Fiscal Update November 2018 – Back in the Black

A lot has happened globally in the last few weeks that makes me weary about the growth of the financial markets over the next 1 to 2 years. Inflation in France sparked violent protests. The U.S. federal budget deficit for fiscal year 2019 is projected to be nearly $1 trillion. It will be hard to find borrowers who are willing to buy all those treasury bonds. The 2 largest foreign holders of existing U.S. debt are China and Japan. And both have become net sellers. The economic tension between the U.S. and China is momentarily on hold, but 3 months from now the trade war could escalate.

So what I plan to do going into 2019 is to keep more cash on hand. This will allow me to maneuver more easily as cash is very liquid. If interest rates become too high I will use the cash to pay down my debt. If stocks in general fall into a bear market I will be buying up more shares. 🙂

Liquid’s Financial Update

*Side Incomes: = $3,400

  • Part time job = $900
  • Freelance = $1200
  • Dividends = $900
  • Interest = $600
*Discretionary Spending: = $2,000
  • Food = $300
  • Miscellaneous = $500
  • Interest expense = $1200

*Net Worth: (ΔMoM)

  • Assets: = $1,225,600 total (+1400)
  • Cash = $19,800 (+2300)
  • Canadian stocks = $162,600 (-4500)
  • U.S. stocks = $117,400 (+300)
  • U.K. stocks = $20,400 (-300)
  • Retirement = $117,400 (+2700)
  • Mortgage Funds = $34,700 (+500)
  • P2P Lending = $33,300 (+400)
  • Home = $275,000
  • Farms = $445,000
  • Debts: = $420,200 total (-800)
  • Mortgage = $190,300 (-400)
  • Farm Loans = $180,400 (-500)
  • Margin Loans = $49,500 (+100)

*Total Net Worth = $805,400 (+$2,200 / +0.3%)
All numbers are in $CDN. 

 

 

Financial markets are stretched thin. The S&P 500 is still trading relatively expensive at 22x earnings, even after the pullback that started in October. There isn’t much room for growth in equities. Real estate markets around the world are softening. U.S. home building company Toll Brothers warned that the housing market slowed further in November, particularly in California. Home prices and sale volume in Canada, particularly in Vancouver and Toronto are going down. Prices will likely fall further into the upcoming spring. But Canada’s continued trade deficit and high energy prices mean the cost of living will probably climb higher. The theme for 2019 could very well be higher inflation but lower investment returns. If that turns out to be true then I would prioritize paying down debt and acquiring hard assets.

 

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Random Useless Fact:

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Investing Pursuits
12/06/2018 8:28 am

You took some big positive step when you switched you margin accounts to Interactive Brokers. The margin rate difference is huge. Playing it safe with cash on hand is very safe. I think we are headed into a recession.

Financial Orchid
Financial Orchid
12/06/2018 7:33 pm

Veggy prices will go up more than meat when we’re a nation that ought to be eating more veggies in the first place.

Jeremy Wong
Jeremy Wong
12/07/2018 4:32 am

What happened to your high-yield bonds (Baytex, Sherritt, and Western Eng)?

Jeremy Wong
Jeremy Wong
12/09/2018 9:21 pm

Is TD your broker? Is that price–$96 for Baytex–the bid or the ask? Questrade is selling that Baytex bond at $97.625 (7 Dec 2018 ask price), and that’s a significant difference!

Jeremy Wong
Jeremy Wong
12/12/2018 4:57 pm

I think the $96 price in your investment summary is the ask price. There are 3 ask prices: investment summary ($96), bond bulletin ($97.6), and intraday quote from the bond desk. Those 3 prices are usually, if not always, different and may be given by different sources. The only price that matters is the intraday quote (on which avg cost is based), and the bulletin price is the furthest off, so the bulletin is not an accurate source of prices.

Jeremy Wong
Jeremy Wong
01/21/2019 8:17 pm

You’re right. The market price in your investment summary is the bid price, but not just any bid price — it is the bid price without TD’s commission, which is $0.40 per $100 of face value. The actual bid & ask prices with commission were $95.60 and $97.55 respectively, which is consistent with their bond bulletin at that time.

Jeremy Wong
Jeremy Wong
12/12/2018 4:33 pm

When you first wrote about Baytex bonds 2 years ago, your account showed qty 5000, avg cost $0.99 (book value $4925). Today, it shows qty 5000, avg cost $0.96 (book value $4792.50). Why the difference in avg cost?

Brett McLennan
Brett McLennan
12/07/2018 8:24 am

This sounds a lot like trying to time the market. Even if the 2 and the 10 invert entirely (which would take at least 6 months) you could still be a good 12-22 months away from the recession based on how this method has ‘predicted’ a bear market in the past. You could easily miss a double-digit return next year just as easily as there could be a bear market. I suppose since you’re quite leveraged its a bit of a different story than most investors. The safer move might be to sell some of your individual stocks and buy the index. If things drop 20% or more into a bear market you could sell your index fund for a loss and buy some of those stocks back that fell further than the index. Buffet would do something similar, sell some of his stocks that didn’t fall as far as the index and buy stocks that fell much further that are still great companies. Although there are no question marks above I’m asking as much as I’m telling. I typically just buy the index every month and ignore the price. 95% equities / 5% cash + whatever’s in my house… Read more »

Financial Independence
12/08/2018 2:10 pm

To be correct it is not inflation in France, but excessive taxes and silly president. I think he needs to do the coming out and then nobody would be able to protest 🙂

You will find that there will line to purchase the reasure bonds. Canada on the other hand is in pickle with Chinese comrads and unless something is done, there will be some unpleasant consequences to come.

I think 2019 will be an opportunity. I wish I had more cash now to poor into the US market, it will be bounce back, but it will be a roller coaster.

Dude
Dude
12/09/2018 6:03 am

Learn the Difference:
Can be said about pretty much every white politician.