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?

How satisfied are you?

If you are thinking about enlisting the services of a full service broker you may want to check out the results of the following survey by J.D. Power and Associates. Their survey measured how satisfied Canadian investors are with full-service investment firms. Based on a 1,000-point scale here are the results:

Edward Jones: 758
Berkshire Investment: 752
Wellington West Capital: 747
Dundee Wealth: 731
Raymond James: 729
RBC Dominion: 728
National Bank Financial: 727
Credential Securities: 726
Desjardin Securities: 724
Canaccord Capital: 723
Industry average: 720
Laurentian Bank: 717
CIBC Wood Gundy: 713
Assante: 709
Scotia McLeod: 699
TD Waterhouse: 694
BMO Nesbitt Burns: 689

High Interest Saving Accounts - Guest Post

GUEST POST FROM http://nocommunism.blogspot.com/

Middle Class Millionaire has foolishly agreed to let me do a guest post. I apologize in advance for the mass exodus away from his blog.... to mine! Ha ha!

Sucker.

Oh, right. I was supposed to make a serious point about something.

Okay, most of us have a very similar problem. We don't have enough money. Even when we get a little extra, we're either using it to pay down debt, or we're plowing it back into our investments.

If you were, say, this guy or this guy, you'd definitely want to place to park your excess cash. But where? Don't worry son, I can help!

Let's start with the big banks, just so we can get them out of the way early. They all suck. The best one offered is RBC, which offers a high interest savings account at 2.75%. The catch is that all you get on that account is online banking.

As for the other big banks? You either need ridiculously high minimum balances, or the rate sucks. Most are 2.25%, and quite a few have a minimum balance of at least $5000.

Now onto some more interesting options.

E-Trade Canada will let your uninvested cash earn 3.05%. This is interesting if you already have an account at E-trade, since there'd be no transferring back and forth. Even though there's better rates out there, if I was an existing E-Trade client I'd just plow my money there.

ING was the company that started the high interest savings revolution, at least in Canada. They offer a rate of 3%, combining that with the promise of zero service charges if you switch all your banking to them. They also have an interesting option for your U.S. dollar cash, an account yielding 1.75%.

PC Financial's rate is a comparable 3.05%, plus a bonus of about .05% on your anniversary date. It sure was nice for PC to remember our anniversary date, cause I, uh, forgot to get PC Financial a present. Guess I'm not getting any tonight.

Manulife offers 3.00% on a pretty standard account. HSBC is the same.

Canadian Tire Financial Services is interesting. They offer 4.3% for the first 90 days, (up to $100k) then the rate drops to a more realistic 3.05%. Still, if you average those out over a year you get 3.32%, which isn't too shabby. No word on whether they pay you in Canadian Tire money, but I'd hope not.

Altamira offers a decent yield of 3.2% for their account. Citizens bank is at 3.15%.

The winner is... ICICI BANK! With an astonishingly high 3.4% interest rate, the boys from India come through on this one. Great job guys. There's just one thing. What's up with that name? Get on that, wouldja?

Upon further searching at Globefund, the average 5 year return on a money market fund is around the 3% range. You could try to cherry pick a better fund, but good luck with that.

Taking the time to set up one of these is actually worth your time. The difference between ICICI and my savings account is 3.15%. (3.40%-.25%) Having a 10,000 balance would get you an extra $315 per year.

Want to Retire Rich? Stay Married

I think everyone out there knows at least a few people who have had to for one reason or another part ways with their spouse. Other than the emotional costs of divorce there is a huge financial burden as well. Let’s just do a little exercise, take all of your networth (including pension) and divide it in half. Before you divide your networth in half don’t forget to subtract the thousands of dollars usually required to legally file for divorce and all of the associated real estate fees that go along with selling the cottage, house etc...Next you’ll want to take all of your shared living expenses, mortgage, heat, hydro, gas, cable, internet, house taxes etc... and double them (because you’ll each need your own place now).

Get the point? Divorce is expensive...so if money is tight it just might be worth working a little bit less (not more) and spend that time with your spouse instead....(especially if you live in Quebec)

PROVINCIAL DIVORCE RATES
Newfoundland and Labrador - 17.1%
Prince Edward Island - 27.3%
New Brunswick - 27.6%
Nova Scotia - 28.9%
Saskatchewan - 29.0%
Manitoba - 30.2%
Ontario - 37.0%
British Columbia - 39.8%
Alberta - 40.0%
Quebec - 49.7%

Source: Statistics Canada, 2003

BCE Deal is Done!

