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This and That: Bank of Canada Cuts Rates Again

April 24th, 2009 · 17 Comments

Don’t forget that the deadline for filing your personal taxes for 2008 is Thursday, April 30, 2009. If you’ve been procrastinating, you have just one weekend to do your taxes.

Canadian Money Forum Highlight: Alexandra and her husband have earned money “on the side” by owning rental properties. She has bought and sold properties over the years and shares some tips for aspiring landlords in this highlight post. If you haven’t done so already, you can register for the forum here and add your two cents to the lively discussions.

  1. The Bank of Canada cut interest rates by 25 basis points and conditional on inflation outlook, committed to hold interest rates at that level until the end of second quarter of 2010. The big banks followed suit by decreasing the prime rate by a similar amount to 2.25%. This is a great opportunity for homeowners with prime-minus mortgages to pay it down rapidly.
  2. Jon Chevreau reported that CARP, a lobby group representing Canadians aged 45 or more, is calling for a Universal Pension Plan to cover Canadians without employer-sponsored pensions.
  3. Larry Swedroe points out that the supposed outperformance of actively-managed funds in bear markets is a myth.
  4. Frugal Trader shares some of the lessons learned so far on his Million Dollar Journey.
  5. The practice of post-claims underwriting in mortgage insurance came in for well-deserved criticism on Four Pillars.
  6. Michael James points out that market timers risk missing out on a sharp rebound such as the one we’ve been having.
  7. Thicken My Wallet conducted a two-part, three-way conversation with Preet of Where Does All My Money Go? and Brad of Triaging My Way To Financial Success on the value of stock market research.
  8. Rob Carrick opines that the great recession mortgage sale isn’t even close to being over and the lowest rates anyone can remember will be around for months to come.
  9. Ellen Roseman has some tips for haggling for extra perks and better prices.
  10. The Wealthy Baker is a new blog by a Toronto-based financial planner, writer and baking enthusiast. The blog features fresh-baked financial advice, never store-bought.

Have a great weekend!

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17 responses so far ↓

  • 1 Four Pillars // Apr 24, 2009 at 8:28 am

    Thanks for the link – I’ll have to check out the baker blog – sounds delish!

  • 2 Million Dollar Journey // Apr 24, 2009 at 8:33 am

    Thanks for the mention CC!

  • 3 Michael James // Apr 24, 2009 at 9:00 am

    Thanks for the mention. I need to think about CARP’s UPP some more, but the math seems off.

  • 4 WhereDoesAllMyMoneyGo.com // Apr 24, 2009 at 9:02 am

    Thanks for the link CC – have a great weekend!

  • 5 Thicken My Wallet // Apr 24, 2009 at 9:13 am

    Thanks for the link. Enjoy the weekend.

  • 6 Nurseb911 // Apr 24, 2009 at 9:15 am

    Thanks for including Thicken’s conversation with Preet & Myself.

  • 7 Phil S // Apr 24, 2009 at 9:34 am

    I spent a good portion of my day yesterday talking to my bankers. In personal banking, my home equity line of credit is currently running me at prime + 1%, so my rate right now is 3.25%. Since this is the account that I’ve been using for leveraged investing, then that is the base point that I would use for calculating whatever spread that I can make between my cost of borrowing versus the dividend yield (meaning it directly affects the amount of money in my pocket). My bank, then, is earning 3% on the spread between what they can borrow from the Bank of Canada to what they’re loaning to me.

    I wonder if anybody out there has received a better rate from a credit union or somebody else? I’m assuming that the Big 5 banks are probably the most expensive lenders.

    By the way, I wiped out the life insurance fees that used to be attached to my Line of Credit. Thanks for your previous post, CC!!!

  • 8 Canadian Capitalist // Apr 24, 2009 at 10:17 am

    @Phil: My secured LOC is at Prime. But it was established long before the credit crisis and to my knowledge, RBC hasn’t increased the rates. Right now, I believe prime + 1% is the best that could be got, but I might be wrong.

  • 9 Squawkfox // Apr 24, 2009 at 11:10 am

    This Rate Cut is really cutting into the return on the cash component of my portfolio. What’s a cash saver to do? :|

  • 10 Fred // Apr 24, 2009 at 11:18 am

    Speaking of market timing, my Canadian model gave a sell signal on 06/12/08 and a buy signal on 03/23/09. Between those two signals the TSX fell 38.7%. My US model gave a sell signal on 06/11/08 and a buy signal on 03/20/09. Between those two signals, the Nasdaq fell 39.1%.

