This Month's Quote

"Success is getting what you want. Happiness is wanting what you get" - Warren Buffett

An Important Movie But Will the American Public Care?

Tomorrow, an important movie debuts at 400 US theatres - one that will hopefully open the eyes of the American public as to the precarious nature of their economy. And citizens of other countries should not feel self-righteous and judgmental in their criticism of the US economic model because their economies are likely to be tied to the American economy, so that any pain will be spread far beyond the US borders. Case in point, the mortgage crisis and credit crunch emanating out of the US has spread like a contagion across Europe and parts of Asia. Enough said.
The movie, a documentary entitled I.O.U.S.A., focuses on the some of the issues that has the potential to cripple the US economy, i.e. ongoing trillion dollar trade deficits, out-of-control annual budgets that are raising national deficits to a point where two-thirds of the country's GNP (Gross National Product) can be attributed to the national debt. Americans are spending more than they earn with the result that savings levels are at the lowest level since the Great Depression (only $392 per year per American). The consumer-oriented nature of American society continues to spur on the economy with two-thirds of the country's GDP (Gross Domestic Product) being influenced by consumer spending. Unfortunately, most of this spending is done on credit. And with rising debt levels ($2.5 trillion in consumer debt alone), increasing unemployment levels, higher prices for fuel and food and less access to credit, this becomes a toxic soup that is resulting in record numbers of foreclosures and bankruptcies.

While the good news is that documentaries such as Fahrenheit 9/11, An Inconvenient Truth and Sicko have been able to draw movie goers, have they been able to influence others to make the seismic changes needed to rectify decades of poor decisions? As an optimist, I'd like to think that the more recent swing towards green vehicles has been a result of enlightenment brought about by environmental advocates and movies like 'An Inconvenient Truth', rather than sky-high gas prices. The mood is such that many Americans may decide that that they need to get a macro view of exactly how bad a shape the overall American economy is in, and go and see the movie. I truly hope so.

On the other hand, they may just ignore it, if, on a micro level, the current economic situation does not really impact them. But the worst case is if the know how bad the situation is (both on a macro and micro level), and ignore it anyways. Human nature sometimes means they will just shut it out and hope it gets better, rather than do anything concrete to improve the situation. Analogies of this would be those investors who don't open up their monthly statements even they know that their portfolios are tanking and in serious need of an overhaul or decisions to sell their poorly performing securities. Or the person who doesn't open up their credit card bills, knowing that they are past due and need to be paid, even though they know that the consequences of their inaction, they elect to ignore it. Hopefully, the American public (and their leaders) don't adopt this attitude of waiting for better times by doing nothing. Hopefully, they care enough to do something.

In the meantime, I hope you will see this movie when it opens on August 21st. Even though I am not an American, I know I will.

Strike a Victory Blow For The Little Guy

Unless you've been hiding under a rock for the past year, you know that the global economy is being hard hit by the meltdown in the US real estate market (and spreading to other real estate markets around the world), resulting in a huge writedowns for large and small financial institutions around the globe and a credit crunch for borrowers across the spectrum. The result is a quadruple-whammy, especially for American consumers who have an insatiable appetite for consumer goods and debt. Not only is the tap of easy access to credit being slowly turned off, but the equity in their homes which were being used as virtual ATMs is being steadily eroded. Add to that declining values in their stock portfolios, and sky-high gasoline prices, it's a wonder that there is any optimism emanating out of the US right now.

