Blessed by the Potato

There weren’t too many surprises in this federal budget, which coming from these clowns is a surprise in itself.

There was a provision for some money to create some attractive post-doctoral positions across Canada. At $70k each, these are decent grants (roughly double the typical post-doc salary)… but with only 140 country-wide, this isn’t going to hit very many people (i.e.: I probably won’t get one).

Of course, the large text giveth, and the small text taketh away. The budget also removed a loophole for some post-docs to get paid tax-free: scholarship income is now only tax-free for “real” students. I don’t know of any at Western that were getting paid this way, but presumably it happens.

I sold all my Consumers’ Waterheater (CWI.UN) this morning. Their results came out yesterday, and they did not look very good: attrition rate was higher than I had hoped/forecast, along with some other disappointments in the restart of their submetering business. But there were two big things that made me lose confidence in the stock.

The first was pure numbers: their payout ratio for the last quarter was 86%. They had cut the distribution in half a few months ago, and that was supposed to bring the payout ratio down to <70% (i.e.: a level that would be sustainable after the 2011 Harper/Flaherty tax came into effect). Yet despite the vastly reduced payout in effect for the whole quarter, their payout was still so high as to suggest another potential cut in the future if things didn’t start improving.

The second was the conference call. Right at the end they talk about how their competitors (who were already playing dirty with tactics to skirt rules that are supposed to allow consumers to back out of agreements from door-to-door salespeople) were stripping the CWI tanks of valuable components during the switchovers, and CWI hadn’t done anything about it yet. They had the wording in the contract to charge the customers for the damage, but haven’t been.

On the one hand, I can understand that: I’d probably fight a charge for damage to a tank, and it is a little scummy to try to grab some cash from a customer on their way out the door. On the other hand, these are customers that they’ve lost anyway, and their tanks are damaged beyond reasonable wear and tear. Something should have been done — if it is indeed their competitors stripping components as they allege, then there should be a lawsuit in the works. Why is management dragging their feet on this?

My dad put it well: the management at CWI aren’t operations types. They’ve handed off the day-to-day stuff to Direct Energy, and have been caught flat-footed in the face of an extremely aggressive set of competitors.

So for now, I’m out.

Later today I’ll be driving the ‘97 Accord for the last time. All things considered, it has been a pretty good car: fun to drive, well-equipped, and reliable.

I found the original purchase agreement in the owner’s booklet: we bought it in January of 2000 (just over 10 years!) for $19k. We’ve put on 165k km in that time (I didn’t think the original owner did that much driving in the first 3 years — I always thought I drove closer to 20 Mm/yr!) and had roughly $8k in repairs. Maintenance is a bit tougher to estimate, but is probably somewhere around $5k. I’m getting ~$1k back as the trade-in, for a vehicle cost of $0.188/km. I don’t have fuel consumption records going all the way back to 2000, but in the last few years I’ve averaged 9.6 L/100 km overall, which at $1/L would cost $0.096/km, for a total cost of just under thirty cents per kilometre. There’s insurance, too, of course, and I’m sure my estimates here are probably missing some other costs since my record-keeping hasn’t been great.

Nonetheless, a bit of an eye-opener to the full costs of driving a car. I used to scoff at taking the train since it was $96 for a trip that only cost $32 in gas by car, but of course gas is only a fraction of the costs of driving!

Then again, the marginal cost of driving (gas, wear-and-tear) is actually fairly small, so that might not be the most appropriate accounting method. If I look at it as paying $30k (plus insurance yearly) for the privilege and freedom of being able to drive a car when and where I want, then the cost per trip is pretty low. And that’s how it works, too: once you have the car, it’s easy to use it for little trips to the store or to a friend’s house for a game of Settlers of Cataan or whatever. I’m sure it would probably be cheaper to not own a car and just use an autosharing service (or ick, a cab) for those trips that public transit and cycling won’t suit… but they have high marginal costs, which would make me not want to do them and so feel trapped (like, I wouldn’t pay $20 in cab fare to go to the grocery store and fill the trunk with stuff on sale).

