TFSA and our club

http://www.budget.gc.ca/2008/pamphlet-depliant/pamphlet-depliant2-eng.asp

Starting in 2009, we can contribute $5000 to a Tax-Free Saving Account and avoid paying taxes on gains/interest. I think this is generally considered good news for investors and I certainly plan to use it. Now, although I enjoy our club immensely, I'm afraid tax free growth will have to take priority over our club. :)
In our "loose" constitution, we had a concept of minimum annual contribution (around $2000?). In light of this new TFSA, do we want to ammend that? I am not planning to pull money out of the club but I think my first $5000, not going to my RRSP and mortgage, will go to TFSA. (Not to mention the wedding costs, and RESP down the road, long road :)
I just wanted to start the discussion around continuing the club without making annual incremental contributions. Thoughts?

Two Views on Bear Stearns

As much as I hate to see bankers, especially greedy, righteous, probably criminal bankers get bailed out, the Fed probably did the right thing last weekend by orchestrating the bailout of BSC. The question remains whether this, and its other actions of loosening collateral requirements at the Fed, will be enough to restore confidence and liquidity in the system.

It's too easy to pick on Cramer but here's a video of him telling people not to worry about Bear Stearns just a few days before it comes crumbling down. I think most people realize the risk in listening to this blabber mouth.



This video should be contrasted by a very good interview of previous Fed Chairman Paul Volcker. He gives his opinion on the bailout and the status of the problem and he gives good ideas about regulating the so-called shadow banking industry. This guy is great. Well worth the 6 minutes.


I don't know if we're at the bottom of this market yet, but man what's Google trading at? I just used google search, blogger, and youtube to embed that video and make this rookie post! Technology made easy.

3M

I've been digging around for ideas, and although I still treat any pullback in the energy sector as a buying opportunity, I've been trying to look in other areas with a good tailwind.

I still like GE for its energy components as well as its diversified portfolio of other industrial products, but it seems their finance division (which has historically contributed a good portion of its profits) has been a bit of a mystery especially in view of the current credit turmoil. They haven't announced any big write downs a la_______(insert any investment bank here), but this division remains a black box for GE.

Although in different areas, 3M has had a similarly long history as an industrial manufacturer of literally thousands of products. What initially got my attention was their research into new types of lithium ion batteries. For me this was the tie into energy that got me interested. The future of transport will revolve around more electric vehicles powered by batteries and some form of lithium battery will likely be at its core. I tried to investigate 3M's research into this area further but the amount of research this company does and the number of innovations it has achieved in small products (but large volumes) is quite amazing.

This company's ubiquitous Post-It note is one of thousands of small innovations if even you could call it that - but they've managed to leverage this small no-big deal product literally millions and millions of times over. At its website you see many more products that are marginally more useful than a post-it note but they sell lots of 'em!

The valuation currently compared to its historical is quite favourable. (P/E and dividend yield currently lower than historical 5 year average) It's revenue is like other multinational US companies and its sales to the emerging markets is growing rapidly. It doesn't have a good direct comparison except for maybe Tyco or GE. It recently sold its pharmaceutical division so it doesn't have the FDA/drug approval related volatility. Its product diversification defies any slowdown in any one sector.

So in sum its a boring industrial company with its roots as old as the American Innovative spirit. They invent things and then sell as many as they can!

The LULU strategy

Well, they finally announced that the Q4 earnings will be reported on April2. They did not pre-announce any quidance up (or down). So that means they will likely make or beat their estimates. The key is the 2008 outlook; the US is in a recession, but Cdns are still feeling rich, especially in the west. So I suspect they are still buying $100 stretchy pants in Vancouver, Calgary, and Regina. But if mgmt uses the US recession as an excuse to guide lower, we should probably get out.

I expect a "buy-on-rumour, sell-on-news" movement on this upto April2. In fact, I see a short term recovery in the overall market, and Lulu as a high beta stock, may bounce back to about $33-34 next week. IF that happens, I suggest putting a stop-order at around $30-31, until the earnings come out. I still see great growth in Lulu, but we might be able to buy it lower ($10-15!) if there's some poor guidance.
Let me know if you agree and I'll take the action to put the stop-order next week.

Have a great long weekend!