But the one positive development arising out of this financial mess, is that financial institutions are finally being held accountable for their reckless marketing and sale of the ABCP (Asset-backed Commercial Paper) and auction-rate securities (long-term bonds whose interest rates are reset every few weeks through an auction process), those seemingly 'safe as cash' investments that bundled all different types of loans together, thereby making the high-risk mortgages within this bundle almost unquantifiable and invisible to the retail investor. Because of this, these securities are difficult, if not impossible, to sell, and many investors are being left holding investments with no market in which to liquidate their greatly diminished investments. People, and especially retirees, are being financially ruined by having their yield-bearing investments obliterated, as the $330 billion market has collapsed.
Now large financial institutions including Merrill Lynch, Wachovia, JP Morgan, UBS and Citigroup are being forced to (and rightly so) buy back billions of dollars of such auction-rate securities from individuals, charities and small businesses.
Usually in such cases, small investors are left holding the bag. Before the meltdown, the originators of these securities (and the executives at the big brokerage firms) had made their big salaries and bonuses, the salesmen and brokers had been paid their commissions, but when things implode, the only ones who had not benefited is usually the little guy with absolutely no power or financial resources to challenge the status quo. But finally, the US Securities and Exchange Commission is holding those institutions accountable. And hopefully in the future, investments will be properly and ethically marketed by brokers and financial planners, and easier for small retail investors to understand. How many people can honestly say they have read a mutual fund prospectus prior too purchase?

While the odds are still slanted in favour of the financial institutions, this is a positive step forward in investor rights. Maybe all of us small investors should take a leaf out of legendary mutual fund manager Peter Lynch's rules for investing, i.e. don't buy any investment you don't understand, and know what investments you own and why you own it. And if a broker or financial planner tells you an investment is risk free, ask them to give you a written undertaking to that effect from their institution. Oh, and read the prospectus (or have your broker earn their money by reading it and explaining it to you).

Rising US Foreclosures Not Surprising

Foreclosure numbers in the US released on August 14th by Realty Trac showed a jump of 8% in July 2008 over the previous month and up 55% over the same period a year ago. The organization also estimates that there will be over 3 million foreclosures by the end of this year. Nowhere is it more troublesome than in Florida. I was visiting the state in May, and was astounded by the number of homes for sale. Everywhere I went, from Miami on the east coast to Sarasota on the west coast, it appeared that 3 in every 10 homes was up for sale or rent. Upon further research, I discovered that while a healthy real estate market has 3-6 months of available inventory on the market, Miami-Fort Lauderdale had 34 months of inventory on the market! The huge imbalance between supply and demand can only mean one thing - prices spiraling downward, exacerbating an already dire situation. Realty Trac says that currently the Cape Coral-Fort Myers is feeling the most pain in the country, achieving the dubious distinction of being the Foreclosure Capital of America, with 1 in every 64 homes under threat of foreclosure, a rate that is 7 times the national average.

When trying to understand how the situation got so bad, I stumbled upon three examples that underlined how out of control the situation had become. Most examples revolve around a few common themes: putting little or no money down, buying a home more expensive than they could afford based on traditional lending guidelines, taking on non-traditional mortgages with little understanding of their impact, and lastly, a belief that housing prices would keep going up.

You can read an interesting article on these examples of foreclosures at the link below:

http://articles.moneycentral.msn.com/Banking/HomeFinancing/HomeownersWhoJustWalkAway.aspx

Anyway you crunched the numbers, the scenarios are not going to turn out well for the individuals in these examples. While hindsight is 20/20 for those involved, I was still astounded that a number of people involved in these transactions did not raise a red flag long before the deals were sealed. In my opinion, a responsible realtor should advise the buyer what purchase price is within their range. I know my realtor has often spoken to me about what price would be considered reasonable for my budget. The second person was the financier who had to have calculated the numbers and realized that it was a very risky proposition for their organization (and in some cases, how do financial organizations justify giving loans with absolutely no proof of income?). And lastly, the buyers themselves should temper their expectations of what they can reasonably afford. The straw that broke the camel's back is then using the equity in their homes as a virtual ATM, driving people further into debt.
Even in more conservative Canada where the foreclosure situation has yet to show a marked increase, examples are starting to emerge of people buying expensive homes with little money leftover to afford any unexpected expenses such as a leaky roof, or broken down furnace. The Canadian Government has already indicated that they do not want financial organizations to offer 40-year mortgages, and no money down (100% mortgages) deals are almost impossible to arrange with traditional financiers.

