Author: Dave

Got laid off

I got laid off yesterday. Unfortunately I don’t have any “emergency savings account” although I got some severance. I’m not sure what I’m going to do next. I’ll probably just get another software job. It would be nice to work for myself or write some software that I could sell for millions but I don’t think either of those things are going to happen. I also booked 1 hour with an employment lawyer and after finding out how much that costs the thought of writing the LSAT briefly crossed my mind.

This is my first time getting laid off so I don’t have much experience going through this, but so far I can offer the following advice:

  • Don’t take on so much debt that you can’t afford to make payments if your next job doesn’t pay as much or if you can’t find a new job for a while. For example, banks suggest that no more than 40% of your gross income is used to pay off debt. Ideally, in a two-income family where both salaries are roughly equal, no more than 20% of your gross income should required for debt servicing.
  • Talk to a lawyer to make sure that your severance package is fair.
  • It’s probably a good idea to have an emergency fund in case you cannot find a job after your severence and EI runs out.
  • Always keep your resume updated. I updated mine about a month ago, so I just need to do a bit more polishing. I still need to modify it for each job I apply for but at least it’s not 3 years out-of-date like I’m sure it is for some of my colleagues (for whom this lay-off came as a bit of a shock).
  • Consider finding a new job quickly in order to keep your salary as well as the severance package from your previous company. It’s tempting to take some time off before starting to look for a job. That means less money, but also, you may not find a job before the severance runs out.

I didn’t write my first blog post in many months just to get some pity from the blogosphere. I’ve been so busy since my daughter was born in May and the few months leading up to that, and today was my first day at home looking after her. So during her naps I’ve been going through my long TODO list of things that I’ve wanted to do for a long time but haven’t had the time to do.

Vancouver Condo Speculators

This long Maclenas article, “The shocking truth about the value of your home,” about the housing crash in Canada is mostly just more of the same, except for an especially long story about one Riaz Kassam. He’s been in every newspaper, just do a google search. He was also featured in the Globe & Mail on February 19th, 2009: “Bad timing exacts a heavy price.” (The Globe article also profiled Lou Skoda, the now-infamous 79-year old living on a fixed income who also bought a pre-sale that he can’t afford).

I’m not sure if I should feel bad for these people or not. On the one hand, these people will probably go completely belly up, as in bankrupt. Some were told by real estate agents, real estate companies, economists, and anyone else who had an interest in seeing the market continue to rise, that real estate prices would continue to go up for the forseable future. On the other hand, these people are the reason that housing prices are so expensive and unaffordable right now for everyone else. These people bought homes they couldn’t afford, based on the ridiculous assumption that the price of the previous residence would only increase, and the price of their new presale condo would only increase as well.

Before you feel too bad for Riaz Kassam, realize that he owns at least 4 downtown condos, which he rents out (so why does the media call him a computer analyst when clearly he’s more like a full-time landlord/condo-flipper?) and he recently tried selling a BMW online for $97,500.00. According to the Macleans article, he’s learned his lesson: “Kassam has learned that you shouldn’t always believe what you read in the papers and what the economists say on TV.”

“It is very hard, if not impossible, to justify active management”

This article from the New York Times, “The Index Funds Win Again,” talks about a study done by Mark Kritzman, president and chief executive of Windham Capital Management of Boston, which shows once again that index funds are incredibly hard, if not impossible, to beat. I found the link at the Canadian Capitalist and couldn’t resist re-posting it here.

Going With PC Financial Tax-Free Interest Plus Savings Account

I have quickly changed my mind (see my earlier post) and decided to go with President’s Choice Financial Tax-Free Savings Account (TFSA) instead of ETrade for short-term savings. I will keep my ETrade TFSA though and use it once I have money available for longer term savings.

I compared PC’s Tax-Free Interest Plus Savings Account with ING’s Tax Free Investment Savings Accounts and PC’s interest rate is 1.05% higher. We also have all our daily banking and high interest savings at PC now so being able to use PC for our TFSA.

Opened a Tax Free Savings Account (TFSA) at E*Trade

My wife and I just opened up Tax Free Savings Accounts (TFSA) at E*Trade. I’m still not sure what I am going to invest in, but my requirements are that the initial capital has to be protected because we will most likely be taking the money out for a down payment in the next few years. We might just buy some shares of iShares’ Short Term Bond Index Fund (XSB). The only other possibility I had considered was to open a Tax-Free GIC with ING or a hight-interest savings account at President’s Choice, but interest rates are so low, I figure I can’t do any worse with short term bonds. The disadvantage with XSB is that I would have to pay commission every time I buy and 0.25% MER on top of that. But I think it’s worth it for the diversification it offers. Building a bond ladder yourself would involve a lot of commissions and a lot of work, so something like XSB is really the cheapest way to invest in the bond market. Real return bonds are also a possibility, and not a bad one, since they virtually guarantee that you’ll at least beat inflation.

December 2008 Personal Update

A lot has happened recently. My wife is expecting in April, we bought our first new car, and I recently changed teams at work and turned down an interview at another company.

