Jan 292018

The Next Recession is Coming

Although not directly correlated to the stock market in the short term, the economy also experiences cycles of ups and downs. Here are some graphs that have historically been very reliable when used to forecast recessions in the United States. Recessions occur when the total economic output of the country declines in two consecutive 3-month periods.

The Yield Curve is Flattening

The graph below shows the difference between the 10 year treasury yield and the 2 year treasury yield. The yield curve tends to get flatter when the economy reaches the end of an expansion phase. The vertical gray bars on the graph represent periods of recession. Every time the yield difference falls below 0% a recession happens soon after. Looking at the chart it appears we’re approaching 0% again.



Unemployment Rate Nearing A Turning Point

A lower unemployment rate is good for the economy. But at the end of every full employment cycle is a sharp increase in the civilian unemployment rate, usually accompanied by a recession. In the past a long period of declining unemployment rate has always lead to a spike up and a recession.

This rate has fallen from 10% eight years ago to 4% today. Practically speaking it cannot go much lower than this. The lowest the rate has been over the last 60 years is 3.5%. So this downward trend in the civilian unemployment rate is almost over. It’s not hard to imagine what will follow after the rate stops heading lower.

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Jan 152018

How to Prepare for Higher Borrowing Costs

My debt to income ratio is about 500% while the national average is around 173%. Readers sometimes email me and ask what I will do when interest rates rise. My answer is simple.

I tell them I will pay down my debts in an accelerated manner prioritizing the highest interest loan first. I will limit my monthly interest expense to no more than $1,500. Doing this will adequately protect myself from interest rate risk. Sounds like a solid plan, right? 😉

But I know not everyone will agree. :/ Back in 2014 I noticed some people were concerned that I had taken on excessive risk because my debt level was too high. This sentiment echoed around various internet forums. Here are some examples I’ve saved.

The last commentator wanted to know how I’m doing now. That’s what I’ll be discussing in today’s post. 🙂

But first, here’s a look at my debt summary in 2014. The numbers are taken from my net worth update 4 yrs ago.

Liquid’s 2014 Debts Balance Interest Rate Annual Interest Cost
Margin Loans$52,9004.25%$2,248
TD Line of Credit$33,7005.25%$1,769
CIBC Line of Credit$14,0004.50%$630
RRSP Loan$5,0004.00%$200
Total Debt Balance$531,800  
Average Weighted Interest Rate 3.47% 
Total Cost of Debts$18,474


Back then I had nearly $532K of debt, charging me an average interest rate of 3.47% per year.

I was paying $1,540 per month in interest. But I was cash flow positive and saving about $1,000 per month. I felt like I had everything under control. So I didn’t understand why people claimed I was overly leveraged. I thought maybe I was missing something. But as Bobby McFerrin would say, “don’t worry, be happy.” 😀 So that’s what I did.

And here’s what my debt looks like today, 4 years later. 🙂

Liquid’s 2018 DebtsBalance Interest Rate Annual Interest Cost
Margin Loans$57,0002.40%$1,368
TD Line of Credit$5,0005.45%$273
CIBC Line of Credit$17,5005.00%$875
Total Debt Balance$459,000  
Average Weighted Interest Rate 3.49% 
Total Cost of Debts$16,083


So my debt costs me $16,083/yr or $1,340 per month right now. This is actually $200 per month lower than in 2014, despite interest rates being higher today.

Yay. Bobby was right. There was no need to be worried. 😀

Nearly every asset class I hold long positions in has produced decent returns since 2014. Had I not borrowed and used other people’s money to invest I would have missed out on all the investment gains.


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Oct 032017

We are now 3 quarters into the year. The S&P 500 and Nasdaq both hit an all time high to close out September. Up here in Canada the S&P/TSX Composite grew by 3.7%. Gross domestic product (GDP) was essentially unchanged, at zero per cent growth in July compared with June, Statistics Canada said last week. I suspect that the slower start to Q3 is indicative of what’s to come for the rest of the year. The good thing is inflation should remain low at sub 1.6%. I wonder if the Bank of Canada raised interest rates too quickly over the summer.

September had turned out to be a great month. A rising stock market raises all boats so my brokerage accounts performed well across the board. I’m quite happy with the outcome. 🙂

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $700
  • Freelance = $1200
  • Dividends = $800
  • Interest = $600
*Discretionary Spending:
  • Fun = $400
  • Debt Interest = $1300

*Net Worth: (ΔMoM)

  • Assets: = $1,121,700 total (+9,100)
  • Cash = $3,600 (+600)
  • Canadian stocks = $151,700 (+3200)
  • U.S. stocks = $93,900 (+3500)
  • U.K. stocks = $20,200 (+500)
  • RRSP = $83,900 (+1500)
  • Mortgage Funds = $31,300 (-200)
  • Peer-to-Peer Lending = $21,500 (+200)
  • SolarShare Bonds = $9,600 (-200)
  • Home = $270,000
  • Farms = $436,000
  • Debts: = $474,700 total (-4,000)
  • Mortgage = $181,700 (-400)
  • Farm Loans = $187,300 (-500)
  • Margin Loans = $57,600 (-100)
  • TD Line of Credit = $9,400  (-1800)
  • CIBC Line of Credit = $23,000 (-1000)
  • HELOC = $15,700 (-200)

*Total Net Worth = $647,000 (+$13,100 / +2.1%)
All numbers above are in $CDN. 

