Stephen Poloz Speech, March 18, 2014

When Stephen Poloz replaced Mark Carney as the head of the Bank of Canada, he had big shoes to fill. In my opinion, until yesterday, the jury was still out as to whether Mr. Poloz was up to the job. That is, until yesterday when he spoke to the Halifax Chamber of Commerce. While his words are, as the press has called it, "gloomy", they are reasonable and accurate.
I think everyone of us needs to read the text, not the interpretations of the news media. So, for the sake of public interest, here is the text as published in Bloomberg News.

http://www.bloomberg.com/news/2014-03-18/bank-of-canada-governor-poloz-s-speech-in-halifax-text-.html

My Father's Predictions About the Lottery and Now Marijuana. He's Right Again!

My father was right, once again. My Dad was an interesting guy, when it came to anything to do with monetary numbers, he was an expert. Not to mention his ability to add, subtract, or multiply any set of numbers in his head.
He was a butcher on the lower east side of New York, and, in his time, he saw organized crime raking in large dollars from "the numbers". When I was in my late teens, sometime in the early 1960's, he told me that there is way too much money in "the numbers" for the government not to take it over one day. And of course, today there are government run lotteries for everything.
And, how much money are these lotteries worth to government. Florida just concluded their February, 2014 Revenue Estimating Conference, and published the following report available at http://edr.state.fl.us/content/conferences/lottery/lotterysummary.pdf

And, what they concluded was that revenues from lotteries, in the State of Florida alone are estimated at more than $3 Billion per year! YIKES. Or, if my Dad were alive today, he would have said, "Lotteries are a way for the government to steal from the poor". Alas, I'm afraid he was right.

So, what would he have said about the legalization of Marijuana. Ditto. For way to long the governments have been giving away way too many dollars to organized and sometimes disorganized crime (I'm talking here about Jessie Pinkman), for the sale of drugs.

And sure enough, in the U.S., state by state they are looking at the legalization of marijuana. So, what is that worth?

According to the budget proposal released last week by Governor John Hickenlooper, Colorado expects to generate approximately $600 Million. And, Colorado is only the 22nd ranked State in terms of population. If they can rake in $600 Million, than imagine what the State of California, with over 6 times the population could be looking at. Simple math tells us that's over $3 Billion in annual revenue. And, neither of these figures even include the tax revenue from the business owners and employees involved in this new retail distribution venture.

And, what's happening in Canada with respect to marijuana. Medical marijuana is already legalized and production is beginning in earnest with the federal government estimating revenues to reach $1.6 Billion by 2024.

Is it too late to put my Dad up for a Nobel Prize in Economics?

On the non-medical front in Canada, The Liberals want to legalize it, but, the Conservatives are using that stance to call the leader unfit for the job of Prime Minister. So, it won't happen until the next election is over, and I suspect that regardless of which party is in power (I ignore the NDP, as does the rest of Canada), marijuana will begin its journey towards complete legalization.

In the meantime, just yesterday, Peter McKay announced that the Conservative Government is looking at potentially changing policy to allow police officers to issue tickets for marijuana possession. Now that's a clever way to be on both sides of the same issue. Rather than risk losing the entire Marijuana Nation vote to the Liberals, they are hoping to get some of it back through this measure.

In the meantime, ElliotSchillerBlog Industries has just invested Billions into the ZigZag paper company, the official supplier of these new marijuana tickets, which will not only be good enough to generate revenue for the government, but good enough to smoke. Good thinking Canada, and good thinking Blog Industries.

An Open Letter to Facebook

Dear Facebook:
I am a grandfather who has discovered that Facebook is a great way to see what's happening in the lives of my kids, their kids, my friends and relatives, their kids, and their kids' kids. It's a great way to share some the things in life that are just so wonderful.
So, like the rest of the community, we tolerate your putting advertisements on our news feeds as a necessary evil.
However, today, instead of an ad for product or services, I got the following propaganda post.

Unacceptable. The world is full of enough harmful untruths.
Please stop. I am caught between a rock and a hard place here. Note that while I want to share with my friends and family, I am unhappy and if given a kinder, gentler alternative, I will terminate my relationship with you and when enough of us do that, you are out of business.

Pay Down Your Mortgage, or, Invest in an RRSP

I came across an article with this exact title, and after reading it, discovered that I learned nothing. The article never explained which was better. It did however suggest that if you were going to pay off your mortgage before retirement anyway, maybe, and I repeat, maybe, you should invest in the Retirement Savings Plan (RSP), so that you can accumulate savings.
That sounded logical to me, but I needed to do the math.

Let's look at 2 examples and see what the answer is in each case. But, before we do, I'll give away the answer for you types that don't want to see details, because they taught us in consulting school that the first page of any report gives the answer, for the president, and the proof of concept is in the appendix for the accountant to confirm.

