Canadian Banks Are on the Roll Again.

[SirJosephPorter]

But if you watch the business news and read the business papers they have moved to stock manipulation more than educating business people on how to make their business better. If you see an announcement of a plant closure or 2,000 people being laid off the stock price goes up. Considering that those 2,000 people were either making profits (negative effect on bottom line) or that management had too many people (Meaning the management is poor) the stock price should go down.

Not so, MIT. If a company is making a loss and closes loss making plant, laying off workers, that improves the long term profitability prospects for the company. That is the reason for the stock going up.

Gildan closed their Canadian and US manufacturing plants down to move to Honduras - Stock price goes up! –

Same thing here. Outsourcing usually means lower costs, better profits, and on these expectations the stock price goes up. There is no manipulation here.

Seems the expected profits did not materialize and now that country is under sanctions - Not a smart managerial move.

Future expectation is not always met. You know what they say about the market, buy on hope, sell on fear. Stocks are usually bought based upon future performance of the company, and that performance does not always pan out.

It is easier to manipulate a stock - just need a good press release - than it is to make profits.

Sure a stock can be manipulated, for a short time only. In the long term, every stock finds its own proper level. Good press release may shore up the stock for a day or two. However, if the press relapse turns out to be bogus, the stock will plunge.

 

[SirJosephPorter]

Saying our banks are better is a misnomer - trumpeted by Mr Harper - It is comparing apples to oranges.

Harper did not say that, MIT (well, maybe he said that, I don’t know, but that is irrelevant). Long before Harper came on the scene, Canadian banks have been well managed, efficient corporations. IMF says that, not Harper. According to IMF study, Canadians banks are the best in the world, Swedish banks being No. 2. As a comparison, American banks are No. 40 in the world, British banks No. 44.

 

[SirJosephPorter]

Sir Joe - Don't forget that in the USA capital gains tax applies when you sell your house - Here in Canada it is Free - Untaxed money!!

MIT, I think it applies only if the price of your house is very high, say 500,000 $ or more (or thereabouts). I think for the average person it works same as in Canada; the profit made from the primary residence is tax free.

 

[SirJosephPorter]

This happens over and over and over again. People always try to rationalize why a bubble is different this time. I hear it all the time. It never is.

Toro, this time around the housing bubble in Canada was only in spots, it was not nationwide like it was in USA.

 

[mit]

Saying our banks are better is a misnomer - trumpeted by Mr Harper - It is comparing apples to oranges.

Harper did not say that, MIT (well, maybe he said that, I don’t know, but that is irrelevant). Long before Harper came on the scene, Canadian banks have been well managed, efficient corporations. IMF says that, not Harper. According to IMF study, Canadians banks are the best in the world, Swedish banks being No. 2. As a comparison, American banks are No. 40 in the world, British banks No. 44.

Harper has compared our banks to the USA on numerous occasions - We as Canadians are risk averse - opposite of our American neighbours - Of course we would expect our banks to be.

 

[mit]

MIT, I think it applies only if the price of your house is very high, say 500,000 $ or more (or thereabouts). I think for the average person it works same as in Canada; the profit made from the primary residence is tax free.

I stand corrected!
Capital Gains and the Sales of Homes

Changes to the tax laws in 1997 provided a new exclusion for gain from the sale of a principal residence. The law applies only to homes that qualify as a principal residence. This specification eliminates vacation homes, timeshares, or other types of real estate. The home must have actually been lived in as a principal residence for two of the five years immediately preceding its sale. For taxpayers in the categories of single HEAD OF HOUSEHOLD, or married filing separately, the exclusion is $250,000. For married taxpayers filing a joint return, the exclusion is $500,000. The exclusion can be used only once every two years. Gain in excess of the exclusion is taxable, usually as long-term capital gain.

 

[Kreskin]

One thing I see happen sometimes is people wanting to clean up their estate and lower the amount of probatable assets. They put their kids on title. That is considered a deemed disposition and from that point on the rise in value is considered a capital gain for the kids (their ownership portion). To be exempt the CRA generally looks at both beneficial and legal ownership of joint assets.

 

[mit]

But if you watch the business news and read the business papers they have moved to stock manipulation more than educating business people on how to make their business better. If you see an announcement of a plant closure or 2,000 people being laid off the stock price goes up. Considering that those 2,000 people were either making profits (negative effect on bottom line) or that management had too many people (Meaning the management is poor) the stock price should go down.

Not so, MIT. If a company is making a loss and closes loss making plant, laying off workers, that improves the long term profitability prospects for the company. That is the reason for the stock going up.

Gildan closed their Canadian and US manufacturing plants down to move to Honduras - Stock price goes up! –

Same thing here. Outsourcing usually means lower costs, better profits, and on these expectations the stock price goes up. There is no manipulation here.

Seems the expected profits did not materialize and now that country is under sanctions - Not a smart managerial move.

Future expectation is not always met. You know what they say about the market, buy on hope, sell on fear. Stocks are usually bought based upon future performance of the company, and that performance does not always pan out.

It is easier to manipulate a stock - just need a good press release - than it is to make profits.

Sure a stock can be manipulated, for a short time only. In the long term, every stock finds its own proper level. Good press release may shore up the stock for a day or two. However, if the press relapse turns out to be bogus, the stock will plunge.