Anyhow, I’m getting side-tracked. The point is that this was my first “real” car — the Prius will be my first new car, and the ‘87 BMW was my first-ever car, but the Accord was the first car that was all mine (repairs and all), and not a family car that I was the primary driver on. It was the car I drove on my first date, the car we took out to PEI several times, the car that took us to our honeymoon, and the car that crawled through a freak snowstorm to bring my kitty (and me) out to London.

But now it’s an old car. The repairs are starting to mount. And the Toyota recall gives me a good entry point to drive the car of the future today. So it’s time to move on.

Against all reason though, I’m going to miss it.

I visited my Prius today. I didn’t get to take it home with me — they want me to pay first, which is kind of crazy in this world of credit, but who am I to argue with the man. It’s a winter grey with dark grey interior. I didn’t sit inside to check for myself, but the paperwork says that there are 211 km on it — a bit more than I’d expect a new car to have, but not enough that I’m concerned it was a demo and that I would try to renegotiate the deal.

This is probably a good time to review all that’s happened up to this point.

The Car Search: I must have had the longest car search process ever. Back in 2006 my car was stolen and recovered (and yes, I did disclose that to the dealer about the trade-in), and I started looking for a new one. Even though it felt icky after being stolen, I came to the decision to keep the Accord, since it was still a reliable source of transportation. That didn’t stop me from looking though: I looked at the Accord, Civic, Civic Hybrid, Matrix, and Prius. After much research I decided that a hybrid made a lot of sense in a world of rising gas prices (and I made many spreadsheets to back that up). Moreover, they offered a number of environmental benefits, so as long as the financial side was at least a wash, I was all for it. Plus, I didn’t know what my future driving cycle would be: if I had to do a commute through Toronto rush-hour traffic, a hybrid system would more than pay for itself. As a car, the civic hybrid (and later the Camry/Fusion hybrids) were eliminated due to trunk space issues. The Prius, being a hatchback (and a purpose-designed hybrid with the batteries in the floor) didn’t share that problem, and looked a lot better than the Civic on a number of spatial and amenity fronts, and even compared fairly favourably with the Accord. I did think it was bull-dog ugly at first. It’s grown on me, especially as the aerodynamic shape gets copied by more manufacturers… but it’s definitely “quirky” in the looks department. Even inside, the high-mounted information display (which I like for its functionality) just looks somehow wrong.

I also did a lot of research into the many, many myths, misconceptions, and other bizarre ideas that are out there about hybrids. And there were a lot — I’ve covered many of them in past posts. I had my dad counselling me not to get a hybrid, because the technology is still “too new” — in 2006 he said to wait a few more years for more data; now it’s 2010 and that’s still his line. At this point I know that there are still unknown factors out there, but I think that things look good enough to take the plunge.

The Wait: Then came three and a half years of further research, discussion, and spreadsheeting. The Accord had it’s share of old car repairs to make, and each time I had to wonder when it would be time to give it up. After a wheel bearing needed to be replaced this fall I figured that this winter would be its last (since wheel bearings are expensive and there were 3 more in there that might be nearing the end of their lives). A few weeks ago there was the recall mess at Toyota, and I thought it was an opportunity to get a deal on a car they don’t normally negotiate too hard on.

The recall doesn’t phase me: I think this can only lead to a safer car in the long run. Toyota is under the spotlight now and they will have to make these issues right. Any car could have a hidden major defect, and I don’t really see it as being an area of concern after it’s been found out and a fix on the way.

The Buying Process: I went to Car Cost Canada and got the invoice price report for the Prius. CCC had a recommended dealer here in London, Tim Felsky of Toyota Town. Since I know I’m not terribly good at in-person negotiations, but am good at having a sense of fairness and at working numbers, I added in a reasonable profit margin to the CCC invoice price, and sent it to Tim. He was able to work with it, and I went in to put down a deposit. It was just that easy. I probably could have gotten a better deal by negotiating harder, or even waiting a day or two (the Toyota gas pedal recall spread to the Prius braking system the day after I left my deposit) — indeed, some people at PriusChat were reporting getting below invoice in the US, and one friend said I should have squeezed them right down to invoice price, since they still make some money at that point, and there weren’t any other customers around! Nonetheless, I got a better deal than I figured I would be able to get before the recall, or if I had waited until later in the summer (or for the 2011 release to avoid the first model year).

