Arbitrage Magazine - Winter 2010 by Arbitrage Magazine

Winter 2010

w w w. n f s a . c o m

FUTURE ENERGY SCARCITY Can the Markets Survive?

FEATURE INTERVIEW WITH JEFF RUBIN Former Chief Economist for the CIBC & Author of Why Your World Is About To Get A Whole Lot Smaller

PEAK EVERYTHING Oil, Natural Gas, Freshwater, Copper, Coal

CAREER PLANNER 2.0 Wealth Management Job Profiles

INVESTMENT STRATEGIES ENTREPRENEURSHIP ADVICE

PERSONALLY, I’M READY FOR THE OPPORTUNITY OF A LIFETIME. You offer employers unmatched energy and enthusiasm and in return you’re offered entry-level positions. You can put your time in somewhere else before realizing the benefits of running a business, OR you can get a head start on your peers and begin building a business today!

Meet Edward Jones Edward Jones Financial Advisors specialize in helping individual investors and small business owners achieve their long-term financial objectives. The firm’s financial advisors do this from single broker offices located in the communities where their clients live and work. These convenient locations enable financial advisors to meet and work with their clients face-to-face and build lasting relationships with them. The firm believes that only by knowing clients on a local, personal level can its brokers effectively provide the appropriate investments and services to help their investors achieve their financial goals. For the eighth consecutive year, Edward Jones has been named as one of the “50 Best Employers in Canada.” Edward Jones was ranked No. 10 by The Globe and Mail’s Report on Business magazine and in La Presse.

Ideal Candidates

Recent university/college graduates with financial services or sales experience or who possess top-level abilities and proven track record for success.

Get Started Visit www.careers.edwardjones.com OR, contact our Recruiting Department at 1.800.380.4517 for more information.

www.careers.edwardjones.com Edward Jones is an equal opportunity employer, committed to developing an inclusive culture. We believe that diverse ideas, opinions and perspectives are good for building business. Copyright 2010 Edward Jones Member – Canadian Investor Protection Fund

SLH-5771-C MAR 2010

A Passion For Opportunity

Why work with TD?

Find your perfect car career eer at TD.

TD is a great organization powered by great people. People who want to make a difference every single day. Our 74,000 TD employees world-wide are a big part of what makes TD stand out from any other organization. Every dayy,, we strive to deliver an exceptional customer and client experience, and our award-winning customer service is consistently recognized in Canada and the United States. We’re an organization that reinvests constantly to ensure future growth, and we’re passionate about executing with excellence. We’re recognized as an extraordinary place to work that embraces diversityyy,, where everyone is respected and valued. TD is one of the largest financial institutions in North America, with many exciting and challenging career opportunities. If you’r you’re e interested interested in TD, we’re we’re inter interested ested in you.

To T o join TD and a be a part of our winning team, visit www www.td.com/careers .td.com/careers

EDITOR’S NOTE

E D I TO R ’ S N O T E EDITOR-IN-CHIEF David Alexander

Dear NFSA Community,

t seems somewhat anticlimactic to have the Winter 2010 Edition of the Arbitrage come out when it’s distinctly NOT winter. Nonetheless, the Arbitrage is back, better and fatter than ever. For this issue, we’ve explored the topic of energy and resource scarcity. And to start this topic off with a bang, we’ve been fortunate enough to land a feature interview with Jeff Rubin, former Chief Economist for the CIBC and current bestselling author of Why Your World Is About To Get A Whole Lot Smaller. For thirty minutes, we discussed his views on Peak Oil and general energy scarcity issues—topics which if you don’t know much about, trust me, you’ll be living them soon enough. On top of these subjects, we have two feature articles about entrepreneurship for those interested in starting up their own business now or after graduation. And for our finance readers who are looking for some career guidance, we’ve added the NFSA Career Planner 2.0—this one focusing on Wealth Management. Overall though, you’ll notice the magazine’s layout has been completely revamped. The vision going forward (which will get stronger upon each consecutive issue) is to have a consistent design that is peppered intermittently by high quality features, all designed by the new Arbitrage design team. You can say the same for the content, where similar to the Economist magazine, the Arbitrage will be expanding the breadth of its content beyond its finance focus, to include such sections as: Industry, Business and Politics, Canada and World. These new sections will be supported by Arbitrage’s expanded writing team, one that is increasingly hitting its stride. In all, the Arbitrage is growing and will continue to grow into the foreseeable future. We are always looking for new talent to join our ranks, regardless of whether you want to work among the magazine’s writing, designing, marketing or editorial staff. And with the Money issue coming just around the corner, now is the best time to join us! Regards, David Alexander NFSA Editor-In-Chief

ARTS DIRECTOR David Tal STAFF WRITERS David Tal Hyungsub Moon Saif Qureshi Pawan J. Shamdasani Nicki Mossavar-Rahmani Luis Marquez Jessica Vitullo PROOFREADER Peter Parker PRODUCTION COORDINATOR David Alexander GRAPHICS DESIGNERS Andrea Barros Luis Ernesto Rojas Gonzalez Akil Worrell Courtney Bellemore Alina Klinaeva David Tal Rustem Safin PHOTOGRAPHERS David Tal CONTRIBUTORS Wallie Seto Pranavan Ganeshalingam Alex Lee Andres Pozo Rustem Safin Laksh Vig MEDIA PARTNERS Career Insider Magazines (http://careerinsider.ca/) VIC Newsletter (YorkInvestmentClub.com) SPECIAL THANKS Jeff Rubin Sarah Prevette, Jon Kerr, Moshe Lokshin, Our Sponsors, NFSA Team SALES & MARKETING David Alexander CONTACT Arbitrage.Query@nfsa.ca

Founded October 31, 2008 The NFSA ARBITRAGE is a publication of the NFSA, published every quarter. Entire contents are property of the NFSA © 2009. Electronic versions of the NFSA ARBITRAGE are available free of charge at www.nfsa.ca, but can be purchased as a subscription by contacting: Arbitrage.Query@nfsa.ca

LETTERS TO THE EDITOR: The NFSA ARBITRAGE welcomes letters to the editor. They must be signed by the writer and include contact info. Names will be withheld on request. All letters submitted may be published by the NFSA, unless expressly forbidden by the sender. These letters may be edited for length and not all will be published. Email: Arbitrage.Query@nfsa.ca SUBMISSIONS: The NFSA ARBITRAGE welcomes submissions from writers and photographers. If interested, please refer to our submissions ad on page 21. Other queries, contact: Arbitrage.Query@nfsa.ca JOIN THE NFSA: If you are part of a university finance/business club or other finance related organziation interested in affiliating yourself with the NFSA, please contact us using the appropriate e-mail provided below: Inquiries regarding club relations: clubrelations@nfsa.ca Inquiries regarding sponsorship: corporaterelations@nfsa.ca

Arbitrage | Winter 2010 | NFSA.ca

13 FINANCE Oil History Visualization. 14 | Fuel Use of Various Modes of Transportation Visualization. 15 | Future Forecasting How to Use Primary Research to Predict Future Market Conditions. 18 | Anatomy of a Crash Visualization. 19 | Canadian Banks VS The World Why Canadian Banks Survived Unscathed. 27 INDUSTRY Industry Spotlight: Energy and Utilities The Trends to Look Out For. 29 |

Trading Stocks in the Underground Economy The OTC Markets. 33 CANADA Energy Goes Green Ontario’s New Green Energy Act and its Deal with Samsung. 38 WORLD Global Effects of Water Shortages A Global Perspective on the Tap We Drink Everyday. 39 | Water Info Visualization. 42 POLITICS AND BUSINESS Who Influences Who? Politics And

Business: Where Is The Boundary? 43 | Conservative Versus Liberal Visualization.

portunities In Financial Services A Perspective from a Recent Grad. 56 | 10 Hot Networking Tips Making that Next Contact Just Got a Whole Lot Easier. 16 | NFSA Career Planner 2.0 Wealth Management Overview. 79 | Directory.

45 EDITORIALS & OPINIONS The World Need Not Thirst Freshwater Shortage: A Global Problem. 46 | Curing the Peak Oil Disease A Heavy Government 77 GRATITUDES Hand and the FuSponsors. 78 | Afture of Innovation. filiates. 49 NFSA EVENTS TD Networking Event Recap 55 STUDENT RESOURCES Finding Career Op-

NFSA Information NFSA CONTACT INFO: -Address: NFSA Office Office of the Master 140D Atkinson York University 4700 Keele Street Toronto, Ontario, M3J 1P3 -416.736.2100 xt.33572 -www.nfsa.ca -info@nfsa.ca -Facebook & LinkedIn group, search: National Finance Students Association -Twitter: NFSA_York

GENERAL MEMBERS: -Free membership! -Free online subscription to the NFSA Arbitrage Magazine -Be part of our mailing list and recieve notice of our upcoming seminars, workshops, case competitions, networking events and more! -Recieve notice of employment and internship possibilities through our sponsors and affiliates. -Join a national association and expand your contact list

GOLD MEMBERS: -Recieve all general member perks -Personalized NFSA Business Cards -Advance notification of NFSA events and thus an advance opportunity to reserve a seat at our events. -Considerable discounts on all of our paid NFSA events

CLUB MEMBERSHIP: -Increase your club’s network and exposure without any costs -Invitation to our events at which your members can network with industry representatives and their peers -Access to NFSA mailings promoting internships, summer employment and full employment that your membership may apply for -Free access to the NFSA Arbitrage Magazine to all your membership -Contact our VP External at: clubrelations@nfsa.ca

NFSA CLUB INFO: -Office hours: Monday – Thursday 12:00-18:00 -We are a non-profit, studentrun initiative, which aims to enhance student leadership in finance by both motivating and providing our members with the resources they can use to be better equipped and competitive in a real world setting.

BY DAVID TAL, STAFF WRITER DESIGNED BY ANDREA BARROS

There is an assumption many on this Earth share—one that says the world revolves around money. It doesn’t. It revolves around oil. Cheap oil. And without it, the gears that run this current globalized economy will come screeching to a halt. Over the last few decades, ever since M. King Hubbert made his seminal 1956 speech to a gathering of the Petroleum Association of America, in San Antonio, there have been some who have warned about a time when the demand for petroleum will outpace supply, i.e. when we need more oil than we can produce. Unfortunately, today’s experts predict that this future is soon upon us. And this future has a name: peak oil. While our politicians shy away from discussing it and much of the mainstream media still barely cover it, peak oil remains a reality. The fact is oil is a finite resource (i.e. it won’t last forever). Over the past three decades, there have been fewer and fewer oil field discoveries made every year (ASPO). And many geological reports are also beginning to indicate a steady decline in the absolute quantity of petroleum extracted from the world’s largest oil producing states (World Energy Outlook 2004). Altogether, many geologists and former oil industry employees are predicting that within the next decade, production of oil will peak and oil shortages will begin to become commonplace. This will have serious social and economic repercussions—effects that will need urgent legislative and technologically innovative measures to overcome.

NFSA.ca | Winter 2010 | Arbitrage

SIZING THE ISSUE To get a sense of how important cheap oil is, how ingrained it is in every aspect of our society, let’s take a look back to the waning months of 2008. While much of the world was wrapped up in the drama of whether Obama was going to win the primary, much of the world was also rapt with worry over the price of gas (by July, 2008, it sat at $147 US a barrel). In some places, it got to the point where talking about oil became like talking about the weather. What you did, how you lived, began to depend more and more on how high the price of gas rose. And with good reason. For those living in suburbia, the cost of commuting became unaffordable. This triple-digit rise in gas prices led to less money in people’s pockets, meaning less money to spend on everyday goods— thereby hurting businesses, causing layoffs and ultimately bankruptcies. We saw this drawn out most in the crippling of the auto industry and similarly, to the airline industries. This dip in consumer spending wouldn’t have been so bad were it not for the rabid inflation that accompanied this spike in oil prices. In the United States, the headline consumer price inflation rate rose from around two per cent to almost six (tradingeconomics.com). But why would this be so? How is the price of oil tied into the price of food and other everyday goods? The answer is that modern food production is dependent upon the use of petroleum-based pesticides and fertilizers. Rising fuel costs then translates to rising food prices. Modern globalization is largely based upon shipping goods from countries where labour cost is low to countries where the consumers are rich. When oil prices rise, so too the shipping costs involved and so too will the prices of goods reflect that.

BEHIND THE OBVIOUS Over the past year, there has been somebody who has taken these links one step further. Jeff Rubin, the former chief economist for the CIBC and recent author of the bestselling book Why Your World is About to Get a Whole Lot Smaller, told the Arbitrage in a phone interview that “we have mistaken this recession as a financial market crisis when, in fact, it was an energy shock.” Rubin asserts that as oil prices rose in the latter months of 2008 (forbes.com), pushing inflation to ever-greater heights, it forced the U . S . F e d e r a l Re s e r v e B o a r d t o

THE HOOK This was but one of the insights Rubin shared during our conversation, which he also outlines more thoroughly in his bestselling book. But what is it about the issue of peak oil, or energy scarcity, that attracted his attention so? Why this, above all other issues in this world, such as global poverty or climate change? “I guess it happened 10 years ago,” he explained. “I read this obscure book called, The Coming Oil Crisis by Dr. Colin Campbell, who, as a retired geologist, worked for a number of major oil companies in

the supply of oil is really a function of price. For example, when world prices of oil are $20 a barrel, the 165 billion barrels of oil trapped in the tar sands of Alberta isn’t really an economic resource, since converting tar sands into oil would cost about four times as much as what the market is offering. It may exist geologically, but for all intents and purposes, it’s not an economically viable resource. “But in a world of $80 a barrel, all of a sudden you’re producing one million barrels [of oil] a day out there. And in a world of $200 a barrel oil, we could see [that rise

increase interest rates to stem that rise. Unfortunately, that meant homeowners with high or fluctuating (subprime) mortgage rates saw their monthly mortgage payments shoot through the roof and, for those who couldn’t afford to pay, that meant they were out of a home. Repeat this effect for a few million homeowners across the United States and the result was the implosion of the financial markets, the threat of a second Depression and the subsequent bailout of banks and other financial institutions across the world.

his lifetime. Basically, he talked [oil] depletion … . “I thought he brought forth a pretty compelling case. That net, we were running faster to stand still (i.e. using more oil to maintain our current standard of living). “That’s what sort of got me going. I’m not a geologist, but, by applying their research to my [economics] field, it did get me thinking of some of the economic implications of peak oil or depletion.” Rubin explained further that, “from the economist’s perspective,

to] three to four million barrels … . “But the paradox of higher energy prices is that we can’t afford to consume the new supply that it brings. The same [oil] prices that will lift four million barrels a day out of the Canadian tar sands, for example, will translate into retail gasoline prices that will take millions of drivers off the road.” “[On the whole, that’s what] I’m more interested in: what the economic response to this will be, how will a rational price-based economy respond to these kinds of energy prices when this is the one commodity that the whole global economy runs on.”

Arbitrage | Winter 2010 | NFSA.ca

THE LINE IS DRAWN Unfortunately, this economic response might be something the world will face sooner rather than later. As of last December, the International Energy Agency (IEA) placed a fairly definitive date for peak oil at 2020, that is if no new discoveries are made and if oil demand continue to grow on a business-as-usual basis. When asked if this was a sign of some kind, Rubin was quick to reply. “If you’re familiar with what’s happened with the IEA, you’ll realize that every year, the IEA has dramatically reduced its estimates of future world oil supply.” Rubin then made reference to a Guardian of London exposé, published on Nov. 9, 2009, that revealed how an IEA official admitted that «many inside the organisation believe that maintaining oil supplies at even 90 to 95 million barrels a day (to meet future demand) would be impossible, but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy, because it would threaten their power over access to oil resources. From this admission, it would seem that the world’s ability to maintain low oil prices will soon weaken. This is a conclusion Rubin shares, as he sees triple-digit oil prices returning sooner than later. His concern however, is about the next time oil prices surge into tripledigit territory: when it happens, will “the global economy be in any better position to withstand those pressures [the effects of high oil prices] than it was in 2008. Rubin explained that “[we’ve already] run up record deficits, particularly in the United States. Billions and billions have been used to prop up financial institutions. Now that we have those record deficits, what’s going to happen is that the next time triple-digit oil prices hit us, not only will there be no more room to stimulate the economy with further deficits, but we’ll start to have to pay back our

current deficits. “So, whereas last time triple-digit oil prices hit, we stepped on the fiscal accelerator by ramping up government spending [to] bail out the home owners, the auto companies and the investment banks in New York, this time we’re going have to be raising taxes and cutting back spending, and that’s going to be a lot more challenging.” THE WAY FORWARD From everything Rubin thus far shared, you might be able to see the overall direction he and many other peak oil theorists suggest that peak oil may actually be peak GDP (Gross Domestic Product). This essentially means that the economy can only grow when oil is plentiful; when it isn’t, our economy, our standard of living we’ve grown accustomed to, will be threatened. But does it have to be this way? Rubin doesn’t believe so, and that’s the whole message of his book. “We can’t stop oil prices from getting back to triple-digit levels and, indeed, we won’t be able to stop oil prices from going even above the $147 a barrel … . But what I think we can do, is make sure that when that does happen, it doesn’t necessarily have to have the same kind of devastating impact on our economy and on our lives than it has in our past. “The key to that is by changing not the nature of what we burn [oil], but changing the nature of the economy. So the single largest thing we can do to immunize the economy from triple digit oil prices is to go from the model of a global economy to a model of a local economy, because a global economy is an extremely energy—and in particular oil intensive—way of doing business.” So when asked what can be done, Rubin suggested that the government should place a price on carbon domestically to encourage local producers to find ways to cut their emissions, while also placing a carbon tariff on countries with increasingly large carbon emissions, such as China and India.

