I watch the history network a lot. Several months ago, I was watching it at my parent’s house and my Dad made the comment that its a great channel but depressing to watch in the sense all you see is history repeating itself as people make the same mistakes over and over again regardless of the era.

Thus, this whole idea of going into massive deficits as part of a stimulus makes me uneasy. I wonder if all we are doing is recreating the welfare state of the previous generation, which was substantially dismantled in the 1990’s, and substituting the excesses of private enterprise with the excesses of bureaucracy in the name of a stimulus.

For example, the Canadian stimulus package was introduced this week as part of the budget (because Canada has a minority government, there could be weeks and months of negotiations before it is passed). Look at the comments in Million Dollar Journey’s post on the budget concerning the tax credit for home renovations or Michael James on Money reporting on new (unspecified) regulations on credit card issuers.

How will these questions be answered and regulations put in place?  You got it-the machinery of government needs to expand and it is always a trend that temporary government programs tend to become permanent ones no matter what the government says when it introduces a program (remember that personal income tax was supposed to be a temporary war measure).

Thus, are we doing nothing more than providing a stimulus for the expansion of government again? As reported in the local paper this week, it is easy to announce money will be spent but hard to actually put the money on the ground after the bureaucrats want to create processes to manage it (the example cited was the Feds said they would fund a subway extension to the ‘burbs- 2.5 years ago and no money has flowed- but all that has happened is paper being pushed).

If government really wanted to provide instant relief and stimulus, why not declare a tax holiday? Simply put, no one has to pay taxes for a period of time. You don’t need to craft processes, laws and regulations for a tax holiday. You simply don’t collect tax for a while. You put money in people’s pockets through instant tax relief and given that this temporary measure is easy to stop, the government does not have to expand in the process (which is why they won’t do it). I do not claim any originality on this idea- it has been raised as a concept by many others as a cheap and timely way to provide relief but works against the interest of government so it won’t happen.

I am by no means a raging libertian and I see the need for regulation to rein excesses in the system. What I worry about is the pendulum swinging too far the other way from a unregulated market to an over-regulated market and from the state taking little to no role as private enterprise abused the system to the state taking too great of a role and suffocating innovation and enterprise. As with everything, the only excess should be moderation.

Anyone else worried about this?

Have a great weekend.

What most of us seek more than anything else is some certainity in our investments. While dividends are typically referred to as “sticky” (in that once declared they are difficult to decrease without a lot of damage to the company), are there ways to know that your dividend or distribution may be decreased in the near future?

There are at least some warning signs to watch with the caveat that regulators seemed to have turned a blind eye recently to some not so forthcoming press releases indicating everything is fine and then mere weeks or months later, a company slashes its dividend. But what can you watch for as warning signs in bad times?

• Large issuance of shares: More relevant in income trusts than dividend paying stocks. If shares are continuingly issued which are not part of a dividend reinvestment program, it could indicate that the company is robbing Peter (the new shareholders/unit-holders) to pay Paul (the old shareholders/unit-holders) especially if shares are being issued over and over during a long period of time.
• Large cut in capital expenditure. Here is Bank of America’s cash flow statement for fiscal 2008. See capital expenditure go to $0 in Q1 and Q2 2008? A dramatic drop in cap ex indicates the company needs to horde cash drastically and is often accompanied by a dividend decrease. A steady drop in cap ex for capital intensive companies (real estate, railways, utilities) is also not good since they are not maintaining the assets which produce revenue.
• Credit lines being drawn down on: The Globe and Mail wrote about the relationship between energy trusts and credit lines yesterday. Companies which are steadily drawing on credit lines may be tipping off investors that there is a cash flow crunch which would affect the dividend or distribution going forward.
• Falling commodity prices. Mostly affects energy trusts since, obviously, profits are often a function of commodity prices.
• Continual asset sales. There is a fine line between selling divisions to focus on core competences and selling divisions for cash.
• Not a subject to the three kings of cash: cash on hand, cash flow and working capital are the three kings of cash. If all three are declining, it is not a good sign.

What happens if a dividend is decreased. The Dividend Guy proposes some options.