Well the BCE deal is finally going to be done and is expected to close before the 11th of December! I purchased BCE in December 2007 and although I didn’t expect the volatility, or the favourable ruling for the bondholders it is nice to see that my rational for buying was correct. To see my original thesis behind purchasing BCE please click here.

Whether BCE is actually worth $42.75 is a whole other story though....

Requesting Guest Posters

As you can probably tell by the reduction in posts this is turning out to be a very busy summer for me at Middle Class Millionaire. So...I am asking you (readers and/or other blog owners) if you would be interested in submitting a post or two over the next couple of months. I am open to receiving posts on anything related to finances, investing, retirement planning, market conditions etc... I will post it on my blog but will of course give you all the credit for your writing. If you are interested please send me an email at middleclassmillionaire.blogspot.com or just leave me a comment with your email address and I’ll get back to you.

Thanks.

Requesting Guest Posters

As you can probably tell by the reduction in posts this is turning out to be a very busy summer for me at Middle Class Millionaire. So...I am asking you (readers and/or other blog owners) if you would be interested in submitting a post or two over the next couple of months. I am open to receiving posts on anything related to finances, investing, retirement planning, market conditions etc... I will post it on my blog but will of course give you all the credit for your writing. If you are interested please send me an email at middleclassmillionaire.blogspot.com or just leave me a comment with your email address and I’ll get back to you.

Thanks.

Are you Worried about a Breakup?

Since posting about my recent purchase of GE I’ve been emailed a number of times asking if I’m concerned about the increasing pressure being exerted on GE to breakup. Well the answer is no, absolutely not! Personally, I think that the real value of a world class conglomerate like GE would be unlocked if it was broken up into their separate operating divisions. It’s very rare that large conglomerates trade at a value equal to the sum of their parts and I think that GE is no exception. As a shareholder of a conglomerate you really have nothing to lose from a breakup. Instead of owning many shares of one world class company you’d own less shares of many world class companies. The only difference being is that you can sell the divisions you don’t like and in all likely hood the value of the separate companies would be greater than that of the conglomerate. So to make a short answer long----breakups are an investors best friend.

BCE – A Sigh of Relief

You could almost hear a communal sign of relief today as the Supreme Court of Canada dismissed bondholder objections to the proposed $35-billion deal to privatize BCE. Despite this ruling there is obviously still a lot of doubt on the street as the 30 million shares traded today resulted in only a 5.7% increase in the share price. Personally, I will continue to hold my shares and am speculating that this ruling will solidify the deal in the $41 to $42.75 range. Here is what some of the professional are predicting:

-Troy Crandall at MacDougall, MacDougall & MacTier – $42.75 (80% likelihood)
-Joseph MacKay at Desjardins Securities Inc. – $39.25
-David Lambert at Canaccord Adams – $42.75

How I Added $20,000 to My Home in 3 Days - Part 2

Here are the Details:

Time Spent:
In total there were 3 of us working on the house from 8AM until Midnight Friday, Saturday and Sunday.

Improvements Made:

Hallway
* Removed dated wallpaper and chair rail - Free
* Re-Mudded sections of the wall after the paper was removed - $5
* Primed and painted walls- See Paint costs
* Primed and painted 3 doors in the hall

Half Bathroom
* Replaced cabinet - $50(we bought this used new it would be around $300)
* Replaced Sink and Faucet - $300
* Replaced toilet paper and towel holders - $50
* Bought new towels - $20 (and we take them with us)

Dining Room
* Removed dated crown mouldings - Free
* Primed and painted - See Paint costs

Kitchen
* Removed dated wallpaper - Free
* Re-Mudded sections of the wall after the paper was removed - $2
* Removed dated oak cabinet doors and primed and painted them with cabinet paint - $80
* Replace old hardware on the cabinets - $50
* Replaced counter tops - $250 (bought precut sections from Home Depot)
* Replaced sink - $150
* Replaced faucet - $100
* Replaced hood above the stove - $60
* Put up a stylish border around the kitchen - $30
* Bought new curtains - $30
* Primed and Painted - See Paint costs

