Apr 172017

The following post was written by staff writer, Peter. 

“Markets do very weird things because it reacts to how people behave, and sometimes people are a little screwy.” – Alan Greenspan

Have you ever wondered about the impact of the daily news is on the world’s financial markets. Surely the war in Syria, for example, should not have any effect on the price movements of the European and USA markets? What about the different financial markets? Do they influence each other? For example, if the Tokyo stock markets is down when it opens, will the later opening markets be influenced by the Tokyo market?

Daily news and the markets

Alan Greenspan, in his quotation above, makes a valid point about the current state of the global financial markets. Unfortunately, the daily news is a direct cause of significant market fluctuations. As soon as market investors do not like what is going in a particular part of the globe, they tend to withdraw their investments from companies associated with the event in question and put their funds into hedge funds; ergo, where their money will be protected. This will drive the affected stock markets down.

The opposite is also true. An excellent example is that of investing in third-world currencies. If the country linked to the currency is stable and growing vigorously, then investors will buy this currency, and the price will rise against currencies such as the USD and the EUR. On the other hand, as soon as a major event such as the firing of a trusted Finance minister, then investors rush to sell the currency, causing it to tank overnight.

The reality is that currently, the global geopolitical situation is very unstable. Investors can go to sleep tonight knowing that all is well with their investments, and they can wake up tomorrow morning to discover that the world has changed, and they have lost a lot of money overnight.

For example, South Africa is Africa’s largest economy, and it was seen as one of the most successful emerging market countries. Consequently, there was a lot of investor confidence in the country and the South African Rand was widely tipped to regain its strength in 2016. Unfortunately, in December 2015, the South African president, Jacob Zuma, decided to fire the successful and widely respected finance minister overnight. It was a shock move and caused the South African stock markets and economy to lose billions in the local currency. Foreign investors sold off the South African Rand that they held, causing it to dive sharply.

The end of this story is that after three days, a retired Finance minister, Pravin Gordhan was reinstated as the country’s top financial guru. The Rand started recovering its losses; however, on 30 March 2017, Zuma once again interfered with the Finance ministry by firing Gordhan and his deputy for an untried and inexperienced politician. Needless to say the Rand is once again in free-fall and who knows when it will stop.

Ethics and the financial markets

Ethical matters such as the issue of whether it is ethical to offer a tax credit or payment to organ donors will affect the financial markets. If the government determines that it is ethical to pay organ donors, then the number of organ donors will likely increase; thereby, reducing the waiting list for organs, and the impact on the USA fiscus. The financial markets love good news. Therefore, the news that the USA will not have to pay as much for medical treatment for people waiting for organ donations is likely to strengthen the US dollar.

The financial markets influence each other

The Finance.Zacks.com website explains the knock-on effect of the world’s financial markets directly and succinctly: “In a global economy, the financial fortunes of corporations and nations are tied together across international borders.” This is why the fortunes of markets that are open first on any given day have a direct impact on the later opening markets. In the same way, the markets that open last will influence the opening prices of the earlier markets first thing the next day.

The next important point to note is that the world’s largest economies affect the smaller economies. China is now the largest economy when measured by the quantity of goods and services produced by the Chinese people. Therefore, when the Chinese economy, and by extension, its financial markets, the world’s smaller economies and financial markets will feel the effects of this downturn.


Apr 102017

To get the most out of our spending we can take advantage of consumer surplus. A consumer surplus occurs when we, as consumers, are willing to pay more for something than the actual market price. For example, I pay about $50/month for parking at work. Since I drive to work everyday, being able to use the parking lot is fairly important to me. Given how essential this privilege is, I would be willing to pay up to $125/month for parking. 🙂

The difference between how much I value the parking space versus how much I actually pay is the consumer surplus, which is $75 in this case. If the cost of parking was over $125/month however, then I would take public transportation instead of driving to work.

In order to increase our perceived wealth and live a richer life, we should try to allocate more of our spending towards products and services that will bring us greater marginal benefit.

Here are a couple of ways to increase our consumer surplus:

  • Practice mindful spending.
    Lots of people buy clothes, exercise equipment, or magazine subscriptions often on impulse. But realize after awhile that they don’t actually use those things very much. We should minimize buying things that won’t give us a consumer surplus. We have to know ourselves and take some time to consider how much utility a product will give us not only at the moment of the purchase, but also in the future.
  • Earn more money.
    The more income we make the more affordable things will be for us, relative to other consumers. A taxi ride to the airport may seem expensive to someone making minimum wage. But the same fare would be pocket change for an engineer making $140,000 a year. My cell phone plan was $40/month 10 years ago. That seemed expensive to me as a student. Today, my cell phone plan is still $40/month. But I would be willing to pay $300/month for it. So my consumer surplus is $260, making it an excellent deal for me.

Consumer Surplus in Everyday Life

Some people complain we have expensive telecommunication services here compared to other countries. This is true, but measured from a consumer surplus perspective the cost of internet and phone services is not that bad. 🙂 Evaluating a product based on what other people are willing to pay for it is natural. But it puts us at risk of buying something not very useful or enjoyable to us. Here’s a joke to prove this point.