Mom2KG, our regular columnist is back, with new branding. Her columns will simply be known as Money Matters. In this month’s column, she discusses the 2008 round up and easy credit. She makes a good tip about keeping the meetings short- shorter meetings means getting to the point quicker.  Hope you enjoy.

Hello readers, and a belated happy new year. As mentioned previously, I will continue to blog on family finances generally, and keep you updated on my family’s journey to financial security.

2008 Round-Up

We did a 2008 round-up last weekend. A shout-out to my husband, who sensibly insisted we keep the round-up to 30 minutes. There have been some tension building over the holidays about spending, so this allowed us time only to crunch the numbers, but avoid any disagreements. We were pleased to find that we’d done well with the mortgage, as expected, and are on track with the goal of paying it off early. The number in the savings account decreased very slightly, but we chalked this up to unplanned changes in the kitchen renovation. Everything else was on track (RESPs, contributions to my RRSP account).

We did talk a bit about a general budget for 2009. This included putting aside money for trips through early 2010, home maintenance and renovations, and increasing the mortgage payments again if possible. All in all, a happy talk and a decent end to a tense year of family money negotiations.

2009 Plans

Since the meeting, we’ve realized that the interest rates are well below what we’re paying on the mortgage. Number-crunching reveals we’d save about $15,000 if we can cancel our mortgage and renew at the lower rate! Seems a little too easy – does anyone have any experience with this? If that’s the case, why isn’t everyone doing this?

Brief Commentary on US Credit

I was in Chicago in October (loved it!) and was shopping in Macy’s. I was offered a “store card” that came complete with a 11% discount for every purchase. Wowee. Sure, I’ll have one of those. It wasn’t until I was home and got a Macy’s credit card statement that I realized this was not a “store card” in the way I’m used to thinking of it, but a credit card! I was livid.

I saw two major problems. First, I thought the whole sell and information around the deal was extremely misleading. I was given no indication that this was a credit card. I was approved immediately, for example. Not that anyone used the word “approved” – they just handed over a temporary card. (Which made sense to me. I thought I was getting some sort of general loyalty card that encouraged me to shop at Macy’s.) I’d even handed over my Visa as the form of payment, but the clerk put the purchase on the new Macy’s card.

Second, it turns out I was approved, just like that, for a $2000 credit limit. This, even though I had mentioned I was a Canadian, and was there visiting for business. Should that not have sent up a red flag? I could have charged $2000 on the card, and – knowing what I know, as a lawyer, about the efficiency of chasing someone for that amount – Macy’s would probably never have chased me for it.

I applied for a Canadian credit card several months ago. There was some paperwork – it took me about 20 minutes, plus phone calls, and a credit check. And this was through as bank I’d already been dealing with for years. I had to wait a good ten days before actually receiving the card.

Is it any wonder that Americans are kind of in a pickle about credit issues?

Anyone have any similar stories, or comments?

Dividend investors for approximately the last 15 years have been seen as the boy-scouts of the equity investing world: the play it safe crowd while the jocks, best represented this decade by the 26 year old i-banker wielding a MBA and a pocket full of hubris, got the glory and returns chasing the latest ten-bagger. However, research into returns of a dividend stock portfolio has shown that this perception is not reality; in fact, dividend stocks have returned greater than a broad based index over time.

With the markets being what it is even the jocks are turning into boy-scouts. The result is that the rush is on into dividend paying stocks. But is pursing the highest dividend yield stock (or income trust) necessarily the best thing? Nervous holders of bank stocks, now paying yields in excess 6%, would probably tell you no. Professor Kenneth French of Dartmouth’s business school would tend to agree.

French conducted a study by looking at what $100 invested in 1927 would yield if it investing in the highest quintile of dividend yielding stocks in the U.S. (a quintile is 20% so the highest quintile is the top 20%). The return on investment was $424,000 as of 2007 or 10.8% per annum.

He then took that same $100 and hypothetically invested it in stocks which paid yields in the next highest quintile. The return on investment was $806,000 or 11.7% per annum. The lowest yielding quintile (so the lowest paying dividend stocks) returned 8.8% per annum in the time studied.

The S & P 500 produced a 9.4% annualized return over the same time.

