Clippings 2012

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Peculiar_Investor
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Re: Clippings 2012

Post by Peculiar_Investor » 11 Feb 2012 09:18

Deja vu all over again? An interesting piece by Michael Santoti, The Market Mirrors Its Year-Ago Look - Barrons.com (probably behind paywall, might need Google's help)

Will history repeat or at least rhyme? As someone overweight cash and finding very few values out there, I'll admit to being a bit hopeful.

Adding this to the mix, The Intelligent Investor: This Is Your Brain on a Hot Streak - WSJ.com
Past returns are no guarantee of future success. Just like smokers ignoring the Surgeon General's warning on the side of cigarette packs, investors overlook the most obvious caution about the stock market at their peril.

<snip>

Based on nationwide surveys of households conducted from 1999 through 2004, he has identified three main types of amateur forecasters.

Just over 40%—the largest group—believe recent performance is likely to persist. Another third of investors think recent returns are likely to reverse. Finally, roughly one-quarter of people think returns are random and essentially unpredictable.

But each of these attitudes carries a distinctive kind of risk.
Ask yourself which group would have your membership, and check if you associate if the kind of risk that the article implies.
Last edited by Peculiar_Investor on 11 Feb 2012 09:26, edited 1 time in total.
Reason: Added WSJ article
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Re: Clippings 2012

Post by ghariton » 11 Feb 2012 17:56

Back when I earned my living as a forecaster, we used to benchmark our forecasts against a "naive forecast" that past trends would continue. Most of the time, the naive forecast won. But of course sometimes it would be wildly off.

I've come to believe that our ability to forecast the future is very limited, especially in any environment characterized by volatility, such as financial markets. Instead, our energy is better spent in building portfolios that will do reasonably well (or not too badly) under a wide range of scenarios.

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Re: Clippings 2012

Post by Insomniac » 11 Feb 2012 23:51

A very experienced weather forecaster told me that best way he found to forecast was to look outside. Whatever the weather is today is most likely what tomorrow's weather will be. Sounds like the "naive forecast"...
ghariton wrote:Instead, our energy is better spent in building portfolios that will do reasonably well (or not too badly) under a wide range of scenarios
:thumbsup: and stick to the plan.

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Re: Clippings 2012

Post by ghariton » 17 Feb 2012 01:00

Scott Winship, testifying on inequality before the U.S. Senate Budget Committee, yesterday:

I won't excerpt bits. The whole thing is not that long, and explores many aspects of income inequality in the U.S.

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Re: Clippings 2012

Post by Bylo Selhi » 17 Feb 2012 15:11

Record $6 Trillion of Fake U.S. Bonds Seized - Bloomberg
Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt...

The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. “Thanks to Italian authorities for the seizure of fictitious bonds for $6 trillion,” the embassy said in a message on Twitter...
And this explanation:
Creating fake Treasuries is a “common scam, especially in Italy,” he said. The tipoff was the “astronomical” face value of each bond, he said. Fake bonds in high denominations are more common in Europe, where people are less familiar with the face value of U.S. Treasury bonds than in the U.S., he said.
Oh—Kay... :roll:
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Re: Clippings 2012

Post by ghariton » 29 Feb 2012 12:25

World’s Extreme Poverty Cut in Half Since 1990:
The share of people living in extreme poverty around the world continued to decline in recent years despite financial crises and surging food prices, the World Bank said today.

The bank said preliminary estimates for 2010 showed that the world’s extreme poverty rate — people living below $1.25 a day — had fallen to less than half of its 1990 value. That meets the first Millennium Development Goal of halving extreme poverty from its 1990 level, before its 2015 deadline, the Washington-based development institution said.

For 2008, the latest year with full global data available, about 1.29 billion — roughly 22% of the developing world’s population — lived below $1.25 a day. In 1981, 1.94 billion people lived in extreme poverty. The bank’s latest figures are based on more than 850 household surveys in about 130 countries. The region with the highest extreme poverty rate was Sub-Saharan Africa, where about 47% lived below $1.25 a day.
I consider this to be excellent news.

Of course Premier McGuinty may disagree...

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Re: Clippings 2012

Post by izzy » 29 Feb 2012 14:18

ghariton wrote:World’s Extreme Poverty Cut in Half Since 1990:
The share of people living in extreme poverty around the world continued to decline in recent years despite financial crises and surging food prices, the World Bank said today.

The bank said preliminary estimates for 2010 showed that the world’s extreme poverty rate — people living below $1.25 a day — had fallen to less than half of its 1990 value. That meets the first Millennium Development Goal of halving extreme poverty from its 1990 level, before its 2015 deadline, the Washington-based development institution said.

