Jun 162016
 

A recent report from the Brookfield Institute says that 42% of the Canadian workforce is at high risk of being replaced by computers and technology in the next 20 years. Suncor Energy is already planning to replace its fleet with autonomous trucks by 2020, which will lead to the permanent loss of thousands of oil sands jobs. Earlier this year Google’s AlphaGo program beat Lee Se-dol, the world’s best Go player. What makes AlphaGo different from other AI programs is that it doesn’t play by any specific algorithm to win. Instead, it learns from its mistakes and plays better after each game, which is similar to how we humans learn. 🙂 In the past automation has been restricted to laborious, routine tasks such as assembly lines in manufacturing. But new breakthroughs in artificial intelligence, advanced robotics, and faster hardware have pushed automation into cognitive occupations, such as driving and customer services.

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The report puts a 70% or higher probability that high risk jobs will be affected by automation over the next 10 to 20 years. These “high risk” jobs include:

  • Retail salesperson
  • Administrative assistant
  • Food counter attendant
  • Cashier
  • Transport truck driver

However, there are also low risk jobs that have less than 30% chance of being affected by automation. These are usually higher paying jobs which requires critical thinking, people skills, and tend to be in the science, technology, engineering and math fields (STEM.) These positions include:

  • Trade managers
  • Registered nurses
  • Primary and secondary school teachers

Naturally the careers that require higher cognitive and judgement abilities are at low risk of being replaced by machine or software.

If you believe your job may be at high risk of automation then it’s best to learn some new technical skills or transition into a different position of lower risk. Being good with computers and technology will always help, and as time goes on the technical standards will increase. At one point in time being able to type 50 words a minute was considered a legitimate computer skill to include in your resume. But boasting about this common ability today would just be silly.

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Oct 262015
 

What a Liberal Government Means for Canadian Investors ?

Last week the charismatic Justin Trudeau lead the Liberals to win the 2015 federal election. I’m sure his good looks has nothing to do his popularity and success. 😛

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Justin pledged to make meaningful policy changes to the country that could benefit millions. But will his commitments help you? The jury is still out on the long-term effects, but here’s a TL;DR summary of what Trudeau’s government means for Canadian personal finance and investors in the short term.

The new Liberal majority government will…
HelpHinder
  • spenders
  • low-income seniors
  • stock market investors
  • students
  • most middle-class workers
  • savers
  • high-income households
  • single-income nuclear families

These are only generalizations. The rest of this post will explain individual policies that could affect your pocket book. Keep in mind that just because politicians promised something during their campaign, it doesn’t mean they will always follow through. Any of these policy changes below could be altered or cut completely going forward.

Borrowing To Invest. ? Going back into Deficit. 

According to the federal finance department, Canada’s government had a $1.9 billion surplus in the 2014-2015 fiscal year. 🙂 But the new Liberal government under Trudeau plans to run a $10 billion deficit for each of the next 3 years, before balancing the budget again in 2019.

Going into more debt as a way to expand economic output isn’t necessarily a bad idea. $10 billion is peanuts relative to our $1,827 billion/year economy (0.6%.) Also, our national debt to GDP ratio is quite low by international standards, which means we can borrow money at ridiculously low costs. New 10 year Canadian government bonds are currently yielding 1.5% in annual interest.

After factoring in inflation, there might actually be no real cost to tax-payers, lol. 🙂 Craig Alexander, the Vice President at the C.D. Howe Institute, said that despite digging deeper into debt, the debt to GDP ratio of Canada is still going to decrease over the next three years because our GDP is expected to increase as well. 😀

About a third of the new spending will go towards much-needed public transportation and infrastructure development and repairs. This means building more roads, highways, bridges, etc. This should improve the country’s productivity because gridlock and urban densification are causing major problems right now in large cities such as Toronto, Montreal, and parts of Vancouver. The other two-third of public spending is planned for social housing, seniors centers, and clean energy projects like solar and wind farms.

Due to more deficits and fiscal stimulus the Bank of Canada will be less likely to further cut interest rates for the time being.

What this means for you: Invest your money. Historically the S&P/TSX Composite performed well during times of deficit spending. Below is a graph I put together using stock market returns and government budget information courtesy of the CBC. During the two decades from 1995 to 2014 there have been 9 years where the government ran a deficit budget. And the stock market had positive returns in 8 out of those 9 years.

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Economic stimulus increases employment and grows the economy so people and businesses feel more optimistic about their investments which tend to be bullish for the financial markets. 🙂 In particular I would consider investing in stocks or sectors that have exposure to financials, cannabis, industrial goods, construction, utilities, preferred shares, and green technology (solar panels, wind, etc.)

