1. I wouldn’t count the blessings just yet but the days of 40% to 50% margins for the cellphone companies might be over. The Government has decided to reserve spectrum for “new entrants” in an upcoming auction, paving the way for more competition in wireless. That’s good news for Canadian consumers but not so much if you are a shareholder in Telus or Rogers.
  2. Sun columnist Linda Leatherdale offers tips for choosing a legitimate charity to qualify for the Charitable Tax Credit
  3. If you are buying a car in the U.S., you should be aware that some new models that do not meet new Transport Canada regulations are banned from entering Canada.
  4. Rob Carrick makes a shaky case that mutual funds held up better than the TSX Composite Index in the bear market. One datapoint of a few mutual funds outperforming one equity index in a narrow and shallow equity market doesn’t amount to any “evidence” that mutual funds are better than index funds in a bear market. Not to mention, there is little reason to believe anyone’s prognostication of a bear market.
  5. Pat McKeough, the publisher of The Successful Investor newsletter, tells Jon Chevreau that despite the scary headlines about the greenback, he is bullish on US equities.

Note: I’m a bit short on time this week, so the blog roundup will return next week. Meanwhile, if you’ve been procrastinating, don’t forget to enter the third blog anniversary giveaway which closes at 8 p.m. EST today.

This article has 18 comments

  1. I had previously worked in the USA for a number of years and I have continued to maintain a US brokerage account since that time. I continue to believe that Americans are the most enterprising people in the world and once their government somehow extricates themselves out of all of these crazy foreign wars, then they will quickly be on the road to economic recovery on the backs of American entrepreneurs and workers.

    The problem is that it hasn’t happened yet and the US government continues to manage its finances like a drunken sailor. So from a fundamental economic standpoint, the greenback will continue to devalue until they someday stop the printing presses and start to soak up all of this liquidity. If the USA were any other country in the world, the amount of debt that they have would put them into bankruptcy. On the one hand that shows the strength of the US economy, but one has to imagine that there will be a tipping point. How much is too much debt? Who knows, but this current president is testing that boundary and may likely lead the world’s only economic superpower to complete financial ruin.

    The key for “value investors” is to dive in when things are at its worst, when everything is at “rock bottom” so to speak. I personally don’t think we’re there yet – things will get very very much worse in the USA before they start to get better. The signs that I’m looking for to determine the future of the US economy are not purely financial – they are geopolitical.

  2. Oh and I wouldn’t hold my breath waiting for lower cell phone fees if I were you. The likelihood of someone coming to Canada, spending billions on new wireless infrastructure and then offering severely discounted rates are a pipe dream.

    In my humble opinion, the most likely result is that a new carrier will come to Canada and offer the most advanced wireless network and charge much more $$$ than either Telus and Rogers but offer the services which would better suit business customers. They will grab business customers with wireless internet with streaming video capability and VOIP or whatever and regular retail consumers would have to pay twice what businesses pay for that same service.

  3. I agree that Carrick’s argument is “shaky”.

    Most of the Canadian EFTs haven’t been around long enough to have data for a bear market but over the next five to ten years there will probably be a bear market or two and then the proper data will exist.

    Regardless, if you read Random Walk Down WS or Four Pillars (the book) you can see plenty of evidence that over any significant length of time, very few mutual funds beat their index. Even if you assume that ETFs always get 0.5% less than their index, the percentage of mutual funds that perform as well or better is very low – and the data in those books cover all kinds of market conditions.

    Mike

  4. This is a pretty interesting article – if you look at the second half they talk about the “tactics” of hedge funds spreading rumours about the banks and then shorting them.

    http://www.reportonbusiness.com/servlet/story/RTGAM.20071130.wrcibc30/BNStory/Business/home

  5. Canadian Capitalist

    Phil: I’m simply market-weight US equities and what Pat is saying is getting back to the 25% to 30% exposure that he has always advocated. Simply writing off the U.S. as most people (including Americans) are doing today may not be a right call.

    Also, there are still restrictions on foreign ownership of telecom. The new entrants have to be Canadian, so the spectrum auction might mean a buying opportunity in Rogers or Telus.