For 2008, the latest year with full global data available, about 1.29 billion — roughly 22% of the developing world’s population — lived below $1.25 a day. In 1981, 1.94 billion people lived in extreme poverty. The bank’s latest figures are based on more than 850 household surveys in about 130 countries. The region with the highest extreme poverty rate was Sub-Saharan Africa, where about 47% lived below $1.25 a day.
I consider this to be excellent news.

Of course Premier McGuinty may disagree...

George
If true! But knowing how governments (including ours)"massage" statistics to make themselves look good,somehow I have my doubts :(
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Re: Clippings 2012

Post by ghariton » 29 Feb 2012 15:10

izzy wrote:If true! But knowing how governments (including ours)"massage" statistics to make themselves look good,somehow I have my doubts :(
That depends on whether the massaging is getting more or less intense. If the level of massaging remains the same, changes should be reliable (although the absolute levels may not be).

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Re: Clippings 2012

Post by izzy » 29 Feb 2012 15:33

ghariton wrote:
izzy wrote:If true! But knowing how governments (including ours)"massage" statistics to make themselves look good,somehow I have my doubts :(
That depends on whether the massaging is getting more or less intense. If the level of massaging remains the same, changes should be reliable (although the absolute levels may not be).

George
I always thought that the level of the massage was inversely proportional to the degree of truth in the message :roll:
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Re: Clippings 2012

Post by Bylo Selhi » 29 Feb 2012 15:40

It depends the delicacy of one's touch. Some massage data to make it look good and others torture it until it confesses.
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Re: Clippings 2012

Post by izzy » 29 Feb 2012 15:51

Bylo Selhi wrote:It depends the delicacy of one's touch. Some massage data to make it look good and others torture it until it confesses.
If you know how to do that you'ld be a big success in politics :wink:
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Re: Clippings 2012

Post by ghariton » 29 Feb 2012 15:51

Bylo Selhi wrote:It depends the delicacy of one's touch. Some massage data to make it look good and others torture it until it confesses.
On the other hand, many economists are concerned with the frictional... er ... costs. (Part of transactional costs).

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Re: Clippings 2012

Post by ghariton » 05 Mar 2012 02:59

Rob Arnott expects lower rates of return going forward[/url]:

How about 4% nominal (or 0% after tax and inflation)?
For U.S. stocks, the history of the last 100 years shows real [that is, inflation-adjusted] earnings and dividend growth of about 1.25% a year. Add that to the current dividend yield and you've got about 3.5% of real return. Add in inflation of, say, 2% or 2.5%, and you're looking at 5.5% or 6% [before inflation] a year.

Now with the interconnected influence of demography, debt and deficits, we're likely to see considerably slower economic growth than in past years. So I view stocks as having a forward-looking return of 5%, give or take, over the next 10 to 20 years.

If bonds are priced to give us, let's say, 2% to 4%, that means your balanced portfolio is likely to deliver 4%. Net of inflation and net of taxes, that's awfully close to zero real after-tax return.
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Re: Clippings 2012

Post by ghariton » 09 Mar 2012 22:41

Taxing the rich:

French presidential elections are coming up, and the Socialist Party candidate, Francois Hollande, has proposed as part of his platform, a new 75% tax on the super-rich, i.e. those earning more than 1 million Euros (about $1.3 million) a year.

His proposal has met unexpected pushback from an unexpected quarter: professional football (i.e. soccer) players. They threaten a mass exodus from France if the proposal is enacted, with the result that French soccer would become mediocre (in a class with Slovenia, they say). The threat seems to be taken seriously by many ordinary Frenchmen, who worry about the loss of their top talent.
The best and therefore richest footballers in France fled as fast as their sports cars would carry them, pockets stuffed with cash from hurriedly emptied bank accounts and trailing agents and tax lawyers gleefully rubbing their hands.

Quite a doomsday scenario, eh? Yet French football administrators, coaches and players say an exodus like this could become reality if the would-be next president of France levies his proposed new 75 percent salary tax on the super-rich. Basically, they are warning: If you take more of our money, we're off; goodbye, not au revoir.

<snip>

Even though the vast majority of earners in France wouldn't be liable, Hollande's tax has been a headline-grabber in the presidential campaign, partly because football is proving to be among the most vocal of its critics. Only income above 1 million euros ($1.31 million) would face the top whack of 75 percent. The first million earned would be taxed at lower rates. Just 3,000 of the highest-earning taxpayers in France are likely to be affected.