Baby: Our first baby is on the way and everything is healthy and good so far. We’ve received a few gifts so far and the only purchase we’ve made so far is a crib and a change table. The crib and change table we opted for are a bit more expensive than others (see stokke.com), however, they should last a long time and actually transform into chairs and a desk, respectively, when the kids get older, which might save a bit of money later on. The next big purchase is going to be a stroller and a car seat. We’re looking at getting a car seat that can handle up to 30lbs (see Graco SafeSeat), to get more use out of it which may end up saving money later, or maybe not. Our stroller will be something that folds up and that comes with a bassinet attachment so hopefully we can get away with just the one stroller and maybe a compact umbrella stroller and a Baby Bjorn and that’s it. An acquaintance of mine has 8 strollers (2 kids with 1 more on the way) and I still haven’t figured out why. Kids certainly are expensive and with these recent purchases and a 1 week vacation coming up (our last one before kids!) we have certainly found ourselves spending less on other things. We didn’t do any Boxing Day shopping this year and didn’t buy ourselves any big presents.

Car: We bought a new car. Our other car was a 2-door and we figured it would be awkward to take the car seat in and out of that car, not to mention the fact that the trunk is fairly small. So we bought a nice new wagon. We felt that good mileage and low carbon emissions were important so we bought the most efficient wagon possible. We also wanted safety features like airbags, ABS, stability control, which our old car didn’t have. We’re just trying to sell our old car now (we’re selling privately because you can get more money that way, rather than trading it in to the dealership). Speaking of cars, I also did some repairs on my old 4-door Tercel. They were a bit expensive but it’s still cheaper to maintain an old car than it is to buy a new one.

Work: I am in the process of transitioning from one team to another, the first big change since I started at my present company 1.5 years ago. I recently had the opportunity to interview at a large, successful software company but turned it down because I would be missing out on opportunities at my current company. Having been there for 1.5 years already, I’m in a good position right now. I know lots of people there now, I know the business and the technology so I can be productive and possibly get some more promotions eventually. If I switch to a new company I have to start the whole process of meeting people and becoming acquainted with a new business all over again. I enjoy doing that but not every 1.5 years. Not only that, but at my current company I have built up a bit of seniority now and I can take 2 months parental leave and work part time after that, and work from home from time to time in order to spend more time with my wife and baby. Doing something like that would be very difficult just starting out with a new company.

I Told You So!

Hilarious video of bearish Peter Schiff on various talk shows in the past few years getting laughed at by his peers:

Somewhere around the middle of the clip there were a few stock recommendations. Ben Stein recommended buying Merrill Lynch when it was trading at $76.01. It’s now trading at $8.34. Someone else said Goldman Sachs is cheap and recommended buying it at $175. It’s now trading at $53.31. Ballsy Peter Schiff countered those recommendations with “Stay away from the financials. They’re toxic. They’re not cheap, they’re expensive. You think they’re at low P/Es? They have no earnings. Their earnings are going to disappear.”

How This Bear Market Compares to Other Bear Markets

The New York Times has a great graph that compares this bear market to other bear markets. Of course, it only looks at the S&P 500. Unfortunately it doesn’t look like they are updating it. I’d be very surprised if we reached the same bottom that we did in 1932, but who knows, anything can happen. The current bear market looks a lot like the one from 1937 to 1942.

Global TV Says Vancouver Housing Bubble Has Burst

Just over 4 months ago, I wrote that the Vancouver housing bubble had finally burst. The mainstream media has finally come on board and is supporting the idea that housing prices will fall over the next few years, based on a report from Central 1 Credit Union. Take a look at this report from Global TV:

Global TV is now saying that the “air is now officially out of the real estate balloon.” My only complaint with the piece is that there is no mention of the complete lack of affordability being any factor in the price drop. They are attributing the drop to “the global financial crisis and a big drop in consumer confidence” which have “combined to drive the housing market into recession.” Helmut Pastrick mentioned the “uncertain and volatile times we’re living in.” They say “how many times have we heard that somehow Greater Vancouver’s real market was insulated from what was happening in virtually everywhere else in the western world….that prices were falling?” They talk as if there are only two possible outcomes: either Vancouver is insulated from the rest of the world in which case our prices won’t fall along with the rest of the world, or Vancouver is not insulated in which case our housing prices will fall because prices are falling elsewhere. Even if Vancouver were completely insulated from the rest of the world (no trade, no communication, an island in the middle of the ocean) our housing prices would have to fall in order for affordability return to normal levels. Yet the piece leaves us with an overwhelming feeling that Vancouver’s real estate market woes are the fault of others, the fault of a US/world credit crisis and of a US/Canadian recession, the fault of some mysterious outside, external force. There is some mention that speculators and investors, who up until recently were lining up to pre-buy condos are likely to be the hardest hit, but no mention of their part in causing this mess. No mention of the fact that housing prices were just too damn high and affordability too damn low.

The real estate agent near the end says that we are now (or are soon to be) in a “classic move-up market.” What he is saying is that when housing prices are low, it is easier to move up from a small townhouse/condo to a house, for example. It’s funny because this is what a lot of people were doing when market prices were high; taking the equity out of their home and buying a second home or moving into a bigger house, while taking on more debt. Obviously when market prices are on the low-side it is a better time for a “move-up”, just like it is a better time to buy, or to enter the market for the first time. When market prices were high it is a better time to “down-grade”, or to leave the market entirely and become a renter.

The piece also got some of the math wrong. A drop of 12%, 13%, and 5% is an overall drop of 27.2%, not 30%:

1-(1-0.12)(1-0.13)(1-0.05)=0.272

The above is just a complicated way of saying that you had something that was reduced by 12%, then 13%, the 5%, the result would be a reduction of 27% from the original, not 30%.

Hmm, my guess is that no banks will be offering 0% down mortgages any time soon… at least not unless you have some other really expensive assets that they think they can repossess..