stocks every day to confirm that you want to continue to own them. If you ignore your money it will go away.

Happy Capitalism!