Oct 102013
 

The U.S. government is nearing its maximum borrowing capacity. If Congress can’t agree on a budget soon they won’t be able to raise the debt ceiling which could mean disaster for the economy. I don’t think anyone is expecting the US to default, but there will probably be a lot of uncertainty in the next week.

But one thing we can do in the meantime to protect ourselves against the risk of hitting the debt ceiling is to buy some insurance. So earlier today I went out and bought an ounce of gold for $1,400, and a 10 ounce bar of silver for $250. My purchase was from the VBCE in downtown Vancouver. They are a walk-in bullion and currency exchange business. They accept cash or debt card. You don’t need to show I.D. unless you’re buying a lot of gold/silver.

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I chose to buy gold because in uncertain times, gold usually does well. It’s currently trading at around $1,300/oz USD. I don’t think there’s much room for it to drop from here. This is my reasoning. First, we know that gold has been a store of value for thousands of years and that’s probably not going to change in our lifetime. So if gold can never drop to $0 then what is the lowest it can go? To tackle this question, have a look at this excerpt from a Globe and Mail article published a couple of months ago.

“Many major gold miners have since started reporting what they call their ‘all-in’ cost of production.
Last quarter, Barrick’s amounted to $919 an ounce, while Kinross’s totalled $1,072 an ounce
and Goldcorp Inc.’s hit $1,279 an ounce. …Big names like Barrick and Australia’s Newcrest Mining Ltd.
have embarked on campaigns to either sell
or scale back their highest cost development and exploration projects.”

Continue reading »

Sep 212013
 

Over the course of our careers we are expected to make more money as we become more skilled and experienced in our field 🙂 But with everything from food to housing becoming so expensive some people may be led to believe that we will always be losing real purchasing power because our pay raises will never grow as fast as the cost of living.  These people aren’t wrong. Here’s a graphic I put together 3 years ago that shows how prices and incomes have changed in Vancouver in the 20 years between 1990 and 2010.

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Notice how the growth for expenses vs incomes are way out of whack? 😯 Are we slowly becoming poorer without even realizing it? But hold on a tick 😐 The math doesn’t quite work out. Today we can still afford to buy the same amount of food, the same sized homes, the same means of transportation, etc, as we used to. So how can Canadians put up with the substantial increase in living expenses if we don’t have the same income growth to support it? The answer lies in the chart below.

9-13-cdn-debttoincomeAh, now it makes sense 😎 Our increased cost of living is mainly due to excess credit in the economy that wasn’t there before. If pineapples were the currency on an isolated island then the more pineapple trees there are, the less value each fruit will have to the local residents. Similarly this extra debt load (or credit) that we’ve been living on puts upward pressure on prices all around us because each unit of currency itself ($CDN) is worth less, which means we need more of it to buy anything. This is why we have inflation 🙂

So what can we do to limit our exposure to debt, while protecting ourselves against inflation at the same time? First, we must pay off all our high interest debts ASAP, like those 19% credit card balances. Next, we should slowly accumulate some precious metals like gold or silver, up to around 5% of our net worth. Finally we must reassess our finances from a long term perspective. For example, some people have a $12,000 emergency fund so they can sleep well at night. But from 1990 until now I haven’t ran into a single financial emergency yet. *knocks on wood* Over that 23 years an emergency fund would have lost more than half it’s original value. Meanwhile, if the money were put into a mixed bag of investments like stocks, real estate, gold, and oil, it would be worth twice as much today after calculating for inflation.  Continue reading »

Jun 252013
 

The popular Robert Frost poem is a great reminder that financial rallies cannot be sustained indefinitely, especially in the resource sector.  About a year ago the price for one ounce of gold was about $1,800. Today that same piece is only worth about $1,300. As a result the world’s largest gold company, Barrick Gold Corp, lost half of it’s value over the last 12 month period. The stock price went from $38 in June 2012, to $17 today, ouch. I’m not an ABX investor (not yet anyway,) but I feelz for its shareholders 🙁

Recently the Canadian giant revealed some bad news. Barrick announced plans to eliminate 100 jobs at its corporate headquarters in Toronto. 100 people may not sound like a lot considering Barrick employs roughly 25,000 total employees worldwide, but it represents about 25% of it’s corporate work force. At least the impacted employees will receive severance packages and access to career placement services 😀

It’s not only Barrick that’s facing the pressure. Earlier this month, US gold producer Newmont announced that it would cut its workforce at its home base in Denver, Colorado, by at least 33%. And Australia gold producer Newcrest said it would write down its asset values by about $6 billion.

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The reason why gold companies are under-performing is easy to understand. It usually costs between $800 to $1200 to extract one ounce of gold from the ground. The spot price of gold as of June 25th is $1275. This means that some mines could be only generating just $75 of profit per ounce.  Continue reading »

Apr 212013
 

Hope everyone is having a great weekend. Let’s look at some business and economic news we should care about.

Snail Mail Slowing Down – Canada Post made $127M in profit last year but the amount of shipments have been declining. I hope they can find new ways to make money. This company employs about 71,000 workers in Canada and is a big driver in our economy.

Low Growth – The IMF (International Monetary Fund) has downgraded Canada’s growth prospects to just 1.5% for 2013. This is great news for Canadians with debt because it probably means our interest rates will stay low for the time being. How can we take advantage of this? Well personally I plan to borrow more money to invest in assets that will directly benefit from faster growing developing countries. The IMF says that global growth on average is expected to be 3.3% this year 😀 So if we’re doing worse than the average, then there must be other countries that are doing better 🙂 My strategy is to leverage borrowed money from a place of low growth to invest in high growth environments 😉 

Losing its Glitter – Gold fell in price dramatically lately. I’m not too worried even though I’m invested in gold. China and India are huge customers of gold. China’s economy is still growing north of 5% a year so eventually precious metals should recover which means now might be a good time to start buying some gold if one doesn’t yet have any.