In other words, the highest and 2nd highest dividend yielding stocks beat the S & P 500 but chasing the highest dividend yields will not get you the best return based on historical analysis.

One reason why the 2nd highest quintile outperforms the highest is high yields may indicate a company is in trouble (since yield is a function of earnings per share/dividend per share, a high yield may indicate earnings erosion) or a company paying too much dividend may not have enough free cash to grow the business properly.

French’s then looked at 10 year blocks commencing 1928 (i.e. 1928-38, 38-48 etc.); for the 8 decade blocks, the highest quintile of dividend yieldig stocks outperformed the S & P 500 in 5 of 8 decades and the 2nd highest quintile outperformed the S & P 500 in 7 of 8 decades (although the highest quintile outperformed the 2nd highest quantile in the period of 1998-2008). Again, the 2nd highest dividend yield quantile is a steady outperfomer over time.

The implications appears to be that a race to 2nd (quantile) in the dividend yield race may be better off than merely scanning the highest yielding dividend stocks and buying them. French’s conclusions also seem to suggest that the dogs of the dow dividend investing strategy would not give one the best return over time (assuming the stocks in the dogs of the dow reside in the top quantile).

Here is French’s website.

A “turnaround expert”, embodied in the C-level position of Chief Restructuring Officer (CRO), is a relatively new concept in the business work. As the title indicates, this person’s role is to basically turn around businesses which have inherent value but need to be saved.  Is there anything that you and I could learn from a CRO if we need to turn around our personal finances?

Certainly. At the end of the day, a CRO’s approach to turning around a company is the same as an individual turning around their personal finances, albeit in different scales. So what can we actually learn from their processes? (I filed this post under the “entrepreneur” category as well given its applicability).

• You have to commit to a turnaround. CRO’s are not cheap (Air Canada’s CRO was paid millions for his work). Thus, a business has to be able to commit the resources and time and, most importantly, believe that help is required. The same goes for personal finance. One has to be committed to a turnaround as something that may not be comfortable but necessary. While you are most likely your own CRO, you should bring in an outsider, like a business hires a CRO, who will give you honest assessments- even if it is unpleasant.
• What is the status of the finances? You don’t know where you are going if you don’t know where you are at.  If you don’t know what to track, Canadian Capitalist provides a four ways to track your personal finance. If you have filed using the shoebox method, take an afternoon to sort through them and start with a simple calculation of your salary vs. your expenses monthly. If you need help, ask your accountant or a friend with a book-keeping background (see below on expenses).
• Determine a goal based on your current status. This is pretty self-explanatory. Where do you want your personal finances to be in the next year. Be realistic in your goals.
• Determine between needs and wants. CRO’s often make headlines because what appears to be their first act is to lay off thousands of workers.  Although this sounds cold, they are basically determining needs vs. wants in a business; an employee who is not essential is let go. The same goes for your personal finance. After you determine the status of your finances, you need to sit down and figure out to keep as a need and what to cut as a want; if you can’t do it, ask someone you trust to tell you want they believe would be a need vs. want.
• Get rid of the bad advisors. You often see a turnover in the board of directors and senior executives in a turnaround. After all, these are the people who lead the business to where it is. In personal finance, the question becomes were your advisors enablers for your behavior or actually gave you good advice you ignored?
• Shed non-core competences. In business lingo, a non-core competency is basically anything the business does not do well, doesn’t make money on or doesn’t fit into its business goals. In a personal finance, this relates mainly to your portfolio management. Do you have strange holdings which do not fit into your new goals? If so, you may want to think about getting ride of them.
• Now concentrate on being the best in what you are good at. In a personal finance context, this means knowing yourself. Are you a saver? Earner? The key is to focus in what you are good at and start doing more of it. A good example is the Financial Blogger who realized that the only way to reach one of his goals was to start a side business.
• Make sure everyone buy-ins. A good CRO will speak to employees and be candid about the stituation and why hard work is needed to reach the goal and keep the entire business informed of progress. In a personal finance context, you can’t have one family member only doing everything. Everyone has to buy-in and information should flow freely.
• Track your progress always and make adjustments as necessary. ’nuff said.

