Outstanding Financial Pornography

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor.

Postby adrian2 » 28 Mar 2008 19:32

alex11 wrote:
adrian2 wrote:
pitz wrote:...yet affordability is at all time lows, which makes this statement not true.

Source, please?

http://www.rbc.com/newsroom/20080314affordability.html

From the link:

Housing affordability deteriorated across the country in every quarter in 2007, to end the year at its most unaffordable level since 1990


In my opinion at least, "since 1990" does not equate to "all-time", especially since the original quote pitz was replying to was "their parents probably paid a lot more for their mortgages 20 year ago than they'd be paying now".
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Postby parvus » 28 Mar 2008 23:33

adrian2 wrote:
alex11 wrote:
adrian2 wrote:
pitz wrote:...yet affordability is at all time lows, which makes this statement not true.

Source, please?

http://www.rbc.com/newsroom/20080314affordability.html

From the link:
Housing affordability deteriorated across the country in every quarter in 2007, to end the year at its most unaffordable level since 1990

In my opinion at least, "since 1990" does not equate to "all-time", especially since the original quote pitz was replying to was "their parents probably paid a lot more for their mortgages 20 year ago than they'd be paying now".

Yabbut, housing prices in Toronto crested in 1990, as did incomes, then came the fell swoop of high interest rates and a jobless recovery from recession. Perhaps not an all-time low — we would have to go back to the Depression for that — but I suspect on a household balance-sheet basis, since the alternative these days is bankruptcy rather than the indentured servitude or debtor's prison of the olden times of low liquidity and almost no leverage ... it's pretty close. :shock:
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Postby kcowan » 29 Mar 2008 06:20

parvus wrote:Yabbut, housing prices in Toronto crested in 1990, as did incomes, then came the fell swoop of high interest rates and a jobless recovery from recession. Perhaps not an all-time low — we would have to go back to the Depression for that — but I suspect on a household balance-sheet basis, since the alternative these days is bankruptcy rather than the indentured servitude or debtor's prison of the olden times of low liquidity and almost no leverage ... it's pretty close. :shock:

Yes the Toronto peak in 1990 has not been repeated yet. It is now 18 years and counting until the next peak is recorded. I am willing to bet that it will occur in 2008. Not a great time to be committing to a big mortgage.
!997 was the trough that followed the peak so the decline was 7 years and so far the climb to the next peak has gone on for 11 years. This smells like a bubble to me. Not like Vancouver, but a bubble nonetheless.
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Postby parvus » 29 Mar 2008 13:10

Thanks Keith; you just dislodged a few forgotten brain cells.

To be perverse here, I mentioned the olden times of low liquidity and almost no leverage for a good reason. I think the definition of affordability has become rather more elastic than it should be — not for the bank economists, of course, but for buyers at large.

In 1990, I certainly recall second mortgages, but people didn't lease their cars and they still had to report income before getting a credit card. Also, home computers were few and HDTVs non-existent. (I didn't buy my first CD till 1992, and somehow missed VCRs altogether.)

About four years ago, the Star ran a piece on bidding wars in Toronto. A singleton had secured mortgage funding for a $400,000 bid, but the house fetched $450,000. She took out a second mortgage.

At that time, I was thinking bubble. But no pop.

Now, as I collect my wits, it must have something to do with leased cars, MBNA cards and HELOCs keeping this thing going. IOW, affordability is much lower than the official data seem to indicate.

On that gloomy thought, I'm going for a walk in the sun.

Added:
Spending increases at triple the pace of incomes since 1990
The variable nature of household incomes has not been evident for household spending. Apart from a pause in 2001, spending has risen consistently over the last dozen years or so. Taking the whole period from 1990 to 2007, average household spending jumped ahead by 20%, which is almost triple the 7% advance in real incomes.

Savings plummet
In 1990, households saved about $7,500 of their annual incomes. This dipped to under $2,000 by 2002 and is now near $1,000. The personal savings rate (savings as percent of disposable income) fell from 10% in 1990 to about 1% currently.

The savings rate varies significantly by province. In 2006, the rate was negative in four provinces (PEI, BC, SK, NS), in the range of 1.0% to 2.5% in another four provinces (MB, QC, ON, NB) and in double digits in Alberta (10.8%) and in Newfoundland (14.3%).

Debt rises seven times faster than incomes since 1990
In late 2007, the average total debt load per household moved above $80,000 for the first time. Average debt per household jumped by 54% between 1990 and 2007. The debt load is $71,000 if only mortgage and consumer debt is included. Total debt is now equal to a new record of 131% of household income after transfers and income taxes…this compares to only 91% in 1990. (See appendix C for more ratios.)
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Maybe I am biased but...