    Yes market timers have to get it right on both signals but you don’t have to get it right every time to beat buy-and-hold.

    Of course, two signals don’t provide a long term history. For a long term history, you can consider my Nasdaq and Russell 2000 long/short models both of which have compound annual growth rates 20% higher than buy-and-hold for the past nine years. Name a mutual fund that has beat the US markets by 20%/year for the past nine years.

    Fred

  • 11 Alexandra // Apr 24, 2009 at 11:20 am

    Thank you for the shout-out, CC!

  • 12 Jon202 // Apr 24, 2009 at 11:28 am

    I thought all HELOCs that were secured were at prime? My brother-in-law had a high ratio mortgage and his HELOC is prime+1, but I’m probably wrong.

    Tax deadline is only if you owe the government money, I think. I’m always so sure of myself.

  • 13 Canadian Capitalist // Apr 24, 2009 at 11:41 am

    @Squawkfox: I don’t see an alternative. After all, need to keep emergency savings in cash. Too bad I didn’t lock in to a cashable GIC when the yields were much better.

    @Fred: Michael’s post refers to market timers as a group; it doesn’t preclude the possibility that there might be consistent winners.

    @Jon: Shhhh! We don’t want to give the procrastinators more excuse!

  • 14 Phil S // Apr 24, 2009 at 2:28 pm

    @Squawkfox. I had the same dilemna in my RSP portfolio, because I made my 2009 RSP contribution as soon as I received my 2008 Notice of Assessment. I was still able to achieve a 4% interest rate, but I had to go to a corporate bond (I bought a TD Bank bond) which was supposed to mature in 2018 but was called for 2013. In other words, I still found the yield that I wanted but I had to lower the quality and lengthen the duration…

    @CC. I did buy cashable GICs in my RSP when the interest rates on them were just a bit above 4%, but unfortunately I only bought 2-yr durations at the time. According to Mark Carney, our overnight rate will stay at 0.25% until the end of the Q2 in 2010! So, if that rings true, the interest rate will STILL be at these incredibly low levels when my cashable GICs mature! Ugh! I should have gone to a longer duration – as only hindsight is 20/20.

  • 15 EconStudent // Apr 24, 2009 at 9:15 pm

    Fred: What do you think of DMA200? It seems to me that it is excellent way to get out of the market. What is a good way to get back into the market using conventional technical analysis? Thanks.

  • 16 Fred // Apr 25, 2009 at 6:29 am

    EconStudent:

    Everyone and their dog watches the 200 day and 50 day MA’s. My timers are based on both fundamental analysis and price momentum/trend. I spent my time in the past with commercial software trying to find TA strategies that would be beneficial to me but I wasn’t successful. I think you have to get the fundamentals right and then you have to buy when the wind is on your sails. At least, that’s what works for me. Buying a stock simply because it is cheap or has a good yield will give you the results that investors got when they bought bank stocks on dips last year.

    I have compared commercial timers against mine (just Google “timer QQQQ” to get a list) but none worked as well as mine when applied to my 2X ETF models. I’m not saying there aren’t better models out there. Rather I haven’t found them or they are private.

    There was a study published on the SSRN (social science research network) last year which concluded that a simple market timing model based on moving averages beat buy-and-hold by a slight margin. The premise of what I do is to get in the market when an upward trend has developed and ride it with 2X ETF’s. These leveraged ETF’s aren’t for everyone given the volatility. However, some investors may consider allocating a portion of their portfolio to 2X ETF’s.

    Getting back to the 200 day moving average, there are so many investors watching it that some watch the 190 day MA to be ahead of the crowd. Likewise with the 50 day MA. I know some guys who have TradeStation accounts which allows backtesting of many strategies but I have never heard one of them say that using the 50 day MA and 200 day MA produced stellar returns.

    Fred

  • 17 Phil S // Apr 26, 2009 at 10:13 am

    @Jon202: When I was talking to my banker the other day, she used some other weasel-wordy name which the Big 5 banks use that makes you think you’re getting prime -1%. I forget what that word actually is, but at BMO, it equated to prime +2%. So they say that you can get whatever that weasel-wordy rate less 1%, which is actually prime +1%. High risk borrowers would get that weasel-wordy name +1% which actually translates to prime +3%.

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