So far, the nastiest part of the buying process has been shopping for insurance quotes. A lot of insurers want the day I got my G1, G2, and G licenses. I actually do remember the day I got my G1 way back in 1995 (four days after my birthday), but can barely remember what year I got my full G in. I don’t even know where to go to look that stuff up.

I’m also shopping for a set of winter tires for it. Since February is almost over, I may not even put them on now, but if I can get a good deal as winter comes to a close I’ll take it and store the tires through the summer.

The government, in a bit of a surprise move today moved to tighten mortgage lending rules to help reign in the housing bubble here (which, for political reasons they can’t actually admit exists). I don’t mean that rules of this sort coming into play were a complete surprise, indeed there has been much speculation and hope that some sort of tightening would be employed in the budget. Just that it was a surprise to come today when the federal budget is less than a month away. To me that’s an actions-speak-louder-than words type thing, that these rules couldn’t wait until the spring frenzy.

Anyhow, on to the new rules:

The weakest in my opinion is the new rule that refinancing can only take one down to 90% equity. It’s to help prevent people using their homes’ rising valuations as ATMs, but I have trouble seeing how it might actually prevent a bubble — just maybe lessen the pop since it makes it a little harder for existing homeowners to put themselves underwater alongside new homebuyers.

The way the banks and the CMHC will calculate your debt service ratios (i.e.: how much house you can afford) will change slightly, so that now you must be able to afford payments at the 5-year fixed rate instead of the 3-year one. Since the 5-year rate is currently a few hundred basis points higher than the variable-rate, it will help protect people from themselves, and ensure that a small jump in rates won’t cause people to have to leave their homes. Supposedly, many people in this rate environment are taking 5-year mortgages anyway, but I have to suspect that this is going to screen out at least a few first-time buyers whose real estate agents have sold them on a price point based on the “monthly carry” at 3% or some ridiculous temporary interest rate. Personally, I’d like to see this as an even more conservative rule: i.e., ensuring people could afford their houses if rates shot up to beyond the current 5-year rate — perhaps an arbitrary 8 or 10% rate, or perhaps the high water mark for the last decade (though that can also lead us towards fooling ourselves in long periods of declining rates).

The last point is the one that I think is the most needed, and will do the most to stem speculation: people buying real estate other than as their primary residence, i.e., speculators, must put down at least 20%. So anyone that’s been investing in multiple condos in Toronto because you only need 5% to get your foot in the door will find that they have to have some money to buy. Unfortunately, it’s probably also the hardest to enforce — after all, if you search the blogs of the speculators, you’ll find they seem to skate around the other principal residence rules in efforts to make their flipping gains tax-free. I’m sure they’ll argue that they intend to live in each of their units, but had to buy the next three before selling the first… Depending on how this rule is implemented, it could start deflating the condo market quite quickly: if people who signed up for a dozen pre-construction units two years ago for completion this summer find they now have to have 20% down at the close, they may be in a terrible rush to sell. If existing contracts aren’t affected though, then it will still take some time for the hot air to work its way out of the system — which is probably how this will be implemented.

So, some quick (slightly inaccurate) numbers:

Let’s say you’re a couple with a gross income of $100k. 32% of that monthly is $2666/mo — that’s the guideline maximum for your mortgage payment, heating costs, and property tax. Let’s assume your heat and property tax are a fixed $300/mo, which leaves $2366/mo for the mortgage. With a 35-year amortization and a 3-year posted rate of 4%, you can afford a morgage of about $534k. At the 5-year posted rate of 5.4%, that maximum possible mortgage drops to $446k. A decline of ~17% in the maximum house you can buy. Depending on how many people were actually at the limits of their debt service ratios, that could undo the massive run-up that we had in 2009 as a result of the low interest rates.

