RRSP What?...

As many of you Canadians may or may not be aware, we are currently nearing yet another RRSP deadline with the 2014 RRSP deadline being March 3rd. However, as I reflect upon my own personal savings habits for the year and how little of my hard earned money I'm able to set aside for a rainy day or dare I say it, retirement (or so it seems). I couldn't help but wonder how other Canadians were fairing in this annual uphill battle to save our hard earned money for something that is, at least for myself, in the distant future. So in order to fulfil my own curiosity I dug up some numbers in an attempt to answer my own question.

Let's start with our top line, the amount of money we, as Canadians, make annually. The answer to that question, which may be surprising to some is roughly $48,000 for 2013. For simplicity sake, let assume we are talking about an average Canadian and not a household. Right off the top, the CRA takes 31% (the effective marginal tax rate can be close to 50% for someone earning in excess of six figures!), so we are left with $33,120. Take off $3,360 (roughly 7%) for CPP and EI contribution and we are left with net take home pay of roughly $30,000 per year.

Assume, this individual has just graduated, in his or her late 20s and lives in downtown Toronto and pays $1,200 a month in rent (assuming no roommate situation) so we are left with $15,600. Let's assume now that this individual lives simply and not an overly extravagant lifestyle, monthly costs would include: $50 cell phone, $50 Internet, $250 for food, $250 in entertainment, $200 other expenses. Therefore, after covering the bare essentials and living on your own this individual, making the average income has net savings of $6,000 per year.

Obviously, I may be over simplifying things a bit here for example if this individual lived with his or her parents and did not have to pay rent which would obviously materially increase this person's net savings. Conversely, if this person had to commute into work via Go Train or car which would obviously lower their net savings. However, if even in the most optimistic scenario an "average" Canadian is only able to save on aveage $500 a month why on Earth do we care that the maximum RRSP contribution room is $25,000 or $5,500 for TFSAs and dare not mention saving for a house?  

This doesn't even take into account if this individual was married, had two kids and therefore, two mouths to feed and RESPs to worry about. How can we think about, as the big banks would like us to, "saving for our future" when the average Canadian can barely make ends meat? Just my humble opinion...

Candy Crush Goes Public!

The creators of Candy Crush, the ever addictive candy puzzle game, King Digital Entertainment is planning an initial public offering sometime this year that will give the Swedish based company an estimated valuation of close to $10 billion. Is it just me or does it seem a bit obscene that a simple candy puzzle game could create so much hype and generate so much revenue for such a little known company? Of course King does have other games in its stable (Pet Rescue Saga ring a bell?) but the worldly popular candy puzzle game is by far its greatest success to-date.

With the monumental success of Candy Crush over the last two years, 2013 revenues have grown over 11 fold (close to 1,150%) to $1.9 billion from just $164 million in 2012. Candy Crush has grown from a little known game where players are asked to complete different tasks, to an international sensation now attracting 93 million daily users worldwide. Although, its second most popular game (Pet Rescue Saga) attracted 15 million daily users, King is otherwise largely a one trick pony.

Although Candy Crush, and as a result King, has experienced much success to-date its target consumers, the younger generation, are a fickle bunch. What is popular one day is boring the next. Just look at Zynga, which became public in late 2011 on the back of its popular Facebook based game Farmville which drove its share price to $15 by March 2012 only to be followed by the inevitable crash which saw its share price crater to $2 a share by the following November 2012. Today, the company is still struggling to get back to its IPO price of $10.

I am not saying that you should not purchase shares of King when it does become public, but you should do so with capital that you are comfortable losing otherwise earmarked for speculation. Personally, my wife and I are both frequent players of Candy Crush but are both very careful with our money and therefore have never spent a cent on the game (though the temptation has always been there). Therefore, I personally would never purchase King shares. Further, with a proposed valuation of close to $10 billion, the market is already valuing the company at close to 5x revenues. Comparably, Zynga debuted with a valuation of roughly $7 billion with sales of $1.1 billion valuing it at over 6x sales so comparably speaking, King is coming to the market a bit cheaper. However, it could also be that the market has learned from its mistakes and has taken a more careful approach to valuing King. Further, given that Zynga actually decreased to below its IPO price shortly after coming to market, you can be certain that its advisors will be working hard to price its shares attractively and/or offer less shares in order to ensure a successful debut.

Even so, I would be highly skeptical in investing in this one...

Housing Affordability...

Last week, the Canadian Real Estate Association released its national home sales update for the month of January and reported its 5th month-over-month sales decline and a 3.3% decline compared to December. Of note though is that the national average sales price actually rose (based on data prepared by a not so unbiased source, i.e. the association representing realtors in Canada) 9.5% on a year-over-year basis.

Follow the link below for the press release:
http://crea.ca/canadian-home-sales-moderate-further-january

CREA's interpretation of the data is that harsh January weather had an impact on buying demand, but could it be that simple? Or could it be due to the fact that house prices are becoming just a bit out of reach for first time home buyers which make up about half of total home purchases in Canada.

A decrease in sales volumes is typically positively correlated with a decrease in sales prices. This means that as sales volumes increase or decrease, housing prices tend to follow suit as home buyers are more willing to accept a lower price in order to sell there homes. But the data presented does not appear to be consistent with that train of thought. There may be a number of reasons for this namely: sellers remain confident in the continued strength in the Canadian housing market and therefore refuse to budge on their asking price and thus, sales discounts are not appearing nearly as frequently as one would expect in a market where many economists are calling for a bust in the Canadian housing market. Secondly, it may be due to the continued strength in the Vancouver and Toronto housing markets which represent the most and 2nd most expensive housing markets in Canada.

The article below is a prime example of the housing craze being experienced Canada and our infatuation with home ownership:
http://www.thestar.com/business/real_estate/2014/01/22/westend_house_attracts_32_bids_sells_for_210000_above_asking.html 

Nevertheless, this data point should serve as fuel for fire in the argument for an inevitable collapse in the Canadian housing market.

Here Goes Nothing...

First off let me start by saying that I have never started my own blog before. I have no clue what I am doing but merely starting this page as a way to share my own personal knowledge about random business topics and other musings. I welcome all opinions on any subject matter discussed or opined on this site so feel free to send me a note or e-mail with any comments or questions that you have and I will do my best to respond.

My background is the world of business, finance and accounting. I have earned my CA and CFA designations and thus believe I have some degree of knowledge over business related posts on this site so hopefully you feel the same way!

Lets start this journey...