…none of this is earth shattering, but I would end with three comments.

One- a turnaround is, by its very nature, uncomfortable and a lot of work. It is easy to get into trouble, it is hard getting out. I have seen too many businesses and people say they want to turnaround their businesses and lives- but only if its comfortable!

Two-a word on advisors. I once sat in a talk where the owner of a successful small business spoke about how when their industry, which was very tourism driven, was hit by the SARS outbreak in Toronto the first thing they did was put money into the business to hire advisors.

Sounds counter-intuitive doesn’t it? You hit hard times and you spend more money? The owner-managers reasoning was that only a true outsider could see what was truly going on in the business and set up systems to let them ride out SARS and any future downturns. The point being a good advisor (emphasis on good) helps you get to a long-term solution which far outweighs the cost.

Three- if this sounds like I am writing my MBA entrance exam, look at Give Me Back My Five Bucks. The blogger bascially does all of the above and tracks it religiously. She just happens to express it differently than I do.  Everyone can turn around their finances provided you have a positive attitude and are willing to work hard.

I read an article by an economist indicating that the U.S. personal savings rate was rising (The U.S. Bureau of Economic Analysis reported that the personal savings rate was estimtated at 2.8% in November) with some off-handed remark that the savings rate was bad because it would mean people would spend less and an economic recovery would take longer. Have we gotten it so backwards that an economist is chiding us for saving money?!?

Earlier this decade, I moved 3 times in 13 months. If you have moved recently, you know there’s always a moment where you go “why the heck did I buy this?” or “wow, I don’t think I wore this once!“. Your life being self-editorialized as nothing more than a collection of things that other people would buy at a garage sale because it becomes junk to you.

What do these two thoughts have in common? If nothing else, Obama becoming President presents a great opportunity to change the course of the last decade but my concern is that too many people believe that an Obama lead stimulus package would be an attempt to steer the country back to the consumption binge of circa 2002-2007 rather than a more balanced approach.

If a stimulus package- and let’s start with the presumption that the primary purpose of most stimulus packages is to restart a stalled economy by encouraging tax payers to spend- is going to result in nothing more than all of us acquiring stuff which will become garage sale fodder when we move then the opportunity has been squandered.

Should not a true stimulus package target parts of the economy that need to be boasted for long term success rather than some short term fix? What do I mean by this?

I am in agreement with Peter Schiff, an economic commentator who called the downturn in 2006, that the true lesson of this downturn is that consumption alone cannot substain any economy. Ultimately, the true engines of economic growth are savings and production. Savings keeps sufficient capital in the system to invest into produtive activities which, in turn, produces jobs.

What does this mean in practicality? If the middle class gets a tax break with the sole intention of sending them out to buy iPod’s how does this solve the uncompetitivness and innovation gap of North American relative to other countries (much less that a tax cut to a middle manager that has been recently laid off really isn’t going to help them)?

But, if small businesses gets a tax holiday if they create new jobs (payroll tax being a hot button issue for most entrepreneurial companies), it may be more useful for people to work productively rather than be soul-less consumers. If these tax holidays were particularly aimed at industries where other countries are now technological leaders, it may make the economy as a whole competitive long term. If employment insurance became skill development programs rather than an insurance program, it would give the chance for the unemployed to broaden skill set.

The point is current policy-makers are putting future generations in hock to the tune of billions and trillions. I am not sure we want to tell future generations that all we have to show for this debt is a lot of neat stuff at a garage sale when a stronger economy could be built.

I am not a policy wonk and I have no idea what governments will do to stimulate the economy. But the thought process that billions of dollars in a stimulus package should be spent so we buy more stuff seems to be nothing more than trying the same solutions again and hoping for a different results.

Have a great weekend.

About a year ago Financial Jungle, dearly departed from the world of blogging, raised the question of how a real estate investment trust (REIT) or utility income trust could pay distributions when its dividend payout ratio was above 100% (in other words, it paid out more in distributions than earnings). The same question was recently raised by a reader so I thought it best to look into this question for those interested in buying REITs and utility trusts. Please feel free to add anything if you think I missed it since this became a blog homework item for me this week (credit to Preet from Where Does My Money Go for his assistance).