Here I am on a holiday Monday, looking at the inside of people’s brains — basically technological mind-reading — while making funny noises with my mouth.

Boom-bi-chika-bum-ba-bum-ditty-do.

An RRSP is a tax-sheltering account. Any money you put in it is considered to be “pre-tax”, or tax-deferred, so you are not taxed on contributions you make. If, like most working Canadians, you pay taxes in advance as a deduction on each of your paycheques, this means that you can expect a refund of the taxes you paid on the money you stick in your RRSP.

You can contribute money to your RRSP any time through the year, and also all the way through to the end of February of the following year. However, people being the way they are, tend to leave it until the last minute creating “RRSP season” in February. It was into the midst of this chaotic selling frenzy at the bank that Wayfare made an appointment at the local TD to review her RRSP account (in fact, she was called in to update her risk profile survey). It was there that she was shocked by how misinformed the saleslady at the bank was (and believe me, they are salescritters and not “advisors” or “planners”).

After educating herself (with no small amount of help from yours truly, if I may pat my own back) Wayfare has realized that a lot of the products sold at the bank branch are expensive, with high fees (aka MERs) designed to make the bank rich, rather than her. So she (with some small amount of administrative confusion) converted her RRSP account to an e-series low-cost index fund account almost 2 years ago. At the branch, the salescritter saw that she was in these broad market index funds (~80% equities, ~20% fixed income), and said that her investments were too conservative for her age. Then she tried to sell her on a “balanced fund” which was “more appropriately aggressive”, with nearly 40% in bonds. For anyone who’s even remotely knowledgable about matters financial, you’ll immediately recognize that this is a far less aggressive fund (not to mention more expensive!). Wayfare actually had to hold the line to not get switched over to this poorer option — the sales push was fairly hard. And to add insult to injury, the salesperson spent the whole time selling, and never actually updated Wayfare’s risk profile, her original reason for going in! “We could do that next time when you make an appointment with me to switch over to these funds.” Give me a break!

A few years ago, being just a little less knowledgeable, she probably would have acceded to the salescritter’s suggestions (indeed, 3 years ago she walked out invested in a “market-linked GIC”, which while generally bad deals, was not such a bad idea in hindsight with the market crash of ‘08).

So, to the rest of you: remember as you rush out to fill up that RRSP contribution room at the last minute with little time to check your facts that the salesperson at the bank branch is not necessarily your friend, and may in fact know less about the products they’re pushing than you do (or, at least than I do ;). If you’re young (as I believe most of my readers are), and if your RRSP is holding GICs (or equivalently, savings accounts or money market funds), then you’re probably doing it wrong (or have exceptionally low risk tolerance). You can hold stocks, bonds, cash, or mutual funds which own combinations of those. If you have a time frame of decades then you should probably have at least some exposure to equities (though the exact amount will depend on your risk tolerance). And fees matter.

I’ve been using the same towel for two weeks now, and it doesn’t smell like death. Living mould-free is the way to go, I tell you.

I’ve been amazed at how quickly my desk re-cluttered. Not 3 weeks ago everything was packed up into boxes for the move, or thrown out as junk. For the first week or two I kept my desk as clean as possible so that there was plenty of open space to do double duty as my eating table (since the kitchen table was piled high with boxes of kitchen stuff to be properly put away after the move). Now after just a few days of working on my lecture for this morning, it’s every bit as bad as it was before the move, if not worse. Pop cans, candy wrappers, and papers piled everywhere.

Finally, a teaser: John Hempton at Bronte Capital had an interesting post about the demographic crunch coming our way in a few decades, and what that might mean for socialized medicine. Once I catch up on my sleep I plan on doing a short post on the matter.

As I alluded to a few days ago, the accelerator pedal brou-ha-ha at Toyota may open the door for a good deal on a Prius (or, it may not, since it’s one of the few cars they can still sell). I’m going to email a few dealers for quotes tonight, so we’ll see what they say.