    Mike: I agree with you. There is a chart in one of the books (can’t remember which one) that shows cash levels of mutual funds plotted against S&P and it shows cash levels for mutual funds peaking at bear market bottoms and bottoming at bull market tops. Hardly an endorsement of the timing ability of fund managers.

  6. Do you remember in the mid 90’s when they de-regulated long distance in Canada? AT & T came into Canada and then promptly went bankrupt 5-10 years later. Bunch of other players also entered the market and no one made a sizable dent into the existing players. The only player that emerged was Telus but they already had a stranglehold in B.C. and Alberta.

    I am not sure the opening of the cell phone market is going to do much to help us. The big 3 have the lines, licensing and infrastructure. A new player will either have to spend a ton of dough to build their own line or piggy-back off an existing player’s infrastructure.

    CRTC should really do us some good by de-creasing all these ancillary fees the cell phone carriers are allowed to charge us.

  7. “If the USA were any other country in the world, the amount of debt that they have would put them into bankruptcy.”

    I’m curious to where you get this idea.

    Public debt as a % of GDP for the USA for 2005 is 64.7%
    for canada: 67.7% of GDP (2006 est.)

    Japan: 177.6% of GDP (2006 est.)

    Germany, France, Portugal, and about 25 other countries all have higher public debt ratios.

    Do you have numbers for personal debts? I highly doubt it is much higher than personal debts in Canada.

  8. $,
    Phil made an accurate statement.

    “If the USA were any other country in the world, the amount of debt that they have would put them into bankruptcy.”

    $9trillion in debt would cripple any other country. But because the US economy is so large, the relative debt is manageable (it seems).

    I don’t think their debt is the issue. It’s the deficit. Spending more than you earn is never a good idea.

  9. Food for thought when buying a car in the US: the warranty is only good at a US dealership. Canadian dealers may honor the warranty under “goodwill”, however, if the Canadian dealer can’t, or won’t provide service, you’ll be stuck traveling to the States.

    Case in point: My father purchased a US-model 2006 Suzuki XL7 from a Canadian dealer (Suzuki Canada in Calgary, AB). The dealer went out of the way to point out that it was a “US Warranty”, but they would do what they could to help him.

    Sure enough, a minor glitch has developed that requires the ECM be re-flashed (recalibrating the ABS, etc.) Suzuki Canada has neither the training, nor software to perform the service. For liability reasons, they are unwilling to even attempt it.

    The nearest Suzuki dealer that can service the vehicle is in Spokane Washington – over 8 hours drive one way.

    Sure, the 20-minute service will be covered under warranty, but there’s significant cost in transporting the vehicle to get to the service. (Likely an overnight stay). All of which comes out of my father’s pocket.

    Can you imagine the hassle if the vehicle was un-drivable? You’d have to tow it across the border.

    Anyways, the warning is this – unless a US dealer that can service your US vehicle is a convenient distance away from where you live, take care when purchasing a vehicle with a “US Warranty”. That $5-$10K you save may come back to haunt you.

  10. “I don’t think their debt is the issue. It’s the deficit. Spending more than you earn is never a good idea.”

    Better tell that to 90% of the world’s nations I guess…and everyone who has a mortgage.

    Go figure 9 trillion dollars passed onto a smaller population that doesn’t generate as much GDP per person would cause bankruptcy. It’s not the proper way to discuss debt levels.

  11. “…and everyone who has a mortgage.”
    oops…silly me

    The USA deficit levels are certainly high, it looks like they have lowered them to around 1-2% of GDP per year now. Which is apparently…”well below the 2.3 percent that’s been the norm since 1970″

  12. Canadian Capitalist

    I won’t even try to say that the U.S. doesn’t have economic problems. But they still have the most dynamic and innovative economy and will eventually find a way to address their problems. Not to mention the biggest American companies do a lot of business internationally. Yes, there are lots of worries about the U.S. and that is precisely the time to invest. After all, no one is suggesting going overboard, just getting some weighting in US stocks when our dollar is strong and valuations are reasonable.

  13. thickenmywallet :

    Yes I remember when the CRTC deregulated the long distance market. But I also remember paying 34 cents a minute in long distance to Bell Canada and not having any other choice. Now even with Bell we pay 6 to 8 cents a minute. There are some services that will even give you 3 cents a minute.

    So yes “Je me souviens”. The question is: Does thickenmywallet remember?

