Alternative View
By Lance Crossley
Let me share my financial predicament.
My family currently rents an apartment and within the next year or two we would like to put a down payment on a house by using the government’s First Time Home Buyers Plan (HBP). The plan allows you to withdraw from your RRSP, without penalty, to use as a down payment on a home with the promise you will pay back the “loan” over a period of time.
Like many Canadians this past fall, I watched in dismay as the value of my investments nosedived. My middle-of-the-road mutual fund portfolio took a 25-30 percent hit. Fortunately for me, I am nowhere near retirement age, but it did complicate my plan to buy a home, as I would have to cash in my investments at a loss to use the HBP.
Recent stock market gains have “increased” the value of my mutual funds into the negative 15-20 percent territory – a tempting sign to keep my money parked there until the funds fully recover.
But the stock market rally of late is a tease, which is why I have decided to cut my losses before the market takes another tumble. Instead I’ll deposit whatever is left into a safe money market fund.
Why? Because I believe the loss I’ll take will be less now than later. Nine months after the stock market crash of 1929, there was a similar stock market rally that led many – including U.S. President Herbert Hoover – to believe the depression was over. The stock market subsequently crashed even further and didn’t hit the bottom until the summer of 1932.
Things aren’t as bad as the Great Depression, but there is too much evidence that the worst is yet to come. The economy won’t recover unless two things increase: consumer spending and exports.
Consumer spending is the most important, accounting for more than half of the economy. But consumers are tapped out. Household debt in Canada is at an all-time high. Jobs are hemorrhaging at a rate faster than they were during the recessions of the ‘80s and ‘90s. Yes, there was a recent job surge in April, which the media hailed as a sign of recovery, but most of the new jobs were through self-employment. This is the predictable result of the Harper government’s refusal to fix the Employment Insurance system, which less than 45 percent of the unemployed quality for – compared to the more than 80 percent who qualified during the last recession. In the absence of an effective social safety net, workers scramble to put food on the table through what are often lower-income, no-future self-employment activities.
Exports account for a third of the economy, but they won’t generate a recovery until our biggest buyer to the south gets its house in order. Other countries are in a similar situation and will also be curtailing purchases, which again is bad news for our exports.
That is why I am going to save the old-fashioned way for a down payment.