Clippings

[Taggart]

A burden but also a boon

Sep 21st 2006 | MAE LA REFUGEE CAMP, THAILAND
From The Economist print edition
Thailand wonders what to do with the millions who have fled there

NESTLING on a hillside in the lush forests of northern Thailand, Mae La refugee camp's neatly thatched rows of bamboo huts make it look rather charming. While children frolic on the muddy streets, women sit at handlooms, weaving cloth for sarongs. The camp has fresh water from standpipes, a clinic and even some small shops. Aid-workers bring in food and medical supplies. Conditions are far better than in, say, the refugee camps of Darfur.

Yet Mae La is a prison for the 50,000 Burmese crammed into it. They are among the 163,000 or so stuck in camps along Thailand's western border. All have fled from war, repression and poverty in the neighbouring country they call Burma—but which the generals who brutally misrule it have renamed Myanmar. Though they are treated well in the camps, they are forbidden to leave. Those who sneak out seeking work risk being sent to Myanmar.

Most refugees at Mae La belong to the Karen ethnic group, whose homeland spans the border between Thailand and Myanmar. They have been arriving since 1984, when Myanmar's troops, drawn mainly from the country's dominant Burman ethnic group, first broke through the defences of the Karen's separatist army. Whereas the regime has beaten other rebellious minorities into signing “ceasefires”, the Karen fight on. Almost every dry season brings a fresh assault by the regime on their remaining turf, triggering a fresh flood of refugees. New arrivals are still trickling into the Thai camps following the latest such attack, earlier this year.

One fugitive Karen says she was a teenager when her family was among the first to arrive in Mae La, in 1984. Now a mother of five who works in the camp's clinic, she sees little prospect of going back. She would like to stay and work in Thailand. Others in the camp dream of being resettled in Australia, America or another rich country—an option now being opened up to them, following a change of policy by the Thai government. Resettlement is great for some, but it robs the refugee community of its most skilled and articulate members. There has been a heated debate at the camp over whether to accept Australia's offer to take some of its members.

Until this year the Thai authorities only allowed small numbers of refugees to be resettled in other countries. They feared that large-scale resettlement would encourage even greater numbers to come across the border. This, after all, is what happened in the 1970s when America resettled many refugees who had come to Thailand to escape the Vietnam war.

Now resettlement is being granted to all those in the camps who can find a country to take them. America took its first batch, from the crowded Tham Hin camp, last month. Perhaps 10,000 more will go next year, as the resettlement schemes get into full swing, reckons the boss of a charity in the camps. But, with no end in sight to the Burmese regime's attacks on the Karen and other minorities, he says their places are likely to be taken by fresh arrivals. On September 15th America succeeded in getting Myanmar's troubles put on the agenda of the UN Security Council. But with China and Russia opposed even to discussing it, the chances of making the regime mend its ways are slim.

Those huddled in the refugee camps are only the visible tip of the iceberg. Far larger numbers of Burmese, and those fleeing poverty and oppression in Laos and Cambodia, live illegally all over Thailand. The government has wavered between sending them back and letting them stay. In 2004 it offered a temporary permit to any migrant from those countries who applied for it. Around 1.3m did so—but officials concede the true number of migrants in Thailand may be over 2m. About half of those registered in 2004 have failed to renew their permits.

Meanwhile Thailand's government briefly thought that a deal was possible with Myanmar's junta, in which the refugees and other migrants could be sent back under United Nations protection. The government and the UN High Commissioner for Refugees were well advanced on a sweeping repatriation plan when, in October 2004, the Burmese general they had been dealing with, Khin Nyunt, was deposed as prime minister by more hardline generals. This dashed hopes for any sort of deal with the regime.

Now Thailand's authorities accept that they are stuck with the migrant problem, admits Dusit Manapan, a senior official in the Thai foreign ministry. So, cautiously, they are edging towards long-term solutions. Those in the camps who are not resettled in rich countries will be offered identity cards, a first step towards letting them seek work. Meanwhile the government is hoping to persuade Thai manufacturers—such as shoemakers—to set up workshops in the camps. The education ministry wants to improve the limited schooling refugee children get, in particular teaching them to speak Thai. In the past year agreements have been reached with Myanmar, Cambodia and Laos to try to regularise the flow of migrants coming purely for economic reasons. Thailand will tell them how many guest workers it wants each year; the three neighbouring countries will then grant special passports to that number. It is unclear what difference this scheme will make.