Sorry to be so judgmental, but it irks me that in pursuit of the American Dream and also keeping up with the Jones, that everyone was looking out for themselves, hoping to make a buck, and praying that the house of cards didn't collapse, and hoping rising housing price continued unabated forever.

The main reasons given by Realty Trac for the current housing crisis are that many communities were overbuilt and based on over-inflated property values. The only silver lining to this very dark cloud, is that all parties concerned will learn that living within one's means is the surest way to financial freedom. A copy of the Millionaire Next Door by Thomas Stanley should be issued to every North American whose currently buried under a mountain of debt. Oh, and for those prospective home buyers who were not swept up in this mania, prospects look good toward the end of this year or in 2009 to snag a great deal on a home.

China's Image-obsessed Strategy Backfires

Less than a week after the world gushed at the jaw-dropping spectacle of the Olympic opening ceremonies in Beijing, comes word that the little 9 year-old girl in the red dress, Lin Miaoke, was lip-synching to the voice of Yang Peiyi, another young singer with superior vocals, but whose physical appearance, according to the program's chief musical director, was not 'flawless in image'. And that parts of the amazing 29 'firework footprints' leading into the National stadium were computer-generated. Or that the first Olympic Games to sell out all the event tickets is home to large numbers of empty seats in many of the events, causing an uproar for many of the corporate sponsors. To add insult to injury, the video of the original radio interview where these details were divulged, was abruptly pulled from the Internet by the government. Add to that the continuing controversy about alleged falsified birth certificates allowing under-aged Chinese gymnasts to compete. This is what I hate about the Beijing Olympics - the Chinese government's need to 'save face' by resorting to any means (and costs) to impress or win. The falsehoods have obviously backfired for the image-obsessed Chinese who are now having to answer some hard questions.

Which made me ponder the question of the transition for a country who, since moving to a capitalist system, has become increasingly materialistic and obsessed with their image in the international community. In trying to improve their superficial image, they spent hundreds of millions of dollars, only to further diminish their reputation when it comes to their integrity, honesty and trustworthiness. Any initial positive impressions was short-lived once all truths were revealed. That's on a macro level, but is eerily transferable on a micro level, where image-obsessed Western individuals spend money on improving their superficial image (clothes, make-up, cars etc.) to impress others while hiding their deeper insecurities and leading to greater levels of unhappiness. Rich countries such as the US have much higher rates of depression than in poorer countries. Why do you think that is - possibly because their population focuses so much of their energies aspiring to be the same as the superficial images and lifestyles splayed across billboards, magazine ads and television than on more important issues such as personal growth, family, community and service to others?

Pity little 7-year old Yang Peiyi, who was blessed with, and judged to have, the most pristine young voice in China, only to realise that it is more important not to be chubby or have crooked teeth.

Why I Both Love & Hate the Olympics

On the eve of the 2008 Beijing Olympics, I am torn between my love for the underlying principles behind the Games, the camaraderie between the nations' athletes and fans, and the irresponsible politics and financial greed that accompany the world's greatest sporting spectacle.

I was at the 2000 Sydney Summer Olympics and it was a thrill of a lifetime, and one of my life goals achieved. What left a lasting impression on me was not so much the sporting events I attended, but rather the sense of happiness on everyone's face at being at the Olympics, as well as the general goodwill shown to one another, regardless of colour, creed or nationality. I sat in a public square watching a basketball match between Canada and Australia on a large TV screen. Sitting in a sea of Aussies, I was seemingly one of only three Canadians and a Swiss who were cheering for the underdog Canadian team. When the Canucks beat the local team, there was no anger or animosity shown, but a shared experience of seeing a great game in an atmosphere of sportsmanship. It is a yearning for these experiences that I will be at the 2012 Vancouver Winter Olympics, so that I can take pride in my country hosting the world, and once again get that warm and fuzzy feeling of being one with the rest of the world.