NFSA.ca | Winter 2010 | Arbitrage

“One thing is very clear, no matter where you stand on the climate change debate, there cannot be anthropogenic global climate change in this part of the world and not other on the other side. “If there’s global climate change for everybody,” said Rubin, “there’s no point closing down the Nanticoke coal-fired power plant on the shore of Lake Eerie and making Ontario pay double or triple for power, while China and India are free to build 800 coal power plants.” “ … Yo u c a n ’ t a s k y o u r o w n producers to pay twice. Once for their own emissions and than to pay again as they lose market share to countries that don’t pay for their emissions.” Rubin also mentioned the need for massive investments in public infrastructure, particularly in public transit. When the 40-50 million North Americans are forced to give up their vehicles over the next decade, they should at least have a bus or light-rapid-transit vehicle to get on. “You know, what folks don’t understand is that during WWII, Detroit stopped making cars and practically overnight transformed itself into a munitions factory making tanks and bombers. Well, if Detroit could transform itself into a munitions factory making tanks and bombers in the 1940s, why can’t Detroit and Oshawa today transform themselves and make buses and light-rapid-transit vehicles instead of SUVs?” But when asked if that is all he thinks can be done, Rubin also made sure to point out that the government isn’t our saviour or solution. Instead, Rubin said, “I see the market as the solution, frankly. When prices get [to three digits], we’re going to start making our own steel again; we’re going to start growing our own food; we’re going to start making our own furniture. “Because it’s no longer going to make any economic sense for us to source our steel and furniture and food from places like China, because the savings that we might get from their labour costs are going to be

more than offset by the fuel costs of getting those products to us.” “So the market is going to bring a lot of those jobs back home. The market is going to being a lot of that production back home. Things will certainly cost more money— everything we will make ourselves, or from our regional neighbours, will costs us more than what it used to cost in the world of cheap oil and cheap wages. “But I think we’re going to find that tomorrow’s economy is going to look a lot different than today’s economy and not all of the changes will be negative.” A BRAVE NEW WORLD With all this talk of the end of modern globalization, of a complete reorientation of our shared economy, our discussion then turned to what Rubin envisioned tomorrow’s world would actually look like. To start, Rubin made clear that “in terms of what we eat, the diets will come more to resemble that of our parents than what we’re accustomed to [today].” He then related how when he grew up in the ’60s, the food people bought was seasonal. “You didn’t see kiwis, strawberries, raspberries and tangerines in January and February.” When it comes to vacations, “We’re not going to be able to fly like we used to before. It’s not that there won’t be airlines, but the cost of flying will probably go back to what it was in the 1960s.” So, instead of Chiang Mai or Machu Pi c c h u , Ru b i n e x p e c t s m o s t Torontonians to visit places like Algonquin Park or Muskoka. With respect to suburban living, “We’re not going to be able to commute 70 to 80 kilometres back and forth to work every day in our SUVs,” predicted Rubin. “We’re going to have to either find a way to drive less or work a lot closer to home.” Because of these drastic changes in lifestyle, Rubin noted that “you’re going to find a lot of those far-flung suburbs are going to return, curiously, back into the farmland

Arbitrage | Winter 2010 | NFSA.ca

that they once were, because they collapse in suburban real estate prices and the soaring increases in imported food, now make it all of a sudden economically viable again to raise livestock (here) instead of shipping it from New Zealand. It will make it all of a sudden more important to grow crops, because people aren’t living 50-60 kilometres from the city.” And as for our cities, “ … where we saw in the last 50 years … urban sprawl, we’re probably going to see increasing urban density, … but with less cars on the road and certainly different kinds of vehicles that we’re used to seeing today.” Assuming a new energy source as abundant and versatile as oil isn’t discovered, the next several decades will represent a difficult transition stage: one from a cheap carbon to a post-carbon age. But it is in those times of crisis that we turn most to those we love, to those closest to us. It is also in those times when we are most willing to reach out to our neighbour and strengthen the relationships we need to survive. With the global economy turning local, this is exactly what will happen. The world we will grow up in will look much different than what our parents were used to, just as the world our parent’s grew up in was far more different than what their parent’s could have imagined. But paradoxically, as outlined earlier, the days of tomorrow may also share many of the qualities most thought were lost from the days of our parents and grandparents. And as the world finds this new balance, this new way of adapting itself to this new era, at least we can feel optimistic in the fact that we will be able to share our struggles and our joys together, as we build ourselves a brave new world.

BIOGRAPHY Jeff Rubin (born August 24, 1954) is a Canadian economist and author. He is a former chief economist at CIBC World Markets. He graduated from McGill University with a master’s in economics after completing his BA in economics at the University of Toronto. He began his career as an economist at the Ontario Government Treasury Department where he was responsible for projecting future interest rates. In 2000, he correctly predicted that oil prices would be trading at $50 US per barrel by 2005. He then accurately predicted oil would crack the $100 US per barrel mark by the end of 2007. Rubin wrote a widely followed national column in the Globe and Mail, “Ahead of the Curve,” and he has been a fixture on network coverage of the federal budget and other key economic events for almost two decades. He has also made numerous television appearances on ABC, CBC, CBS, CNN and CNBC. His opinions and insights have appeared on the front page of the New York Times, as well as the Wall Street Journal, Washington Post, USA Today, Financial Times, BusinessWeek, Newsweek and the Economist.

NFSA.ca | Winter 2010 | Arbitrage

FINANCE This visualization was first published by Good Magazine (in association with Andrew Price) on July 14, 2008. A purveyor of all things good, uplifting and informative, the NFSA recommends visiting Good's website, www.good.is, to learn about them and subscribe to their good works and Good Magazine.

Arbitrage | Winter 2010 | NFSA.ca

FINANCE This visualization was first published by Good Magazine. A purveyor of all things good, uplifting and informative, the NFSA recommends visiting Good's website, www.good.is, to learn about them and subscribe to their good works and Good Magazine.

NFSA.ca | Winter 2010 | Arbitrage

FINANCE FINANCE

FUTURE FORECASTING Hyungsub Moon, Staff Writer For centuries, fortunetellers have comforted people with a glimpse of their futures. With their crystal globe or taro cards, fortunetellers often spoke about the future with believed certainty. In a modern world of finance, technical and fundamental analysts are somewhat like fortunetellers, sans the crystal globe or taro cards. Instead, they march with their bar graphs and primary data and tell you what the future should look like. Technical analysis is often contrasted with fundamental analysis. Fundamental analysis studies various macroeconomic, industry and firm-specific factors that influence prices. Technical analysis, on the other hand, solely looks at the past and present prices to predict the future. Many academic curriculums in business schools often exclusively focus on fundamental analysis as it holistically integrates various crucial facets of business education. Understanding various factors influencing a business or economy as a whole can give executives and government officials great strategic advantage and general policy directions. Therefore, fundamental analysis is crucial because it tells you which factors matter. However, fundamental analysis often heavily focuses on theories and how the economy should be in the long-term, ignoring how it is and how it will be in the shortterm. Economic bubbles are great examples of how fundamental analysis often fails to account the 15

Graph 1

short-term price levels. Technical analysis exclusively studies past and present prices or rates. Since the economy often does not work in the way it should, technical analysis can provide great insights on economic bubbles, investors’ expectations, market momentums and a market psychology. Thus, doing technical analysis on factors that matter from fundamental analysis could provide better short-term future insights on macroeconomic conditions than doing fundamental analysis alone. Last December, Mr. David Prince,

Arbitrage | Winter 2010 | NFSA.ca

the president of Harbinger Capital Markets, came to York University for an NFSA sponsored lecture to discuss why technical analysis is a useful investment tool. Let’s go through a few economic indicators he outlined in the presentation. Studying stock index with moving averages and volume analysis can provide some insights on whether you should buy or sell specific stocks. If you look at a general index such as S&P 500 as illustrated in graph 1, it can also tell you whether you should be investing in stock market in general or not in the short-term.

Graph 2

FINANCE

Graph 3

Graph 4

Graph 5

Studying commodity indexes such as the Spot Raw Industrial Index (graph 2) and the Uranium and WTI Crude Oil Continuation Series (graph 3) can provide some insights on how commodityintensive companies’ earnings will be affected in the near future due to the changes in terms of the supply side. Many investors consider rises in gold prices to be an indication of economic and political instability. Inversion of yield curves is also a great leading indicator for economic instability as it indicates that investors are locking in shortterm rates in pessimistic future expectations. Treasury bill rates are also great indicators of how economic and monetary policies of governments around the world will be in the near future. When the economy goes into a recession, it is very common for governments to lower interest rates to stimulate the economy as evidenced by the recent global recession. If stock markets rebound yet the government still plans to hold the low rates, it can send signals to investors that recovery is perhaps unstable and that the market is overly optimistic. Other sources of useful information that may provide great insights on short-term macroeconomic conditions are currency indexes. These can help investors learn the coming trends in import and export dependant industries, which in turn, may help one predict (to an extent) a nation’s economic health and the level of government interference within it. As well, manufacturing indices (such as the US ISM Manufacturing & Non-Manufacturing Indices, graph 4) indicate the health of

NFSA.ca | Winter 2010 | Arbitrage

FINANCE manufacturing industries, which (indirectly) may shed light on the future health commodities suppliers. Consumer confidence indexes (graph 24) meanwhile, can shed light upon the future (short term) prospects of the retail industry in particular, which (like a ripple effect) may shed light upon the future prospects of retail suppliers. Similarly, even indexes of railroad carloads and shipping can provide a clue as to the health of certain sectors, as graphs 5 (Amer. Assoc. of Railroads Intermodal Carloads Weekly) and 6 (Baltic Dry Index & Bloomberg Dry Ship Index - Weekly - Weekly) show that in the lead up to the 2009 holiday season, shipments were the lowest in six years, indicating that retailers were predicting weaker sales and accordingly, buying less to stock their shelves. In all, fundamental and technical analyses have pros and cons. Depending on forecasting horizons, one can be more beneficial than the other. But winning in the markets depends on understanding risk and adding a healthy understanding of technical analysis will help you learn what you want and can expect, to help you determine the most successful investment strategy for your needs All graphs were sourced from a presentation provided by David Prince of Harbinger Capital Markets

Arbitrage | Winter 2010 | NFSA.ca

Graph 5

Graph 6

FINANCE This visualization was created by Jess Bachman and was first published by www.WallStats.com. A graphic designer that makes complex information look simple through presenting it visually. To see more of his work, check out his work at www.WallStats.com.

NFSA.ca | Winter 2010 | Arbitrage

FINANCE

Canadian Banks VS The World

Why Canadian Banks Survived Unscathed Andres Pozo, Contributor Slow, stupid and unambitious. Short sighted, dull and loan thwarters. These were just some of the many unflattering descriptions the rest of the financial world deemed appropriate when describing Canada’s banking system. Fortunately, we were not sufficiently swayed by peer mockery. As they grew fast and fat, we humbly kept on trucking. It would eventually take a global financial crisis to show the world that prudence and conservatism were actually positive attributes for a banking system. While many countries’ financial footing crumbled beneath them, ours barely had a few cracks. Here’s a look at what made us ask; Really? A global financial melt down, eh? You don’t say … . Well, credit must be given to the firm and uncompromising Canadian regulatory system, considered the most conservative in the world. Based on the Basel Capital Accord in 1988, banks were required to hold no less than four dollars in “tier 1 capital” (common equity, published reserves and equivalents) for every $100 they lent out. The regulators in the U.S. considered a six per cent ratio more appropriate, while Canada took it a notch further, setting theirs at seven per cent. In reality we have been operating with 10 per cent, much greater than the regulatory standard. This was not simply a case of deregulation vs. regulation. 19

Image sourced from Wordpress.com

In the past decade, American banks have not gone through any deregulation, nor has there been any further regulation in Canada. Subprime mortgages still accounted for seven per cent of the Canadian market. Although American banks were normally more leveraged, higher capital ratios would not have necessarily made things better due to the American banks’ strong reliance on securitization (selling mortgages to third parties). This was done to get these toxic assets off their books, in order to not have them counted against their capital. And so, further regulation might have encouraged even more securitization. In some respects, Canadian banks are not as regulated as their American counterparts. For example, Canadian banks do not have to adhere to the American Community Reinvestment Act, which forces American banks to extend mortgages to lowincome households. This in turn brings down their usual leading standards. We also do not have the equivalent of Fannie Mae

Arbitrage | Winter 2010 | NFSA.ca

and Freddie Mac, governmentsponsored enterprises, which heavily provided funding for subprime mortgages that set off the melt down. Another contributing factor to the stability and cohesiveness of Canadian banks came when North American banks became free to own other financial institutions. In Canada, the Big Five swallowed up most of the large investment houses. Major banks in America did likewise, with the exception that each subsidiary of an American bank would be subjected to a different regulatory authority, depending on its classification (insurance company, investment bank, or commercial bank). In Canada they all adhered to the OSFI to oversee and regulate the whole entity. Instead of destabilizing the banks, the brokers’ absorption into the banks stabilized the banks. This was unlike the Lehman Brothers or Bear Stearns, which did not have an overseer with deep pockets or strict regulation to prevent them from collapse. Furthermore, it was Canada’s

FINANCE stance on bank mergers that kept us from harm as well. Canadian banks, like most banks of the developed world, wanted to merge and form global banks to better participate in the global growth of financial markets. The Canadian government has always firmly vetoed these mergers. The cost of achieving greater size and presence at an international level meant that there would be a reduction of competition in the domestic market. The Canadian Competition Bureau indicated that such mergers would result in a decrease for a number of financial products in submarkets, such as: portfolio management, credit cards, loans etc. Losing an important advantage in the domestic market for an uncertain share of the financial market was therefore seen as unwise.

Image sourced from the FinancialPost.com

As a result, Canadian banks have adopted a more traditional and less risky, domestic oriented model. This ensured that the consequences for Canadian banks when the international financial markets froze were minimal. And so there you have it, a few

important reasons to why Canadian banks were well equipped to handle a global financial melt down

NFSA.ca | Winter 2010 | Arbitrage

Be Part Of The EMPLOYMENT: At present, we are ACTIVELY searching for new writers, illustrators and designers to work for the NFSA ARBITRAGE, Canada’s first student-run finance magazine. If interested, please ADVERTISING!!! send a cover letter, résumé (and sample of your work) to: HR@nfsa.ca SUBMISSIONS: The NFSA ARBITRAGE welcomes submissions from writers and photographers. Please first send a query to the ARBITRAGE's editors at: Arbitrage.Query@nfsa.ca LETTERS TO THE EDITOR: Suggestions for future issues? Kudos? Criticisms? The NFSA ARBITRAGE welcomes letters to the editor. They must be signed by the writer and include city of origin. Email: Arbitrage.Query@nfsa.ca

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

EVENTS: If you are an NFSA affiliate or sponsor interested in promoting your finance/business related event for free in our upcoming issue, please contact: Arbitrage.Query@nfsa.ca INTERVIEW: If you are a finance student of merit, or a professor or industry professional related to the finance industry, and you are willing to graciously lend your time to be interviewed for one of the ARBITRAGE’s future columns, please contact: Arbitrage.Query@nfsa.ca OTHER QUERIES, contact: Arbitrage.Query@nfsa.ca LEGAL NOTE: All letters or pictures submitted may be published by the NFSA ARBITRAGE, unless expressly forbidden by the sender. Names will be withheld on request. ARBITRAGE cannot be held responsible for the return of unsolicited material. All submissions may be edited for punctuation, grammar, style and length. Not all material may be published.