Postby kcowan » 19 Jul 2008 11:36

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Postby pitz » 24 Jul 2008 06:47

You don't cobble your own shoes, so why invest your own money?

Avner Mandelman, president and chief investment officer of Giraffe Capital Corp. and the author of The Sleuth Investor wrote:Let's assume you can earn 2 to 3 per cent a year better than the pros, long term. It is very difficult, but let's assume. On a $100,000 investment, that's $2,000 to $3,000 a year. For the same amount of time you put in, couldn't you make more in your own business?

Like Portugal converting grazing land to vineyards? Sure, you could do it. And if you invest $1-million, your income is probably higher too, so the extra 2 to 3 per cent a year could also be made up in your business, if you put the time into it, rather than futzing with stock tables. Therefore, and minding my self-serving conflict, I'd say you should let a pro manage your main savings and only invest small amounts for fun. Moreover, the smaller amounts would also give you less grief when the market fluctuates. And it's not just me saying this. Woody Allen says so, too.
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Postby patriot1 » 24 Jul 2008 07:33

kcowan wrote:Yes the Toronto peak in 1990 has not been repeated yet.

Yes it has. Real prices in Toronto are higher now than at the 1990 peak:

http://cuer.sauder.ubc.ca/cma/data/Resi ... oronto.pdf

However the unaffordability peak has not been reached because interest rates are much lower now than in 1990. How much longer is that going to last? Take a good look at that graph and guess the long-term real price trend.
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Postby 83_gemini » 24 Jul 2008 07:34

You can make nearly that much simply by not paying them :D
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Postby kcowan » 24 Jul 2008 13:15

83_gemini wrote:You can make nearly that much simply by not paying them :D
Only if they outperform a low-cost index ETF.
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Postby Slippy » 01 Aug 2008 09:33

http://www.theglobeandmail.com/servlet/ ... y/Business

Not one mention of the difference in risk between owning a broadly diversified basket of investments vs. a couple of financial stocks. Tired old rhetoric.
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Postby kcowan » 01 Aug 2008 15:03

Slippy wrote:http://www.theglobeandmail.com/servlet/story/LAC.20080801.RHEINZL01//TPStory/Business

Author's Bio: He earned a Master of Arts degree in journalism from the University of Western Ontario in 1990.
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Postby parvus » 01 Aug 2008 15:50

Heinzl has been promoting a dividend-growth strategy for some time; what's interesting is that he omits discussion of Sprott, Saxon and Gluskin Sheff, the first of which, at least, has been in the news this week.
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Postby scomac » 03 Nov 2008 15:42

I have no idea whether this is legitimate or not, but after seeing a full page add for their education program in a farm publication of all things, I just had to enquire. In all of my years, I have never, ever seen any sort of promtional material for stock market investing (beyond a back page classifed advertisement for a broker or planner) in the farm media. Needless to say, it was a bit of a shock and begs the question: Just how desperate has this segment of the media gotten in its efforts to procure advertising dollars?

I have kicked around the web site a bit, but it seems to be long on platitudes and short on details. Downloading the career opportunities .pdf file reveals that positions are available for commissioned based sales staff that operate in BC, AB, SK, MB, ON. It would also appear that this business operates out of Winnipeg. There is some reference to "the power of 1% investing", but I have no idea what that refers to. God forbid if this is some sort of Ponzi Scheme where 1% of a member's return is sent up the chain! :shock:
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
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Really stupid byline.

Postby 2 yen » 21 Nov 2008 05:16

Moderator, forgive me if I'm out of place here, but I just had to share this
byline from a well-known Canadian financial newspaper:

"North American equity markets plummeted on Thursday, breaking through important levels watched by investors and prompting experts to warn things may get even worse if these new lows do not hold up."

If that doesn't take the cake, what does? Experts? Hmmmmm. :D
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Postby parvus » 21 Nov 2008 22:52

scomac wrote:I have no idea whether this is legitimate or not, but after seeing a full page add for their education program in a farm publication of all things, I just had to enquire. In all of my years, I have never, ever seen any sort of promtional material for stock market investing (beyond a back page classifed advertisement for a broker or planner) in the farm media. Needless to say, it was a bit of a shock and begs the question: Just how desperate has this segment of the media gotten in its efforts to procure advertising dollars?