On the flip side, I detest how the Olympics have led to drug-cheating by athletes, irresponsible spending by organizers, bribing of Olympic members, social 'cleansing' by local government, and price gouging/housing speculation.

A recent article in Maclean's Magazine lamented the fact that 4 years after the Athens Olympics, many of the facilities stand empty, unused, crumbling and behind fences. So much for leaving a legacy. How about the legacy left behind by the 1976 Montreal Summer Olympics, dubbed 'The Big Owe' by the local taxpayers who, after more than three decades after the event ended, finally paid off the debt left behind by the irresponsible organizers. True, certain games such as the 1984 Los Angeles Summer Games, actually made a profit.

Interestingly enough, the Beijing Games will be the first games ever to sell out all the event tickets. In Sydney, I was quite surprised that there were many empty seats at the events I attended, i.e. volleyball and baseball, although the soccer game I attended was sold out. One of the reason's why the Sydney Games was such a 'success' was also because it failed to attract as many visitors as they had expected - rumour had it that the organizers had anticipated 500,000 visitors, but only 300,000 showed up. Some local Sydneysiders who intended to rent out their homes at exorbitant rents to tourists, wound up losing money by having to carry two properties for the duration of the Games. The price of Vancouver homes shot up right after the city's successful bid was announced, making housing even more unaffordable for the average Vancouver resident.
In the 1996 Atlanta Games and now in Beijing, local authorities are moving 'undesirable' residents to outlying areas, so that tourists and press do not see some of the more authentic aspects of the host city. In fairness, the 1992 Barcelona Games left a fabulously revitalized city.
The Beijing Games also reflects the desire of China to 'show-off' the country and how far it has advanced in the past three decades. When I was last in China in the late 1980's, Guangzhou was a small city with only two tourist hotels, few tall buildings and little evidence of modernization. As one of the first economic trade zones established by China, it is a regional economic powerhouse. For the Chinese, the Games has everything to do with status, and how the rest of the world perceives them. Does that ring a bell, from an individual perspective? People spending money money than they should trying to impress people they neither know nor like?

So, for all my deliberations about my feelings for the Olympics, I still believe that it is something everyone should experience live, rather than on TV. So, if you were planning on spending a few thousand dollars on a brand new TV, I would rather use that money to start saving for the next Olympics in London or Vancouver. You will get this giddy feeling of the possibilities of how the world could live in peace and happiness and a sense of oneness with your fellow human beings.
On your deathbed, you may say that you should have gone to the Olympics, but you'll never say that you should have bought the 50-inch TV.

Why Libraries Can Be Your Best Entertainment Provider

I'm not sure what your public library system in your city is like, but the one in my hometown of Toronto, is excellent. Not only do they have an extensive branch system, but the selection and technology that is offered is comprehensive and surprisingly up-to-date (new release DVDs are available very quickly) . Catalogues are online, as are capabilities for reserving, renewing and researching. Some branches have recently added free Wi-Fi capabilities. Their 2008 operating budget is $170 million. Yet I know lots of family, friends and acquaintances living in Toronto that do not realize how much of these things are available to them, and therefore never make use of their local library.
I love to read and watch movies, both of which could be expensive propositions for me, given that I watch an average of 1 movie, read 1-2 books, and flip through 3-4 magazines per week. For movies, I will gladly pay the $12 to go to a cineplex if the movie is a big action blockbuster or Oscar contender. Other than that, I book my movies through the library system, sometimes as many as 30 at a time (their distribution I can manage online, so that I don't have to watch too many in any given week).

For books and magazines, I will get them at the library most of the time. I can't think of a book that I absolutely had to have right after it was released (I am not a fan of Harry Potter, obviously). Usually only the magazines that interest me and are time sensitive (e.g. Investing Guides at the beginning of each year) do I fork out the cash for it.