Living Room
* Primed and Painted - - See Paint costs

Bedrooms
* Primed and Painted - See Paint costs

Full Bathroom
* Removed old floor and tilled - $50
* Painted the shower grout with grout paint - $15
* Bought new towels - $40 (and we take them with us)
* Removed old wall paper - Free
* Re-mudded one whole wall - $5
* Primed and Painted - See Paint costs
* Replaced toilet paper and towel holders - $50
* Re-cocked the shower and bathroom cabinet - $10

Back Deck
* Cleaned and re-stained - $20

Front Deck
* Cleaned and painted - $10

Back & Front Yard
* Raked - Free
* Grass cut - Free
* Planted flowers (annuals). Some perennials were already there. - $30

Garage
* Cleaned - Free
* Primed and painted the door - - See Paint costs

Everywhere
* Thoroughly cleaned everything (there wasn't a single surface that wasn't cleaned)
* Repainted all trim and doors - See Paint costs
* De-cluttered the house. We removed almost all of our possessions from the house prior to listing. We only left enough items to stage the house.

Miscellaneous Decorations
We probably spent around $200 on decorations (however we get to take them all when we move).

Paint Costs
I'm estimating that we spent around $200 on paint and painting supplies.

So in total we spent around $1800 (I'll round up to $2000 in case I forgot something). So basically over the course of 3 very long days we were able to turn $2000 into $20,000. Not bad for 3 days work.

How I Added $20,000 to My Home in 3 Days - Part 1

As many of you know I have recently relocated to my country property and switched to a slower paced lifestyle. As a result there was no need to keep our house in the city so about a month ago we listed the house and I'm happy to say that this week it sold for 98% of the asking price.

In order to make the house more appealing we decided that if we wanted to get top dollar for our home some improvements were needed. Being a frugal kind of guy we of course did all the improvements ourselves and on the cheap. I wanted at least a rough idea of how much value we'd be adding to the house so prior to beginning the work I had 2 real estate agents in to view the property and provide me with a suggested listing price. After the renovations were complete I had them in again to re-evaluate the listing price and both were about $20,000 higher. In my next post I'll explain exactly what improvements were made and the approximate time and cost involved.

GE

I recently initiated a position in GE for the following reasons.

"General Electric is one of the largest and most diversified industrial corporations in the world. GE is engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Some of GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; motors; electrical distribution and control equipment; locomotives; power generation and delivery products. Their operations are divided into six different segments; Infrastructure, Industrials, Healthcare, Commercial Finance, GE Money and NBC Universal."

-2008 Estimated PE – 13.8X
-2009 Estimated PE – 12.5X
-2010 Estimated PE – 11.25X
-Current Yield – 4.05%
-5 Year Average Yield – 2.6%
-Current Payout Ratio – 53%
-5 Year Historical Payout Ratio – 52%
-3 year dividend growth rate – 10.56%
-5 year dividend growth rate – 9.16%
-Argus rating of "Buy" and a 1 year price target of $40
-S&P rating of "4 Stars", "Buy" and a 1 year price target of $38
-increased their dividend every year for the past 31 years.
-their dividend has been paid quarterly since 1899

I like the fact that GE has clearly defined goals (8% organic growth) and I believe they are definitely moving in the right direction with their “ecomagination” concept. I don’t think it will be long until green technologies will start to really sell, and GE is taking an aggressive stance on their green (and profitable) technologies. They also have a dominant global position in one of my favourite areas, infrastructure. Shares of this world class comglomerate have recently been under pressure due to an earnings miss caused by weakness in their financial services, healthcare and domestic consumer segments. However, their global and infrastructure segments remained strong and I believe they'll continue to due so. Although, GE may experience further short term declines I iniated this position for the long term and just couldn't resist picking up some of this world class company at valuations not seen for over a decade.

[As always please do your own research and consult your own financial advisor before making any decisions.]

Back From Vacation

I'm officially back from vacation now and will start posting regularly again. Here is a little preview of the topics I'll be posting about this week.

1. Provide an analysis of a new addition to my portfolio.
2. Post my regular monthly portfolio update
3. Talk about how I added $20,000 to the value of my home in 3 days.

Vacation

Sorry for the late notice but I've been on vacation recently and will return to a more regular posting schedule in the 2nd week of June.

Cheers,
MCM