In REITs and utility trusts, where there is a large amount of depreciation occurring on capital assets, the traditional dividend payout analysis is not an accurate measure to determine whether the distribution is safe. Instead, you have to calculate adjusted funds from operations (AFFO) per share to determine the payout ratio . Funds from operations is a non GAAP measure which adds back depreciation and subtracting gains from sale of depreciable property to earnings.

AFFO takes this step one further and is generally (because there is no uniform definition of AFFO) calculated as funds from operations minus capital expenditure.

This is all a bunch of tax mumble jumbo but let’s break this down. Depreciation is an accounting term which records the cost of a capital asset over its useful life. For example, a REIT acquires a building for $1 million and has a useful life of 10 years. The depreciation is $100,00/year. Since this is an accounting, and not a cash entry, it is, in some senses, a fictional (but accounting supported) entry  so you add this back to earnings to get a true reality on earnings.

But you subtract capital expenditures for an obvious reason. Assets like buildings and power plants need to be maintained and this, obviously, costs money to do. Even if a REIT did not collect a penny in rent it would need to spend money to keep the buildings up to code.  Thus, subtracting capital expenditures gives you a true indication of how much money is actually on hand.

Here is a simplified example. Assume REIT has issued 1,000,000 shares and pays $1.00 of distributions  per share every year. Assume the following accounting entries:

earnings: $1 million

depreciation: $300,000

capital expenditures: $100,000

APPO would be calculated then as:

($1,000,000 in earnings +$300,000 of depreciation) – $100,000 of cap ex = $1,200,000

AFFO per share would be $1,200,000 in AFFO/1,000,000 shares = $1.20/share

In other words, the REIT could pay up to $1.20 in distributions a year but only pays $1.00 meaning it is paying out 83% of AFFO which is a comfortable payout ratio for a REIT’s (remember that by law REITs have to pay out most of earnings so you can’t compare REIT payout ratios to non-REIT payout ratios). Compare this with traditional dividend payout ratio analysis which would get you a payout ratio of 100% ($1 million in earnings/$1 million in distributions).

However, as Preet does point out, distribution per shares which is higher than AFFO per share (i.e. it pay out more than it makes) is not necessarily a bad thing IF the reason is that it spent a lot of money in a particular year is to add assets which will pay out going forward. Thus, care must be paid as to why a company is in a negative cash flow position.

How do you find AFFO? Most REITs and utilities state their funds from operations in their financial statements as a non GAAP discussion item. Take capital expenditure from the cash flow statement and subtract from funds from operations. Divide by number of shares issued and you have AFFO per shares. Distributions per share or always stated in financial statements so take that number and divide by AFFO per share

…OR many analysts reports now summarize it for you (thank god for the internet!).

_________________________________________

The reader did ask how REITs and utility trusts continue to pay distributions for long periods of time if, in fact, it distributes more per share than it should. There are a wide variety of ways to do this which should be danager signs to all dividend stock and income trust purchasers. I will address this topic next week.

We are getting to the point in the economic cycle where we all know someone who has lost their job. These types of events always result in some self-reflection and an assessment of your job prospects and worse case economic scenarios. There are really two foremost considerations in situations where your position may be at risk: getting the right severance package and finding a new job.

Here’s a little quiz for you. Look at your email address list, business card folder or whatever you keep your contact list in. Take out all the contacts who are within your organization. Now remove everyone who you speak to at least once a month. Delete everyone who works for a direct competitor. Take out all your close friends and immediate family members. Is your list of contacts reduced significantly or only a little? Chances are the longer your list is after all these close contacts are taken out, the more likely you will find a job quickly.

Why? It is called the strength of the weak tie. Malcolm Gladwell popularized this concept in his book the Tipping Point. Simply put, the more distant or weak a social tie is to someone the more likely you have access to opportunity you otherwise would not have (to quote: “Acquaintances, in short, represent social power, and the more acquaintances you have the more powerful you are.“)

Gladwell cites a study where 56% of all job seekers found a job through a personal connection but of those people who found their job this way 16.7% surveyed indicated that they saw the contact that referred them to the position often, 55.6% occasionally and 28% rarely. In other words, statistically speaking, your close friends are terrible at giving you job hunting leads (as a sidenote, the lowest statistical source of job sources was formal means- advertising and headhunters).

