The Blog of John MacDonald

Unfortunately…this ceiling can’t be fixed with some Spackle and elbow grease!  The debt ceiling has some pretty large holes and everyone’s to blame, but it’s nobody’s fault!

For those that don’t have BNN playing 24/7 at reception in their office, the debt ceiling is the amount of the money the US government is allowed to borrow to meet its existing legal obligations.  The US Treasury has authorization to borrow money to meet these obligations as long as they do not exceed a set “ceiling.”  Once the debt ceiling is reached (which happened in mid-May), congress can bridge the gap until new arrangements can be worked out (the deadline for the proposal is August 2nd).  The debate currently running through congress is whether or not the debt ceiling should be increased or eliminated completely.  Obviously is a lose-lose as both answers have consequences and pose potential long-term problems.

Congress’ decision will have large effect on Canada, being that the US is our largest trading partner. Warren Jestin, Scotiabank’s chief economist, commented that a default would mean increased volatility in the bond markets in both the US and Canada. However, he believes that a default is unlikely as Congress will reach an agreement to raise the debt ceiling.  In that case, Jestin believes that this will be good for Canada as it will increase the ability for them to compete.

For the general public, a US default would have dire consequences. A survey of US companies shows that should the US default, they would institute hiring freezes and layoffs.  Not only would this increase unemployment, but it would also continue to add to the current volatility of the economy and further damage the reputation of the US globally.

Fortunately, many experts, including Warren Jestin, predict that a US default is unlikely as they believe Congress will ultimately come to an agreement by the August 2 deadline.

“The only thing certain in life is death and taxes.” Well, these days rising gas prices also seem to be pretty certain.  Hitting us well before the typical “summer boom” gas prices are through the roof, with no end in sight.  While most Canadians have gotten used to triple digit gas prices, I have yet to meet anyone that is happy with it.

With gas prices above $1.30/litre, many in the GTA are looking for an explanation.  Whether we blame conflict in the Middle East or simply the greed of a select few companies pushing prices the reality of the price hikes is forcing Canadians to rethink travel plants, automobile purchases and lengthy commutes.

The United States plays a large role in the recent increases not only because many of the players are U.S-based companies, but also because of the close ties that Canada has with them in trade and tourism. The U.S supply of gas is below its 5-year average, according to Michael Ervin, a petroleum industry consultant. This causes the wholesale price of gas to rise as wholesalers attempt to secure their inventory. Subsequently, this forces Canadian prices to rise because otherwise American wholesalers will race to buy Canadian gas and sell it in the States.

Dan McTeague, a former MP, started a website, tomorrowsgaspricestoday.com, to help answer why gas prices are rising. His website tracks the price of gas in 13 Canadian cities but it also has a chart that compares the wholesale price of gas in those same cities to the wholesale price of gas on the New York Mercantile Exchange. As you can probably guess, the wholesale on the NYMEX is lower. Alternative options to save money on gas (beside the obvious: walk, bike, etc.) is a new website www.gasbuddy.com, that allows users to search for the cheapest gas prices in the area.

With alternative fuel energy still a ways off, it will be very interesting to see how the market responds to these new industry conditions.

Here’s an important breakdown of the some of the tax deductions that you may or may not know about.  This list is obviously just a tip of the iceberg, but offers an outline of many key deductions that you should know about.  You can also download it HERE.

It’s not quite as bad as “Star Trek: The Next Generation” but it’s a close second.  People are always asking us about trends.  Interest rates, stock charts, social media and above all; the next generation.  We have all heard the media go on about how the 20 and 30 somethings represent the first generation to not exceed their parents, and how social media and violence in gaming is creating a lazy and desensitized workforce.  I’m not saying that those statements are not true, but I’m in the business of looking for shelter when its raining, not analyzing the toxicity of the water that’s falling.

Watch this great video that discusses the savings vs. debt discussion for the next generation.

One of the issues that is outlined is the clear disconnect between fact and fiction. Start saving later, spend more and retire at the same historical age…I don’t think so. It is important to understand that the discipline of saving is in fact centered around the principle of delayed gratification. So forget what THIS GUY says and please don’t listen to HIM either. Whether you are a 20-30 something looking to be well established for retirement or you are influencing a 20-30 something, understand this: The “Golden Years” club doesn’t generally consist of home-run, long-ball hitters, but those that consistently stepped up to the plate and put the ball in play. Come up with a plan that makes sense. Stick to it. There’s no deeper science behind it.

Value.

The idea of value is often overlooked within the financial services industry.  Do my taxes…complete my company’s year-end…grow my portfolio…make sure I have enough life insurance, and the list goes on…

Defining your whole business model around value is tricky too.  Short-term, Long-term, perceived, upfront, all of these varying degrees of value received or value offered often get lost in translation from professional to client.

The idea of holistically establishing the VALUE a client desires, and then serving that core need is imperative to operating a successful business (not just financial service…but BUSINESS). The dictionary has several meanings for the word VALUE.  The first and in my opinion most fitting is;

“Relative worth, merit, or importance: the value of a college education; the value of a queen in chess.”

Isn’t that fitting?  Relative worth.  Meaning.  Value is defined as offering a product or service that has worth to a specific group or individuals in a unique way.  By defining the value that each clients desires, financial services can be provided around their needs to not only ensure they are served effectively, but also ensure that their perception of value is met and exceeded.

So if we want to serve the clients needs and deliver the highest level of value possible, how do we do it?  Well, there’s no simple answer, but here’s a few ideas:

1)    Listen Clearly. If the service provider doesn’t listen enough, even if committed to delivering value, the deliverables most likely will not match the needs.  Deliver value in the forms that the client perceives it, rather than what you believe it is.  If the client wants oranges, but you like apples more…where is the value in heaping free apples on their lap?

2)    View the Big Picture. What is valuable today may not be tomorrow.  Develop a plan and value proposition that serves the clients needs over the short and the long term.  Some may view this as difficult.  “Well, what if your client is insolvent?” The long-term value is rather simple…help them; fix it, right size the ship.  The short-term may be as simple as offering peace of mind that in time, things will be restored.  Simple to say, difficult to execute.

3)    Value is relative. Over the holidays, I watched Wall Street 2 for the first time.  Throughout the movie they reference “Tulip Mania,” which was a period in the mid-1600’s where a tulip bulb cost between 3,000 and 4,000 florins (a general labourer earned roughly 300 florins annually).  Today, you can buy a tulip bulb for between $6-$10.  As value changes over time, so should your value proposition.  I’m sure that if your business gave away free walkmans fifteen years ago, many clients would be very grateful, whereas I’m confident that my grandkids won’t even know what a walkman is…Drive value, but be committed to evolving your value proposition.

This discussion is not one that can be solved or mastered, but is an ongoing struggling in any business.  We’ve found a way that works for us, and we are always trying to get better.  Find out what your customers value, then deliver it.

I found a great article on CBC’s website outlining what exactly the Ontario Government meant when they introduced the idea of “Harmonized Sales Tax.”  To most of us, the idea of taxation is an uncomfortable topic at best (which is why I have a job).

The new Harmonized Sales Tax will hurt the general consumer more than help them.  Whether is it increased fuel prices or service-driven industries like salons and fitness clubs, our costs will rise.

Most would tell you that this is a bad thing, others may say it is a good long-term play…I am from the land of “Who Gives a Care!”  Were in an economic downturn, let’s stop getting distracted and keep the main thing the main thing….Work Hard and Remain Confident!