Tuesday, February 24, 2009

"There will be Blood"

That is the headline on the article that jumped out at me in today’s Globe and Mail Business Section. Harvard financial guru and author Niall Ferguson is predicting dire circumstances in our future for years to come and even used the term “Great Recession” to describe today’s economic reality. Frightening stuff! He is in Ottawa to participate in the public-policy think tank, Canada 2020 and is featured in a major interview published in the Globe today.

Life today is a little like being in a war zone – but an economic war zone. Bad news abounds and every authoritative voice covers the latest skirmish, the days end tally of market woes and sad predictions for continuing waves of job losses, recession and investment value freefall. We keep hearing that Canada is not going to have it as bad as the US, but also we hear that we cannot recover until they recover since we are joined at our economic hips.

Us Canadians are also are facing a double dose of depression (no, not the economic kind). This damned winter seems never to end and we are yet again enduring a temperature plunge into the -20 degrees, with wind chill. Makes you want to stay home and hibernate – with the news turned off! But I digress…

This morning I heard that with this latest wave of market freefall, which started on Friday, the Dow Jones had reached its lowest level in 11 years and the TSE was at a 5 year low. We will see if the market continues its downward slide today. Hard to be up when all we hear is down.

I like to fancy myself as a savvy investor. OK – that might be exaggerating, but I have my little RRSP and I have a few stocks in my nest egg and I look after it myself. In the last month I have been looking at the current stock market decline as an opportunity. I have a bit of unused contribution room and it seemed to me if I borrowed and topped it up I could get a big tax deduction and at the same time buy into the market at bargain basement prices. Optimism comes from the thought that I can take advantage of the current situation to vault myself into a better place retirement wise, in 2-3 years when we come out of this slump.

Last week I executed my plan. The market was having a small bit of a rally and ever the optimist, I was thinking that maybe the worst was over and I should jump in. I had borrowed the cash to top up my RRSP from my LOC (at the extraordinary rate of only 3.0%!) and it was sitting there not earning any interest. I had researched and earmarked some preferred and common shares to buy which would bring in 6.5% interest. Seems like a good deal to me and if in the coming years the market recovers, and the stock prices go back to where they were even before the start of this mess – I could double my money! No sense waiting, I thought.

I bought an equal measure of some RBC common shares for $30.35 and RBC Preferred at 25.30. I checked today. The RBC shares are trading at $25.80 – victim of this last major drop which started immediately after I bought them. Murphy’s Law! The series P RBC Preferred I bought had not lost any ground. These shares should stay relatively close to the purchase price because they are more affected by interest rates than anything else – like a bond. When rates go back up the price of these shares will go down – before which I would try and sell them or wait until after the shares go through a rate “reset” (they are pegged to the T Bill rate) when the price should go back near the $25.00 mark.

I am hoping by then the price of the common stock will be rising and I can sell the preferred and buy into the slow rising market to come.. In the meantime I am pretty assured of having a portion of my money in a more liquid asset in case I need the money out of my RRSP. I am hedging my bets.

Now, job done, I am best to just forget about my RRSP and just let it be. Watching it won’t help and will just add to the belief that I am feeling a real pinch – or rather blow - from this recession. I am down about 30% in value – pretty typical, I think. Almost all of my stocks and mutual funds are invested in companies which will no doubt weather this economic storm and in the end recover. Maybe that will be 2-3 years or maybe, God forbid, that will be a decade. The only thing certain is that my retirement is now looking as distant as that moon out in the sky.


  1. We are in a crisis of confidence. The Stimulus Package will play a leading role in restoring trust in our free enterprise system, provided that our governments (mine-USA) exercise proper caution and oversight, something the GWB bunch sorely neglected to do.

  2. You are right, it is a crisis which will be much worse if confidence is not restored. Agree with you about the GWB bunch - but you have scored a very impressive President now, who I am sure will have what it takes to drive the country in the right direction.


Related Posts with Thumbnails