Makes sense when you think about it. Your close friends share the same inner circle as you. A friend once removed probably has some over-lapping ties. But someone two or three degrees removed? They probably inhabit a different social and job opportunity base than you and are not going to give you the same old job leads.

The point being whether you have a job now but don’t know if you are going to have one much longer or are looking for a job, its best to spread your social wings and just meet new people. What kind of people? Some people are pickier than me but I say meet everyone you can.

When I practiced law (and let’s equate getting a client with finding a job since they both involve getting people, sometimes strangers, to hand over money for your services), I use to get referrals from the strangest places because I went to a lot of different things; I sheepishly admit that some people would say “so and so met you and said you may be able to help…” and I did not know who so and so was! There is a school of thought that you should target certain people but, in a downturn, those people are probably being swamped with requests to meet. Might as well target everyone you can. What’s the worse that happens, you meet someone nice?

For the wallflowers, this may seem very uncomfortable but look at it this way; you can be comfortable and broke or uncomfortable and making a decent living.

Next week post on jobs will discuss what to do when you are networking for job hunting opportunities.

Someone I had not spoken to in years call me last week to catch up. In the course of the conversation, the caller, who is self-employed, made an off-handed comment about the economy being in a depression and how we needed to become self-employed soon. My one pet peeve lately is the rather liberal use of the term depression and how short of memories we all have.

Thus, I wanted to give some context of the current downturn vs. the early 1990’s using unemployment numbers as opposed to some media driven hysteria. My sources are the U.S. Department of Labor and Stats Canada. I noticed I can’t link to the specific search pages (the searches expiry as a link page) so I had to give you the general page.

What I have done is looked at when unemployment numbers begin to trend upwards and attempted to determine when they trend back down and counted the # of months the unemployment rate was high.

I am using as my assumption my economics 100 course in undergrad that 5% unemployment is a desirable unemployment rate- not too low to trigger inflation, not too high to slow the economy. However, I will make an allowance that a healthy unemployment rate is somewhere in the 5%’s.

United States

In March 1989, the unemployment rate was 5.0% . From this date to June 1990, the unemployment rate fluctuates in the 5%’s until hitting 5.2%. After that month, the unemployment spikes to 5.5% and begins an upwards and steady accent. I will mark July 1990 as the begin of steady job losses. Here are the average monthly unemployment rates until the rate settles back into the 5%’s:

July-Dec 1990: 5.92%
1991: 6.85%
1992: 7.49%
1993: 6.9%
Jan 1994-Aug 1994: 6.3% (the unemployment rate decreases to 5.9% in Sept. of that year and begins a decent for the remainder of 1994 and onward).

That’s 50 months between the unemployment rate begin a steady climb from 5.2% back to 5.9. Peak monthly unemployment occurs in June 1992 at 7.8%. This is not to suggest that it will take 50 months to a full job recovery but it did take 24 months from the commencement of the upward trend to peak unemployment in June 1992. After that, there is a steady, albeit slow, recovery on the job front.

Thus, based on the 1991 precedent, there’s a 24 month span of rising unemployment before the rate hits peak and drops (I understand that the unemployment rate does not differentiate between full and part time jobs and good jobs or bad jobs. This is merely a snapshot).

Canada

I had a much more difficult time finding monthly unemployment rates in Canada. I have had to rely on annual unemployment rates so the analysis is much more broadly based. In 1989, Canada’s unemployment rate was 7.5%; the lowest rate in the 1980’s. Thus, Canada was not in an optimal full employment state when the economy started going south.

The unemployment rate then begins the following upward trend of annual unemployment rates:

1990: 8.1%
1991: 10.2%
1992: 11.2%
1993: 11.4%

In 1994, the annual unemployment rate drops to 10.4% and drops every year until 2000. Because of the imprecise detail of the data, it appears that the Canada took longer to hit its unemployment peak (1993 as opposed to 1992) and the recovery took longer to unfold. In fact,  it took until 1999 for the Canadian unemployment rate to get back to where it was in 1989- a full 10 year recovery!