I have kicked around the web site a bit, but it seems to be long on platitudes and short on details. Downloading the career opportunities .pdf file reveals that positions are available for commissioned based sales staff that operate in BC, AB, SK, MB, ON. It would also appear that this business operates out of Winnipeg. There is some reference to "the power of 1% investing", but I have no idea what that refers to. God forbid if this is some sort of Ponzi Scheme where 1% of a member's return is sent up the chain! :shock:


Looks more like a technical analysis course coupled with a daytrading programme, viz.: 1% in 14 days, 30% annualized.
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Postby DanH » 09 Apr 2009 15:40

How You Can Enjoy a 25% Dividend Yield

Admittedly, I only scanned this but it's the old dividend divided by your original cost 30 years ago blah blah blah... argument, which I think deserves a special place in this thread.
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Postby CROCKD » 09 Apr 2009 20:33

Tonight on CBC NewsBusiness Fred Langan had a woman fund manager from Mawer in Calgary, which company I have some of their mutual funds. Discussing the sale of Barclays ishares, he asked her to explain what ishares were. Her rather technical answer left me scratching my head - the only word I understood was ' derivative'. At no time did she mention ETF's Exchange Traded Funds. Langan never called her on it and let the gobbledygoop go - the usual pap for the masses on the people's network.
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Postby Norbert Schlenker » 14 Apr 2009 02:38

Jon Chevreau's blog has linked a spectacular piece of financial porn from Tye Bousada at EdgePoint. His argument is that Ontario's imposition of an HST will add an extra 22bp to the MER of an average mutual fund and cost an investor a fortune. Here's the climax line.

Tye Bousada wrote:...a difference of $20,343 or 102% of your initial investment! The government has taken over 100% of your initial investment away from you.

Here's my rewrite of the whole piece, additions in italics.
Let’s assume you are 45 years old, you invest $20,000 in a mutual fund inside your RSP, and this investment grows at 10% per annum (before this recent tax grab). Unfortunately, fees in Canada are among the highest in the world but we’ll be generous and assume you only pay a 2.75% MER (before the GST of course) on your mutual fund investment. The harmonized sales tax (HST) would add approximately 22 basis points (0.22%) to the MER. Let's compare the effect of the tax grab to what we ding you for, assuming that we could charge a much more reasonable 0.75% before HST.

By the end of year one, your $20,000 would have been worth $22,000 before the tax grab. But, with the tax, you have only $21,956. A seemingly tiny $44 difference, thus increasing the likelihood the government slides in this tax without much of a fuss. If we had reasonable MERs, you would have $22,380, or $380 more even though the thieves in Queens Park are at work.

Interestingly, by the end of year two, you now only have $24,103 versus $24,200 (without the tax grab). That’s a bigger difference of $97. Why isn’t the difference $44 + $44 = $88? Because your investments are growing and the government is taking the same 8% from your expanding pie. Of course, we are too. If we had lower MERs, you would now have $25,044, $844 more than if we charge our usual rates.

By year 10, you are 55 years old. Luckily, the $20,000 you put in that mutual fund 10 years ago has grown to $50,847. You’re content, but unaware that without the tax, you would have had $51,875......$1,028 more! The magic of compounding interest is starting to take hold. The $1,028 is now 5.1% of your initial $20,000 investment. With reasonable MERs, you would have had $61,578 ... $9,703 more! But you are unaware of this fact. The magic of compounding interest is really working now, especially for Canadian fund managers. We want you to notice that the province has creamed off 5.1% of your initial investment. We definitely do not want you to notice that we have creamed off 43.5% of your initial investment. Bad Queens Park, Bad Dalton!

By year 20, you are 65 years old. Your initial investment has grown to a value of $129,269. Without the tax harmonization, you would have had $134,550.....$5,281 more or 26.4% of your initial $20,000 investment! By this time, reasonable MERs would see your investment grow to $189,594. The difference ..... $55,045 or 275.2% of your initial investment is now in our pockets.

Einstein once wrote that the 8th wonder of the world is compound interest. We have trouble debating him on that issue, especially if we consider the next 20 years.

You are now 75 years old. That $20,000 contribution to your RSP is now worth $328,645. Little did you know that it could have been $348,988 without the 2009 tax harmonization......a difference of $20,343 or 102% of your initial investment! The government has taken over 100% of your initial investment away from you. Even less do you realize that, without our big MERs, it could have been $583,746 .... a difference of $234,758 or 11.7 times your original investment! The government has taken your entire original investment from you and we want you to be mad as hell about it while you ignore that we've taken 12 times as much.