Two FREE Financial Reporting and Analysis seminars have been scheduled for Level I & II Candidates: LEVEL I: Saturday April 3rd Saturday April 10th

LEVEL II: Sunday April 4th Sunday April 11th

Location: University of Toronto (Downtown campus). Room: TBA Time: 9:30am – 4:30pm (with 1-hour lunch break). Sponsor: PASSMAX, an independent exam preparation entity with one of the highest CFA® Exam pass rates in the industry. The sessions will be lead by Krikor Ghanaghounian, CFA, finance instructor at one the nation’s top-ranked MBA schools. Seating will be limited. To register, email your name with: info@nfsa.ca or info@passmax.org

PARCHED EARTH The Coming Age of Freshwater Scarcity

Hyungsub Moon, Staff Writer David Tal, Graphics Designer

on the decline. in short, the natural process that produces freshwater cannot support the everincreasing consumption by our civilization. While the availability of oil is a modern concern, access to freshwater has been crucial to every human civilization. Between 6000 and 4000 Bce, four of the world’s ancient civilizations emerged along nearby rivers. the tigris and euphrates rivers in iraq, the indus river in Pakistan, the Nile in egypt and the yellow river in china provided access to one of the most essential elements to human life: freshwater. Back in 2010, we are one step closer to ‘peak water’ with no clear solution to the growing scarcity of freshwater for earth’s 6.8 billion (and counting) inhabitants. if oil fuels the conveniences of modern life, water fuels the essence of life itself. the hiStory While not blatantly obvious to on a planet covered with some, it is arguably one of the water, it’s easy to have a com- most serious social and ecoplacent attitude. in fact, nomic problems, one that rethrough the water cycle, the quires urgent attention from total amount of water on earth politicians, industrialists, enviremains constant. But under ronmentalists, economists and heavy pressure from population even investment bankers. growth and industrialization, Like the recent financial crithe availability of freshwater is sis of 2008-2009, the water cri23 Arbitrage | Winter 2010 | NFSA.ca

sis

v st t tw ha

ModerN Society iN its current form cannot exist without oil. As such, the oft-discussed possibility of dwindling oil supplies is considered a doomsday scenario for the global economy. Markets rise and fall and fortunes are made and lost as the price of oil fluctuates. it’s hard to believe that there was a time not too long ago when oil availability was a convenience and not a necessity. Many decades later it creates a dichotomy for every modern society. excessive usage of crude oil is harmful to the environment, endangering the living standards of humanity. yet the current standard of living of entirely is dependent on the availability of relatively cheap oil. While we are paying much attention to this crucial element, which could lead to ecological catastrophe, another key resource is dwindling and few are taking notice. Now is the time to ask: can humanity survive without water?

Ea c dep h age enda in h rece nt on uma ntly w n c t ae i i r. liza I t e t’s ion ha s o n b a rt l e y e r e l a n ed to t i v take it ely fo r granted. worldwide inequalities, water should be viewed in social and economic terms. Some canadian policy groups believe that canada is being targeted for freshwater exploitation. Linda diebel from the toronto Star published an article in 2008 on a study by the Polaris institute (a public policy group) and reported about how unfavorable terms in trade agreements under NAFtA have contributed to growing exploitation of canadian freshwater to suit U.S. inter-

can be summarized as a problem of unchecked excess. Just as the global recession was caused by excessive risk-taking in the financial industry, the water crisis has been caused by an excessive usage of freshwater, far beyond what natural processes can sustain in the long term.

StreSSeS regional population growth that is disproportional to the supply of regional water has created water ghettos where the average person has very poor access to clean, drinkable water. For example, with explosive population growth and an extremely limited freshwater supply, drinking water is a costly necessity in many parts of Africa. Meanwhile, canada is blessed with massive supplies of freshwater that its small population could never reasonably exhaust. With these massive

ests. According to diebel, the canadian government agreed to clauses within NAFtA that require canada to allow a defined level of water export regardless of a domestic shortage. this certainly brings up political discussions on water as a political and economic commodity among nations. it is easy to see that industrialized and developing countries all face a problem of freshwater management and without a doubt rapidly developing coun-

stitute. the study found that one third of the world’s population could be impacted by water scarcity by 2025. the study’s author, Frank rijsberman also detailed the specific challenges water scarcity will bring. he argues that we could expect annual losses equivalent to the entire grain crops of india and the United States combined if the water consumption continues the current trend. Since agriculture is an extremely water-intensive industry, representing 70% of Food VoLAtiLity in 2009, the economist rec- freshwater use worldwide, the ognized the pending water crisis price level of agricultural prodin an article titled “A water ucts in the long run could behighly unstable. warning.” the article discussed come a study by the Sri Lanka- combined with increasing price based international levels for petroleum and raw Water Manage- materials, there is potential for ment in- cost-push inflations. this further intensifies disparities of standards of living between the developed and developing countries, as rises in food price affects the poor more regressively

tries like china and india face not only the supply-side problem but also water pollution issues. in fact, the water crisis works very much like a credit default swap with high leverage: the negative effects spread like water rings in a pond. Since freshwater is heavily used in various industrial, commercial and agricultural production, the long-run equilibrium price level of ‘water-intensive’ products will rise. Food is one of them.

For yoUr iNForMAtioN this visualization was first published by Wired Magazine on April 4, 2008. the article it belonged to was titled “Peak Water: Aquifers and rivers Are running dry. how three regions Are coping,” written by Matthew Power. the NFSA recommends visiting Wired Magazine’s website, www.wired.com, to learn about them and subscribe to their good works.

than the rich. iNdUStry coNcerNS Not only could the scarcity of freshwater influence the general equilibrium prices for water-intensive products, it could also increase volatility of stocks and bonds related to water-intensive industry in general. the scarcity affects production costs (most likely to be variable costs), which in turn influence the earnings of a company. the quality of stocks and bonds largely depend on the quality of earnings as the future cash flow determines both value and the credit worthiness of a company (in case of bonds, a volatility of cash flow can adversely affect interest coverage

should be treated as a free good or commodity. the water crisis affects many nations in various ways. Nations in Sub-Saharan Africa and South Asia do not have sufficient access to improved or sanitized water. canada worries that its rich reservoir of freshwater could be exploited through unfavorable terms of trade with its neighbor. china is facing a problem of water pollution as a new government survey of china’s environmental problems has indicated increasing water pollution levels compared to 2007. What’s even more pressing is that the water crisis is often overshadowed by politically popular issues like climate change or peak oil, resulting in relative lack of awareness.

out, water can be approximately priced from locally tradable water rights. however, there needs to be a clear distinction between the usage of water in industrial and commercial production and distribution for humans. While the market might efficiently allocate water in industrial and commercial sense, it might also further exacerbate the disparity between the rich and the poor, as the market value does not account for social values of water as an essence of human life, as dr Vandana Shiva, from the research Foundation for Science, technology & Natural resource Policy, pointed out in the recent online debate held on the economist website. investment in technologies

If oil fuels the conveniences of modern life, water fuels the essence of life itself. ratios). Private water companies can potentially benefit from the expected scarcity. Future investment appetite will likely reflect this change. An example of such change would be Watertech capital, an investment bank that specializes in the water industry.

there are some possible solutions to this water crisis, but the first step is increasing global awareness of the problem. in short, we need to start a highprofile political dialogue on sustainable water management. Second, on a more practical level, pricing water closer to its market value could allocate this BALANce scarce resource more effiSolving this global conundrum ciently. is by no means simple. there is A part of the problem with an intense discussion on water is that we have so far whether water should be priced thought of this valuable and esaccording to its market value sential resource as a free good. or—before even discussing the As the article, A water warning value of water—whether water (2009), by the economist points

that efficiently create freshwater must also be made to reduce costs associated with desalination process. And with the proper cost structures, desalination can provide much needed supply of freshwater. each age in human civilization has been dependant on water. it’s only relatively recently that we started to take it for granted. it’s time to take definitive actions to preserve one of the most essential elements for our lives before it’s too late.

NFSA.ca | Winter 2010 | Arbitrage 26

INDUSTRY

ENERGY & UTILITIES Pranavan Ganeshalingam YIC Member & Arbitrage Contributor www.yorkinvestmentclub.com Industry Overview Energy is the backbone of modern industrial society, enabling us not only to light our homes and drive our kids to school, but to power factories and heat offices, creating jobs and wealth. Until recently, most Canadians took it for granted that there would always be an ample, affordable supply. In reality, energy can be extremely volatile. For example, a string of hurricanes that extensively damaged American oil production facilities in the Gulf of Mexico in the late summer of 2005 showed how volatile the market can be: gasoline prices spiked across the continent, hitting as high as $1.39 per litre in the wake of hurricane Katrina. That storm knocked out much of the United States’ drilling capacity in the Gulf of Mexico and left southern refineries unable to turn crude oil into gasoline and home heating fuel for extended periods. Facts and fears left some gas stations in Canada and the U.S. critically short of fuel, a reminder that the long line-ups for fuel from the 1970s could return. Add to that an ever-increasing demand for oil from the world’s two most populous nations—India and China—and you have a recipe for volatility. If you ask ten oil industry experts how much oil is left in the world, you might get ten different answers. Nobody knows for sure. What they do know is that as the world’s supply of oil is depleting, 27

there is only one way for prices to go: up. However, market turbulence is not just limited to oil. Increasingly, natural gas and electricity prices are under pressure. Most new homes in Canada rely on natural gas for heat, and in electricityhungry Ontario, the province is relying more on natural gas to produce power as it slowly relieves its dependence on coalfired generators. As a result, Canada is slowly becoming a net importer of natural gas. This was evident during the summer of 2005, which was one of the hottest on record in much of the country. The high demand for electricity placed the electricity grid under pressure in Ontario, which forced the province to buy power from the United States at a rate much higher than what it was capable of charging. In addition, rising prices have persuaded governments, businesses and consumers to take a renewed interest in other

Arbitrage | Winter 2010 | NFSA.ca

energy sources, such as nuclear power, solar energy, wind power, biomass and harnessing the energy of tides. Technological advances in all those fields are beginning to make these options less costly and more reliable, although obstacles still remain. Despite relatively bearish natural gas fundamentals, North American natural gas prices continued their recovery and are hovering around $5/GJ. Natural gas continues to trade at a significant discount relative to crude oil. In a prepared statement accompanying the National Energy Board’s (NEB) Winter Outlook, the NEB noted that owing to robust inventories of natural gas going into the heating season, Canadians should expect to see wholesale prices between $4-$5.50/MMBtu. Factors putting upward pressure on natural gas prices are the declining supply as well as the improving economic outlook. Pushing back down on prices will be the record natural gas storage

INDUSTRY inventory, as well as the potential for more liquefied natural gas (LNG) imports coming into North America if the prices move higher. In response to low prices this year, producers reduced drilling activity and shut in some gas production. Canadian production is down, as are exports to the US. However, the impact on North American production will likely be dampened owing to rapid growth from the US unconventional supply. Industry Relevance in Canada *Canada’s proven oil reserves are second only to Saudi Arabia’s. At the end of 2006, Canada’s remaining established reserves amounted to 179 billion barrels, of which more than 95 per cent are in the form of crude bitumen in oil sands. *Crude oil production has been increasing fairly steadily during the last two decades. While conventional resources continued to account for more than half of crude oil production, most of the production growth in recent years has come from oil sands. *Canada is a net exporter of crude oil. Domestic oil is exported from the western provinces while the eastern provinces import international oil. In 2006, exports reached $38 billion and imports amounted to $23 billion. *Canada has an extensive network of pipelines carrying crude oil to domestic refineries. The three main refining centers in Canada are in Edmonton (Alberta), Sarnia (Ontario) and Montreal (Quebec). *Oil is the most important energy source used in Canada, ahead of natural gas and electricity. Over two-thirds of the refined petroleum products sold in Canada are used for transportation: gasoline, low-

sulphur diesel and aviation fuel. *After a period of low and relatively stable prices during the 1990s, crude oil prices have risen in recent years in international markets. This has resulted in

Brampton Networks (electricity distributor to urban areas). Hydro One Telecom markets the group’s fibre-optic capacity (broadband) to businesses, and Hydro One Remote Communities supplies energy to 20 remote areas in Ontario.

Competitive Landscape for Hydro One Inc. Demand depends heavily on the health of the US economy, including corporate profits and local government budgets. The profitability of individual companies depends on accurate project bids and efficient operations. Large companies have advantages in their ability to engage in multiple projects simultaneously and in many types of construction. Small companies can compete effectively by specializing, working in a Image sourced from Kent.ac.uk limited geography, or serving as increased revenues for Canadian subcontractors on larger projects. producers and higher prices for Average annual revenue per industry worker is $290,000 Canadian consumers. *In coming years, the Canadian oil sector will be dominated by the Article first published in the YIC pace of oil sands development. Newsletter. New pipeline and refining capacity will also be required to accommodate supply and market requirements. Company in the Spotlight Hydro One Inc. It’s not the one and only, but Hydro One is by far the largest power supplier in Ontario, Canada. Through its subsidiaries, this crown corporation transmits and distributes electricity to 1.3 million residential and commercial customers (including municipal utilities) in Ontario. Its primary utility subsidiaries are Hydro One Networks (transmission and distribution) and Hydro One NFSA.ca | Winter 2010 | Arbitrage

INDUSTRY TRADING STOCKS IN THE UNDERGROUND ECONOMY Jessica Vitullo, Staff Writer THE TORONTO STOCK Exchange (TSX) offers consumers the opportunity to invest in a wide variety of reputable companies. Buyers and sellers are constantly trading different stocks at different prices in hopes that this investment will turn over a higher profit. All of the transactions made in the capital market are recorded and must follow the guidelines the Canadian government has set to make sure that trading is done fairly and legally. But while the TSX is a public trading market that cannot hide any transactions, over-the-counter (OTC) trading is becoming even more popular because of its flexibility, prices and new investors. OTC markets, also known as the underground economy, means stocks are sold between buyers and sellers privately. They are not recorded or reported like with the stock market. Trades are privately made on the CanDeal, CBID or CanPx markets. OTC markets provide risky investments that would not normally be allowed on the TSX. This is the sole reason why many companies choose to sell stocks privately, as some companies are not large enough to survive in the bigger markets. For example, if a company offers stocks to investors and they are not sold regularly or the company is not reputable enough to be publicly traded, OTC markets or pink sheets become a way into investing. Pink/ OTC markets give companies the opportunity to earn more money and offer consumers new investment opportunities that the TSX cannot provide. Because of this flexibility inherent in the OTC markets, investors have been keen on buying and selling within them to the point where the

Image sourced from http://philsbackupsite.wordpress.com/category/stocks/

amount of Canadian companies joining these markets doubled at the end of 2009. As a result, those companies that joined, big or small, faced a lot of competition while seeking the help of the underground economy. Overall, the Canadian companies that joined OTC markets have been generating a lot of money. As well, the market is open to both traders in Canada and the United States, meaning more money can be invested across the border. So why wouldn't all Canadians want to hone in on this money-making market? OTC markets house a lot of companies rejected from the TSX because their stocks are not adequate enough to be publicly traded. This is why Pink OTC Markets, Inc., a market that trades stocks over-the-counter, has set up special icons to guide buyers when purchasing stocks. If the market believes a particular stock is not worth buying, a skull with crossbones is attached to its name. However, without the OTC markets, companies are at risk of going without

Arbitrage | Winter 2010 | NFSA.ca

much needed investor capitol. If this happens, jobs are at risk of being lost. yet by trading over-the-counter, businesses have a chance of surviving and their employees may continue to hold their employment, thus benefiting the economy overall. As always though, it is up to the buyers to decide. Investors can turn a profit from low-priced stocks. It just takes time, as there are always fluctuations in the stock market. But to be sure, the OTC markets are no secret to anyone. The government is well aware of the fact that stocks are being traded outside the TSX and is also well aware how they do not follow regulations made for stock trading. In all, little is being done to stop the underground market because it is simply not a concern for upper management. Regulators realize there are more important concerns to worry about involving the TSX. Plus, OTC markets give other companies the ability to make trades. This aspect of trading is only a sliver of the entire trade market

Written by: Saif Qureshi Design by: David Tal

Copper may Seem like a boring old metal, but it’s used in many places and is quite useful in our society. So where exactly is this metal used? Try things like piping installations, electrical wiring, building construction, household products and of course pennies. Due to this, the demand for copper is red hot in the world markets right now, as countries such as China and India continue to expand. In fact, last year the price of copper increased by 126% and reached a 16-month high in December 2009. However, if demand continues to grow at this rate, some researchers estimate that we may have less than 63 years before we hit peak Copper and fully deplete our reserves. Copper Uses Humans have used copper for millennia and although over time its usage has changed, our society still continues to depend on this resource and probably will even into the future. so you might be wondering, “What’s so special about this metal that we can’t just replace it with something else?” The reason why Copper is used so much is that it has some special properties. For example, copper is a ductile and very conductive metal, which means that it can be shaped and bent easily and also that it conducts electricity very well. This makes it perfect for the electrical wiring in houses and industrial buildings. Another metal, which is an even better conductor of electricity, is gold, but copper is still used more often due to the obvious cost advantages. Copper has also found its place in architecture because of the material’s long lasting nature (e.g. some copper roof installations last for 200

years), its recyclability, finish, environmental friendliness and its ease of use. Due to copper’s useful qualities and low price, it is also used in many alloys such as brass and bronze, which are used in various places, such as musical instruments and in metal plating. However, although the outlook for copper is rosy right now, in a couple of decades all this could change. THe IssUe As of now, copper reserves in the world are still high, but unfortunately, copper demand is growing. According to the U.s. Geological survey, in 2005, there were an estimated 950 million metric tons of world copper reserves, which would last for another 63 years. In 2008, copper production reached 18.4 Mt (metric tons) and in 2009 it was forecasted to be 19.2 Mt. However, these figures also include the amount of copper that was recycled, which is quite a significant portion.