SO THE ANSWER IS: If you have 25 years ahead of you on the mortgage, then you are better off paying off the mortgage vs. investing in an RRSP. On the other hand, depending on your taxable income, there is a point in time (in the case below, it's with 13 years left on the mortgage) when you are better off putting the potential mortgage anniversary money into an RRSP and letting the mortgage ride.


CASE 1: TAXPAYER WITH 25 YEARS LEFT ON THE MORTGAGE

Let's use the example of a thritysomething year old parent with an income between $55,000 and $80,000, which after standard deductions most likely puts them in the 31.15% marginal tax rate.
I chose thirtysomething so that, with a 25 year mortgage, as per the article, they would still be earning income during the entire life of the mortgage.
Now, let's say they bought a home with a $600,000 mortgage, and a 3.5% interest rate. And, to make life simpler, let's say the term of the mortgage is 25 years (I know, no chance of that, but, if we assume the rate remains constant for 25 years, we will be making the same assumption about interest earned from the RRSP, so, it's a wash).See below

If so, then their monthly mortgage payments are $2,995.63, as per the RBC bank mortgage calculator.  See below

So, what if the taxpayer has available cash of $10,328 to put against the mortgage. (Why $10,328 because that's the equivalent of $15,000 put against an RRSP after the $4,672 tax saving. We'll get to that calculation later.)

RBC says that if you pay your mortgage down by $10,328 yearly (anniversary payment) for 17.3 years, then, you will have paid off your 25 year mortgage. See below.

So, to recap. A person earning between $55,000 and $80,000 with standard deductions for themselves and kids, will be in the marginal tax bracket of 31.5%. If that person invests $10,328 per year into their $600,000 mortgage, they will own their house in 17.3 years. NO MORE MORTGAGE PAYMENTS.

But, what it they choose rather to invest in an RRSP, you ask. O.K. let's begin.
A person with a $65,000 after standard deductions taxable income, living in Ontario will pay $13,430 in income tax. See below.

Now, if that person contributes $15,000 to an RRSP, they will reduce their taxes owing to $8,758.

That's a reduction of $4,672, which if they were to subtract from the original $15,000 is $10,328, the amount of real dollars we are assuming that this taxpayer has available, either to put into an RRSP or to put against his mortgage.

How much would those savings accumulate in 17 years, see below.

So, on the one side if they put they money against their mortgage for 17.3 years, they are now mortgage free, with a paid off house, but, no savings. On the other hand, if they put money in savings and didn't pay off the house, they would have $263,685 in the bank, BUT, still owe the mortgage company 8 years of payments at $2,995.63 per month which is an additional $339,510.

Why after 17 years do they still owe over 50 percent of the original mortgage, because the first 10 years of the mortgage payment goes almost 100% to paying off the interest, not the principal.

Back to the original question. RRSP vs. Mortgage. In summary, if you invest in your home, and then when the mortgage is paid off, after 17 years, you put $35,948 per year in the bank for 9 years,you will have savings of $339,510 plus interest.

On the other hand, if you don't pay down your mortgage, but rather put $10,328 towards an RRSP, after 17 years you have $268,685 in the bank and still owe the mortgage company $339,510. Looks to me like a no brainer! PAY OFF THE MORTGAGE


CASE 2: SAME TAXPAYER BUT WITH ONLY 13 YEARS LEFT ON THE MORTGAGE

Let's use the same taxpayer, but now, he's fortysomething with only 13 years left on his original 25 year $600,000 mortgage. For the sake of simplicity let's assume he is still in that 31.5 % marginal tax bracket.

So, starting in year 13, let's begin paying off the house with the yearly $10,385 anniversary payment, instead of putting $15,000 into his RRSP. After 8 payments, the mortgage will be paid off by the end of the next year (year 21).

Again, what if we don't put the 8 anniversary payments into the mortgage, but rather, put them into an RRSP. If we look at the savings chart we used before, you will see that the value of our savings after 8 years is $123,789.

And again, what if after 8 years we hadn't put anything into the mortgage, what is 3 years of payments to pay off the mortgage. (Note: we skip year 9 because we pay that in either scenario). At $2,995.63 per month, that's $107,842.68

A HA! In this case, after 8 years of putting money into the RRSP, we actually owe less on our mortgage than the value of our RRSP account, assuming 3.5% interest on our savings and 3.5% mortgage interest rates. So, INVEST IN RRSP AND THE TAX SAVINGS MAKE UP FOR THE EXTRA MORTGAGE PAYMENTS.

The moral of the story: the article was right. RRSP vs. Paying Off the Mortgage, it depends!! 

The Real Winner of Super Sunday

I understand that besides Groundhog Day, there was also a football game on Sunday Feb. 2. Who knew?
Now, back to the winner of the Team Canada vs. Team U.S.A. Groundhog Day Predict-Off.
Beginning with Team Canada..
Wierton Willey predicted 6 more weeks of winter, and a Bronco victory. But, both Winnipeg Willow, FROM WINTERPEG (NOT EARLY SPRING PEG, are you kidding me?) and Shubernacadie Sam who appeared to have been to a tail gate party the night before and had trouble waking up, both predicted an early spring. Right, what part of the equation CANADA=WINTER do you not understand.
If Canada=Winter
and A,B,and C all live in Canada, What do the next 6 weeks have in store for us?
WINTER!!!!

