Double Blind

The UBC Election Stock market closes today at 11:00pm. The ESM is NOT open tomorrow (Election Day) for trading, so whatever transactions you want to perform should be done.

Specifically, if you think there will be a minority government, you can still buy minority government contracts for 80%, which means a 25% return on capital in the event that it happens. Toronto hasn’t abandoned the Liberals, so the probability of a majority is unlikely.

With regards to my scheduled radio interview (on the topic of the UBC Election Stock Market), I was half way between Richmond and the Vancouver studio when David Jones (associate producer for On the Coast) called me to say that their Toronto office told them to cancel the interview. I didn’t quite catch the exact reason, but it had to do something with broadcasting information about an election just before the election date. It wasn’t quite clear whether this was an Elections Act or internal CBC policy, but the end result is that there was no interview.

I did offer to come back after the election, but David sounded quite tepid on the issue.

I wish that CBC did their due diligence with respect to this earlier, as it took a few hours of my time away for nothing. That said, if CBC would like to interview me after the election about the UBC Election Stock Market or information markets in general, I would be willing.

Sorry to all those that tuned in!

The radio interview I mentioned previously has been moved from 3:40pm to 4:40pm, so an hour later.

Here is my official seat-by-seat projection for British Columbia. I screwed up the provincial election prediction, so hopefully this is my chance for redemption. I have also included a “Margin of Victory” column. Slim means a victory by less than 5% of the total vote, while wide means a victory by more than 5% of the total vote.

Totals:

The reason why the NDP are going to do very well in this province is because they are going to benefit from a lot of disenfranchised Liberal voters that will be casting their ballots for the NDP. This is quite different from previous elections where NDP voters typically had their votes sucked by the Liberals. As it’s very obvious that the Liberals are not going to form government, voters will trend toward the NDP in ridings where the NDP candidate has a chance of unseating the Conservative. This will also account for less support of Green party candidates in ridings that are close.

The other reason why the NDP are going to do relatively well in the province in proportion to their popular vote is because the Conservatives will be amassing huge majorities in the eastern Fraser Valley ridings and the interior, while most NDP victories in the province will be quite slim.

The riskiest calls that I predict, in descending order of risk, are:

At 3:40pm on Friday, January 20, I will be interviewed by CBC Radio One (AM690 in Vancouver, also available live on the internet). The program that will be interviewing me is On The Coast, hosted by Priya Ramu.

The topic will be the UBC Election Stock Market – an introduction to what the election stock market is, how you can use it to make (or lose!) money, how politicians and parties can use the information for their benefit, and much, much more! Don’t miss it.

This one is pretty easy.

As soon as they go into their pitch, interrupt them. Then say “Put me on your do-not-call list.”

They should respond affirmatively to this. If not, they are breaking Canadian regulations.

Latest projection from my own spreadsheets, from the data I’ve factored in:

Liberals 90
Conservatives 138
NDP 25
Bloc 55 (very uncertain)
Other 0 (the only real riding in question for this seat is Churchill, Manitoba, which should be won by the Liberals)

The Conservative vote in Quebec is going to hurt the Bloc, but to what degree is unknown. I will be paying more attention to Quebec over the next few days.

I have the Liberals with 41 seats in Ontario and 17 seats in Quebec right now – six of those seats could go Bloc, however. It depends on where the Conservative votes are coming from, Bloc or Liberal supporters. Right now I am assuming they are coming from the Bloc, which is consistent with polling data.

In Quebec, the Conservatives should win Louis-Saint Laurent, Pontiac and have a shot at Beauce.

Of course before election day I will be giving a seat-by-seat projection of British Columbia’s 36 seats.

(EDIT about 30 minutes after I wrote this article) – I realize that the seat projections are awfully close to what the ESM projects, which is why I’m not engaging in trades in the seats or popular vote market. The real money is to be made in the majority government contract at this point.

The following make using the web a lot more convenient and easier:

Thankfully, web browsing is getting to the point where you can completely remove all the annoyances of advertisements and just stick to what you want – content. I know there’s probably a better approach to my weblog reading (Sage is simple, maybe too simple), but I know this will get better as the extension gets developed further. There are already other RSS readers that are more heavier, such as Stardock’s Blog Navigator and even Mozilla’s own Thunderbird.