31 Arbitrage | Winter 2010 | NFSA.ca

As for the demand side, world usage of copper in 2008 was 18.2 Mt and was forecasted to be 18.9 Mt in 2009, an increase of 3.4%. To add to that, almost 95% of copper ever processed has been extracted in the 20th century. The reasons for this growing demand include enormous population, technological and industrial growth throughout the world. Copper usage has increased exponentially and will only increase in the years to come due to growing demand from emerging markets (e.g. the BrIC nations). At this rate the reserves of copper are bound to start dwindling and prices are bound to shoot up, which means that in the long run, this metal will not be v i -

able, or even worse we may run out. The consequences of this are obvious. First, we will lose the various benefits this metal provides to our society, such as those abovementioned uses. There will also be unemployment and sectoral shifts in the industry due to a changing reliance on different metals.

ture. This is why we must understand the concept of “peak Copper,” which refers to the time when the reserves of copper are fully depleted. As one study estimated, this could be as soon as the year 2068. As university students, this may not seem to be an issue right now but in the later years of

large deposits of copper as well but most of the production is exported. In Canada, the main deposits of copper are in sudbury, ontario and in various areas of British Columbia and some other provinces. The copper industry is worth 1.6 billion in Canada and is dominated by two main players: InCo and noranda ltd., who

If the entire world (lived by) same standards as North America … (the world) would not have enough copper to meet that demand. This will lead to inefficiencies in the market and could cause another economic downturn, or an even worse one, if coupled with other resources shortages, which are bound to occur in t h e fu-

our lives, resource shortages refine copper in sudbury and such as that of copper could Montreal respectively. As well, current world rehave a great impact on our serves are still high and techlives. nology is continuously becoming ever more efficient THe WrITInG on THe WAll According to one study, if at mining. 2068 is only an esthe entire world were to live at timate, one of a few, some presame standards as north Amer- dicting copper reserves (e.g. ica, meaning they would have using the broadest definition same infrastructure for power for reserves) at up to 1.6 biltransmission, construction and lion metric tons globally. When copper shortages do other areas where copper is used, then we would not have occur it might be possible for enough copper to meet that us to find substitutes for copdemand. This is troubling since per or discover new ways or the average rate of copper technology for mining copper usage per person seems to be reserves that are not currently rising in developing countries accessible due to economic or (likely due to the fact that technological constraints. As Canadians, we need to esmore electronics are conpecially consider this in our desumed as incomes rise). The silver lining though is cision-making, because Canada that our neighbour, the Us, is has quite a large resource inquite secure and lucky as it dustry and future reserves of has large reserves of copper. commodities such as copper In the long run, it is self-suffi- will have a large impact on our cient because these reserves economy. will probably be enough for future demand, since the Feature cover image sourced from the art of process for recycling copper is Frank Strunk III quite easy and cheap. Canada meanwhile, also has NFSA.ca | Winter 2010 | Arbitrage 32

CANADA

ENERGY GOES GREEN

Ontario’s Latest Green Initiative; Is It All It’s Cracked Up To Be? Jessica Vitullo, Staff Writer ONTARIO'S GREEN ENERGY Act (GEA) made the province more aware of preserving energy and the environment. In 2006, Premier Dalton McGuinty proposed a variety of actions and initiatives in order to make Ontario think green and provide renewable energy resources to the province. The GEA was the first of its kind in North America, as Ontario was first in taking a step in this direction. This new way of thinking demonstrated to Canadians the importance of preserving energy and how making Ontario a cleaner, better place to live was now becoming a priority of the government. Four years later, the government has created yet another initiative that will revolutionize the energy industry. Included in this new initiative are subsidies for the development of wind and solar energy: the latest technologies to hit Ontario markets. But while there are some great aspects to this plan, it is hard to decipher how the financial industry will respond. While some will be able to capitalize on the opportunity this legislation will provide, what will be the cost to the consumer? The issue is not strictly as black and white like we may think. Premier McGuinty signed a contract with South Korea, in conjunction with Samsung, to generate wind and solar energy at the beginning of the year. A total of $7 billion will be spent 33

Energy minister Brad Duguid, second from right, with representatives from Samsung Thursday. (Source: The National Post)

on the green energy initiative. Not only will this create a better environment overall, but a better, stimulated economy. The solar and wind energy will not be ready to go just yet though. It will take some time for the project to be established. But as a result, 16,000 jobs will be created within the building and installing of this project. Plus, over 1,400 people will be needed within the manufacturing plants. There will be a total of two to four the plants built by 2013. With people working and earning money, there will be more to spend, put into the stock market or even save. When there is extra money to be spent, it also leads to a chain reaction of businesses doing well, earning money and keeping people employed. Energy stocks will get a bounce from investment as well. But while it seems like the government’s decision will have a positive economic effect, will it

Arbitrage | Summer 2010 | NFSA.ca

do so for the consumer? While this initiative will generate jobs, this does not mean it will come without a cost to the consumer. Since the government is spending so much money, citizens’ taxpaying dollars are going toward something that just has to work or money will be wasted. Another concern is that the renewable energy source will not be efficient enough to cover all of Ontario. Until it is possible, only around 600,000 Ontario homes will benefit from this new energy source. But what about the rest? Will Ontarians be paying for something they do not even have?

FEATURE

The Future of Natural Gas It’s Supply and it’s Impact Author: Saif Qureshi Design: Alina Klinaeva

NFSA.ca | Winter 2010 | Arbitrage

FEATURE NATURAL GAS SHOULD be familiar to most homeowners—it’s one of the more common sources of energy (and bills!). But have you ever wondered where this resource comes from, what it’s used for and how long we’ll be able to use it before it runs out? This article will describe natural gas, its present and future in the global marketplace and how it will affect us Canadians. Natural gas is one of the cleanest, safest and most useful fossil fuels out there and, luckily for us, it has many uses and is found in vast quantities all over the world. Most reserves of gas can be found with other fossil fuels, such as in oil fields or coal beds. These reserves are then processed and delivered to our homes through an extensive network of pipes, which are operated by local gas companies. We use this

pure form of natural gas in various sectors, such as residential, industry, commercial and electricity

generation. Some of the common uses for gas include cooking, heating (also cooling but this is less common), fuelling automobiles and for generating electricity. In fact due to new technology, more electricity is expected to be produced from natural gas in the future—in 2009 alone, over 50% of the new electricity generation in the U.S. came from natural gas. Moreover, while coal is the cheaper source of energy, it’s also the most environmentally damaging, and as a result of the environmental regulations duly placed upon coal, the electricity industry views natural gas as the cleaner alternative. Currently reserves are still high but, unfortunately for us, natural gas (like other fossil fuels) is a non-renewable resource and its formation usually takes millions of years. So unless scientists figure out a way to speed this process or one don’t mind waiting, it becomes important for us to try and figure out how long we have until this resource runs out. The Score: Several companies, geologists and environmental groups have created estimates for gas reserves, but none are precise since no one actually knows how much gas there is until it’s extracted. Accordingly, a lot of estimation or “guesstimation” is done. Yet overall, the consensus is that as of January 1, 2009, total world proven reserves (these are likely to be recovered) of gas are estimated to be around 6,254 Tcf (trillions of cubic feet), with 41% in the Middle East, 32% in Eurasia and 4.5% in North America. Accompanying this estimate, is that most forecasts predict that the demand for natural gas will steadily increase in the future due to the expected general economic and population growth. In fact, from 1975 to 2005, gas consumption has almost doubled. Some short-term factors that affect demand for natural gas are:

Arbitrage | Winter 2010 | NFSA.ca

(1) the weather, as people require heating in the winter; and (2) the economic climate: since industries require less electricity and heating during a recession. In the long run though, demand is expected to grow for several reasons. First, electricity generation is likely to increase not only because the population is growing, but also because the electricity consumed per person is increasing as we use more consumer goods, such as electronics. Second, the demand for natural gas will grow if any climate change legislation is passed that promotes natural gas, as it’s a low emissions fuel. (Also, it is more efficient during electricity generation, meaning that more electricity is produced per unit of electricity.) Next, advancements in natural gas technologies will increase demand (i.e. the future may see new natural gas appliances enter the market). Also, several industries require onsite electricity generation because they cannot afford to have a loss of power and it is likely that this trend of distributed generation will grow. Finally, the automobile sector currently uses very little natural gas, but in the future, demand for gas powered vehicles could increase if some form of government climate change legislation is introduced. That said, there remain many barriers to the widespread use of natural gas in automobiles, which makes it difficult to speculate on the future of this sector. Forecasts: As the demand for natural gas increases, the gas industry will have to increase its production in order to meet this demand. In 2000, total world production of gas was 2422.3 billion cubic metres and grew by 4.3%. Demand for natural gas will always exist unless we find an energy source with better qualities, but eventually gas reserves will start running low and companies will not be able to produce enough. The concept of

FEATURE

1. Natural gas consumption (billion cubic metres), 1965-2004

peak gas refers to the period where natural gas will reach its peak production level and from then on will continuously decline until there is possible none remaining. In case you are starting to panic, the good news is that current reserves are high and “estimates” of these reserves continue to grow because of improvements in exploration and technology. In the past decades the revised additions of reserves have exceeded the production of gas due to major discoveries in Russia, Middle East, Netherlands and Indonesia. However, the number of new gas discoveries is in a decreasing trend, which means that future production could grow at a slower rate (see 100 Year Gas Demand Graph). Also, these discoveries are being made in deeper levels of land, in greater depths in the ocean or are further away from where markets are located (meaning that in order for these sources to remain profitable, the private or government sector will have to continue enhancing its technology). In all, with our current level of

gas reserves, researchers have estimated that we have 60- 70 years until we start running in to trouble. On another note, although this article is not meant to provide financial advice, investing for the long term on natural gas might not be a bad idea since increasing demand and decreasing supply will lead to higher prices. Impact: Now that you have understood the importance of copper, it’s time to understand the real market and how we will be affected. Unlike some other commodities, natural gas exists within regional marketplaces instead of the global marketplace. This is because it is difficult and currently not cost effective to transport natural gas all over the world and thus trade is limited. Some ways in which natural gas can be transported is pipelines or tankers of LNG (liquefied natural gas), but both of these have their problems. For example, with pipelines there are various legal and logistical problems that come into play because the projects span wide areas of land. These

problems have resulted in very little international trade in natural gas and any trade that is done is usually within regions (e.g. in North America, all of Canada’s natural gas exports goes to the U.S). The importance of this characteristic of the market is that countries without enough gas reserves will be impacted sooner and more severely from gas shortages. So how will this affect Canada? According to some estimates, peak production of gas has already occurred as producers are struggling to keep output high. However, according to another study, the North American peak in production is expected to be around 2013, after which production will fall. The substitute for production is to import gas, but with the technology that we have today, importing liquefied natural gas is too difficult and requires new infrastructure which is very capital extensive. The other option is through pipeline, but it is unlikely that the U.S. will export its own gas to us because of its own requirements.

NFSA.ca | Winter 2010 | Arbitrage

FEATURE

2. 100 Year Gas Demand

Not to scare anyone, but the question now remains how we will survive the cold Canadian winters when resources such as natural gas start to run out. This question could become very important for many of us students later on in our lives if we do actually experience energy shortages, such as natural gas. Unfortunately, natural gas is yet another fossil fuel that we have come to depend on. And so as a society, it is important for us to attempt to find the answers of how our future energy needs will be met and to change our mindsets so that we can limit our current consumption.

Arbitrage | Winter 2010 | NFSA.ca

WORLD

Global Effects of Water Shortages Nicki Mossavar-Rahmani, Writer

Staff

GLOBAL ESTIMATES HAVE been formed showing that water usage has increased by six times in the past 100 years and will double again by 2050, driven mainly by the demands of agriculture and an increase in living standards. Today we are faced with not only population growth but also a rise in the middle class portion of societies. If we consider the highly populated and fast-paced developing countries of India and China, we can recognize that a small change in their lifestyle can impact natural resources greatly. With their growing economy, more and more lower class people are moving up to what is considered lower middle class. An increase in the middle class portion of India and China could have a severe impact on the natural resource of freshwater. As more people can afford to have showers and toilets in their place of residence, we will see an increase in demand for water supplies. As consumer theory goes, when people can afford more, they will demand more. The water shortage in many developing countries is recognised as one of the most serious political and social issues of this time. Lack of water is stopping development and, in many countries, the rural poor suffer as their water and other needs take second place to those of swelling cities and industry. Meanwhile with a growing economy, there will be rise in demand for water

by industries, which may lead to serious over-exploitation with less and less water available for consumers and farmers. Just as we saw in France, when people were rioting due to a lack of jobs, the same will happen due to the lack of freshwater and food. Local governments

Image sourced for Unisef.org.nz

worldwide are increasingly distrusted over water allocation. This may cause instability in these societies, protests and more crime, which may work to scare off foreign direct investment in these countries. If growing demand for freshwater in China and India leads to its over-exploitation and decline in availability for domestic, agricultural, industrial and energy production use, this may lead to broad reduction in production. Naturally, this would lead to an economic downturn. The question is how can businesses address these challenges and still make a profit. The businesses foresee growing civil unrest, boom and bust economic cycles in Asia and mass migrations to Europe. But they also say scarcity will encourage the development of new watersaving technologies and better management of water by

businesses. By some estimates, a worldwide hydro economy will become developed by 2025. This will arise as a result of vast new investments in recycling water and efforts made towards reducing the cost of desalination. It has also been claimed (primarily by economists) that the water situation has occurred because of a lack of property rights and government regulations and subsidies in the water sector—causing prices to be too low and consumption too high. If these arguments are proven true, there could be major changes in government policy that will regulate the usage of water appropriately. Accordingly, the predictions of a higher demand on freshwater due to a rise in the middle class could also be prevented by unexpected technological progress. In response to the doubling of water consumption in the next 40 years, York University’s economics professor Barry Smith said, “Even if we assume that is true, should we really expect all of this as things can move around, all you really need is technological progress.” If we learn from history we know that prediction dates on food and oil shortages have come and gone, yet nothing more than people's level of fear has changed. Today, we have the existing technology, like desalination, to recycle ocean water to drinkable freshwater however (even if for now it is currently considered a very expensive procedure). Although, if we reach the stage where water shortages become a pressing issue, then the incentive to use the technology available will become worth the expense

NFSA.ca | Winter 2010 | Arbitrage

WORLD This visualization was first published by the Circle fo Blue. Circle of Blue is the international network of experts who report and present the information necessary to respond to the global freshwater crisis. It's a nonprofit affiliate of the water, climate and policy think tank, the Pacific Institute.

Arbitrage | Winter 2010 | NFSA.ca

PEAK COAL

WHEN THE DIRTIEST ROCK RUNS OUT Written by: Pawan J. Shamdasani Design by: David Tal

SiNce the 20th century, coal has laid the groundwork for remarkable and groundbreaking developments; from new forms of production to new inventions and discoveries, transforming the economy that we live in today and making it one of the most important non-renewable energy sources. coal accounts for more than a quarter of the world’s primary energy needs, provides 40 percent of the world’s electricity and powers two-thirds of steel production worldwide. World consumption of coal is growing at an outstanding pace, fuelled by the increase in demand from china and india as their economies rapidly expand. coal gasification and coal-toliquids plants are being built at alarming rates as a result of a rise in the use of lower-quality fuels, that is, a gaseous or liquid fuel converted from coal. this surge in coal demand will lead to devastating consequences in a decade or two as we approach “Peak coal” on a global level, driving up coal prices and af-

plained by better data collection from more thorough surveys and not by the amount

of coal produced. Altogether, global coal reserves have seen a 60% drop in 25 years. the second study, “the Future of coal,” prepared by the institute for energy (iFe) supports the conclusions reached by fecting living standards for bil- the first study and expands on lions. them. Specifically, the three “Peak coal” refers to a period additional conclusions this study when the global coal production presented were: (1) “world rate reaches its maximum, after proven reserves (i.e. the rewhich, the rate of production serves that are economically reundergoes permanent decline. coverable at current economic this theory has recently been and operating conditions) of supported by prominent re- coal are decreasing fast;” (2) search studies. in particular, “the bulk of coal production and two european studies, that were exports is getting concentrated conducted in 2007, suggest within a few countries and marworld supplies of coal are in the ket players, which creates the decline. risk of market imperfections;” the first study, “coal: Re- and (3) “coal production costs sources and Future Production,” are steadily rising all over the released by the energy Watch world, due to the need to deGroup (eWG) in Germany, con- velop new fields, increasingly cluded that coal production difficult geological conditions globally could peak in 15 years. and additional infrastructure this was based on a thorough costs associated with the exanalysis of reserve revisions for ploitation of new fields.” several nations. Since 1986, Should we worry? these nations have experienced the answer is yes, as peak significant downgrades in coal coal translates to higher coal resources after updating their prices in the future. reserves estimates. the down- how? ward revisions are best exWell, for one, increased con-

40 Arbitrage | Winter 2010 | NFSA.ca

sumption and dwindling supplies of high grade coal will add pressure to world coal prices. Also, in most countries, coal recovery will incur higher production costs, leading to an increase in the global price of coal—since international coal prices are still related to production costs. this rise in the price of coal will also reduce the relative gap between coal and oil and natural gas prices. As a result, these three energy markets will become more inter-connected, possibly developing into a global market of hydrocarbons. in particular, financial investors should beware the impact high coal prices will have on global

electricity rates and, thus, on all manufacturing and service-related business activity. china and india are the two key players in the future of coal. india, for one, is the world’s third largest coal producer, but is now also seeking more coal for itself through increased imports. Meanwhile, china is currently the world’s primary consumer of coal and has become a net coal importer as of 2007. it will have to continue importing more coal due to the lower energy content of its own coal resources, depleting Asian supplies in the coming years and radically upsetting the market. in fact, to

power its frantic industrial growth and generate electricity, china builds a new coal-fired station almost every week. they plan to triple generating capacity by 2030. What is the solution to minimize the effects of “Peak coal?” coal-dependant countries, especially china, are advised to reduce their consumption of coal now on a pro-active basis (since declines in production are expected to occur regardless) to prevent shortages and price volatility in the future. A failure to act now will only mean greater economic hardships once the peak arrives.