There are a wide variety of academic sources which studied Canada’s slower job recovery. I cite one factor below.

Today

The U.S. unemployment rate is at 7.2% at the end of December 2008. There has been a general tread upwards since May when the unemployment rate jumped from 5.0% to 5.5% with two big 0.4% leaps in the rate in August and December from the previous months. If you want to start the clock running on when unemployment begins to rise, May 2008 would be a good time for the starting point.

If you believe this rescission will unfolded similarly as 1991, that would make approximately spring 2010 when the unemployment rate peaks and begins to fall. This is based purely on a sample size on one so keep this in mind.

The Canadian unemployment rate stands at 6.6% as of December 2008.

What does this all mean?

Few random observations:

1. The Canadian recovery in the 1990’s took much longer in the U.S. for many reasons. One was Canada was running massive debts and deficits prior to that time and there was a very painful transition to balancing budgets. The government’s lack of financial flexibility to stimulate the economy most likely slowed the recovery. Will this happen in the U.S.?
2. It is way too early to press the depression button. Perhaps the “holy cow, its 1992 all over again!” button can be pressed (the 1991 recession was brought on in part by a speculative real estate bubble bursting and savings and loan bailouts- in smaller scales).
3. Just hope this does not become the 1982 recession. I took a quick over-view of the 1982 recession and it was ugly by any comparison.  For example, the American monthly unemployment rate was over 10% from Sept. 1982 to June 1983 and the American Central Bank Prime Rate was 12% in Oct. 1982  (source is WSJ); Canadian unemployment rate went from 7.6% to 11% in 1982; Bank of Canada Prime Rate was 11.53% in Oct. 1982. In other words, you had the worse of both words in 1982, high unemployment and high interest rates.

…is this another “normal” recession and, our collective memories being so short, we don’t remember what a recession truly feels like? I sit on in the “let’s not get hysteria” camp and believe what we have is a good old fashion recession, of which we have no collective memory of so we are paniking (think of your advisor in their 30’s or 40’s; they would have been in school during 1991 and not experienced the full force of the recession). Howerver, time will tell…

I have a rather static collection of personal finance books. I am a big believer of quality over quantity (and for cost savings, I borrow a lot of other books from the library). Many of the books also have so much good information that it helps to pick it up from time to time and re-read passages to absorb some nugget of financial wisdom I did not get the first time around.

If you are building a personal finance library, I suggest the following as building blocks (all the links are not affiliate links):

1. The Millionaire Next Door by Stanley and Danko: A book anchored in statistical analysis on how the millions got to be millions. The lessons are not earth-shattering but, if nothing else, a re-affirmation of old world values: hard-work, frugality and modesty are keys to financial independence. A book I tend to pick up every other months and re-read passages.
2. Get Smarter by Schulich and DeCloet: Schulich is a self-made billionaire (mostly in junior mining companies) who shares his money, life and love lessons in small bite sized chapters. A very good thought process book about being a good person, good investor and good entrepreneur.
3. Stocks for the Long Run by Siegel: The bible for stock investing setting out why investing in stocks over the long run will protect your savings and more.  A great guide for exploring the various sub-sets of stock investing (dividend investing, global investing, exchange traded funds etc.). If you are interested in stock investing, a definite read.
4. The 5 Rules for Successful Stock Investing by Dorsey: Another in the fine series of Morningstar publications, this is an extremely thorough guide on how to read financial statements with industry specific metrics to look out for. A word of warning, it is a little technical at times
5. The Art of the Start by Kawasaki: My newest entry. Not a personal finance book per se but have you ever wondered how to turn an idea into a business including getting customers and obtaining financing? Kawasaki, a venture capitalist and former Apple alumnus, gives a refreshing look at starting a business grounded in some real experience rather than abstract MBA-isms.

You will notice from the above list that these are all thought-process books not product books. Even the stock books are about how to assess stocks not which ones to buy. As I have reiterate in this blog, product comes and goes. Its a thought process that will carry you through long term.

Any books you consider a building block of a personal finance library?