So, how did the southerners fair?

Chuck E. Hogg from the great state of New York, and his adjoining neighbour to the South, Punxsutawny Phil both predicted 6 more weeks of winter, and also a Bronco victory. Their southern friend from the great state of Georgia (really in the South), predicted an early spring, and a Bronco victory.

O.K. so nobody saw the Seattle thumping, but Team U.S.A. is clearly the victor in this years Groundhog Day Predict-Off.

My suggestion, after 2 years of getting it wrong, Team Canada needs to get rid of Winterpeg Willow and replace her with  Fred La Mormatte from Quebec. They Quebecers understand winter!!

Countdown to Super Sunday

Another year and another exciting final week before the big event. Sunday February 2, 2014 is GROUNDHOG DAY!!!

This year, the event will be an international affair with Team Canada squaring off against Team U.S.A.

Let's meet the players...

Team Canada

From Wiarton Ontario, the team leader is Wiarton Willey....

Willie has been on the team since 1956. He is the only "white" groundhog on the field, although many of his detractors are convinced that the "white" is actually hair colouring. No comment from this editor.

From Shubernacadie Nova Scotia, it's Shubernacadie Sam.

Sam, being the furthest east of any team member on either side of the border is always the first to make his prediction on Super Sunday. Of course, considering where he hails from, predicting six more weeks of winter is not a tough job.

The final member of the Canadian team hails from Winnipeg Manitoba. It's Winnipeg Willow.

Willow barely made the final team this year after his disastrous prediction of an early spring in 2013. Winnipeg hasn't had an early spring in recorded history and certainly didn't intend to have one last year.

Team U.S.A.

From Punxsutawney Pennsylvania, team captain Punxsutawney Phil continues to be the most famous of all prognosticating groundhogs.

Phil has led this team for what seems like forever. He is a good looking, good predicting groundhog who has the ability to carry a team single pawedly. He's the Go To Guy for Team U.S.A.

From Staten Island New York, it's Charles G. Hogg.

Chuck's claim to fame is the 2009 GroundHog Day Staten Island Festival when he bit through Mayor Bloomberg's glove and chomped down on the Mayor's index finger. Depending on which side of the political spectrum you reside, Chuck is either a hero or a terrorist.

The final member of Team U.S.A. is from the southern U.S., Liburn, Georgia. It's General Beauregard Lee.

 Beau, while having achieved great success in the military is considered the pretty boy of the contest. If Beau played U.S. football, he would be Tom Brady.

Those are the teams. Even as we go to press, each team is busy preparing for Super Sunday by trying to understand what the other side is talking about when they speak either imperial or metric.

My team of crack investigative reporters has learned that Willie is teaching his team the "quick method" of converting from Celcius to Fahrenheit. And, for the first time ever published ("on my blog"), we are going to make that conversion method public.

Given a temperature in Celcius, let's call it C, here is what you do to convert it to Fahrenheit, let's call that F.

1. Multiply C times 2
2. Take the result and reduce it by 10%
3. Add 32
4. And, that's F.

Complicating the learning experience for Team Canada is that while between the team they have 60 "fingernails", none of them can count past 20 ("fingernails").

May the best team win!

Ahmad Tibi: Let's Celebrate a Non-Violent Protest

By now, every Canadian in the world knows that Ahmad Tibi walked out on Prime Minister Harper's speech to the Knesset on Monday.

As Dorothy said to the Lion, "My goodness, what a fuss you're making".

We need to celebrate Mr. Tibi's protest. It was non-violent, and, I would say, effective. Here is a link to the  9 minute interview on CBC news where Mr. Tibi gets to explain why he felt that he had to walk out. (editors note: It's not on youtube, so, there is no way to paste the actual video onto this blog).

Ahmad Tibi: Why I walked out on Stephen Harper's speech

When I listened to Mr. Tibi's explanation, I learned his point of view. While not in the same room together, I still was able to understand why he felt he had to do what he did.

If we don't take the time to listen to non-violent communication, what's the alternative? Suicide bombers killing innocent children?

Remember the 1968 Summer Olympics when the U.S., and even some black athletes from other countries protested the treatment of blacks in the U.S. Now that also drew a slew of protests from around the U.S. But, what people didn't do, was listen to what the Athlete's were saying.

What a pity, in retrospect, what an effective way for people who believe that they could make a difference, to tell the world. And, following that protest, I also remember "what a fuss everyone made".

That was followed by the riots during the Democratic Convention in Chicago and many a violent protest thereafter.

On the week of Martin Luther King Day, shouldn't we be saluting and listening to non-violent protest. If we don't, we are saying to the "violent", you're right, we don't hear non-violence, only violence.