Archive for November, 2009

RBC Hikes Rates on Secured Lines of Credit

November 24, 2009


As TD Bank, Scotia Bank, BMO and CIBC increased the interest rate on existing secured and unsecured lines of credit, Royal Bank remained the lone holdout. No longer. Effective January 5, 2010, RBC is increasing the interest rate on existing credit lines by 1%. The bank is sending out letters to clients advising them of changes to credit accounts:

As a financial institution, we borrow from many different sources in order to lend to our clients. Over the past year, given the economic environment, the cost of this borrowing has increased for all banks. While many have already responded with interest rate increases, we delayed increasing our rates for as long as possible. However, high borrowing costs have persisted, making it difficult to maintain our interest rates at current levels.

The best rates available on both new and existing secured lines of credit with all the big banks is now Prime Rate plus 1%.

Why Gold could be a Bubble

November 23, 2009


Recent returns from conventional asset classes such as stocks and bonds have been, to put it mildly, disappointing. But, there is one asset class that has posted red-hot returns: gold. Since 2000, the price of gold has more than doubled in Canadian dollar terms but the price trend has been accelerating in recent years. In the past five years, gold has appreciated (in CAD) at an average annual rate of close to 20%.

[5 year Gold Price in CAD 2004-2009]

Like moths to a flame, investors are attracted to recent returns. The prospectus for the SPDR Gold Trust (GLD) provides a fascinating insight into the gold market. Jewellery, the primary source of demand for gold has been dropping at the same time that investment demand has been exploding. In the past five years, demand for retail investment products such as coins and bars and gold ETFs has tripled and investment demand alone now accounts for a quarter of total gold demand, up from 10% in the early 2000s.

[Investment Demand for Gold]

It must be recalled that, unlike conventional asset classes, gold pays neither interest nor dividends. Therefore, gold investors, as tulip bulb and dot com investors before them, must rely on the “greater fool” theory of investing for their profits. It is possible, of course, that competing asset classes would continue to languish, gold prices continue to increase, driving more investment demand for the yellow metal. Then again, the feedback loop could easily go negative due to any number of reasons ranging from increased mine supply to scrap supply and once again burn investors who chased returns.

This and That: 100x ETFs, TFSAs and more…

November 19, 2009

  1. It is funny and incredible at the same time. Jon Chevreau reported on the Wealthy Boomer Blog that as a joke an author faked a news release announcing the launch of the first 100x leveraged ETFs — the Kelly Daily NASDAQ 100 Bull 100x ETF (Ticker: SOAR) and the Kelly Daily NASDAQ 100 Bear 100x ETF (Ticker: SINK). What happened then makes you wonder about the sanity of investors: 65% expressed an interest in owning these ETFs, 5% were “pretty sure” they already owned the 100x ETFs and only 30% got the humour. I wonder if Scott Ronalds of Steady Hand should have kidded about the H1N1 Fundamental Vaccine Equity Plus Fund
  2. It is heart warming to read Tax-Free Savings Accounts are proving to be very popular with Canadian investors. The Globe and Mail reported that Canadians have opened up 3.6 million TFSA accounts holding an average of $3,400.
  3. Recent college graduates are entering a grim job market with few, if any, job openings. Brad offers five tips to make yourself more attractive to potential employers in a tough job market.
  4. It could happen to anyone and when it does, it is very stressful. Frugal Trader on what steps to take now to mitigate the loss of a purse or wallet.
  5. Michael James points out that even when investment advice is sound, investors often read into them what they want to hear.
  6. Mr. Cheap points out that many investors forget to account for the value of their labour in figuring out the return on investment from their business.
  7. Canadian Financial Stuff believes that Bill Belichick did not take a prudent risk when the Football coach decided that the Pats will go for a fourth down on their 28 yard line when trailing the Colts by 6 points with 2:08 left on the clock. He warns against taking risks in finances, just as in football, when the downside is too great.
  8. David Bach made a career out of one idea — automate your finances. Gail agrees and says that automating your finances will make your life easier and free up time for other pursuits.
  9. While some jurisdictions may accept hand-written, holographic wills as valid, Thicken My Wallet says that the prudent course is to draft a will through a lawyer or a will kit.
  10. Don’t have a CLU about what FRM stands for? Preet has a nifty graphic on what different advisor designations stand for. Hint: view it on Internet Explorer.

Check out Today’s Economy Blog by Kevin Press. While Mr. Press works for Sun Life Financial and his blog is about navigating the treacherous waters of today’s economy and markets.

I’m unable to highlight all the articles worth checking out in my weekly round up but you can check them out through my Twitter feed. Have a great weekend everyone!