The Prius is a very strange and polarizing car: a lot of people have a very visceral and inexplicable dislike of the car. I’ve been surprised at the number of people who’ve said bad things about it at the merest mention that I may, at some point in the future, buy one. Pretty much all of them are myths (many of which have been debunked right here), or incomplete ideas about cost and payback (or apples-to-oranges comparisons). There are of course some valid criticisms, such as that the acceleration is not sports-car-like (it’s fast enough for a highway merge, which is all that matters to me), or that there are cheaper options if I’m focused purely on the financial aspect (I’m not — it’s one I talk about a lot, but the car has a lot of other merits). In particular, a used car would be cheaper (the hybrids keep their value too well, so it doesn’t make sense to me to get a used Prius). One of the best criticisms came from my friend Ryan who said “The thing about the Prius is this: it’s fuel efficient. It doesn’t use gas. And I make gas, so that’s bad.” [He’s a petrochemical engineer]

Nonetheless, people seem to want to criticize this car choice. I’ve made every attempt to look at it from all angles. I’ve updated my payback/savings spreadsheet with current gas prices and used a Matrix XR with automatic as my comparison car. You can download the 2010 version here if you like (or go to the Them’s Fighting Words post, which explains many of the factors that come into this kind of decision. Since gas prices have come down I’ve become more conservative with my gas price assumption, but even if gas prices stay at 95 cents/L for the next decade, the Prius will still save me several thousand dollars over a Matrix (even though the Prius is more than $5k more expensive up front!). That should handily pay for a battery replacement in the unlikely event one becomes necessary.

So we’ll see what the Toyota dealer says, but assuming they offer me a good deal, this may be your last chance to talk me out of it!

Well, the move is just about done. It took forever and was a huge pain in the ass. “One more move, and then we’re dying in that house.” Wayfare told me. I have to agree.

We hired professional movers for the big move to Toronto — no way was I going to try driving a big truck myself in the winter, or take 10 trips in a cargo van. To help our last move go smoothly we hired professionals as well, and we weren’t very satisfied: while they did get us fully moved in just a few hours and saved our backs a lot of agony, a lot of our stuff ended up scratched or dirty, and they didn’t bring the promised protective blankets, etc. So we tried looking around online for reviews before picking our movers for this round.

To my surprise, it was kind of hard to find any reviews at all for most moving companies. We ended up going with Campbell Bros, which were rated highly by the BBB. We were a little nervous at first since our contact at the company didn’t seem to understand email — we’d get one-line responses that didn’t address all our questions, and one of the quotes he gave us specified a delivery window of about 2 weeks when we were expecting a same-day move. However in person everyone was great — they not only brought the quilts to protect our furniture, they also had roll-out carpets to protect the floors that we worked so hard to get clean! They were done each half of the move in under two hours (it took me and 3 friends almost 3 hours to move just two rooms to my new London apartment). They were also really good at their jobs. It took them no time at all to realize Wayfare’s enormous desk wasn’t going to fit through the door to her office, and had the top off the desk and the door off the hinges in minutes, and then all back together again lickety-split. I think that alone would have taken the better part of the day if we were trying to move ourselves.

Moving the utilities went fairly smoothly this time around — Bell didn’t cut our phone service off a month early or anything. We did have some issues setting up the gas at the new house since apparently the old tenant wasn’t paying his bills, and Enbridge couldn’t figure out whether the gas was on or off (and it was somehow a different process to activate my account if it was off), so I had to have my mom physically go to the house before we moved in to see if there was a lock on the gas meter. Also, Rogers was offering a $30 credit if you set up your move yourself via their website. Their self-move website, naturally, didn’t work. Specifically, it told me that I needed at least 5 business days notice for my move, which I was trying to set up 12 calendar days ahead of time. So I had to call them, and they wouldn’t give me the $30 credit for trying to do it myself (though I’m going to call back again as soon as I have some time to sit down and breathe — blogging time doesn’t count).

With all the stress, all the packing, all the unpacking, plus getting used to a new place (and rewiring the phones, caulking the washroom, and all the other things we seem to do at every new place we move to) I can’t wait to never move again.

PS: To whoever rents the house after us: Congratulations, you’ve just won a free desk you can never take out of the office!