Inflation

Well for anyone (except apparently economists) it really shouldn’t come as a surprise that inflation in Canada is on the rise. The inflation rate in Canada is now sitting at approximately 3.4% versus 3.1% during the same period last year. Although 3.4% is quite manageable for most households it is the largest increase we’ve seen in the last five years. Here are the main culprits behind the rise:

-gasoline up 28.6%
-natural gas up 25%
-food (avg) up 4.3%
-bakery products up 13.2%
-mortgage costs up 8.3%

Note: Although our inflation is rising we are still a full 2 points lower than our U.S neighbours.

Great West Life – GWO

Well I’m happy to report that I’ve received another raise courtesy of one of my perennial dividend paying favourites, Great West Life (GWO). They announced yesterday that the quarterly dividend would be increased by 5%. They now payout $0.3075/share quarterly, which gives them a current yield of about 4.1%. It’s not a huge raise but in this environment I’ll take it.

U.S Housing - Just Walk Away...

Well if you’re in the market for a house in Las Vegas or Miami they all just went on sale for 28% off. I’m not suggesting that they’re good value, just cheaper than they were. Compared with the previous year house prices in both Las Vegas and Miami dropped a whopping 28% last month. These markets sagged a full 12% lower than the national average, which saw declines of approximately 16%. With declines like these it is no wonder that the delinquency rate is rising. In many markets it’s now cheaper and faster to simply default on your mortgage and walk away from the house than it would be to pay off an inflated mortgage. In the amount of time it would take to pay off the value that you’ve lost on your home you could have saved enough money for another house and rebuilt your credit. For example, if you purchased a house last year in Las Vegas or Miami for $350,000 you would now be down a whopping $98,000 in equity. At that point the only financially responsible thing to do would be to default on your mortgage. Why not just walk away?

CDN REIT Sector Index Fund – XRE

ABOUT XRE

“The iShares™ CDN REIT Sector Index Fund seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P®/TSX® Capped REIT Index through investments in the constituent issuers of such index, net of expenses. The Index is comprised of securities of Canadian real estate investment trusts ("REITs") listed on the TSX, selected by S&P using its industrial classifications and guidelines for evaluating issuer capitalization, liquidity and fundamentals.”

HOLDINGS

RIOCAN REAL ESTATE INVST TR (REI.UN) - 25.33%
H&R REAL ESTATE INVSTMNT-UTS (HR.UN) - 14.77%
CAN REAL ESTATE INVEST TRUST (REF.UN) - 10.36%
BOARDWALK REAL ESTATE INVEST (BEI.UN) - 9.32%
CALLOWAY REAL ESTATE INVESTMENT (CWT.UN) - 7.49%
CAN APARTMENT PROP REAL ESTATE (CAR.UN) - 6.98%
PRIMARIS RETAIL REAL ESTATE (PMZ.UN) - 6.10%
CHARTWELL SENIORS HOUSING (CSH.UN) - 4.90%
COMINAR REAL ESTATE INV-TR (CUF.UN) - 4.42%
INNVEST REAL ESTATE INVESTME (INN.UN) - 4.01%
DUNDEE REAL ESTATE INVESTMEN (D.UN) - 2.72%
EXTENDICARE REAL ESTATE INVE (EXE.UN) - 2.58%

OTHER RELEVANT DETAILS

Mer: 0.55%
Annual Dividend: 7% (paid quarterly)
Single holdings are capped at 25%

HISTORICAL PERFORMANCE (EXCLUDING DISTRIBUTIONS)

5 year: up 20%
4 year: up 15%
3 year: down 3%
2 year: down 10%
1 year: down 24

Turbulent Markets

Anyone with even the slightest interest in the markets is now fully aware of the recent turbulence in the both the Canadian and American markets. Both the housing and financial markets have been in a virtual free fall for most of 2008. The analysts and newscasts have also switched from optimistic to doom and gloom. Consumer confidence is falling and the general feeling about the markets and housing is now very negative. On top of all that it looks like inflation along with interest rates may start to rise. All in all it’s not really a pretty picture. Given the dismal outlook on the economy what’s an investor to do? That's a great question that I certainly don’t have the answer to so...I’ll defer to my response to an investor who’s been here before.

WARREN BUFFET

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

“Our favourite holding period is forever.”

“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years”

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market”

“A public-opinion poll is no substitute for thought.”

“Lethargy, bordering on sloth should remain the cornerstone of an investment style.”

Keeping those quotes in mind tomorrow I'll be posting about a name that I'm planning to add to my portfolio.

What Exactly is Personal Disposable Income?

This is just a follow up to yesterday’s post and will hopefully clarify the definition of Personal Disposable Income that was used yesterday.

According to Statistics Canada personal disposable income is :

“the amount left over after payment of personal direct taxes, including income taxes, contributions to social insurance plans (such as the Canada Pension Plan contributions and Employment Insurance premiums) and other fees. It is a measure of the funds available for personal expenditure on goods and services and personal saving for investments as well as personal transfers to other sectors of the economy.”

So basically personal disposable income = income – taxes

Canadian Household Debt On the Rise

The level of household debt has been steadily increasing for the last 20 years in Canada so it should be no surprise that it continued to rise again this quarter. The average Canadian household now has an average of 19.6 cents of debt for every dollar of networth and household debt is averaging about 123.8% of personal disposable income.

This is a frightening figure at this stage of the financial cycle as it is much more likely that interest rates will be rising than decreasing. An increase in interest rates will of course make managing this debt much more difficult for many Canadian households. How does your household debt compare to your personal disposable income?