  14. There are a whole slew of issues that are coming to play at the same time. No more M3 index. Printing presses are rolling the dough non-stop! That will devalue any currency. It may make past debts cheaper to service, but it also takes value away from all other money in supply.

    USA has (they aren’t alone, as many Western Nations have this problem) several key issues. Baby boomers will go from the most productive demographic in the USA to the biggest drain (medicare, medicaid, etc). Inflation will continue to get worse (with printing money like that and USD losing value!). Even Bernake said he will use inflation to try and prevent a recession… but if inflation hits it could be really bad.

    USD will continue to lose value as many countries switch from using it for Petro Trading to using Euro’s or a basket of currencies. The switch alone could flood the market with USD.

    It’s not that I think the US economy will crash and burn forever (though a recession is possible), but the USD may crash and burn if it continues on this collision course… and they don’t have the only fiat currency in the world with problems – but their problems are severe. Fiat Currency is inherently flawed and doomed to failure when abused.

    The boomers that retire on thier savings won’t do too well if massive inflation occurs… inflation hurts those on fixed (or small) incomes.

  15. I believe those US companies with lots of foreign earned income will do VERY well as the other currencies they earn their money in will buy more USD, which they report thier incomes in. Many companies are international in nature and this should continue to send mixed signals to the stock market about bull/bear.

    Also, as inflation picks up, those companies that are able to keep raising thier prices will see incomes grow quite well… Ie, if 10% inflation hit and they are able to keep everything in check and raise thier prices, they may see a 10% increase in income… That will make the stock value go higher even though the company hasn’t earned any more true wealth than it did the year before. It makes the economy look all rosey – when there has been no gain at all (no loss either though).

    I think many countries try and show an inflation of around 4% when it is in fact much higher (6 to 10%) and then anything above 4% is considered a ‘gain’ while the country may actually be goign down hill be 1 or 2% each year. I’m just talking through my ass with no true hard facts but a theory with principals COULD be correct. (doesn’t mean they are) Think about the CPI and how some of the items in the CPI are kept artifially low (milk, sugar, etc, etc) to try and show a lower inflation number than what truly exists. Who knows?

  16. MikeH: “Food for thought when buying a car in the US: the warranty is only good at a US dealership. Canadian dealers may honor the warranty under “goodwill”, however, if the Canadian dealer can’t, or won’t provide service, you’ll be stuck traveling to the States.”

    That’s only partly true. It varies manufacturer-by-manufacturer. Toyota for instance, will honour the warranty of a car made in the US here in Canada (the warranty will be slightly shorter than the equivalent for a bought-in-Canada car since they round the conversion to km up, but that’s a pretty minor difference). Of course, they still try to put up artificial trade barriers by telling their US dealers not to sell to Canadians. Other manufacturers may require the Canadian car owner to pay for a warranty repair out of pocket, and then get reimbursed by the American arm of the company.

    For a list of which manufacturers do and do not honour cross-border warranties, see:
    http://www.apa.ca/template.asp?DocID=253

    For your specific case with the Suzuki XL7, have you tried another nearby Canadian dealer? The XL7 is sold in Canada so there should be the ability to repair the ECU. Of course, that might be one of the few parts that differs between markets, since the American one may do calculations in miles rather than km, etc… but even then, it might just be a matter of having Suzuki send the American software (the training shouldn’t be any different).

  17. I think the US dollar in the near future will become an interesting case study for economists and MBAs in the more distant future. Right now, the only historical reference we have is post-WW1 Germany when their currency devalued to the point of being worthless. The US dollar, however, has traditionally been the world’s reserve currency and there are many other countries (mostly in the caribbean and latin america) which adopted the US dollar as their currency.

  18. Thanks Potato for your details. Since I live in the GTA, my father and I went directly to Suzuki Canada in Markham last week and were told flat out that they are unwilling to perform the service.

    We had the same argument that software is software and flashing the ECM/ECU with a US package should be the same process as using a Canadian one. All to no avail.

    Regarding the website provided – it shows Suzuki models are covered under warranty. The catch is – Suzuki will only warrant the components of the model that are the same between Canada and US – not the whole model. This is the situation we’re in.

    Anyways, as always, buyer beware.