From French league president Frederic Thiriez down, the refrain is often the same: top players will flee to countries with lower taxes, leaving France — the 1998 World Cup champion — with second-rate football. Thiriez estimates 120-150 players — about one-quarter of those in France's top division — earn enough to make them liable for Hollande's tax. In Italy, Germany, England and Spain, which have Europe's strongest leagues and clubs, top income tax rates range from 43 to 52 percent. The current top rate in France is 41 percent.
I love it.

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Re: Clippings 2012

Post by Park » 10 Mar 2012 22:48

Good article on long term investing:

http://papers.ssrn.com/sol3/papers.cfm? ... wnload=yes

"Long‐horizon investors have an edge. They can ride out short‐term fluctuations in risk premiums, profit from periods of elevated risk aversions and short‐term mispricing, and they can pursue illiquid investment opportunities. The turmoil we have seen in the capital markets over the last decade has increased the competitive advantage of a long investment horizon. Unfortunately, the two biggest mistakes of long‐horizon investors - procyclical investments and misalignments between asset owners and managers - negate the long‐horizon advantage. Long‐horizon investors should harvest many sources of factor risk premiums, be actively contrarian, and align all stakeholders so that long‐horizon strategies can be successfully implemented. Illiquid assets can, but do not necessarily, play a role for long-horizon investors, but investors should demand high premiums to compensate for bearing illiquidity risk and agency issues."

The article seems to address institutional investing more than individual investing. Individual investors can avoid investing in a procyclical manner. About misalignment between asset owners and managers, David Swensen in "Unconventional Success" talks about that. As for harvesting many sources of factor risk premiums, that would include the value premium, the small premium and the momentum premium, among others. For individual Canadian investors, that's not straightforward. Even if one can, I'm not certain that one would come out ahead in a taxable account. Finally, individual investors are at a disadvantage, compared to institutional investors, when it comes to illiquid assets. However, the authors imply that illiquid assets are optional, and not a necessity.

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Re: Clippings 2012

Post by Peculiar_Investor » 14 Mar 2012 07:41

An interesting read, Why I Am Leaving Goldman Sachs - NYTimes.com. It starts with
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way.
and it ends with
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Not a very good picture being painted of Goldman. The painter, Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.
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Re: Clippings 2012

Post by ghariton » 15 Mar 2012 20:36

The future is bright for highly skilled workers. even those in North America:
Multinational firms outsourcing or offshoring their operations to developing countries is a problem as old as globalisation. This column looks at the effect on high-skilled labour in the home country. It presents evidence that, on average, when firms start employing high-skilled workers offshore, they also increase the number of this type of worker employed at home.
Of course, that means that we have to focus on improved education and training, rather than on preserving assembly line jobs.

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Re: Clippings 2012

Post by ghariton » 15 Mar 2012 20:47

Peculiar_Investor wrote:An interesting read, Why I Am Leaving Goldman Sachs - NYTimes.com.
The Ballad of Greg Smith by Felix Salmon. (I consider Salmon to be the most interesting financial journalist currently.)
It’s that time of year — think February to March — when bonus checks have cleared and voluntary departures from investment banks spike. So it’s obvious why Greg Smith quit now. The question is, why decide to quit in as public and destructive a manner as possible?

When Smith joined, Goldman (GS) was transitioning from a partnership model to being publicly-traded. And I suppose it’s possible that Smith has such deep nostalgia for the partnership he never really knew that he’s willing to hurt his entire current team — everybody who helped him make his millions — in an attempt to goad Goldman into returning to those halcyon days.

But it certainly doesn’t seem that way. Smith says that Goldman is currently “toxic and destructive”. He goes on to say that “It makes me ill how callously people talk about ripping their clients off,” and that “the morally bankrupt people” need to be weeded out — how, he doesn’t say — by the board of directors. It’s much easier to see the disgruntled ex-employee here, quitting in a huff, than it is to see someone genuinely trying to do his part to reconstitute the Goldman Sachs of Gus Levy and John Whitehead.

<snip>

Which is not to say that Smith doesn’t make important points. He’s in the equity-derivatives business, which is also where Andrew Clavell came from. Clavell’s blog is down, now, but these words are immortal:
If you claim you do know where the fees are, banks want you as a customer. You don’t know. Really, you don’t. Hang on, I hear you shouting that you’re actually smarter than that, so you do know. Read carefully: Listen. Buster. You. Don’t. Know.
Smith’s clients thought they knew where Goldman was making its money when it sold them equity derivatives. Nine times out of ten, they were wrong. I can guarantee you that every single one of the clients referred to as “muppets” within Goldman considers themselves to be a sophisticated investor. Mainly because they have Goldman employees phoning them up on a regular basis and flattering them with tales of how sophisticated they are.