Yet the Thai government's recent moves suggest at least that it realises that refugees and migrants can be a boon as well as a burden. As Thailand becomes more prosperous, it is getting harder to fill dirty, low-paid and risky jobs. Such work may be better than anything the visitors can find back home.

[Taggart]

Yale's endowment skyrockets

Exceeding expectations, Univ. sees 22.9 percent return, reaching $18 billion

"Yale's performance already exceeded the expectations of some administrators and outside experts who predicted that the endowment's growth would slacken after it posted a 22.3 percent return in the 2004-'05 fiscal year. Chief Investment Officer David Swensen has earned a nearly legendary status among institutional investors, but experts still say that such drastic growth probably cannot be sustained through the next few years."

Also from Bloomberg

"In his book ``Unconventional Success'' (Free Press, 2005), Swensen said Yale's wealth gave it access to the best money managers in the world, which helped him boost returns. He criticized the mutual-fund industry for its high fees and low returns, and advised individual investors to stick to low-cost index funds like those run by Vanguard Group."

[Taggart]

Poor falling behind in retirement savings - but does it matter amid clawbacks?


Gary Norris, Canadian Press
Published: Tuesday, September 26, 2006

TORONTO (CP) - The rich get richer while the poor stay poor, and a Statistics Canada study suggests this chasm may go on widening in retirement.

[Taggart]

The New Yorker: Mind Games by John Cassidy

What neuroeconomics tells us about money and the brain.

Issue of 2006-09-18

[Taggart]

Was in the "finance section" (where else) of the bookstore yesterday. Ended up purchasing a book I didn't expect. Have only read the first chapter so far, but am enjoying it. "Leaving Microsoft to Change The World" by John Wood.

[Taggart]

Signs of inflation?

In 1966 we had Anyone Can Make a Million

Now, forty years later, it's Think Like a Billionaire, Become a Billionaire

[George$]

Yale's endowment skyrockets

Exceeding expectations, Univ. sees 22.9 percent return, reaching $18 billion

Another read on the same topic from NPR
Yale's Money Guru Shares Wisdom with Masses In part ...

Most mutual funds get far too big and own far too many stocks, Swensen says. In Unconventional Success, he writes that, when a fund is holding 30 to 50 stocks or more, the odds become very likely that the fund will start to track its broader market category. Stock picking becomes less important as the winners and losers in the fund average out much like the broader market. So why pay someone a lot of money to pick stocks?

He says mutual fund investors also lose from commissions and market impact associated with all the churn -- that is, the buying and selling of stocks in the fund.

Invest in Nonprofit Index Funds: Since at least 99 percent of mutual funds aren't going to beat the overall market, Swensen says individuals should invest in nonprofit funds that track market segments, such as the S&P 500. There are a range of index funds that track the U.S. domestic stock market, international markets, emerging markets and the real-estate market.

Swensen says mutual funds that are organized on a not-for-profit basis don't have the same conflict of interest as for-profit funds, and they charge lower fees.

The fees are even lower with nonprofit index funds, because you're not paying money managers to research stocks and buy and sell them. The fund simply holds all the stocks listed in that index. And because well-structured index funds have low churn (turnover), they are remarkably tax efficient.

Pick the Right Investment Mix and Keep Your Money There. Don't Move It Around! Swensen says that individual investors will make the greatest return by focusing on the right way to carve up their portfolio into different areas of investment (see the pie chart at top left). He says they should then stick with that mix.

Don't, for example, try to decide when to buy U.S. stocks and sell a lot of bonds, in an effort to predict which way those markets are heading. If you do that, he says, you're going to lose over time, because you'll be competing directly with professionals like him.

Swensen has a team of 20 analysts -- and a small army of boutique investment houses -- working long hours to predict which way certain market segments or individual stocks will move. Who do you think is going to buy and sell at the right time? Remember: If somebody buys low and sells high, somebody else is buying high from them. You don't want to be that person.

Rebalance Your Portfolio: Swensen rebalances his portfolio at Yale at least every day, and often many times throughout the day. What does that mean?

Let's say U.S. stocks go up 2 percent one afternoon, while international stocks decline by 1 percent. If you have holdings in both areas, the percentage of your portfolio that's in U.S. stocks has grown a bit, and the foreign-equity portion has shrunk a little. Over time, this process can really change the face of your portfolio -- especially if you continue to reinvest your earnings, or make contributions to a 401k or 403b, without ever rebalancing.

So, Swensen says, you need to regularly rebalance your holdings to keep them steady. That way, when the value of foreign stocks or emerging-market stocks rises, you'll own more of them -- and will make more money -- if you rebalanced while these stocks were cheaper.