NFSA.ca | Winter 2010 | Arbitrage 41

POLITICS AND BUSINESS

WHO INFLUENCES WHO?

Politics And Business: Where Is The Boundary? Luis G. Marquez, Staff Writer Throughout the capitalist world, we have constantly seen how close politicians are with businessmen. Many events have sprung up that show many examples where political policies have affected matters of business. Yet we have also seen the opposite, in which businesses have affected the politics of a nation, either in an election or in policy making. The question that arises then is who influences who? Politics influencing Business When it comes to politics, one can obviously see that such policies like corporate tax, privatization, free-trade policies, the opening of a business, the promotion of social welfare and the nationalization of industries can affect the nature of business, whether in a positive or negative way. However, this is only scratching the surface and does not explain how politics is able to influence business. The issues mentioned above come not from the current government of a nation; rather from the political environment under which that government is subjected to. The regulation of business and the way business ought to conduct itself when making profits depends largely on the political climate. In other words, it is not simply about increasing or decreasing corporate tax, but what is the purpose of it. Why increase or decrease it? Why implement free-trade policies? What is the reason? Each country’s political decisions and policies vary and understanding the reasons behind those decisions and policies will undoubtedly help one understand the way business is done in that particular country. It would be unethical and incompetent for a businessman to do business in a country if he knows very little of the policies and regulations of that nation. If few or any regulations or laws were established over business matters, these companies or other for-profit organizations can behave in ways that are deemed to be either unethical or just down-right wrong. For example, politics has played an important role in the introduction of non-discriminatory policies in Canada and in the United States. Governments of both nations have worked hard in preventing

Katherine Schipper, second from right, talks about the economy during the president’s forum Wednesday, October 1st, 2008. | Jared Lazarus (Source: Duke Today)

discriminatory practices from continuing in the workplaces. Had there been little or no regulations against discrimination, businesses could hire or terminate employees for any reason. Governmental policies have obliged businesses to treat their employees well through respect and provide appropriate payment for their work. It is examples such as these that allow us to see just how influential politics is over business matters. However, can the reverse happen? Business influencing Politics To say that business has no influence whatsoever over political matters, would be naïve. The business and political circles have always been composed of very influential individuals. It is no common practice for a politician to sit in the Board of Directors of a major company and act as their consultant. These influential people of major corporations have the monetary means to influence the political sphere of a nation. There have been several situations in which businessmen have swayed policies to their benefits. In an article published for the University of California, Santa Cruz, it stated that businesses get involved on issues that have high stakes for them and for the public. In this case, businesses have influence over environmental politics, often with disastrous consequences for the environment. “It isn’t fair to say they’ve been involved in everything and are single-handedly responsible for our lack of progress. They have limited resources and choose their fights accordingly,” said author Sheldon Kamieniecki, a professor of politics and Dean of the Division of Social Sciences at the University of California, Santa Cruz. What this illustrates is that businesses pick their targets carefully and do whatever

they can to influence the political outcome of an issue that greatly concerns them. Another example is the concern of corporate media takeover. In an article originally published by rabble.ca but also shown in the Canadian Dimension, there is concern for a breakthrough for the independent media from corporate or right-wing bias. As a result, many independent media outlets have been set up as non-profit entities, with diverse sources of income. The fear is that the loss of an independent media is the loss of freedom of speech and expression, which can have catastrophic consequences (for more information on this please click on the link: http://canadiandimension.com/ articles/2718/). Conclusion This matter of influence is still subject to debate. However, it is fair to say that both politics and business have a tight grip on each other. While businessman can wield enormous influence over political matters, politicians are still able to pass laws and regulations that touch on business matters, thereby guiding and limiting their business conduct. What is important is that neither one gains enough influence at the expense of the other. Furthermore, it is crucial to understand both the positive and negative aspects of politics and business. Understanding will not only enlighten a person of the ethical and legal aspect of doing business, it will also bring about an understanding of where many of these business policies and regulations come from and how much does it affect certain business. If anything, this is something that all business, financial and economic person must know

NFSA.ca||Winter Winter2010 2010||Arbitrage Arbitrage NFSA.ca

3 42

POLITICS AND BUSINESS The Arbitrage is expanding the number of sections it will cover from here on. One such section will be called 'POLITICS AND BUSINESS' and it will cover those issues where business and politics most affect each other. For those new to politics, below is a simplified version of the basics relating to political thought.

Arbitrage | Winter 2010 | NFSA.ca

POLITICS AND BUSINESS This visualization was created by David McCandless & Stefanie Posavec and was first published by the websites InformationIsBeautiful.net & ItsBeenReal.co.uk. Both are extremely talent designers, the former in the realm of inforgraphics and the later in the realm of contemporary art. Check them out!

NFSA.ca | Winter 2010 | Arbitrage

OPINION

THE WORLD NEED NOT THIRST

Freshwater Shortage: A Global Problem Luis G. Marquez, Staff Writer IN THE YEAR 1800, there were approximately 978 million people living in the world. Two hundred years later, that figure rose to around more than 6 billion people. With the increase in the number of people comes an increased demand for freshwater, a renewable but limited resource. Many national governments and i n t e r n a t i o n a l organizations have not taken the freshwater crisis seriously. In an article written by Richie Mogwai for Orato.com, the United Nations (UN) has stated that the world maybe on the verge of seeing its first water war, with the first opponents being India and Pakistan with their thirst for water within the disputed Kashmir region. Yet still, the Food and Agriculture Organization of the United Nations (FAO) as even stated that there is no global water crisis. Although FAO made such a statement, it does acknowledge that by 2030, one in five developing countries will face water shortage. California water officials have also expressed great concern with their water supply. They predict that by 2020, the region will face a shortfall nearly as great as it consumed today. Despite putting the blame on population increase, it should not be surprising that global warming

has played its part in the depletion of our water supply. Most of the earthâ&#x20AC;&#x2122;s fresh water comes from the polar ice caps and glaciers and with rising temperatures, we can expect the total disappearance of our main water supply within a few decades. Therefore, it is not simply enough for our government to acknowledge that there is a water

humanity. The crisis has allowed for the investment and development of sustainable energy. In economic terms, it is the financial as well as the environmental future. In the same way oil was, there is huge potential for investment and employment with sustainable energy. One type of sustainable energy that has recently been introduced is desalination. It is several processes that remove excess salt and other minerals from water. The Middle East region has extensively used desalination, given its relative water scarcity. Although largely more expensive than using rivers and reservoirs, desalination is at the very least a short-term solution to the water crisis. 71% of the Earth is covered in water, but The New Hydrological Temples of Modern India only 3% of that water is (Photo by: M. Henley/PANOS.) fresh water. With such crisis on a global scale. Certain figures, is it imperative that we measures and policies need to be should be able to gain access to made immediately. the rest of the 97% of water that For example, more of our tax encompasses the Earth. At the dollars should be invested in very least, it should release much developing sustainable energy in pressure from our freshwater order to reduce the continual use supply. and production of coal-burning, gas This issue is not longer the or nuclear power infrastructure. concern of one or two countries, Simultaneously the UN needs or even a region. It is now the to take measure to ensure that responsibility of very nation, everyone, especially those residing of very person living on this in developing countries have access planet. We have but two options. to safe drinking water. In the last Either we establish cooperative decade, global coverage rose from measures that will not only 77% to 82%, meaning that nearly ensure our own survival, but will 1 billion gained access to drinking enable us to progress financially, safe water. However, another 1.1 technologically, politically, billion people still lack access. economically and socially, or we Despite the severity, the global can destroy ourselves through our water crisis should not simply be own selfish acts seen as a potential disaster for

Arbitrage | Winter 2010 | NFSA.ca

OPINION produce an environment that will competitive by forcing them to A Heavy Government Hand and the Future of Innovation allow the private sector to lead us use their energy resources more

Curing the Peak Oil Disease A Holistic Approach to Addressing Peak Oil

David Tal, Staff Writer AFTER READING THIS issue’s feature article, it should be clear now the very real challenges the coming age of Peak Oil will present. In all, Peak Oil is a disease, one that will infect the modern world, cause a great amount of disruption and, if nothing is done about it, can lead to the gradual disintegration of society as we know it. We saw a glimpse of this when on April 12th, 2008, the government of Haiti collapsed due to widescale riots brought upon by skyrocketing food prices, caused by the skyrocketing cost of gas. So what can the world do (especially industrialized nations) to try and avoid this same fate? Here a holistic approach is needed. Peak Oil will affect—directly and indirectly—every aspect of society; thus, the solutions acted upon must be many and work in unison toward the aim of reducing our energy consumption (and in turn, our carbon footprint, which is great for the environment as well). The following are suggestions that, in this writer’s opinion, need to be enacted by the government to

out of this Peak Oil mess.

The Basics To start they can get serious about limiting the amount of carbon that industry consumes (either through oil-derived electricity usage or direct oil consumption through transport of goods or the production of petroleum-based goods, i.e. plastics), possibly through a cap and trade program

or outright caps on emissions that will get progressively tougher biannually. This will have the side benefits of reduced CO2 emissions that damage the environment, will produce green jobs by retrofitting the old infrastructure of industrial buildings and make each participating company more

cost effectively (thus reducing their operating costs). Similar initiatives can be implemented in domestic buildings and their construction. First, the government can enact stricter and greener building standards that reduce energy usage in every new house or building that is built. This will have the secondary benefits of increasing the demand for green building materials, forcing its suppliers to increase the capacity of their plants, which will eventually bring down the cost of green materials and in turn make building greener homes cheaper. As well, since (initially) these new standards will mean that all new homes will cost more (due to the more expensive building materials used), most new home owners will opt to purchase their next homes closer to the city, inside more affordable apartment buildings instead of stand-alone homes (reducing the expansion of economically unsustainable sprawl). As well, all new buildings can be required to equip their parking spaces with electricity outlets to more seamlessly accommodate the coming reality of plug-in electric vehicles. And for the homes that already exist, subsidies can be offered to homeowners to retrofit their homes with energy efficient appliances, lighting, furnaces, insulation, etc. As for the transportation industry (which uses nearly 70%

NFSA.ca | Winter 2010 | Arbitrage

OPINION of the petroleum produced), governments must enact legislation that forces car companies to produce zero-carbon emitting vehicles (electric cars) by a certain date and thereafter, annually increase the total percentage of those vehicleâ&#x20AC;&#x2122;s production until all vehicles in production become zero-carbon emitting. And while this may be a more impossible requirement to ask of transport trucks, cargo ships and airlines, the government can enact subsidies into research of energy saving designs and technology that can increase the efficiency of these transport mediums. Together, such legislation can substantially reduce the amount of petroleum used on an annual basis, while at the same time, work to reduce manmade global warming. With respect to energy production, just like the governments did with the first national railroads, highways and satellites, they must take the lead by investing in the wide scale implementation of alternative energies (eventually encouraging the private sector to follow). Recent studies have revealed that the existing technologies of solar, wind, hydro, wave and especially geothermal can easily satisfy the full energy needs of the planet if only their use were scaled up. Doing this will eliminate our need on relying on energy from burning petroleum, coal (which uses large amounts petroleum to transport coal from the mines to the plant) and nuclear (which also uses huge 47

amounts of petroleum energy to mine uranium), as the cost of these sources of energy will only increase the further into the peak oil age we enter. As well, this new energy transition will generate millions of jobs that will alleviate the unemployment peak oil will bring. And as for food production, the government will need to enact policies to ensure that all food is grown organically, i.e. without the use of petroleum based

fertilizers and pesticides. As well, further regulation will be required forcing grocery stores to buy their packaged food, meats and produce locally (as much as possible), instead of importing them from across the country or internationally. Implementing both these measures will make

Arbitrage | Winter 2010 | NFSA.ca

sure that less petroleum is used in the production and transportation of food and will have the added benefit of producing healthier food for the masses while providing struggling farmers with an increased income. The Gravy All these actions and more can be implemented (especially in the support of the Third World), but overall, the best way to fight against peak oil is to invest in innovation, in human ingenuity, that will create the technologies humanity needs to break out of our dependency on petroleum. As of now, present patent laws do a good job of protecting the interests of inventors and the companies that support them. They have also played a large role in the process of wealth creation across the world. But though my research, I have found many commentators saying that the world is approaching a gridlock in the advance of innovation. Specifically, there is a drag on the speed of progress in innovation and that drag comes from the patents themselves. For example, let us assume that today a scientist has found the cure for aids or cancer or Parkinsonâ&#x20AC;&#x2122;s, but the production of that cure is dependant on ten ingredients that come from medical patents owed by ten different pharmaceutical companies. Will that scientist ever be able to convince each of those ten, competitive pharmaceutical companies to allow him to use

OPINION their patents, even with a small cut of the profits? Not likely. The result is that this cure will be shelved and that many years of additional research and resources will have to be expended in order to find another cure that doesn’t use those ten patents. Such an example is not unimaginable and in fact, occurs quite regularly. For example, electric car battery technology could be much farther along than it is today if not for the oil companies’ (who bought many innovative car battery patents for their own reasons) unwillingness to license out their patents. In response to this current state of affairs, governments should consider making all patents or at least a certain portion of them ‘open source.’ What this would entail is that any individual or company can use any patent they wish without need for permission or fear of being sued for patent infringement. Of course the danger of this would be that larger corporations may take advantage of this reform by taking patents from their smaller competitors and then selling the same products as their competitors but at a lower cost, thereby driving these smaller businesses out of business and creating a monopoly. To combat this possibility, only two simple limitations need be placed on this reform: (1) patents of others can only be used to develop new products that do not compete (directly or indirectly) with the products produced by the patent of the original owner; (2) if a patent is used, then a royalty must be paid to the owner of the patent, the size of which will be relative to the unit sale

price of the new product and the centrality of the patent within the new product’s design (further research would need to be done to find the exact ratios of these royalty payment requirements). Implementing this simple reform would unchain the hands

of innovation that were previously confined by overprotective patent holders. Moreover, such legislation is not new; in fact, during WWI, the US created a patent pool within the airline industry that allowed airplane makers to swap technology and share profits without the threat of being sued. This led to rapid advances in airplane engine and design technology that helped the Allies eventually win the war against the Germans. The same can be done today, at the very least within the fields of green energy, that may just spur the rapid development of new technologies that can help the world enter the new carbon

age. As for what individuals can do about the coming reality of peak oil, they can start by educating themselves, their family, loved ones and neighbours about the reality they will all in time share. They can make active choices to reduce their carbon footprint by choosing to live in the city instead of the suburban sprawl, choosing public transit instead of owning a car, renovating their homes to be more energy efficient and purchasing energy efficient and locally produced goods and foods. They can learn to recycle, compost their own organic waste (if possible) and if they live in a house, learn how to turn their backyards into miniature farms that produce edible food (saving on food bills in the process). And if people are willing, they can even take some basic survival training courses and most extreme of all, actually build relationships with ones neighbours and community so that they can rely on them when times get rough. In conclusion, there are no quick fixes to the problem of peak oil. Any solution will take time and the economic turmoil that will occur in the interim will be shared by all. As stated earlier, by taking steps now to address this issue, through legislative and technological innovativeness, the world may just have a chance at avoiding the worst that peak oil may unleash

NFSA.ca | Winter 2010 | Arbitrage

NFSA EVENTS

NFSA Recap of Networking Night with TD Bank Rustem Safin, Contributor Networking Night with TD Bank Financial Group was the NFSA’s second premiere event held in the 2009-2010 academic year. This was our first event with TD but with its success, it will by no means be the last.