Clients know in principle that every time they do a trade with Goldman, Goldman makes money. But they don’t know how much money Goldman makes on those trades. And Goldman is extremely good at structuring deals which can’t easily be replicated by combining various liquid derivatives. In turn, that gives Goldman pricing power — so much power, indeed, that in some instances the bank will go so far as to insist that if the client attempts to get independent pricing for the contract in question, then the whole deal is off.

<snip>

There’s a strong smell of faux-naive coming from Smith’s op-ed. “Leadership used to be about ideas, setting an example and doing the right thing,” he writes. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.” Here’s a question for him: back when he made videos for Goldman urging candidates to join the company, were the people who got promoted those who had ideas and did the right thing? Or were they the ones who made lots of money for the firm? To ask the question is to answer it.
George
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Re: Clippings 2012

Post by Park » 16 Mar 2012 23:29

http://www.tacitacapital.com/files/The_ ... 1_2012.pdf

Link on buybacks. If one includes buybacks in yield, then the present yield on the American stock market is around 6%.

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Re: Clippings 2012

Post by George$ » 17 Mar 2012 07:14

ghariton wrote:
Peculiar_Investor wrote:An interesting read, Why I Am Leaving Goldman Sachs - NYTimes.com.
The Ballad of Greg Smith by Felix Salmon. (I consider Salmon to be the most interesting financial journalist currently.)
A companion local story -
Why I gave up my six-figure salary and quit Bay Street (-- plus the many interesting comments posted by readers at the G&M article)
This week, a Goldman Sachs employee caused a sensation by resigning in an astonishing way -- he wrote a scathing op-ed about his former employer in The New York Times. Greg Smith, who spent nearly a dozen years at the Wall Street firm, said it had lost its moral compass, fostering an environment that is “as toxic and destructive as I have ever seen it.” The letter resonated with Tim Kiladze, a Globe and Mail journalist who once worked in investment banking and bond sales and trading.
“The search for truth is more precious than its possession.” Albert Einstein

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Re: Clippings 2012

Post by Park » 17 Mar 2012 10:54

"Whenever she decides to downsize her residence, she may face an additional tax hit. That’s because her house sits on 2.5 acres and Canada Revenue Agency puts a 1.25-acre limit on the tax exemption it provides, subject to some conditions, on money from the sale of a principal residence. As a result, she would be subject to capital gains tax on the property over the limit."

http://www.theglobeandmail.com/globe-in ... le2372039/

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Re: Clippings 2012

Post by brucecohen » 17 Mar 2012 14:14

Park wrote:"Whenever she decides to downsize her residence, she may face an additional tax hit. That’s because her house sits on 2.5 acres and Canada Revenue Agency puts a 1.25-acre limit on the tax exemption it provides, subject to some conditions, on money from the sale of a principal residence.
The key phrase being "subject to some conditions." AFAIK, 1.25 acres is an administrative policy, not a legislated limit. The principal residence designation covers all land required for the home to operate. That's one reason why many rural properties have very long driveways. Also included would be the land over which the hydro lines for the house run -- and if you have a long driveway, odds are you also have a long hydro corridor.

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Re: Clippings 2012

Post by twa2w » 17 Mar 2012 20:33

One of the things Rev Can will look at for principal residences is whether the land can be subdivided, I owned just over 6 acres on Davis Drive just east of Newmarket. The town would not allow further subdivisions and I got a ruling that allowed me to include all the land in my exemption. I understand that is the case in King township north of Toronto as well where the municipality will only allow a minumum of 10 acre lots in some areas.

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Re: Clippings 2012

Post by George$ » 23 Mar 2012 08:16

Worth reading and noting, in todays G&M

Black Monday gave just a taste of what was to come - by Eric Reguly - After the credit crunch of 2008, it's clear the main reason of 1987 was largely ignored.

Including ...
“The 1987 crash gave us our first taste of the brave new world of financial engineering and, in particular, how socially useless instruments like derivatives contribute to market instability,” said market strategist Marshall Auerback, a director of Toronto’s Pinetree Capital. “Portfolio insurance turned out to be another one of those false gods that didn’t deliver what it promised to deliver, namely a hedge against falling markets, much as today’s CDS fail to hedge against an event like a Greek default.”
“The search for truth is more precious than its possession.” Albert Einstein

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Re: Clippings 2012

Post by CROCKD » 23 Mar 2012 17:29

Also worth reading in today's G&M, an historical summary of Canadian Business over the last 50 years.

Report on Business at 50
Why corporate Canada's heart now beats in the West

Report on Business has chronicled this westward march, from Montreal’s waning years as the dominant financial hub, to Toronto’s emergence as the northern apex of a continental economy – and now to Calgary and Vancouver as gateways to a surging Asia.
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