Adjust Your Portfolio as You Near Retirement: As you get older and closer to retirement, it's obviously important to have enough money in less risky, more predictable investments.

But rather than changing all the numbers on your "asset allocation" pie chart depending on your age, Swensen prefers to think about this question in a way that's easier to grasp. He says as people age, they can keep their investment portfolio set up the way it always has been. But they should start to move money out of it, across all investment categories proportionally, and transfer the money into an account that's invested in money-market funds or short-term, inflation-indexed bonds.

[arnyk]

Swensen rebalances his portfolio at Yale at least every day, and often many times throughout the day.

Dude, that would hurt even using IB. Even assuming the big boys get a discount...

[Taggart]

[url=http://www.philly.com/mld/inquirer/business/15703877.htm]we've long heard sad stories about investors who chase the latest hot stock or mutual fund after the price runs up, then suffer losses as it inevitably cools. Now Morningstar Inc., the market-tracking company, has come up with data that show this self-defeating habit is pervasive.

Take the country's largest fund, American Funds Growth Fund of America, with $147 billion in assets. Over the 10 years ended Sept. 30, the fund returned an average of 13.07 percent a year. This is figured by averaging the annual gains in the fund's share price, or net asset value - regardless of how much money investors had in the fund at any given time.

But by looking at the flow of investor money in and out of the fund, Morningstar found that the average investor actually made just 10.43 percent a year.

That's because many people invest in a fund after it has done well. Obviously, they didn't enjoy the gains the fund made before they invested. But they suffer if the fund subsequently has a weak period, often selling if they become discouraged. Result: Their return is lower than the fund's.

There's nothing wrong with the total return figure, which companies use in their ads. It accurately reflects the gains earned by investors who owned shares when a given period began, reinvested all the dividends and did not invest any more before the period ended.

But the lower investor return figure flashes a serious warning about jumping on and off the bandwagon. You'll do far better by picking a good fund and ignoring the roller-coaster ride. Hold for the long term.

An investor who put $10,000 into the fund mentioned above and earned the 13.07 annual return would have had more than $34,000 after 10 years. But with annual investor return of 10.43 percent, she'd have wound up with about $27,000.

I asked Morningstar to generate data on the 25 largest funds, comparing investor return to total return over periods of three, five and 10 years. There was a smattering of cases in which the investor return was slightly higher than the total return. But they were a small minority.

Morningstar will start providing the investor return data on its Web site, Morningstar.com, in November.[/url]

[Taggart]

DIY Answers to Bad Fund Managers

[Taggart]

Buffett Says Hedge Funds Are Older Than You Think

"Wherever you travel on the information highway, look out for factoids.

These tricky little creatures are bits of supposed knowledge that nobody has bothered to verify. They take on the aura of truth as they are repeated by people assumed to know what they are talking about."

[Taggart]

Yale's Money Guru Shares Wisdom with Masses

[Taggart]

Paving the Way Out of Poverty

Bangladeshi economist Muhammud Yunus was awarded the 2006 Nobel Peace Prize not for giving to the poor, but for helping them to help themselves

[Taggart]

Canada's 10 Most Admired Corporate Culures

[WishingWealth]

In the NYT.
You Can Complain, or You Can Make Money

..The top 1 percent of wealth holders have close to one-third of all wealth. The top 5 percent of wealth holders have very roughly 50 percent of all wealth in this country.

As you can see, that does not leave a lot for everyone else.

There are a number of ways to respond to this situation. You can become indignant and say that it’s a violation of American democratic principles. This is a good way to put yourself into a sanctimonious mood, and it offers some psychic satisfaction.

I’m not sure that there is any historical basis, though, for believing that the founders of the nation wanted everyone to have equal wages. Certainly, many of them were wealthy men, and the Father of Our Country was said to be the wealthiest man in the colonies from his land and slave holdings. But, again, if you want to be exercised about inequality, you’ll have plenty of company.

Another way, possibly more satisfying in the long run, would be to ask yourself how the top 1 percent of wealth holders and income earners got to be that way, and then to try to do it yourself. My own observation, having been both a critic and a moderately well-paid person, is that while it’s nice to be a critic, it’s also nice to have your own swimming pool. (The best is both, but that’s another story.)

...

Ant the NYT is a pinko of a paper; they say.

WW

[Jo Anne]

..The top 1 percent of wealth holders have close to one-third of all wealth. The top 5 percent of wealth holders have very roughly 50 percent of all wealth in this country.