Applications for this event began long before the week of the actual networking night. Students were asked to submit a résumé, along with their cover letter, as the NFSA and TD requested those items from each student to attend the event. This event was substantially popular with the student base,

Arbitrage | Winter 2010 | NFSA.ca

which showed in the number of applications (over 100 were submitted). Unlike this year’s first big event (the Edward Jones Case Competition), this event had four different schools represented (York, U of T, Ryerson, OUIT). That is definitely a sign of the NFSAs expanding member base and deepening relationships with our partner finance clubs, which is likely going to continue in the following years. So for students, the networking opportunity was not only with the representatives from TD, but also fellow students from other schools. The event was held on the 25th of February, 2010, at 5 pm. The venue was the TD tower at 66 Wellington

NFSA EVENTS

on the 54th floor. Thatâ&#x20AC;&#x2122;s right the 54th (top) floor, which means the attendees were able to enjoy amazing view. Overall the dress code, which was business formal, suited the occasion and the venue. In my personal view this was a pleasant break from the midterms that were happening around that time. The Keynote Speaker was Mushtak Najarali, VP Finance, and the Panel were: Andrew Clarke - SVP & Deputy Chief Auditor, Jeridean Young - AVP Taxation, Yan Xu - AVP Finance, Dhaksha Bryce - AVP Audit. The topics raised during the panel were the career progressions of this panel, as well as a look in their typical workday. The panel was followed by the Mix and Mingle sessions, where students were free to have more individual conversations with the panel, as well as other TD employees

NFSA.ca | Winter 2010 | Arbitrage

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

Two FREE Financial Reporting and Analysis seminars have been scheduled for Level I & II Candidates: LEVEL I: Saturday April 3rd Saturday April 10th

LEVEL II: Sunday April 4th Sunday April 11th

ENTREPRENEURISM IN A CLICK What it takes to be an entrepreneur and why now is the best time to BECOME ONE BY DAVID TAL, STAFF WRITER & GRAPHIC DESIGNER

It’s scary out there. Graduating from university, students would hope to whatever belief system they holds dear that they’ll be able to land a job within their chosen profession, to finally start their adult lives in earnest. “But what if that doesn’t happen?” they might wonder. “What are my options?” For many soon-to-be-graduates, the answer to this existential query is weighing more and more on their collective minds. And even with the economy crawling out of a recession, finding work—any work—remains a bloodsport. They will be competing with thousands of other new graduates and hundreds of thousands of other adult professionals for the jobs they want. Pile on to this the fact that since the 1980s, since the rise of globalization, cost cutting trends have changed the rules of the game. Specifically, such movements as downsizing (reducing organizational size either through the number of employees or the number or breadth of departments); delayering (restructuring the organization to possess fewer levels of bureaucracy); outsourcing (getting rid of organizational functions to instead purchase them from external specialists); and casualization of work (part-time, flex-time, temp work, volunteer, etc) have led to a complete shift in how most view the concept of work. Summarizing this shift, Professor Jon Kerr, a lecturer and coordinator of the management area in the School of Administrative Studies in the Faculty of Liberal Arts and Professional Studies, stated, “The employment environment today is fundamentally different than the environment 30, 40, 50 years ago. The idea of getting out of university,

getting into one stream of work and staying in that work until retirement, those days are long gone.” So what options are there? For some, taking action, taking command of one’s life to create one’s own opportunities feels like a welcome refuge from the thought of having to rely on the whims of external employers. This mindset is entrepreneurship at its heart and many young professionals are viewing this profession/lifestyle as a viable option upon graduation. One such individual is Moshe Lokshin, President of the Entrepreneurship Society at York. Growing up in Israel, Moshe developed a strong background in computers, so much so that at 17 he decided to start his own business. To his surprise (and a great deal of luck he adds), his business, M.n.B. Computers Ltd, grew over three years to generate annual sales of approximately 3.5 million Shekels (950,000 CAN). Sitting down with him, we discussed the lifestyle of the entrepreneur. Sure it provides the satisfaction of striking it out on your own and, if you’re successful, a great deal of wealth, but is it for everybody? Moshe grinned. Then with a Russian accent confessed, “(When I first started out) I had to sacrifice—initially it was a girlfriend, then friends, my high school grades were lower, all the things that I didn’t know how to

Arbitrage | Winter 2010 | NFSA.ca

balance with my business, how to manage into my schedule.” “You see, for entrepreneurs, you have to do everything, because usually when you first start out, you don’t have the capital to hire anybody. … Those things, how to manage your time, you’re not born with them. It takes time to learn.” In the end though, Moshe confirmed that, for him, the pros outweighed the cons. “Entrepreneurship is my life.” The conversation then shifted to the qualities a young professional needs to succeed as an entrepreneur. “Generally, I would say (you need to) have dedication, persistence, discipline, adaptiveness and awareness. Things are always changing in the market place. You have to be prepared for uncertain situations. And you have to be alert. You have to keep up on the market, know who your competitors are and if they make a mistake, know how to capitalize on it.” But Moshe added that above all else, “I think that it is very important for entrepreneurs to be okay with failure, because it’s there all the time. You fail and you have to stand up and keep on going.” If that last point hasn’t scared prospective entrepreneurs off, t h e n t h e next

load free design tools like Blender or Google’s SketchUp to create 3D renderings of their product, then purchase online the manufacturing equipment (which have fallen in price from the hundred thousands to a few thousand, e.g. MakerBot) they would need to build their products at home or in their rented space. The latter is the approach Moshe is currently taking with his new venture, Up Entertainment. Started over a year ago, Moshe invented a new television screen system for condo elevators that will show video and advertisements to riders, but do so wirelessly instead of using long to keep up on the market, know who your bundles of are and if they make a mistake, know how to c a b l e , which is the capitalize on it. industry It seems quaint to say this now, es- standard. He programmed the software himpecially with how comfortable many Gen Nexters are with the Internet. But self and, with a business partner, conthat’s the point! When one thinks structed a several prototypes of the about it, the Internet—and the Infor- screens, which were later installed (as mation Age it helped foster—has com- a trial run) in a number of smaller GTA pletely democratized almost every condos. With their success, Moshe has aspect of starting a new venture. And already contacted a Chinese manufacfor those Gen Nexter’s, currently in turing company to produce more of their 20s, they’re the first generation these elevator screens at much lower to grow up with it, to know how to use costs. If all goes well, he plans to soon shift his business into full operation, it intuitively. So why pay huge sums of money to installing custom screens in condo elemarket one’s product or service on tel- vators throughout the GTA. In all, never before has it cost so litevision or in newspapers, when one can do so for free (or next to free) on- tle or been so easy to not only start “But line (e.g. Ebay or SparkFun) and in a one’s own business, but make it survive and even grow globally. The only thing still,” much more targeted way? Why shell out thousands in consul- stopping most from doing so is the willone tancy costs, when one can access ingness to take risks and invest their reams of industry, legal, regulatory, time to pursue those opportunities pricing, logistical information, etc, for they see in front of them. For Moshe, there’s one thing he free online. Why invest millions of dollars in would tell a young counterpart interowning manufacturing plants, ware- ested in trying entrepreneurship, houses, shipping fleets, etc, when one “(It’s) a lifestyle, not just a career. So can organize online the outsourcing of what do have to improve most? Youra product’s complete production to self. I am constantly trying to develop foreign countries like China (e.g. Al- myself, looking for what I’m good at ibaba.com: business-to-business mar- and what are my weaknesses and tryketplace), have it stored in a nearby ing to improve on them. “There is no stop. You can always warehousing company, accept payments for products online (e.g. pay- be better, always continue, always impal.com), then deliver one’s prove, always explore other opportuIt’s like a never ending products anywhere in the world (e.g. nities. government or premium mail carri- marathon ” ers)? Even for those archetypal, DIY garage inventors, they can now down-

likely question one might ask is, “Where do I begin?” During the discussion with Professor Kerr, he pointed out that a good place to start is through networking. “Success in entrepreneurship is as much who you know as what you know or how innovative you are. On two sides, it helps you with getting the resources you need to get your venture off the ground … and also, at the market interface, networking exposes you to different channels, new potential customers. “All things together, it’s usually the well-connected person who wins the game versus the inYou have dividual without connections.” competitors Kerr went on to explain how, in terms of lack of funding, there are also a variety of modest funding grants and loans offered by the government for young entrepreneurs (that is, if you can’t get funding from family, friends, the bank, etc). Moreover, the importance is pressed for those students who lack experience, to “weave (entrepreneurship) into their education and choice of part time employment, (to expose them) to the entrepreneurial landscape (as early as possible).”

could say, “the costs seem to high. Starting a business, running a business, nowadays only the big corporations can do that. How can I compete?” This mindset would have been perfectly valid and common only ten years ago. For many, the costs of starting one’s own business, competing with the ‘big boys’ were staggering, not to mention the sheer amount of industry or legal knowledge one would need to obtain to ensure their business lasted past the first few years. But something arose this past decade, something which acted as a game-changer: the Internet Revolution.

NFSA.ca | Winter 2010 | Arbitrage

SECTION HEADING

STUDENT RESOURCES Alex Lee

FINDING CAREER OPPURTUNITIES IN FINANCIAL SERVICES Financial Advisor (In Training), Edward Jones E VEN SINCE GR ADUATING in December 2009, from the BAS (Finance) program at York University, I still remember studying until 1:00 AM at the Tel Building the day before the exam and sprinting to the Scott Library to print assignments ten minutes before the deadline. That all-nighter, 24/7 style of hard work is something I’ve carried with me ever since I branched out into the real world and started working as an Apprentice this January at Edward Jones. I accepted this position to gain valuable experience in the Financial Services industry. And with Edward Jones being the largest Private-Partnership investment company in North America, with close to 13,000 offices and ranked No. 2 on Fortune magazine’s “100 Best Companies to Work For 2010” list, it’s a great organization to start my career. There are two routes to becoming a Financial Advisor at Edward Jones. You can go directly into the Financial Advisor Program and become licensed and trained. The other option is to first enter the Apprentice Program for three months and then enrol in the Financial Advisor Program once Edward Jones and the Apprentice agree to continue. I was one of the top eleven chosen from across Canada to participate in the latter program—a program that included individuals coming from a variety of provinces, including Manitoba and British Columbia. The Apprenticeship route I chose because it provides me with an opportunity to work under a veteran in the industry for a three-month period. The program started with three days of intense training at the Mississauga head office, alongside those ten other apprentices. On the fourth day though, I started knocking door-to-door in the Unionville neighbourhood where my

Image soucred from PrivateWealthCenter.com host advisor’s office is located and introduced myself and Edward Jones to individuals in the neighbourhood Initially, it was very challenging experience emotionally and physically to walk around four to five hours a day and have doors slammed on my face. In just first month of work, I lost 10 pounds of weight, my shoes had holes ground into their bottoms, wornout clothes and bag, blistered foot and a fatigued body. You really need to have a positive attitude and be able to motivate yourself everyday to go out and meet new people. I sat down with an Investment Advisor whom I respect greatly and he said these words to me, “You need to do work nobody wants to do, to have the life style everybody wants.” I learned many valuable lessons as I started working this profession. For one, I learned the value of a contact, because I knew how hard I had to work to earn a person’s trust and get them to open up to a conversation. Second, I learned the value of money. People trust you with money they earned from their 9-to-5 or 9-to-9

Arbitrage | Winter 2010 | NFSA.ca

job and I have to be diligent with their money. This is not a stock competition to make 50% return in few months. This is money families saved up from making sacrifices in their spending to plan for their future. And third, I learned the value of my profession. Investing is a tool, not an end goal for most people. Our job is to work as a team with individuals to help them meet their financial goals and make wise decisions with their money. Although most people don’t consider Investment Advising as a rock-star profession in Finance, I am strongly convinced that this career allows me to fully utilize my knowledge and skills to help others. My Advice: Start networking with professionals in the industry of your interest. Remember, it’s not always about what you know, but who you know. Second, keep your knowledge updated; I read the Globe and Mail, Bloomberg and Yahoo Finance. And last, find a mentor or a role model, mine is Michael Lee-Chin and Jonathan Rivard

STUDENT RESOURCES 10 HOT NETWORKING TIPS: REPRINTED FROM CAREER INSIDER (careerinsiderbusiness.ca) Edited by Laura Roberts

IT’S A COMPETITIVE world out there. The best jobs not only go to the best and brightest but to those who have forged the best contacts as well. And the best way to build that web of contacts is to network. It’s a professional activity that can be done naturally, effectively and lead to many opportunities. We recently asked some successful professionals in the world of finance to pass along some tips that will help you land that dream job and climb the corporate ladder once you start your career. START NOW Networking is easier when you’re not on the job market. We all have a built-in network, through our family, friends, classmates, professors or former co-workers. Begin working connections with the people who are the most invested in your success. By sourcing these relationships, you may able to learn about openings as they become available, or even get a referral. Alison Innes Financial Analyst Columbia Sportswear Canada FIRST IMPRESSIONS COUNT When introducing yourself, pronounce your full name clearly, and follow through with a great handshake and eye contact. Practice your handshake and introductory greetings with friends.Loose, damp handshakes, or overly firm, tight handshakes can negatively impact first impressions. Loren Francis Portfolio Manager

Image Soucred From http://blogs.sfu.ca PREPARE AN ELEVATOR SPEECH

Cumberland Private Wealth Management ASK QUESTIONS Be curious about the people you me et. A sk p e ople ab out their interests, their opinions on industry trends, and tips on how to be successful in the business world. You will make a deeper connection with someone by being an active listener. Make eye contact. Listen to what’s being said and pay attention to facial expressions and body language. You can often learn more about someone through non-verbal communication than a verbal answer.

Write and rehearse a short speech that describes who you are, what you do and what your goals are. Your elevator speech should be no longer than 30 seconds, or the time it takes to share an elevator ride with that person. Make sure your speech sounds conversational, natural and sincere. The hardest part is saying the first word, but most people are nice and responsive, so you have nothing to lose. Remember to have your business card on hand and be sure to ask for theirs. Matthew Thomas Analyst Morgan Stanley

Abid Hafeez Financial Leader TransAlta

NFSA.ca | Winter 2010 | Arbitrage

STUDENT RESOURCES

intelligence. The connections made during networking should be extended to others by introducing individuals to one another, and perpetuating “networking karma”. The confluence of information and ideas can be enriching for everyone, creating a sense of camaraderie. Lucy Edwards Senior Analyst British Columbia Investment Management Corporation FOLLOW UP

Image Soucred From www.cuboulderblogs.com/ WORK THE ROOM Don’t stay in one spot. Walk around and meet as many new people as you can. Start with people you already know, or who are there on their own. Introduce people to each other. As you get more comfortable, ease your way towards the VIPs at the event. Gordon Ng Financial Consultant Investors Group BUILD A GOOD DATABASE Make an electronic contact card for every contact you meet or every business card you accept. Write notes about the person, your discussion, their interests, and any details worth remembering. Create categories of your contacts list and actively manage them. It’s extremely important to have quick and simple access to every single person in your network as needs arise at unexpected times. Being able to remember intricate details can make the difference— notes will help you achieve that.

After meeting someone be sure to follow up with a brief note or a phone call. Plan on connecting with one person from your network each week for lunch. This will build a regular routine of cultivating your network.

Outlook contacts help me organize Daryl Purdy and centralize my ever increasing Director of Business Development list of contacts. KCS Fund Strategies Nouman Ahmad Analyst TD Securities SHARE YOUR KNOWLEGE Share your experience and business knowledge. Be an ambassador of the products and vision that your company sells. Those who you are networking with will see that you have much more to offer as someone who understands the bigger picture, and can drive value in their business. Break free from the pack and sell yourself as an enabler of their business, and translate your

skills into layman terms. Shane Saltzman

Director of Finance Pitney Bowes Canada MAKE CONNECTIONS Networking is never just about how you can get ahead in your own career — it’s about meeting new people and the exchange of

Arbitrage | Winter 2010 | NFSA.ca

KEEP IN TOUCH Building your network doesn’t always have to be about meeting new people. Look at your current circle of peers and think about the future. Today’s classmate can often be tomorrow’s colleague or even a client. Keep in touch with these individuals. Just because they aren’t potential employers or clients now doesn’t mean they won’t be in the future. You already have access to what will one day be a valuable network. Protect and nurture that access because, at the end of the day, you’ll always have less to prove to these people as they’ve already seen you in action. Andrew Secord Senior Manager Deloitte

David Alexander Editor-In-Chief

Do not trust people. They are capable of greatness. Stanislaw Lem

SArAh Prevette is a serial entrepreneur in the classic sense of the term. upon graduating from school, soon after founded the online venture, Sprouter, of which this feature article discusses. however, she is also the founder of a variety of other ventures, including: redWire (an online collaboration tool facilitating knowledge exchange between startups and business leaders), Social Mastermind (a volunteer run initiative pairing social media luminaries with charities to help causes build online market share) and regular networking events, such as Wired Wednesday, Sprout up and Break Out Camp.