So that explains why CEO's are paid in stock options not profits?
There are good companies and stock manipulators - If you are a day trader or short seller or market watcher you bet on the manipulators - If you are long term you look at dividend producing - profitable companies.
Our stock market piles these all together for a valuation at the end of the day.

I guess the system works but I have witnessed in manufacturing anyways many decisions that were made for the influence on the stock price not long term thinking. There are also these large pension funds and mutual funds that buy and split companies using short term thinking as they are rated for performance quarterly - not long term

 

[SirJosephPorter]

I guess the system works but I have witnessed in manufacturing anyways many decisions that were made for the influence on the stock price not long term thinking. There are also these large pension funds and mutual funds that buy and split companies using short term thinking as they are rated for performance quarterly - not long term

Now here unfortunately you are right, some companies go overboard trying to increase the price of their stock. And CEOs and upper management being paid by stock options is partially responsible for that.

You are right; there are some abuses, but one has to take the good with the bad. In the long term, stocks have proved to be good investments, if one has the proper attitude and does not follow the mob in and out.

 

[Cannuck]

It would be interesting to know the failure rate of Canadian and US banks and how they compare. To my knowledge, only the Northlands Bank and the Canadian Commerce Bank have failed in Canada (my memory is vague, I don't think Principal was a bank).

That's two (or three) in the last hundred years. How many banks have we had? 50? That would be a 4-6% failure rate. It would be interesting to know what percent of US banks have failed in the last 100 years.

 

[Toro]

This was as of February.

Calculated Risk: Graphs: FDIC Bank Failures

For reference, there was over 11,000 banks in the US in 1990. There are over 8,000 today.

 

[cdn_bc_ca]

One thing I see happen sometimes is people wanting to clean up their estate and lower the amount of probatable assets. They put their kids on title. That is considered a deemed disposition and from that point on the rise in value is considered a capital gain for the kids (their ownership portion). To be exempt the CRA generally looks at both beneficial and legal ownership of joint assets.

Sorry to go off topic, but is this good or bad?

 

[SirJosephPorter]

Sorry to go off topic, but is this good or bad?

Putting your children on the title of the cottage or any other property has its downside. You are giving up the control of the property. If the kid turns against you in future, you cannot take his/her name off the title, the property partly belongs to the kid. Thus if you decide to sell the cottage at some future date because it will bring in substantial profit, you cannot do that without the consent of the kid.

While this may save the money in the probate (after your death), it may make life difficult for you while you are alive, if your kid turns against you for some reason. It is a risk.

 

[cdn_bc_ca]

Thanks for clearing that up.

 

[SirJosephPorter]

The same thing would work for a bank account as well. If you have a joint account with your son, either of you can withdraw money from it. So after your death your son cleans out the account and the question of probate does not arise.

The problem is, he could also clean out your account while you are alive.

 

[Kreskin]

Sorry to go off topic, but is this good or bad?

Well it all depends. This one would be not a good outcome. Lets say 15 years ago your last surviving parent put you joint on the house (so that it wouldn't be a probatable asset). The house value was 200K (100k is your portion). In 15 years the value went to 500k (your portion now 250k) and the house is sold. Your portion rose 150k. 50% of it is a capital gain (presuming that is how the CRA sees it). 75K at 30% (your marginal tax rate example) = $22500 tax liability.

If it had stayed in the parent's name only and paid the probate fees it would be $6450 (in BC). So in that case trying to stay away from probate fees resulted in an additional 22500 - 6450 = $16050 expense (presuming the capital gains couldn't be offset with unused capital losses).

 

[SirJosephPorter]

I don’t really worry too much about probate fees. We have only one son, so all we own goes to him at our death. I figure if he is going to inherit estate in seven figures, he can jolly well afford to sell some of it and use that to pay the probate and income taxes. He will come out hugely ahead even after paying the taxes.

We do have two life insurance policies which pay only after the death of both of us. Such policies are taken out expressly for the purpose of tax planning (and are much cheaper than normal life insurance policies). When we both die, our son will get the money from the insurance policies. He can use that money to pay the various taxes.

Other than that, I don’t worry about probate fees, that will be for our son to sort out. He will inherit a huge chunk of money even after paying all the taxes. Being a doctor himself, he won’t need our money anyway.

 

[Cannuck]

I don’t really worry too much about probate fees. We have only one son, so all we own goes to him at our death. I figure if he is going to inherit estate in seven figures, he can jolly well afford to sell some of it and use that to pay the probate and income taxes.

Only 7 figures....tsk, tsk. Perhaps you should have got better jobs.

 

[kryptic]

sirjosephporter ... google 'canadian bank bailout' ...

 

[SirJosephPorter]

sirjosephporter ... google 'canadian bank bailout' ...

Cryptic, somebody mentioned this (in this tread or another thread, I don’t remember) and we discussed it at some length.

By no stretch of imagination can it be considered a bailout; the government was buying secure, insured mortgages from the bank. That is a far cry from the sub prime junk they had going in USA.

And indeed, nobody called it a bailout, not Conservatives, not Liberals, NDP, Bloc etc. And rightly so, because it wasn’t a bailout. The fact that somebody on the internet says it is a bailout does not make it so.

In USA the government outright gave the banks the money, that was a bailout. What they did in Canada was simply a transaction, the government bought the mortgages, the mortgages were secure, insured. Government received value for money.