Goodbye annual $10,000 TFSA contribution limit ?

The Tax-Free Savings Account annual contribution limit will revert back to $5,500 and increase in $500 increments based on inflation. This will make it harder for Canadians to save and won’t benefit the middle class. There’s a rumor that the TFSA only helps the rich get richer. But that’s baloney! The TFSA actually helps anyone who wants to save get richer. Here’s a table courtesy of the National Post which shows that many low and middle-income families still managed to max out their TFSA contribution rooms in 2013 when the limit was still $5,500.

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Jun 122015
 

When choosing a potential investment to put our money in it’s important to look at all the usual financial metrics like profitability, management, history, and forecasts. But a less conventional measurement to consider and is usually harder to quantify, is employee sentiment. 😀

The world’s largest asset manager, BlackRock, which has more than $4.65 trillion of investments under management, includes employee happiness data into its models for evaluating holdings and investment prospects. “We look for companies that have solid employee rankings and want to buy companies that have improvements in employee opinions,” says Paul Ebner, a portfolio manager at BlackRock. “Happy and engaged employees lead to more wins and more sales opportunities.”

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It makes sense from a practical point of view. People who enjoy their work tend to be better at what they do and are more focused. And companies that are known to keep their workers happy will naturally attract the best talent in the industry. Research appears to back up the findings. Alex Edmans, an associate professor of finance at Wharton School of Business, discovered that companies that made Fortune Magazine’s list of the “100 Best Companies to Work For in America,” outperformed their peers by more than 2% on average annually between 1984 to 2009 (25 years.)

I have looked at the most recent Fortune list of best companies to work for. The top 3 publicly traded names are Google, Salesforce, and Roche (Genentech.) Over the last 5 years (from June 2010 to now) the stocks of all 3 companies have outperformed the Dow and the S&P 500 indexes. 🙂

  • GOOG = +118%
  • CRM = +197%
  • RHHBY = +115%
  • Dow Jones Industrial Average = +75%
  • S&P 500 = +92%

However other studies have shown there is little to no correction between employee happiness and the profitability of a company. Some critics say it’s an imperfect and unreliable indicator, arguing that the idea of happy workers is just fluffy. I’m not sure if we should gauge a stock by how happy its workers are, but I do think that disgruntled employees can create a toxic work environment which could lower a business’s earning potential.

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Random Useless Fact

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May 072015
 

Unpaid Internship is in serious disrepute. Many economists and labour activists believe graduates shouldn’t be allowed to work for free. On the other hand influential people like Stephen Poloz, the Bank of Canada Governor, advocates that it’s not a bad idea for young people to do them. He says an unpaid internship is a valid way to avoid the “scarring” of long-term joblessness, especially among the Generation Y cohort.

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In most cases, unpaid internships are in fact illegal in Canada. There are some exceptions however. Federal government departments and agencies have employed up to 1,000 unpaid interns since 2008, for example. In the United States the rules around intern compensation can be a bit more confusing. Nearly half the internships in America are completely unpaid. Currently Obama can employ hundreds of unpaid White House interns, even if he publicly advocates for higher minimum wage lol. Of course non-profit and charity organizations are allowed a free pass as can classify their unpaid interns as “volunteers.” 🙂

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Oct 102014
 

The Labor Market

In September 248,000 new jobs were created in the U.S. 🙂 The national unemployment rate dropped from 6.1% to 5.9%, the lowest since 2008. This must mean we’re almost back at pre-recession, full employment right? Well if you ask people on the streets how they feel about the strong labor market recovery, many of them will not know what you’re talking about.

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The Chicago PMI which is a confidence indicator for businesses dropped to 60.5 in September from 64.3 in the previous month. The Conference Board published its Consumer Confidence survey and they were expecting 92.5 in September. However the actual number was only 86 🙁 So why is there a disconnect between the employment data and how people really feel about their finances? To understand this we simply have to dig a little deeper into the numbers.

Read Between the Lines

Compared to Canada’s high unemployment rate of 6.8%, the U.S. appears to be quite smug sitting at just 5.9%. 😛 However the unemployment rate does not account for people who are no longer looking for a job. And in September 315,000 people in the U.S. dropped out of the labor market. The labor force participation rate is now at 62.7%. This is the lowest it has been in 36 years! The last time this many people was out of work relative to the population size was back in 1978. This is why so many people are still frustrated with the job market, and don’t believe that the U.S. economy has recovered. The number of jobless people rose to an all time high of 92.6 million last month. That’s 92.6 million people not paying any income tax. That’s more than 1/3rd of everyone who could be working, but aren’t. 😯

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