Sprouter A talk with Sarah Prevette

MAny StudentS in university dream of landing a nice job when they graduate. they want a job that will offer a great starting salary, a job where professional development is encouraged and recognized and a job that provides them with selfsatisfaction. Other students meanwhile dream of having their own business. they want to be their own boss, they want to make their own hours and want to be rewarded for everything they do. these students want to be entrepreneurs. While many students dream of owning their own successful business, few of them venture out to do so because of the risks involved. It is a fact that 80% of new businesses close within the first year. And with an economy still recovering from an ugly recession, the chances that a student will take a risk and open up a business is very unlikely. Still, some do find a passion in working for themselves and being the one to make the important decisions. As a result, they begin to execute their brilliant idea and open up shop. While some do not make it to their fiscal year, some go above and beyond. York University students have the privilege of getting to meet and hear successful individuals speak and share their success stories at events and conferences. Many of them are from large corporations and well-established businesses. Who York students do not often get to meet are the business owners themselves: the ones who took the risks, invested all of their time and 59

money and the ones who can offer advice to aspiring entrepreneurs. For you see, a business owner was also once a student who was thinking of an idea and how to market that idea. On Wednesday November 26 2009, Sarah Prevette, the founder of Sprouter (a website that “enables collaboration and networking between entrepreneurs globally”), came to New College to speak to students. She had a wonderful presentation where she answered questions, as well as gave students a chance to talk to her face to face. She taught them important lessons such as toughening up, especially in face of failure. I also had the privilege of getting a chance to interview her. Here is what she said: How did you come up with the idea of being an entrepreneur, as entrepreneurship is not a well-publicized profession and as it can be a ‘risky business to enter into’? Entrepreneurship has traditionally not been an actively promoted profession. In Canada, there is a

Arbitrage | Winter 2010 | NFSA.ca

systemic culture of striving to be "number two"—a propensity to join larger companies, climb the corporate ladder and achieve success through direct reports and an executive title reporting to the president. The more visibility we can lend to innovation and innovators, to new start-ups, the more we will encourage entrepreneurship as a viable career choice. What was your inspiration to become an entrepreneur? I was incredibly fortunate to have had the opportunity to gain experience in a start-up while still a student. Learning first-hand under an exceptionally charismatic and visionary entrepreneur was a great initiation. Being submersed in an environment that fostered ongoing innovation, had a culture of unyielding passion and an ongoing sense of urgency was intoxicating. It was that first experience that gave me the desire and confidence to pursue my own ideas.

How did you come up with the idea for Sprouter? Sprouter was born to overcome the traditional isolation of entrepreneurs and create an instant, plug-in network of support. Startup founders leverage Sprouter for advice, inspiration and real time feedback on their business.

cilitate new business creation they just tend to lack effective visibility. I'm continually amazed at the plethora of initiatives geared specifically at students. I would strongly recommend researching opportunities and speaking with not-for-profit organizations like the Canadian Youth Business Foundation (CYBF.CA)

A recessionary global economy means tighter budgets, longer sales cycles and a climate of fearful uncertainty. But, like with most issues, there lies opportunity for a resourceful individual offering a timely solution. Products positioned to save money for example, might particularly prosper in a recessionary environment. Do you have any advice to give UniIt's worth noting that at the same versity students who are interested What lessons have you learned that the economy has in start-ups? I'd recommend that [t]here lies opportunity for a resourceful taken a hit, technolbecomes cheaper anyone interested in individual offering a timely solution. ogy and the cost of startstart-ups first gain experience working at someone else's from running your own ing your own business has lessens. start-up. The culture, uncertainty business/what advice can you give It is an unprecedented time in history to start your own company— and hectic pace of a new business now? is not for everyone—try it on first Start-ups are ongoing evolutions: leverage free online tools, tap into and see how it fits before commit- constant iterations, tiny refine- online networks of support and acting your life to it. ments and adjustments to pre-laid tively engage with your market. Internship can be an incredible plans. Aim to fail early. Establish The advice that Sarah shared foot in the door and beneficial to what your minimal viable product with us was definitely invaluable both parties—the student and the is and push to bring it to market as start-up. Resources are hard to fast as possible. Get feedback be- and aspiring entrepreneurs should come by in the early days of a com- fore you even establish a proto- play close attention to what she is pany and a willing (unpaid) worker type—build your product around saying, as good advice on starting is happily accepted in most places. true, established needs. Embrace your own business is hard to come The intern benefits from hands on failure as a process of progression, by these days. experience and the entrepreneur i.e. strive to fail early, fail often through having an extra set of and commit to constant evaluation. Laksh vig, Contributor hands to help. Establish your key metrics, build a dashboard and hold yourself acMany people (especially students) countable for the numbers. want to run a business but are unable to come up with the start up What, in your opinion, are the adfunds needed. What advice do you vantages (or disadvantages) of ashave for students in this position? piring entrepreneurs starting up a A number of programs, loans and business during a recessionary ecogrants exist that are meant to fa- nomic climate? NFSA.ca | Winter 2010 | Arbitrage

NFSA

2.0

Career Planner By Nicki Mossavar-Rahmani & David Tal

Wealth Management Edition

e all want success, to graduate from school with our options unhindered by obstacles, big or small. And for those interested in pursuing a career in finance, the potential for that success can be mind-boggling. We’ve all read stories of those big names, those market tycoons we all hope to follow, with their seven-figure plus salaries, generous stock options, private jets and exclusive parties. These things and more are all possible to you. But on this winding, yellow brick road of life, there are many forks in the road—choices that if made poorly, may pull you away from your ultimate goals. To protect yourself, to ensure that the choices you make are the right ones for you and your dreams, we at the NFSA Arbitrage have developed the NFSA Career Planner. In this second edition, we will outline what the financial industry is, but this time, the particular field we will be focusing on is: Wealth Management. Over the next several pages, we will briefly explain the field of wealth management, some of the top jobs within it, the specific designations and education one would need to pursue a career in this field, the key skills and attributes need, salary ranges for each main job and the key duties/responsibilities one would expect to carry out in this field. In all, it is our hope that by reviewing the information inside this NFSA Career Planner, planning out your financial career will become that much easier, helping you to make the right turns along life’s yellow brick road until you reach the point where the world will become yours for the taking ... . [NOTE: Following this edition of the Arbitrage, all further Career Planners will be released separately from the Arbitrage between each issue. This is in line with the Arbitrage’s future growth strategy.]

CAREER PLANNER

The Basics

What is Finance and the Finance Industry?

Self Reflection

his is a doozie of a question. Depending on whom you ask, youâ&#x20AC;&#x2122;ll be sure to hear a variety of answers. But essentially, finance is the management of money or other assets. Exciting! Well, for those who donâ&#x20AC;&#x2122;t quite share our level of enthusiasm, bare in mind that money and how itâ&#x20AC;&#x2122;s managed is what determines much of how the world works. The better an understanding you have of money, and the rules that regulate it (finance and accounting), the more power you will have to determine your own future. Intrigued? We hope so. Because the next several pages will try to answer the second half of your question: what is the financial industry? To be clear, this is like asking what is food industry or the entertainment industry. The finance industry, just like these two examples, can be very ambiguous, as it covers so many different fields, from business consulting to money & wealth management to commercial banking and even insurance. For the purposes of this first edition of the NFSA Career Planner, we will be focusing only on the investment banking industry, since (from our experience) it tends to be the most popular amongst finance graduates. But not to worry, in later editions of the Arbitrage, the NFSA Career Planner will slowly expand to cover the many other fields within the financial industry and, in so doing, we hope to do our part in supporting our readership in their future career ambitions.

Job Profiles

The Canadian Finance Industry at a Glance:

Selection

The finance industry has enabled Canada to be one of the most attractive places to conduct business, as well as to invest. Canada possesses the following characteristics that have help create such a great environment: a relatively stable political environment, stable economic trends, skilled and productive labour force, moderate taxation, and not overly regulated trade barriers, fiscal and monetary policies. Consequently, the finance industry provided Canada with a capital market that is one of the most sophisticated and efficient in the world. This industry runs on the basis of the flow of capital and financial instruments. The following is an informal order, dictated by this flow of capital, which categorizes the affected parties of individuals in the Canadian society.

Training Directory

Users of Capital and Investors:

*Non-financial corporations, such as retailers, food distributors, machinery and electronic manufacturers, raw material extractors, etc *All levels of the government, including municipalities *Retail Investors (known as private investors who trade and own financial instruments for their own personal accounts and not for another company or organization *Institutional Investors (companies that trade and own large volumes of financial instruments for business purposes) *Foreign and non-residential investors (including both retail and institutional types)

Financial Intermediaries: These organizations are the parties that offer all sorts of services to users of capital to help

Arbitrage | Winter 2010 | NFSA.ca

CAREER PLANNER

The Basics

them manage and invest it. They act as a bridge between the investors and the capital markets. Some can also act as brokers for their clients or as investment dealers or both, in primary and secondary securities markets. *Schedule I, II, & III Chartered Banks *Investment Funds *Trust Companies *Credit Unions *Insurance Companies *Sales Finance and Consumer Loan Companies

The Clearing System:

Job Profiles

*Stock Exchanges. These are auction markets where buyers and sellers of securities trade with each other, they include: Toronto Stock Exchange (TSX), TSX Venture Exchange, Bourse de Montreal, Winnipeg Commodity Exchange (WCE), Canadian Trading and Quotation System (CNQ) *Over-the-counter (OTC) markets. They are the unlisted equity markets that are also dealer markets. They consist of a network of dealers who trade with each other, where these dealers act as market makers as only the dealersâ&#x20AC;&#x2122; bid and ask quotations are entered. Many of these markets are privately owned, computerized networks that match orders. These trading systems are mostly owned by private brokerage firms. Most bonds and money market securities trade in these OTC markets. Three of the most popular OTC electronic trading systems: Can Deal, CBID, CanPX.

Self Reflection

Capital Markets:

Selection

All financial intermediaries in Canada are required to clear their securities and financial instruments through the Canadian Depository for Securities (CDS). It is a central clearing system where it handles the daily settlements between the intermediaries. They help reduce the number of certificates and amount of cash that has to change hands among the members. CDS creates and confirms the cash balances for each firm, compiles the clearing settlement sheets and notify their members of the securities that they need to deliver in order to balance their accounts.

Government Regulation:

NFSA.ca | Winter 2010 | Arbitrage

Training Directory

Securities Commissions (in Ontario, itâ&#x20AC;&#x2122;s the Ontario Securities Commission), are official government agencies that are responsible for overseeing and supervising the self-regulatory organizations, as well as regulating the Canadian securities industry. These activities fall under provincial jurisdiction; thus, the securities commissions are provincial government agencies. They delegate the authority to make procedures and regulations that governs the financial institutions and capital markets to these self-regulatory bodies. Office of the Superintendent of Financial Institutions (OSFI) is the regulatory body for all the federally regulated financial institutions. It does not oversee the Canadian securities industry.

CAREER PLANNER

The Basics

Canada Deposit Insurance Corporation (CDIC) is a federal crown corporation that insures eligible deposits up to $100,000 per depositor in each of its member institutions.

Selection

Job Profiles

Self Reflection

Self-Regulatory Organizations include: *Investment Dealers Association of Canada (IDA) *Mutual Fund Dealers Association (MFDA) *Listed Stock Exchanges, such as the TSX *Canadian Investor Protection Fund (CIPF) *Mutual Fund Dealers Association Investor Protection Corporation (MFDA IPC) *Ombudsman for Banking Services and Investments (OBSI)

he most important step in deciding upon a career path is self-reflection. Understanding both who you are and what you want when it comes to work, to life, it can seem trivialâ&#x20AC;&#x201D; but, for most, these can be the toughest questions to answer. Statistics show that most individuals in this current market place will likely switch jobs, and even whole careers, between four to ten times over the course of their lives. So take comfort, at least, in the knowledge that youâ&#x20AC;&#x2122;re not alone in your uncertainty about what you want to do with the rest of your life. But even if you are one of the lucky few who know exactly what career they want to strive for right at this very moment, there are a few things to consider: (1) you may start your favoured job and soon after find that you hate it, (2) an amazing job opportunity might arise that may pull you into a different field, (3) life may kick you in the butt and you may never reach that favoured career, (4) life may kick you in the butt really hard and yank you out of your favoured job, i.e. recession, downsizing, etc, and (5) you may work in your favoured job for a few years and then find that life has introduced you to completely new interests that you would like to pursue. These possibilities, and many more, are what career advisors call life. No matter what you plan for your future, your life will always take you in directions that you would never have imagined. Thus, while choosing a career may be difficult, or maybe even unrealistic in this day-and-age, you can at least gauge what underlying needs drive you and plan from there. Below are a number of categories we at the Arbitrage put together to help you in this self-reflectionary process. Ask yourself the questions below and compare them to the job descriptions that will follow. By doing this, we hope the fog in front of your career

Training Directory

Categories for Career Interests:

*Skills: What kind of technical and/or occupational skills are you enthusiastic in utilizing on a daily basis? What kind of skills are you passionate about to attaining? *Knowledge and Expertise: What kind of knowledge do you most look forward to gain? What kind of knowledge and/or expertise are you most passionate about to working toward that will support career ambitions? *Experience: What are the types of challenges and on-the-job intrinsic rewards that will make your future career satisfying and fulfilling? *Abilities: What abilities do you have to contribute and which ones do you want to improve on? *Opportunities for growth: What future opportunities are you hoping to achieve? How high up the corporate ladder do you hope to climb over the course of your career?) *Prestige and Recognition: How much respect and popularity does your ego need [i.e. if a lot,

Arbitrage | Winter 2010 | NFSA.ca

CAREER PLANNER

The Basics Self Reflection

lot, then chose an occupation that commands a great deal of respect and popularity from your peers, co-workers and the general public]? What level of authority do you envision your ideal position possessing in regards to your team, your division and your firm? *Work & Team Environment: What kind of surroundings are you most comfortable working within? *Characteristics of Personalities: Do you feel that the qualities of your personality allow you to meet and exceed the demands of your ideal job? *The Objective of the Job: Does the purpose of your desired career align with the core organizational goals of your ideal company, as well as your own career expectations and objectives? Will your desired career allow you to achieve a sense of accomplishment when reflecting on your job on a daily basis? *Responsibilities & Duties: Do you believe that you will be passionate and enthusiastic about the responsibilities and tasks you will likely carry out on a daily basis? *Salary Levels: What is your target salary range that you hope to aspire to over the course of your career?

Training Directory

NFSA.ca | Winter 2010 | Arbitrage

Selection

The following are general descriptions of the five basic divisions within an average investment banking institution. Within each will be an outline of some of the main job positions that em-

Job Profiles

hat is Wealth Management? [The following description of Wealth Management was sourced from WiseGeek.com] “Wealth management is a financial service concept that emerged as a specific offering during the decade of the 1990’s. Generally, firms that offer a wealth management package provide a wide range of financial services to their clients that will include such basic elements as estate planning, asset management, and even private banking options. The use of a wealth management service can be helpful when an individual has amassed a large amount of assets and needs assistance in managing all of them effectively. “In the best examples of wealth management, the client will be able to take advantage of a wide range of services that can include the management of everything from the mundane daily task of balancing the (chequebook) to long range planning for a trust or estate. One of the more popular aspects of a wealth management package is managing investments and managing the tax planning that is associated with the task. The financial service can also be helpful for people who are just beginning to amass a large number of assets, and would rather spend time dealing with other issues than managing finances. “Because wealth management is a form of private banking services, persons wishing to enter the field usually prepare by obtaining educational credentials that are directly connected to financial disciplines. A wide range of professionals may be involved in the extension of wealth management services. Attorneys, certified public accountants, insurance professionals and brokers may all be involved in providing services to wealth management clients. In recent years, accredited courses and seminars on wealth management have become more common as the demand for this type of service has increased. “The services included with a wealth management package will often include management of the investment portfolio, with brokers empowered to buy and sell on behalf of the client. Attorneys will help to structure family corporations, trusts, and other components that can make estate planning more complete. When it comes to taxes, a wealth management service will also prepare all reports and returns, offer advice to the client on tax elements involved with various aspects of the estate, and in general provide advice that is in the best interests of the client.”

CAREER PLANNER

Self Reflection

The Basics

body each said division, in addition to the general accountabilities & duties, key skill requirements, estimated range of salary, education, certification & licenses, and additional information that are generally necessitated by each position. When reading these overviews, please consider them as a kind of realistic job preview that will help prepare you for making the career choices of your future. These overviews are by no means definitive and will likely be out of date within another few months (as the financial industry tends to evolve quite regularly), thus while we recommend using this guide to aid in your career choices, we also recommend reviewing secondary sources before you make your final decision. Keeping this, as well as your self-reflection answers, in mind, we hope you find the following career planner section quite eye opening.

