Tuesday, October 13, 2009

A Theory on Canadian Dollar Against U.S. Dollar


Today is October 13, 2009, the day after the Canadian Thanksgiving Monday. This morning the loonie (Canadian dollar) rises again against the greenback (U.S. dollar). One CAD (Canadian dollar) is worth above 0.97 USD (US dollar), i.e. 97 U.S. cents at the open of the market. Speculation has been set that soon the Canadian loonie will be at parity again with the U.S. greenback.

(Most people know that the U.S. dollar is dubbed the greenback. Some may not know that the Canadian dollar is dubbed the "loonie" for the bird, the loon, that appears on the Canadian one-dollar coin.)

Historically, the Canadian dollar was at fixed exchange rate until September 1950 when the Canadian dollar was allowed to float. Soon after that, the Canadian dollar had been at or above parity against the American dollar for most of the 1950s. It hit the highest during that period on August 20, 1957: 1 CAD = 1.0614 USD.

In May, 1962, the Canadian dollar was back to fixed exchange rate again, until June 1970 when it was allowed back to float. The Canadian dollar has been floating ever since then. [See note]

After the Canadian dollar was allowed to float in the year 1970, it only happened twice in the last century that the loonie is at or above parity with the greenback.

The first time was April 25, 1974 when one CAD was worth 1.0433 USD. The second time was two years later in the summer of 1976 when one CAD was worth 1.03 USD. On November 25, CAD was at or above parity against USD the last time for a long, long time.

Ever since, CAD fell against USD, and on January 21, 2002, one CAD was worth 0.6179 USD.

In 2007, the loonie was on the rise again against the greenback. On Thursday, September 20, 2007, the loonie reached parity again. And on November 8, 2007, the loonie hit the highest in history (if my research data are correct): 1 CAD = 1.0935 USD (or 1 USD = 0.9145 CAD).

In brief: CAD was at par with USD in 1974, then in 1976, and then in 2007. And now it may hit parity again.

I have a theory: CAD hit parity (at par) with USD in 1974, and 33 years later in 2007, it did it again. Then again in 1976 ( two years after 1974) it hit parity (at par with USD), and (here’s my theory) 33 years later in 2009 (which is two years after 2007), it will do it again.

Because of the timing difference, I am giving myself some leeway: I predict that CAD will be at or above par with USD any time now till April of 2010. Only time will tell if my prediction is correct.



Source: A History of the Canadian Dollar by James Powell, published by the Bank of Canada in December 2005.


Saturday, May 9, 2009

Do-It-Yourself Investor


When you lose money in mutual funds, the mutual fund managers still take more of your money for what they did to your money. How absurd!

So, this year when the RRSP season came, I decided not to give money to my financial advisor anymore. If I have to lose my own money, I’d rather lose it myself. At least, I save the money that mutual fund managers have the audacity to charge me after they lose my money.

In late February this year, I opened up a self-directed RRSP account with TD Waterhouse. My contribution was $6,000 Canadian. It’s been sitting in this self-directed RRSP account since then till to-date, earning just a few pennies in interest.

Why? Because I decided to learn how to invest myself; I want to be a do-it-yourself investor.

I’ve been reading up on investments. I’ve been monitoring the market. I spend much time in identifying the constraints as a part-time investor, because I still have a day-time job to tend to.

And now I feel I am about ready to do my own investment.

The Canadian RRSP (Registered Retirement Savings Plan) is somewhat similar to the American 401(k) plan. The deadline for contribution to the RRSP of the previous year is the first 60 days of the year (usually the first day of March).


Thursday, May 7, 2009

Mutual Funds are No Fun


Like most Canadians, I don’t work in the finance industry. (In fact, I work in the computer industry.) Again, like most Canadians, I don’t do my own investment; I give my RRSP money (RRSP is similar to the 401(k) plan in the U.S.) to an investment advisor.

My investment advisor is with Manulife Financial. Like most investment advisors, my Manulife advisor advised me to put my money into various mutual funds. And that was fine with me.

And I know that mutual funds charge money for providing their services, and that was fine with me. They charge a certain percentage of the value of your holdings as their management fees. They call this percentage MER, short for Management Expense Ratio.

The MERs the mutual funds charged me were about 2% to 2.25% (depending on which particular fund), which was a bit higher than usual, but that was still fine with me, as long as the money they made for me was greater than their MER money.

What began to be not so fine with me was when all this financial tsunami started last year. On November 19, 2008, TSX dropped about 345 points to close at 8490.56. The following day (November 20), TSX dropped further to 7724.76, losing 765.80 points.

During that period, most people (if not everyone) lost 40% to 50% of their holdings in investments with mutual funds. Yet mutual funds still charged the same MER money.

If you make money for me, and you take some money from the extra money you made for me, I have no problem with that. But if you lose my money, and still take some money from my original money (the principal), then I really have problem with that.

Yes, there are gains and losses in investments. But if you (as an investment professional) lose my money, you still have the guts to take my money from my pot? To me, that’s preposterous!

As in my blog title: "If we don’t take care of our own money, it will become other people’s money." So in February this year (2009), I decided to sell all my mutual funds and have everything in cash (or money market).

By liquidating my positions, I managed to avoid the new low in March 9 this year. On that day, TSX hit a new low of 7566.94, and Dow Jones also hit a new low of 6547.05.

As of writing, I am still in all-cash (money market) position.


Tuesday, May 5, 2009

Monies or Moneys

The first question you may ask when you look at my blog title is, “What are monies? Shouldn’t it be moneys?”

Monies” and “moneys” are both the plural form of money in English. Their usage, however, is not exactly the same. “Monies” and “moneys” are interchangeable most the time, but not all the time.

Traditional English grammar books say that “money” is uncountable, therefore it does not have a plural form. However, as most linguists agree, languages are not static but are lively and ever-evolving.

Example 1:

“After my trip to Asia, I have three different kinds of moneys in my wallet.”
This sense of “moneys” means “currencies”.

Example 2:

“I have my own business. Three clients owe me sums of $100, $200 and $300. My bookkeeper records the three entries in the “monies due” column in my accounting books. The moneys due to my business are $600.”

In general, the usage of “moneys” is more general and casual. “Monies” is used more in an academic sense, as in traditional economics textbooks (modern economics textbooks may start using moneys). So, it seems to be more orthodox, or even authoritative in that sense to use “monies”.

Nowadays, “monies” is usually used more by professionals that require taking economics courses in their training, such as bankers, accountants, MBAs, etc.

In daily use, we use “moneys” more often than “monies”, probably because less people know (or care to know) the “proper” plural form of money is “monies”.

Sunday, May 3, 2009

Two Kinds of Monies

There are two kinds of moneys: our own money (OOM), or other people’s money (OPM).

It is important it is to take care of our own money. We all have heard over and over again that how people in the public sector (such as school boards, municipal, provincial and federal Governments) have wasted tons of taxpayers’ money. After all, it’s just other people’s money, not their own money.

If we don’t take care of our own money, it will become other people’s money.