I estimate that if I were to rent all the movies, or buy all the books and magazines that I get from the public library, I would have to spend almost $2,500 per year.
Here's some interesting observations that I have made regarding the entertainment industry, based on my own experience, and not sure if you would agree or not.

The movie business is such that they rely not only on the tickets sales at the box office, but increasingly become dependent of the DVD sales. So they promote the hell out of DVD releases and people buy them in the millions. As someone who used to buy all sorts of videos and DVDs, only to see them gather dust because I didn't have time to watch them, or only watched them once, I now realize that collecting movies is a bit of a money waster. (This from someone who also still has a lot of movies on VHS format). With changing technology, does it make sense to still collect movies?

With books, I do buy used copies of my favourite books, although I have yet to read once for the second time. Instead, I loan them to friends who often ask for a recommendation for a good read. The people who really get fleeced when buying books are those impatient readers and fans who purchase them as soon as they are released. Why? Because publishers will always release the hardcover version first, at a much higher price than the released-later paperback version.

One magazine that I read, but will not buy, is Men's Health. Why? Because if you compare covers of the past editions, it always follows the same format and they seemingly recycle tips and hints. Obviously, this is a non-scientific statement, but when I put past editions of Men's Health side-by-side at the library, I can barely tell them apart from their covers. I'm sure that would seem to be the same for similar lifestyle magazines such as Cosmopolitan.

I know some people who lives in smaller cities and complain about their local libraries, and I sympathize with them. Large urban centres benefit from economies of scale and large number of taxpayers that help fund local libraries. So while not everyone can or will save $2,500 by using the library, I certainly make the most of my tax dollars at work.

Are We Destined To Be Poor & Fat?

Lately, I've been reading a lot about food, and its relationship to health issues such as obesity as well as its rising cost of the average basket of groceries because of high oil prices. It made me think of how I eat and how my relationship with money affects my eating and grocery shopping habits. I was traveling in the US a few months ago, and had the opportunity to shop for groceries as well as buy some fast foods. I can understand how many people would rather buy a burger or two at McDonald's from their dollar menu than go to a grocery store and pay the cost of the components to make it yourself, or even looking at healthier alternatives. However, from a longer-term perspective, diets such as these will (or already has) led to health issues such as increased obesity and more alarmingly, a huge spike in childhood obesity. I've read more often than once that this generation of kids may be the first in history to have a lower life expectancy than their parents. This has to be a red flag that raises alarm bells for parents, and society as a whole.

I have always enjoyed good food, and especially as my Mom is a great cook, our family always ate well growing up, even though I would consider my parents to have been extremely budget-conscious. Upon their arrival in Canada in the late 1960's, and having to work low-paying blue-collar jobs, there wasn't a lot of money left over to eat out a lot, or buy expensive cuts of meat. We seldom ate junk food and dining at a McDonald's was a treat.

At meals, my Mom would proudly tell us how little she paid to prepare a delicious meal. Sometimes, the amount bordered on the seemingly ridiculous - "this entire meal for 7 only cost $2!" - and she would proceed to break down the cost of each component of the meal. This is something that always stuck with me, and a practice that I now subconsciously adopt. And it always surprises me how economical I can cook meals (and save money) if there is even some small attempt at meal planning and knowing the fair prices of different types of food.