JOB PROFILE LEGEND Job Profiles

*FINANCIAL PLANNER

(Pg 37)

*MUTUAL FUNDS SALES REP. (Pg 40)

*INVESTMENT ADVISOR (Pg 44)

JOB ASPECT LEGEND *Field Description *Common Job Titles *General Accountabilities & Duties *Key Skill Requirements *Estimated Range Of Salaries *Education, Certification & Licenses

Training Directory

Selection

*Additional Information

FINANCIAL PLANNERS Financial planners and wealth managers help individuals plan their financial futures. How are you going to cover your retirement needs? What do you have to do today to put your children through college? This work can be personally and financially rewarding and requires excellent interpersonal skills. A good financial planner understands investments, taxes, estate planning issues and knows how to listen. This work can be done within a company such as IDS Financial Services or by yourself, as a sole proprietorship. Arbitrage | Winter 2010 | NFSA.ca

CAREER PLANNER

The Basics

Administrative Assistant:

Beginning Financial Planner

Job Profiles

EARNINGS *$35,000 to $45,000 a year REQUIREMENTS *Experience in the field RESPONSIBILITIES *Providing administrative support for senior advisors, including faxing, photocopying, and mailing; doing some preparation of financial plan reports.

Self Reflection

EARNINGS *$25,000 to $35,000 a year REQUIREMENTS *University degree or college diploma *Computer skills RESPONSIBILITIES *Providing administrative support for senior advisors, including faxing, photocopying, and mailing.

Assistant Consultant EARNINGS *$40,000 to $55,000 a year REQUIREMENTS *Skills and experience *Completion of financial planning courses RESPONSIBILITIES *Preparing complete financial plan reports from notes by senior financial consultants.

Selection

Financial Consultant / Planner EARNINGS *$55,000 to $80,000 a year REQUIREMENTS *Ability to work independently with clients *Certified Financial Planner (CFP) designation recommended RESPONSIBILITIES *Taking on direct responsibility for clients; meeting with and advising clients; managing junior planners.

Vice-President

NFSA.ca | Winter 2010 | Arbitrage

Training Directory

EARNINGS *$80,000 to $150,000 a year REQUIREMENTS *Experience in team management RESPONSIBILITIES *Meeting with and advising clients; managing a team; expanding the business through sales contacts.

Self Reflection

The Basics

CAREER PLANNER

*Assess clients' financial needs for retirement, tax and estate planning. *Formulate financial plans and solutions to fulfill client objectives. *Implement financial plans that are monitored and reviewed regularly. *Stay informed on current investment products and changes in the markets and tax laws. *Provide comprehensive wealth management advice, including guidance on investment and portfolio management issues, to high net worth clients. *Refer to, or consult with, tax, legal and estate planning specialists as needed. *Prospect for new clients and build an established business.

Selection

Job Profiles

A good financial planner understands investments, taxes, estate planning issues and knows how to listen. In order to be effective, financial planners must be familiar with legal restrictions and laws concerning retirement plans, tax shelters, insurance, and trusts. They must be skilled at working with numbers and budgets and be able to understand complicated financial and legal documents. In addition, they should be articulate, persuasive, and have some decent selling ability. To make it in financial planning you need to know the details of various investments, tax law, estate planning strategies and you need to be good at marketing yourself and listening to your customers.

Training Directory

The median salary for financial planners job rankings issue was $70,000 in 2008. People that work for companies earn somewhat less and franchisees do the worst. The salary distribution in this business is highly skewed. Bear in mind, of course, that it takes a number of years to build a strong clientele so that in the early days money will not flow quickly into a practice.

Arbitrage | Winter 2010 | NFSA.ca

CAREER PLANNER

The Basics Self Reflection

If you're thinking about becoming a financial planner, you should have at least a bachelors degree in a business related area. An MBA can be helpful but is not required at all. To receive professional accreditation, they are expected to first complete financial planning courses such as those leading to CSI's Financial Management Advisor Designation, which are the Canadian Securities Course (CSC), the Professional Financial Planning Course (PFPC) and the Wealth Management Techniques (WMT) course. Financial planners are increasingly called on to have the CFP (Certified Financial Planner) designation. To become a CFP, you must past an exam approved by the CFP Board of Standards which covers over 175 topics in investing and financial planning. Today, there are approximately 59,000 CFP's. The number has more than doubled in the last decade.

Job Profiles

U. S. News and World Report listed the position of financial planner as one of the twenty hottest professions for the future. They note that the entry of baby-boomers into middle age with a bewildering array of investment choices will make financially planning a really hot profession in the future. This said, financial planners interviewed recently point out that getting a solo practice going as a financial planner today can be difficult and highly competitive.

Selection

MuTuAL FuNDS SALES REPRESENTATIvE

NFSA.ca | Winter 2010 | Arbitrage

Training Directory

Mutual Fund Sales Representatives (MFSRs) are employed throughout the financial services industry by mutual fund dealers and independent financial planning firms. Personal Banking Representatives and many Insurance Sales Agents may also become licensed to sell mutual funds. As with Investment Advisors, Mutual Fund Sales Representatives are expected to build their own clientele and serve investors' investment, retirement and estate planning needs. Unlike Investment Advisors, who are licensed to deal in stocks and bonds in addition to mutual funds, Mutual Fund Sales Representative are only licensed to advise on and sell mutual fund investment products.

The Basics

CAREER PLANNER

JUNIOR ANALyST

Job Profiles

Self Reflection

EARNINGS *$50,000 to $100,000 a year REQUIREMENTS *Bachelorâ&#x20AC;&#x2122;s degree in commerce, economics, or a related field RESPONSIBILITIES *Mathematical modeling; performing statistical analyses; note-taking; basic researching.

SENIOR ANALyST EARNINGS *$100,000 to $200,000 a year REQUIREMENTS *3 to 6 years of experience *Further commerce-related education, such as an MBA *Possibly certified as a CFA (Chartered Financial Analyst) RESPONSIBILITIES *More dealing with clients and company management; possibly specializing in a specific sector (for example, telecommunications).

PORTFOLIO MANAGER EARNINGS *$150,000 to $1,000,000 a year REQUIREMENTS *At least 5 years of experience as a senior analyst *Proven track record of good investment picks RESPONSIBILITIES *Much more responsible for selling the fund to potential investors; performing less analyses; directing analysts.

Selection

ChIEF INvESTMENT OFFICER

Training Directory

EARNINGS *$1,000,000 a year or more REQUIREMENTS *10 or more years of experience RESPONSIBILITIES *Directing all analysts and portfolio managers within department; motivating and evaluating staff; handling other management responsibilities; directing philosophy of investment strategy of company.

Arbitrage | Winter 2010 | NFSA.ca

CAREER PLANNER

The Basics

# Build a book of business and open accounts for new clients. # Analyze client needs and recommend mutual funds best suited to investment, retirement and estate planning goals. # Receive and execute orders to buy or sell mutual fund units. # Provide clients with account information and performance report

Job Profiles

To become registered as a Mutual Fund Sales Representative, a candidate must first fulfill proficiency requirements set out by industry regulators. One way is to complete CSI's Investment Funds in Canada (IFC) Course or CSI's Canadian Securities Course (CSC). A 90-day training program must also be completed.

Self Reflection

New Mutual Fund Sales Representatives are usually paid a salary. Commission or fee-based compensation is usually phased-in after the first year. New representatives can earn between $30,000 and $50,000. More experienced representatives can earn $150,000 or more.

Selection

InveSTmenT aDvISoR

NFSA.ca | Winter 2010 | Arbitrage

Training Directory

Investment Advisors (IAs) work for investment dealers that trade in securities -- the largest firms in Canada are owned by banks, but there are also a number of independent ones. This job puts you face-to-face with investors, so you must be registered with securities regulators to be able to provide investment advice and buy and sell investment products including stocks, bonds and mutual funds. Investment advisors buy and sell many different types of investments (bonds, mutual funds, options, and term deposits) for their clients. They may be self-employed, or they may work in banks or other large financial institutions.

The Basics

CAREER PLANNER

Job Profiles

Self Reflection

LEVEL 1 Assistant to Investment Advisor EARNINGS *$30,000 to $40,000 a year REQUIREMENTS *Canadian Securities Course (CSC) *Familiarity with business computer software RESPONSIBILITIES *Assisting advisors; doing research; maintaining computer databases; performing basic administrative duties.

LEVEL 2 Investment Advisor EARNINGS *$35,000 to $100,000 or more a year, based entirely on commissions REQUIREMENTS *Bachelorâ&#x20AC;&#x2122;s degree RESPONSIBILITIES *Buying and selling investment products for clients; helping clients structure and maintain an investment portfolio; staying on top of developments in the business world and financial markets.

Senior Investment Advisor / Partner

Training Directory

Selection

EARNINGS *$100,000 to $300,000 or more a year REQUIREMENTS *Over 10 years of experience as an investment advisor RESPONSIBILITIES *Buying and selling investment products for clients; helping clients structure and maintain an investment portfolio; staying on top of developments in the business world and financial markets; performing management and administrative duties.

*Monitor stock market and industry trends likely to affect clients' investments. *Meet with clients, by phone or in person, to discuss these trends. *Advise clients on the products or services that suit their needs and objectives. *Arrange purchase or sale of stocks, bonds and other investment products on behalf of investors. *Prospect, build and retain a client base. *Stay up-to-date on current investment products and markets

Arbitrage | Winter 2010 | NFSA.ca

Selection

Most IAs have earned a university or a college degree. Before they can become registered to provide investment advice to clients, IAs must meet proficiency requirements set out by securities regulators. These include completion of CSI's Canadian Securities Course (CSC), the Conduct and Practices Handbook Course (CPH), plus the 90-day Investment Advisor Training Course (IAT). Within 30 months of approval for registration, IAs must also complete CSI's Wealth Management Essentials Course (WME). IAs must meet continuing education (CE) requirements throughout their careers to maintain registration. Many choose to complete CSI's Derivatives Market Specialist Program or the Canadian Insurance Course (CIC), allowing them to apply for additional licensing to deal in options, futures or life insurance, and offer broader services to clients.

Job Profiles

Self Reflection

Income varies greatly, depending on the number and type of clients advisors have, where they work, and the value of commissions they receive. Investment advisors may earn as little as $30,000 a year or upwards of $150,000. The Canadian Securities Institute (CSI) reports that most investment advisors can earn at least $100,000 after 3 to 5 years. However, it is important to note that annual earnings are closely linked to the rise and fall of markets and the strength of the economy.

The Basics

CAREER PLANNER

NFSA.ca | Winter 2010 | Arbitrage

Training Directory

ow that you have a somewhat clearer understanding of the various divisions and career opportunities within finance (and investment banking in particular), we hope that you apply the self-knowledge that you developed in the Self*Reflection section to select a field in finance that best suits you. If one of those fields lies in the pages you just looked through, then you should now have at least a somewhat better idea as to what duties you may need to prepare for and what levels of education you may need to obtain to reach your career ambitions in that said field. To this end, the next and final section of this career planner will provide you with more information regarding the various designations that exist in the financial industry and the various processes to attain each designation. To learn what designation is best for you, refer to the Education, Certification & licences section of your chosen field to see which ones best suit your chosen career path. It is our hope that upon perusing the information below (alongside the information you just reviewed) you will have a more complete understanding about what your future holds in store and how you can claim it!

Selection

Job Profiles

Self Reflection

The Basics

CAREER PLANNER

ote: Some of these designations are available in both Canada and the US, while others are only offered in the US. Who knows where your career will take you, so we figured we would stay safe and offer information on designations from both sides of the border.

Canadian Securities Institute Designations: The CSI offers a variety of respected designations that are highly prized in the Canadian market place; those include: Chartered Professional (Ch. P), Fellow of CSI (FCSI)™, Derivatives Market Specialist (DMS), Canadian Investment Manager (CIM)™ and Financial Management Advisor (FMA). Each designation has their own extensive requirements to obtain them, but to learn more, see: www.csi.ca/

Certified Financial Planner® (CFP®): Those with the CFP® designation have demonstrated competency in all areas of finance related to financial planning. Candidates complete studies on over 100 topics, including stocks, bonds, taxes, insurance, retirement planning and estate planning. The program is administered by the Certified Financial Planner Board of Standards Inc. In addition to passing the CFP certification exam, candidates must also complete qualifying work experience and agree to adhere to the CFP Board's code of ethics and professional responsibility and financial planning standards. (Definition sourced from www.investopedia.com/) For more information, see: http://www.fpsc.ca/

Chartered Financial Analyst (CFA®): This designation is offered by the CFA Institute. To obtain the CFA charter, candidates must successfully complete three difficult exams and gain at least three years of qualifying work experience, among other requirements. In passing these exams, candidates demonstrate their competence, integrity and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management and security analysis. (Definition sourced from www.investopedia.com/) For more information, see: http://www.cfainstitute.org/

Certified Fund Specialist (CFS): As the name implies, an individual with this certification has demonstrated his or her expertise in mutual funds and the mutual fund industry. These individuals often advise clients on which funds to invest in and, depending on whether or not they have their license, they will buy and sell funds for clients. The Institute of Business & Finance (IBF), provides training for the CFS, and the course focuses on a variety of mutual fund topics, including portfolio theory, dollar*cost averaging and annuities. (Definition sourced from www.investopedia.com/)

Training Directory

Chartered Financial Consultant (ChFC):

Individuals with the ChFC designation have demonstrated their vast and thorough knowledge of financial planning. The ChFC program is administered by the American College. In addition to successful completion of an exam on areas of financial planning, including income tax, insurance, investment and estate planning, candidates are required to have a minimum of three years experience in a financial industry position. (Definition sourced from www.investopedia.com/)

Arbitrage | Winter 2010 | NFSA.ca

CAREER PLANNER

Given by the Investment Counsel Association, this is a designation which CFA charter holders who are currently registered investment advisors can study for. The focus of the CIC program is portfolio management. In addition to proving their high level expertise in portfolio management, these individuals must also adhere to a strict code of ethics and provide character reference letters. (Definition sourced from www.investopedia.com/)

The Basics

Chartered Investment Counsellor (CIC):

Certified Investment Management Analyst (CIMA):

Certified Public Accountant and Personal Financial Specialist:

Chartered Life Underwriter (CLU): This designation is issued by the American College and those who hold it work mostly as insurance agents. The CLU designation is awarded to persons who complete a 10*course program of study and 20 hours worth of exams. The course covers the fundamentals of life and health insurance, pension planning, insurance law, income taxation, investments, financial and estate planning, and group benefits. (Definition sourced from www.investopedia.com/)

Job Profiles

Those holding the CPA designation have passed examinations on accounting and tax preparation, but their title does not indicate training in other areas of finance. So, those CPA holders who are interested in gaining expertise in financial planning in order to supplement their accounting careers need to become certified as personal finance specialists (PFS). The PFS designation is awarded by the American Institute of Certified Public Accountants to those who have taken additional training and already have a CFP designation. (Definition sourced from www.investopedia.com/) For more information, see: http://www.aicpa.org/

Self Reflection

This designation focuses on asset allocation, ethics, due diligence, risk measurement, investment policy and performance measurement. Only individuals who are investment consultants with at least three years of professional experience are eligible to try to obtain this certification, which signifies a high level of consulting expertise. The Investment Management Consultants Association offers the CIMA courses. (Definition sourced from www.investopedia.com/) For more information, see: http://www.imca.org/

Selection

Chartered Accountant (CA):

NFSA.ca | Winter 2010 | Arbitrage

Training Directory

Being a Chartered Accountant is a valuable designation to put beside your name regardless of your career path, but by combing a Charter Accountant designation alongside your financial degree (and other financial designations and certifications) is a killer combination in the eyes of just about any employer in this competitive market place. To obtain this designation, you will have had to complete all the appropriate university courses (or equivalent training), before being admitted into the CA training program where you will take part in a kind of multiyear apprenticeship. Specifically, you will gain work experience in a CA Training Office under the supervision of experienced CAs. As well, during your training you will be continually assessed on your development by CA board representatives, before finally submitting to a three day Uniform Evaluation (UFE) to gauge your knowledge and place you on the next step to your CA designation. For more information, see: http://www.cica.ca/index.aspx

CAREER PLANNER

The Basics

CMA (Certified Management Accountant):

CGA (Certified General Accountant): The CGA incorporates aspects from both the financial and management streams of accounting. While not as prestigious as the other accounting designations, the CGA offers practical tools for those interested in the accounting field. Attaining this designation is much more flexible than the other accounting designation and can be started while attending university. For more information, see: http://www.cga-ontario.org/

Training Directory

Selection

Job Profiles

Self Reflection

Similar to a CA, a CMA is a valuable asset to place in your Cv. CMAs focus primarily on managerial accounting and are usually often found in industry. Following university graduation, CMA candidates write a two*day CMA Entrance Examination that tests business knowledge, analytical thinking and written communication. If you pass, you enter through series of successive phases in the CMA Strategic Leadership Program that will take 24 months to complete and include substantial practical work experience in the field. A final examination and assessment take place at the end of this program before one attains their CMA designation. For more information, see: http://www.cma-canada.org/

Arbitrage | Winter 2010 | NFSA.ca