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Blog roundup – Personal finance and other interesting articles from around the web
Being frugal has an article on suggestions for lending money people close to you
Add Vodka warns that over deprivation can actually backfire
Agent Fang shares a frugal way to prepare some delicious home made chicken karaage
Dividend Ninja takes us through a couple of resource stocks he just bought.
Girl meets Debt discusses what she likes and dislikes about blogging as a PF blogger
Modest Money has a post on what you should if you’re traveling and run into problems with a rental car

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Liquid Updates – What’s new with me

Bought some cool entertainment recently. Thought I’d share in case anyone was curious to know what I do in my spare time.

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I also recently made a major purchase. It costed me over $2,000. Since I didn’t have any savings or an emergency fund I used my line of credit to pay for it haha. I’ll blog about my new awesome purchase this upcoming week, but here’s a hint; vampires are allergic to it 🙂

I think I may have a spending problem. I keep buying stuff I don’t even need. As if going into $2,000 of debt wasn’t bad enough I also found myself purchasing something else last week. Except this one costs WAY MORE. It’s so expensive it makes $2,000 look like a rounding error. If you follow me on the twitter, you may have seen this. 13_04_twitterland

More details to come later. It will probably mean going into more debt for me to finance the purchase. But I’m okay with that since using other people’s money was how I made 12.5% on my farmland investment last year. Some might say going into debt can restrict your freedom. But I think it can also create the foundation for wealth and financial freedom. Debt is a tool. It just depends on what we use it for 🙂

Mar 192013
 

The government of Cyprus (a small island country near Turkey) announced they want to charge a one time tax on all their citizens’ savings and checking accounts, up to 9.9% of their balance (O_o) This is so the country can qualify for a $13 billion bail out package which they so desperately need. It certainly sets a very controversial precedent for countries facing bankruptcy. Cyprus citizens rushed to the banks to withdraw their cash so they won’t be taxed only to find out the government has ordered financial institutions to stay closed for fear of a bank run.

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If it’s not even safe to store your money in the bank anymore, where CAN you put it? The Fed is continuing its money easing policy and with an increased supply of cash and credit in the economy we will inevitably see some kind of inflationary pressure in the future. I was recently looking at the price of gold and noticed that it has really come down from a year ago. It also seem like the price of gold has found a support level at around $1550/oz.  Well today gold is roughly at $1600/oz. I like to buy stocks when they are undervalued. But right now it’s hard to pick a good company because the US stock market is at an all time high, lol. However gold is near its 52 week low. And historically it has been a great store of value, and a hedge against uncertainty and inflation. So I think this is a golden opportunity for me to start accumulating some physical gold.

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But what kind should I buy? There are gold bars which are pretty boring. Then there are collectible gold coins which usually demand quite a hefty premium over the spot price of melted gold. Finally there are the globally recognized 99.99% gold maple leaf coins made for high liquidity and circulation purposes. Last year I posted about the Royal Canadian Mint’s 100 kg (220 lb) 99.999% pure gold coin with a face value of $1 million. It holds the world record for being the largest fine gold coin ever created, and it’s purity is unmatched. Well for those who can’t afford the best in the world the mint has also made miniature 1 oz versions of this coin with the same design, quality, and purity. Sounds pretty good to me (^_^)

So earlier today I went to the local bullion exchange and bought myself a one ounce .99999 fine gold maple coin. This shiny little bullion can be sold at any gold dealership. But it also has some properties that make it unique like a collectible coin. For example it’s 99.999% gold which the Mint said is unrivaled for its purity, compared to the standard maple leaf coin in circulation at only 99.99%. It also has a mintage so it’s more rare than the massively produced standard coins. Due to these special features it’s 2.2% more expensive than the standard maple leaf coin. But for an unmatched work of art and engineering I think that’s very reasonable. I spent $1750 on this little beauty today. The cost fluctuates depending on the market price of gold but the place I bought mine from, VBCE, has a website that lists their current spreads so you can check online for the latest prices. Click image below to enlarge. I included a toonie and quarter in the shot to show scale.13_03_1ozgold

I already own gold mining companies like Goldcorp, but this is my first time investing in the commodity directly. It’s quite amazing to hold something so small in my hand and know it’s worth more than everything in my closet, lol.  It’s hard not to feel emotionally attached to gold after seeing it up close in its purest form like this. It’s just so pretty (゜o゜) I think gold is interesting from both a scientific and investment perspective. As an element gold is known for its stable properties. It doesn’t break down, burn, or corrode so all the gold that has ever been extracted from the ground since the beginning of civilization, which is 171,300 tons (or 5 billion ounces) according to the World Gold Council, is still being used somewhere today. There’s 7 billion people on earth. So if all the discovered gold was evenly distributed each person would claim roughly 0.7 ounces. Which means as of today I own more than my fair share since I have a whole ounce :0) About 50% of gold mined this year will be used for jewelry, 10% for industrial purposes like semiconductors, and the remaining 40% ends up in official holdings and investments like being made into maple leaf coins for example 😀

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As you can see the gold coin is enclosed in a plastic case and set in a 5″ x 4″ laminated card. On the front the coin displays 3 maple leaves matching the design of the larger 100 kg coin. On the back the coin displays Queen Elizabeth II and a visible “200 DOLLARS” is imprinted to indicate the face value of the coin.  The card represents a certificate of authenticity backed by the Royal Canadian Mint.  Overall I give this coin 10/10. Great quality. Would buy again 😀 Click image below to enlarge.

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