By year 40, you are 85 years old. Your $20,000 has grown to $835,524. Without the new tax, you would have had $905,185..... a difference of $69,661 or 3.5 times your initial investment! The government has collected $69,661 from your initial $20,000 investment for a 350% tax rate. What could you have done with that extra $69,661? Could that have made a difference in your life? In case you're interested, not that you should be, had we charged a more reasonable MER, you would have had $1,797,304 ..... a difference of $892,119! Of course, if you'd had that money instead of us putting it in our pockets, chances are you would have just wasted it and it would have made no difference in your life. But let me thank you for putting our children through the best schools.

Sometimes public policy has unintended consequences, as does shameless handwaving. We are not sure whether the current administration understands the materiality of this decision and how it could negatively impact the average person’s retirement savings, but we are sure how current fee structures impact our own retirement savings. The important question is, “Can we stop this?” More important, “Can we use this to distract everyone from a much bigger problem?”

We are worried that the various interests of industry participants will detract from the real issue at hand. Rather, arguments may be focused on potential financial job losses in Ontario due to the tax, or the inequality of the harmonization of the tax on mutual funds, or the timing of the tax given the weak markets rather than the ultimate cost of the tax to investors over the long run.

The reality is that this tax affects you much more than it affects mutual fund executives or mutual fund company shareholders, because we'll just stick you with the bill anyway. Politicians would gladly tax additional financial services and investment products to make this tax more equitable. They would be more than happy to stage this tax in. None of this helps you. We would hope the government would not want to take 350% of your initial investment if they truly understood the consequence of this tax. We’re not sure that they do. However, we are absolutely sure that we want to take your initial investment 45 times over - 13 times more than the government will take - because we truly do understand the consequences of the MERs we charge. Over 40 years, we will pocket 50% of your total portfolio through MERs, you will get 46%, and those bandits in Queens Park will get 4%. Focus on the bandits. Pay no attention to us.

A simple message needs to be delivered to the government, and we plan on delivering it. Quite simply, they must be made aware that this tax is bad for you, the investor. We would really appreciate it if you remain unaware and very very quiet about how much worse our MERs are for you, the investor.

If you're a mutual fund unitholder, feel free to send the amended version to Dalton McGuinty and Dwight Duncan. Tell them what you really think, not about HST, but about unconscionably high MERs.

Carbon Tye Bousada while you're at it.
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Postby DanH » 14 Apr 2009 09:21

Norbert Schlenker wrote:Jon Chevreau's blog has linked a spectacular piece of financial porn from Tye Bousada at EdgePoint. His argument is that Ontario's imposition of an HST will add an extra 22bp to the MER of an average mutual fund and cost an investor a fortune.


I've been wondering what I could write about this topic other than the obvious increase in MER. But your posting has given me an idea that I hope won't end up in this thread. ;)
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Postby IdOp » 14 Apr 2009 12:50

Norbert, I think Tye Bousada would be capable of spinning your facts into an "argument" against low-fee investing. After all, with reasonable MERs those 22 basis points would likely be applied to much higher portfolio values in the future, resulting in an even bigger take for the gummint bahstahds. Who would want that? :)
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Postby queerasmoi » 14 Apr 2009 13:05

Not to mention that the less you pay in MER, the "way less" you pay in taxes. If your average MER is now only 0.75 then the tax only adds 6 basis points, which by the miracle of compound interest is worth way less than the high-MER tax nab.
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Postby WishingWealth » 14 Apr 2009 15:59

From the article:
By year 10, you are 55 years old. Luckily, the $20,000 you put in that mutual fund 10 years ago has grown to $50,847.


I'd take some of that MF but I did not find which one returned those dollars, and for which period.

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Postby IdOp » 14 Apr 2009 16:27

queerasmoi wrote:If your average MER is now only 0.75 then the tax only adds 6 basis points, which by the miracle of compound interest is worth way less than the high-MER tax nab.

Good point, with my "Tye Bousada hat" on, I'd overlooked that. So I did a quick spreadsheet and found the 6bp MER applied to the higher portfolio values (12% instead of 10% growth) resulted a lower take for the gummint (as you indicated) ... BUT, that's just the PST.

Also, the 2% MER not being earned by the fund manager is not taxed (as income to the fund manager) by the gummint.

But, that income will be taxed in the hands of the investor, at various rates and times.

And many other factors, such as poor investors will need higher social assistance (a financial minus but perhaps political plus for the gummint).

So the questions are, how do these + and - all shake out for the gummint? Do they have an incentive to promote lower MERs? I don't know, just musing.
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Postby kcowan » 07 May 2009 09:48

Finally pornography can be useful:

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from The Big Picture.
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Postby spazz » 18 Jul 2009 10:28

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

Article found here: http://www.rollingstone.com/politics/st ... le_machine
Why bother being smart when stupid gets rewarded.
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