Husband: I just bought this bag of dog food for 90% off. I couldn’t pass up such a great deal!
Wife: But we don’t have a dog.

We all have different values and interests. So if we spend money with a higher priority on maximizing consumer surplus then we can enjoy more bargains in life. 🙂

Random Useless Fact:

Apr 062017

A New Way to Measure Your Success

There are varying degrees of success and many different ways to define it. For example, in order to be a successful frequent flyer, you will probably need a lot of connections. 😀 And if you’re trying to lose weight, success is all about mind over platter, and winning that Nobelly Prize. 😄

how much do you value your free time?

Financial success is often evaluated in terms of income or wealth. But I often argue that time is our most precious resource. Unlike money, all our days are numbered. So given this reality, perhaps the best way to evaluate our success is to find out how much we value our free time. 🙂 This can be done with the following steps.

  1. Think of an activity that is neither pleasant nor unpleasant to do for you. It also can’t help you gain skills or make you smarter.
  2. Determine the minimum amount of money you would charge to perform that service for 1 hour for a stranger.

This mental exercise will reveal how much you value your time at an hourly rate. 🙂 For example, services I can provide that I neither like nor dislike include slowly folding laundry and walking around town for no reason.

I would have gladly accepted $20/hour to fold laundry 10 years ago. But things have change now. I would not give up my free time for any amount less than $40/hour today, because I can offer valuable skilled labour. Furthermore, I’m 10 years closer to death so there has to be an added premium on the remaining time I have compared to the past me. Due to simple economics, the fewer days I have to live, the more valuable those days are to me.

In a way, $40/hour is an indicator of my level of success in society. Perhaps a doctor or lawyer would value their free time at $120/hour. This wouldn’t be surprising given their place on the social economic ladder. It is not only a measure of their immense human capital compared to mine, but also their financial status.

How the Value of Time is Tied To Success

As self sustaining adults, the value of our free time should be the lowest at the start of our careers. But over time this value should increase to keep up with our growing human capital. Over time our demand for time is increased, and demand for money is reduced because we can earn money easier and more quickly.

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Mar 162017

The New Land of Opportunities is Cold, but Friendly

Many Americans want nothing more than to have the equal opportunity to achieve success and prosperity through hard work, determination, and sheer sticktoitiveness. 🙂 But research from the Pew Research Center suggests that there is a growing gap between the country’s rich and poor. As the middle class gets squeezed it is becoming harder for people to realize their dreams. Some consumers in the lower class are in so much financial distress, they can’t even afford to pay their electricity bills. Excuse the pun but these could very well be the darkest times of their lives, literally.

But there is a silver lining to all this. According to Scott Gilmore, a columnist for Macleans magazine, Canada is a better place than the United States to find life, liberty, and the pursuit of happiness by virtually every measure. 🙂 So maybe the American dream hasn’t died. It just moved north.

Canadians are more likely to have college degrees, be employed, own a home, take more vacation days, and even live longer than our neighbours to the south. 🙂 Scott says one contributing factor to a better life in Canada is thanks to our more affordable, public healthcare system. We don’t have people here going bankrupt because of medical bills. We may have to wait longer than Americans to get treatment. But at least Canadians are less likely to take extreme measures to pay for high healthcare expenses.


Economic mobility is also higher in Canada. According to Scott, Canadians are twice as likely to move from the poorest quintile of the population to the wealthiest quintile compared to Americans. Similarly, the link between the income of a parent and a child is half as strong in Canada. In other words, individuals have more influence over their future outcomes than the environment they are born into. 🙂 Canadians are also 6 times less likely to be incarcerated.

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Mar 022017

I’ve been saying for years that real estate prices in Canada are not that high. Certain areas like Vancouver and Toronto have the perception of being unaffordable. But the fact that population growth is still positive in these major cities suggests otherwise. If these places weren’t affordable then people would be moving out of them, not in. 🙂

People from all the world have wants. These wants turn into demand, which fuels certain parts of the economy. And what do young adults want right now? According to an HSBC survey, the “vast majority” of millennials want to buy property.

Demand from Young People 

HSBC bank polled 9,000 people from 9 different countries: Canada, Australia, China, France, Malaysia, Mexico, the UAE, the U.K. and the U.S. The results include some interesting numbers about the housing market among individuals between ages 18 and 35, which the bank defines as millennials.

37% of millennials said they had financial help from the bank of mom and dad to cover their housing costs. Canada is roughly in the middle of this trend.

A little over a third of Canadian millennials polled already owned their own home, and among those who didn’t, 82% say they intend to buy one within the next 5 years. Thus, housing must be relatively affordable, because even at the lowest earning stage of their careers, most people either already own property, or have the means to own in the foreseeable future. They are also willing to sacrifice a lot in order to become homeowners.

The results of the HSBC study shows that Canadian real estate may not be in a bubble. Funeral costs, health care costs, and tuition have also grown at a faster pace than inflation over the decades, but most people don’t label those sectors of the economy as becoming a bubble. So I don’t think housing is overpriced either.

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