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Joe Barbieri has Bachelors' degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 13 years, with over 10 years on the institutional side of the business. He has covered positions from Fund Accounting to Investment... More
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  • Does It Matter If Commodities Pay Dividends?

    Whenever physical gold or related commodities go down in price, the argument that they do not pay a dividend is trotted out as the reason why commodities or gold in particular is out of favour. Why does this matter? Many investments do not pay dividends: Most companies, venture capital, some real estate, collectibles, private companies and possibly cash investments in bank accounts. Why is the dividend argument so persistent? Many investments are based on capital gain potential or the expansion of equity. Assuming dividends are required for an investment to be favourable is true only if stable income is necessary.

    The idea that commodities do not pay dividends is sometimes extended to include that commodities have no fundamentals. The word "fundamentals" in this case refers to the idea that if someone is not willing to pay for a commodity than it is worthless. Is this not true with any product or business? Commodities are used to produce many goods that are used every day and are considered essential to the well- being of society.

    An expansion of the "commodities do not pay dividends" argument is the fact that commodities cost money for storage. Yes this is true, but idle businesses, vacant real estate, collectibles and start-up companies also have ongoing costs that are there whether the investment produces revenue or not. Any investment that requires ongoing maintenance has these same costs but this is not cited as a reason if the price goes down, real estate or venture capital being examples.

    Gold and commodities have been out of favour recently. Every investment goes through periods like this - what I am suggesting is that the lack of dividend is not the reason why.

    Sources:

    1)www.marketoracle.co.uk/Article8391.html

    2)www.cheatsheet.com/business/stock-news/i...

    3)www.pwlcapital.com/en/Advisor/Toronto/To...

    4)www.bulliondesk.com/gold-news/gold-to-av.../

    Jul 27 1:27 PM | Link | Comment!
  • Why Is Greece Not Settling Their Payments?

    There have been ongoing talks between the Greek government and the lenders (the Eurozone, IMF and World Bank) on how the Greeks should pay back their loans. The dispute has recently led to talks breaking down (1). The disagreement is not about whether the loan should be paid back or how much is to be paid, but about the priorities of each party.

    From the viewpoint of the lenders, if you borrow money you must pay it back in the currency of the loan. If you have to choose between paying back the loan and anything else, the loan must be repaid first. If this repayment means that the people have no pensions, no jobs or no assets, it does not matter. Since the country's assets and the taxation powers of the country have been pledged for collateral, everything is fair game.

    From the viewpoint of the Greek government, the priorities are to take care of the basic needs of the people first and then pay back the debts. This means that pensions and social services are being paid first instead of the debt payments. The debate about the privatization of government assets is basically the foreclosure of public goods for the private lenders - which is based on the same difference of priorities. A private partnership or privately run social service will prioritize profit before service because this is the mandate of the ownership. The profit in a privatized institution is embedded in the fees charged to the public or the taxes charged to the public which get funneled into the institution via government spending. It is for this reason that people largely do not know what comprises government spending and it is one of the reasons why costs of government services are rising so quickly.

    What the Greek crisis is highlighting is: What should be the priorities of the government? Are they paying the lenders at all costs or serving the people at all costs? When should there be exceptions? Since the ultimate mandate of all institutions is to serve the public, the answer should be obvious. The complication arises when the issue of how the public should be served comes into play.

    Sources:

    1)www.bloomberg.com/news/articles/2015-06-...

    Jun 25 8:37 AM | Link | Comment!
  • Do Banks Still Want Your Deposits?

    Once upon a time, people would bring their savings to a bank, while other people borrowed money from the same institution. The bank was called a "Savings and Loans", which meant that people making deposits were matched with people borrowing money. The deposits represented a limit on how much banks could lend and was called a "reserve". Lending became a lucrative business, so banks would pay interest to make a deposit in order to increase the amount of money available for loans. A lot of people did not trust banks when they first opened and instead kept money at home, so the interest also served to entice people to deposit money with them. The money deposited was then lent at a higher rate to borrowers. The difference between the savings rate and the lending rate is called "the spread" and this is how banks paid their bills, absorbed losses from people not paying their loans and made profit.

    Since many depositors did not ask for their money for a long period of time, banks would lend more money than they had on deposit, which is called "Fractional Reserve Banking". This means that banks required less money deposited to lend the equivalent amount of money. The downside of doing this was that if people came to withdraw their money all at once, the bank was insolvent. This event was called a "bank run".

    Interest paid on deposits is less now than it ever was in many years. The interest rate on most bank accounts is 0%, so there is not much incentive to deposit money with a bank other than safety or convenience reasons. If you do not use cash, a bank does not provide any more safety than keeping a credit card in your wallet. Electronic money has safety issues like identity theft, hacking, skimming, phishing and unauthorized remote access to your information. Safety is not a reality but a perception. Some banks have even gone to the extent of charging you for depositing cash with them, and not allowing you to pay their loans with the cash deposits. There was a time when walking into a bank with a large amount of money meant receiving a higher interest rate. It seems to be the opposite today as large deposits now cost the client more than smaller ones. (3)(4)(5)

    Do banks want your deposits? Banks do not need deposits today because they can create money from debt. This debt is typically mortgages based on collateral, which is usually someone's house. There is also debt issued from credit cards and other unsecured lines of credit which does not require deposits for their existence. As long as there is collateral or a way for a bank to reduce its risk of not getting paid, it does not need deposits to make loans. The last limiting factor with respect to deposits is the "Reserve Ratio". This is a regulation that limits how much money can be lent in total in order to control economic growth and inflation. Canada is one of a handful of countries that abolished this requirement, so the only thing now limiting lending is how much assets the bank has in order to back up its loans. If this is the case, deposits are simply a method of paying back debt.

    Sources:

    1)www.tradingeconomics.com/canada/bank-liq...

    2)en.wikipedia.org/wiki/Reserve_requirement

    3)www.wsj.com/articles/j-p-morgan-to-start...

    4)www.occupycorporatism.com/exclusive-chas.../

    5)business.financialpost.com/news/fp-stree...

    Jun 11 9:24 AM | Link | Comment!
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