Where a lot of people spend large amounts of their monthly food bill is usually on prepared foods and/or fast foods. This is both less healthy as well as more expensive alternatives to making quick, easy and nutritious meals. Interestingly enough, I've just finished reading a book called "The Undercover Economist" by Tim Harford. The book explains a variety of everyday curiosities, not unlike the best-selling book "Freakonomics " by Steven Levitt. In the book, the author compares shopping at Safeway supermarkets versus the perceive-to-be more expensive Whole Foods supermarkets. True, there are many more expensive items at Whole Foods, but if a shopper only stuck to the basics, e.g. Tropicana orange juice and yellow onions, then Whole Foods is not more expensive than Safeway. Interestingly enough, Harford's advice is: "If you want a bargain, don't try find a cheap store. Try to shop cheaply". He also mentions that one of the ploys that supermarkets use is to make their "value", no-name or store brands as unattractive as possible, with very plain or crudely designed packaging. While this will not put off the most value-conscious of shoppers, it may spur those shoppers who may be willing to pay more, to move up to a more expensive (and more profitable for the supermarket) brand.
I am eating healthier than ever, partly because I am getting older, and know that as my metabolism slows down with age, the harder it is to break down food, but also because I no longer have a desire for processed food. Also, I enjoy cooking, so this post may not appeal to those who never turn on their stove. Smart shoppers plan their meals and purchases. I usually spend a few minutes a week deciding what I will eat for the week, based on what I have in my freezer or what's on sale at the supermarket. I then do my shopping and spend a few hours on a Sunday preparing the meals for the week. Sometimes this means cooking but often this involves mere preparation such as marinating meat/fish or chopping ingredients to be ready for use when cooking during the week. For example, if three recipes require chopped onions, I may as well do it in one shot rather than do the same activity three times.

Knowing about food also helps. As a teenager, I worked in my uncle's butcher, so I know my way around meat. While the average person buys the traditional (and expensive) cuts of beef such as T-bone, rib eye, tenderloin or New York striploin, those knowledgeable about meat know to look for much cheaper and tastier cuts such as sirloin tip or cap, hanger steak or bavette. Better tasting and half the price ..... hmm, that's a no-brainer to me. I still laugh when my Mom tells me that when we were growing up, chicken wings and pork ribs were considered poor people's meat. How things change.
I read an interesting article recently in the Weekend Living section of the Toronto Star (August 2nd), that talked about staff meals at restaurants where delicious and economical meals are prepared by staff (not always the chef) using economical cuts of meats, scraps and whatever vegetables are on hand. Creativity is a prerequisite - you don't have to be a chef to use your produce intelligently and creatively.

In the June 21st edition of Time Magazine, they challenged six chefs to prepare a healthy and nutritious meal for a family of four for $10. They prove that with some creativity, some basic cooking skills and keeping an eye on your budget, it can be done. To see these delicious budget recipes, go to:

www.time.com/recessiongourmet
At work, I seldom bought lunch, but brown bagged it, and still brought meals that are the envy of my co-workers, at a fraction of the cost of their purchased meals. As most people spend at least $5 a day on lunches, this translates to roughly $1,250 a year. If you were able to make a lunch at a third or even half that cost, you would save between $600 and $833 per year. That could go a long way towards paying down debt, investing in a retirement plan or for a vacation.

I'm Excited!

This is my first stab at a blog, so I'm excited! I think that it is a great way to get my thoughts,opinions and tips to a broader audience, and in a more efficient manner. I get so many requests from friends and acquaintances to explain to them my philosophy on the relationship between life, happiness and money, that this blog will hopefully be a better vehicle to accomplish that. I write this, knowing fully well, that not everyone will agree with all my opinions. That's fine, and what makes life interesting. If everybody thought the same way, how dull would this world be. I have had the good fortune (or misfortune) to spend time living or visiting three of the most materialistic (in my opinion) countries in the world - the US, Hong Kong (OK, perhaps technically not a country, but now part of China) and South Africa (I lived in South Africa for 18 years). I found that in these countries, people placed such importance on what you do,where you live, what you drive and what you wear. (Note, in South Africa, this refers mainly to the middle class population, black and white). Growing up exposed to this societal pressure was not always easy, as peer pressure is a powerful force. But succumbing to the shallowness of materialism was always something that made me feel uncomfortable or not genuine, and that has been my guiding light. So, I hope that this blog proves to be useful, constructive and enlightening. Use it in a way that gives you the most benefit. Some entries may be universally applicable, others to a select audience. I encourage any feedback and comments, and thank you in advance for taking the time to read this.