From Canwest News:

OTTAWA – It is said there’s no bigger fan of James T. Kirk than Stephen Harper, and one pundit thinks the Tory leader should use it to his advantage. Rondi Adamson, a contributor to Conservative party member Ezra Levant’s blog at the Western Standard newspaper, says Harper is a huge Star Trek fan.

“Like, huge. And it has to be the classic series, from the 1960s — none of that Next Generation, Deep Space Nine crap,” Adamson says.

A source close to the Tory leader is quoted on the blog as saying Harper is such a Trekkie, he’s seen every episode several times and even quotes from them.

Although I’ll disagree that the Next Generation was “crap” (although Deep Space Nine and Voyager were crap for sure), I must admit that knowing the future prime minister of Canada is a Star Trek fan is reassuring. What he probably isn’t willing to publicly admit is that he, along with all original Star Trek fans, knows that the fight scenes were the best in the original Star Trek. That, along with William Shatner’s… lets just say unique acting skills make it quite entertaining to watch.

Overall, Harper strikes me as being quite Gordon Campbell-like: policy oriented, pragmatic and not instinctively political (he’s had to learn that along the way). I think the Canadian public is starting to see that substance counts over sizzle.

I remember reading an article in some magazine where a reader asked “Is it better to contribute to my RRSP or better to pay off my student loans?”. The reader did not specify what their marginal tax rate was, which makes the calculations a lot easier.

I was floored to find out that the “expert” they had writing in the magazine actually recommended to pay off the minimum amount of their student loan and contribute the rest to their RRSP. The justification they gave is that the student loan interest is tax deductible so therefore it makes sense investing the proceeds into an RRSP where you can get more of a tax deduction.

This is the wrong line of reasoning. The ultimate decision might be correct depending on your income situation, but the reasons the author got there needs a little more explaining.

First, because the interest of a loan can be written off of taxes doesn’t mean that the loan is free – rather, the cost of the loan is reduced by the marginal tax rate. So if this hypothetical person was making between $40,000 a year, their marginal rate would be 31%. If they were paying 8% on their student loan, the after-tax cost would be about 5.5% (in a calculator, that’s 8% multiplied by 0.69, which is 100% minus 31%). Not a bad rate of interest, but certainly better than what you can get with a GIC (1-year rate is 3.75% at ING Direct).

Secondly, the tax deduction you receive from an RRSP can be realized at any point in time. If you contribute a dollar this year, you would get 31 cents back. If you contribute a dollar next year (assuming the tax brackets are the same), you still get 31 cents. You can even contribute a dollar this year and claim it next year. In other words, you can receive that 31 cents at any time. Yes, the money inside an RRSP compounds over time and also that a dollar received today is worth more than a dollar received tomorrow, but it only makes financial sense if you think you can get more than a 5.5% return out of the RRSP. People would have to make good choices to realize that return.

5.5% isn’t a huge amount, but it’s enough to seriously consider just throwing the money back into the student loan debt since it’s a guaranteed after-tax return of 5.5%. It’s infinitely better than throwing the money into a GIC, whether it’s tax sheltered or not. There is also the other intangible consideration of being able to finally say that you’re debt free – I personally abhor debt. Debt forces people to worry about it, and I hate worrying about things.

The numbers say that you can probably achieve a better than 5.5% return, but this sort of justification is very weak in the context of debt management. It’s just best to pay it off since you won’t have to again.

If this hypothetical person makes less than $35500 a year (2005 tax year), they are in a lower tax bracket (21%) and then the cost of the 8% loan rises to 6.3%. In this case, it’s a total no brainer to pay off the student loan first and worry about the RRSP later if and when the person rises into the next income bracket.

I’ve always maintained that anybody in the lowest income tax bracket should not bother investing in RRSPs – income received from dividends and capital gains are so low outside an RRSP that tax-free compounding is minimal at the lowest rate of taxation. In addition, the tax savings realized are not very high.

The conclusion is that the magazine author was probably wrong – I’d pay off as much as your student debt as you can and worry about an RRSP and savings later in life, specifically, when you’re out of debt.