My year over year net worth gain is $109,500. I plan to continue paying down debt while building up my retirement fund over the next 3 months. By the end of this year I hope to have a net worth of $675,000.


Random Useless Fact

Dec 152016
How to invest in the united kingdom

The United Kingdom has a long history of innovation and creativity. The television, programmable computer, telephone, Mini, and even Calculus are all British inventions. The British government was the first to create a revolutionary missile called the civil servant – it doesn’t work, and it’s nearly impossible to fire.😄 The U.K. also gave us David Beckham, Adele, The Beatles, Emily Blunt, and Christian Bale (heh). By the way, if you ignore the looks, wealth, charisma, and success, then there’s no real difference between me and Christian Bale. 😉

England is such a fascinating country and I’ve always wanted to invest there. But I’ve never found the right opportunity to do so, until now. 😉 With a cheapened currency and rising government bond yields, the U.K. is looking relatively attractive for foreign investors. So a few days ago I invested £11,000 in the U.K. stock market! I think the British would approve of my decision. 🙂

London, England is home to the world’s largest global financial center. Despite the rainy weather, its enduring popularity and rich history make London one of the most sought after cities to live in.

In today’s post we will explore why Great Britain may be a good place to invest in, how to do it, and what we can expect in the years to come. 🙂

Top 3 Reasons to Invest in the United Kingdom

Keep in mind these are my personal reasons and may not apply to everyone else’s situation.

  1. Geographical diversification. Back in 2014, the United States stock market represented 36% of the world’s total stock market cap. But according to the Wall Street Journal, it has recently climbed past 40% after Trump won the U.S. election.But this trend cannot go on forever because the U.S. doesn’t have special privileges regarding innovation, profit growth, or stock market returns. Nearly all of my financial assets are in North America. Investing in the U.K. gives my portfolio some international exposure.
  2. Cheap Pound Sterling. The British Pound (GBP) has recently become one of the most undervalued major currencies in the world. A couple of months ago the Pound fell to a 31 year low compared to the USD. So during my entire life so far, there has never been a better time to buy the Pound Sterling than this year. 🙂
  3. Decent historical returns. Here’s a look at how the FTSE performed over the last 25 years, compared to the Russell 3000 in the U.S. It’s nothing spectacular, but a 200% return in 2.5 decades isn’t bad. 🙂

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Aug 012016

Stock Markets Reach Record Highs… Again 

Both the Dow Jones and the S&P 500 indexes have climbed to all time highs in late July. 🙂 But corporate earnings have been stagnant and economic growth remains weak. Restaurant sales have slowed. The U.S. economy only grew a disappointing 1.2% in the second quarter, well below expectations. 😕

So what’s producing so much excitement in the stock market? In short, I believe it’s largely caused by Negative Interest Rate Policies (NIRP). For example, in Europe the benchmark lending rate is negative 0.4%. Usually the bond issuer pays interest to the investor. But with negative rates, the investor pays the issuer. Currently about 1/3rd of the world’s government bonds are producing negative yields. Investors can’t get rich by holding these securities anymore. So in this kind of environment bonds really hold people down.?

As a result of NIRP, more investment capital has moved from the bond market to relatively stable stocks. These tend to be companies that operate gas pipelines, railways, utilities, telecommunication services, and other infrastructure that are recession resistant. Last year I wrote about how to easily make $75 of annual income without using any of my own savings by using leverage to buy shares of TransCanada Corp (TRP.)


I purchased TRP stocks for $42 per share. I mentioned at the time that analysts had an average price target of $57.50 per share. This doesn’t always happen, but sure enough TRP is trading at roughly $60 per share today. 😀 So not only am I making $75 a year in dividends, but I’ve also made $1,800 in unclaimed capital gains so far. 😉

In normal circumstances this kind of price movement in a large cap, blue-chip company wouldn’t happen. But due to a lack of viable investment alternatives, an influx of additional buyers has pushed up TRP and many other relatively safe stocks.

Increasing Valuations and Risk

Unfortunately, NIRP produces asset bubbles and may cause the markets to behave precariously. The chief executive of DoubleLine Capital, who oversees more than $100 billion in assets, recently said that many asset classes look frothy and his firm continues to hold gold, which has also climbed due to NIRP.  At the end of July gold reached $1,350 per ounce, the highest monthly close in years! Stock investors have entered a “world of uber complacency,” said Jeffrey to the media. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong. Continue reading »