I read something once suggesting that if all of the wealth in the world was distributed evenly between all of the people, in 20 years everything would be right back where it started.

It always made a great deal of sense to me.

[WishingWealth]

1%er helping 1%ers. This may help to shed some light on the previous link.

Again in the NYT. Their 'capitalistic' drive was not running very deep.


WW

[Taggart]

Most Canadians are satisfied with their job: StatsCan

[Taggart]

Fund rater shuffles the deck

Morningstar lets investors compare apples to apples

Jonathan Chevreau, Financial Post
Published: Wednesday, October 18, 2006

[Taggart]

How Microbrew Can Save the World

Thursday, October 26 2006

Small-scale, homebrew beer production plays a vital role in sustainable development throughout the world.

Chris O'Brien
Foreign Policy in Focus

[Taggart]

Two million reasons why Turner's happy

Jonathan Chevreau, National Post
Published: Wednesday, November 01, 2006

Garth Turner may have the last laugh after all. Bounced from the Conservative party for his maverick ways, one of the last acts the Independent MP performed for the Tories was to convene a one-day conference to urge Finance Minister Jim Flaherty to help senior couples split pension income.

Yesterday, along with his decision to tax income trusts, Mr. Flaherty announced he would do just that. Starting in 2007, more than two million pensioners will be able to split income from corporate pensions plans, just as they are already permitted to do with payments from the Canada Pension Plan.

[WishingWealth]

I was also losing sleep recently about M3.

Really: I was reading some old stuff last week and M3 was one of the main indicators for people in the know. Got me wondering where it had gone and if someone was even still tracking it. (At least reporting it in the mainstream press)

Excess cash a sign financial bubble just waiting to burst

In the G&M.

...Hard as it is to believe today, there was a time in the bond market when the thing that mattered the most, the single economic indicator that dismal scientists and traders obsessed over, the one that sparked volatility in bond prices, was money supply.

It was a simpler time, of course. Junk bonds hadn't been invented yet, nor had hedge funds, credit default swaps, bullion exchange-traded funds or weather derivatives. Most of the time, bonds wallowed around in a comfortable trading range, punctuated by the occasional knee-jerk on the release of the U.S. Federal Reserve Board's money supply numbers -- "Oh, my gosh, M3 is up 0.5 per cent! Sell everything!"

...
The theory seems to be that all the excess cash is just chasing financial instruments and not driving up consumer prices, so while there may be asset price inflation that causes a financial bubble or two, consumer and producer price inflation is fairly benign. Don't worry, be happy.

All that cash, though, is looking for a home, and with most Western economies slowing or growing at anemic rates, money has to go a little farther out on the risk spectrum to find the kinds of returns it has grown to expect. In a crude, laissez-faire sort of way, this may be a good thing: A lot of the excess cash will get pumped into dodgy investments and will get vaporized when the next bubble bursts, thereby helping to restore equilibrium -- as long as central bankers don't pump even more liquidity in as the bubble bursts to ensure a soft landing, as they are so wont to do.

...

WW

[Taggart]

A few interesting items from John Mauldin's Frontline thoughts

What is Wealth?

“How we define wealth,” says good friend Rob Arnott, “or investment success, drives our approach to investing. Benjamin Graham was fond of saying that the essence of investment management is the management of risks, not the management of returns. Well-managed portfolios start with this precept.”

Writing in this month’s Financial Analysts Journal, Rob gives us a different way to look at wealth. (Rob, besides successfully running billions of dollars at various funds, is the editor of the FAJ and has given me permission to use this material.) Quoting:

The Return of the Muddle Through Economy

• “Can we measure our wealth as the value of our portfolio? Hardly. Today, $1 million buys much less than it did 25 years ago.

• “Is wealth defined by the real value of our portfolio? Only if we plan to spend it all right away.

• “Is wealth the long-term spending that our portfolio can sustain—the annuity that our assets could procure? This definition is closer to the truth, but like the first, it ignores purchasing power.

• “Is wealth, then, the inflation-indexed real income that our assets could sustain over time? For most investors, this is probably the most useful definition of wealth.” But what assets should we invest in to get the best inflation-indexed returns? Stocks? Bonds? Commodities? And what about the risks of these various asset classes? In a very interesting study, Rob redefines risk not as volatility of the asset class in terms of price but in terms of real sustainable spending. And he defines returns as not just a simple return, but as the growth in the real spending stream that the portfolio can sustain.

It’s all about cash flow, or about the cash flow an asset or business can maintain. Real estate can produce a stream of income. Stocks can produce dividends or can be sold and invested in an annuity. Bonds pay an income. Entrepreneurs strive to build a business income model that does not solely depend on their continual involvement. (If you can’t walk away and the business still produce an income, or if you can’t sell the business to
someone for cash to invest, you have a job, not a sustainable business.)

As investors, what we are ultimately concerned with should be future streams of income or cash flow. We work to get our portfolios to grow faster than inflation, and to enough size to support our desired lifestyle. But Rob is suggesting that it is not the size of the portfolio, but the ability to produce a sustainable long-term lifestyle.

Normally we think of T-bills as being the most risk-free investment. When
viewed in terms of sustainable spending, however, T-bills become riskier than TIPS (inflation-adjusted bonds) and/or a regular bond portfolio. Look at the chart below. It represents the sustainable spending risk-adjusted returns of various asset classes. The red line is drawn between T-bills and stock market returns (as represented by the S&P 500). This is the classic capital market line between the “risk-free” asset and risky stocks.

Surprise. What you find out is that almost all asset classes produce a return or alpha higher than does the classic capital market when your define risk in terms of sustainable spending.

And the difference in returns between (1) TIPS, (2) a classic 60/40 stock and bond portfolio, (3) a simple portfolio comprised of all the asset classes, and (4) an all-stock portfolio in terms of sustainable spending is not all that much; but the volatility difference is huge.

I am currently doing a study that I will release later this year, but I'll give you a preview. Let's start with a portfolio diversified among two or more asset classes. At some point one of those asset classes will either underperform or undergo severe volatility. At such times the data suggests that a typical investor will switch to the better performing asset class. And this is precisely what almost guarantees that his total portfolio is going to underperform in the future.

Why? Because now he is over-allocated to an asset class that is likely to regress to lower than normal returns, especially if that asset class is mean reverting, like stock markets.

(This is not an argument that you should stay the course on a poorly performing asset class. Your asset allocation model should strongly depend on the current valuations of the various asset classes.)

But back to the conclusion of Rob’s article:

“What can we conclude…? First, [investors] singular focus on portfolio return and volatility and peer-group comparisons, to the exclusion of sustainable real spending and its volatility, is misguided. It leads us away from a balanced assessment of investment success.

“Second, the power of true diversification should not be underestimated as a means to sustain long-term real spending power at modest risk. The classic 60/40 balanced portfolio is not true diversification. Indeed, one of the best-kept secrets of the investing community is that stock market return so dominates the risk of a 60/40 portfolio that the portfolio exhibits a 98–99 percent correlation with stocks! True diversification involves seeking out uncorrelated or lightly correlated risky markets, not low-risk markets. Finally, just as wealth is not solely a function of asset growth, risk is not solely a function of asset volatility.”

-----------------------------------------------

Here is the original essay by Robert Arnott, What Is Wealth?

-----------------------------------------------

From Bill Gross at PIMCO:

“… As nominal GDP growth rates have declined from 11%+ to a recent 5-year average of less than 5%, future asset returns of a similar magnitude are foretold. While [the chart above] suggests that a 5% GDP growth rate can be levered up to perhaps 6% or 7%, that levering is certainly more difficult with a Fed Funds policy rate higher than the current growth rate of GDP and with disinflation near its end. In any case, we appear to be looking at maximum 6-7% average annual returns over the immediate future from stocks, bonds, and real estate in total (stamps too!).”

But investors want more. The desired future sustainable income value of their retirement portfolios demands more than 6-7% returns today. So, they seek out riskier investments. Thus we see risk premiums in all sorts of markets go to historic lows. Emerging market bonds pay shockingly little more than US bonds. The riskiest of high-yield bonds are sought after for their yield.

Canadian income trusts are bought worldwide for their steady, tax-free income. Oops. Seems like the Canadian government decided to change the rules. Those income trusts got spanked between 10-20% in one day this week, even though the underlying fundamentals of the companies involved changed not one whit.

(This is a horror show preview of what will happen to stocks if the Bush dividend tax cuts are not made permanent. Taxes do figure in the valuation of stocks!)

And note that the 1.4% average is mostly the last 25 years, which was a period of disinflation. We are at an end of that period. We should expect lower than 1.4% in the coming years.

[WishingWealth]

Revolt of the fairly rich

In CNNMoney.com

Not long ago an investment banker worth millions told me that he wasn't in his line of work for the money. "If I was doing this for the money," he said, with no trace of irony, "I'd be at a hedge fund." What to say? Only on a small plot of real estate in lower Manhattan at the dawn of the 21st century could such a statement be remotely fathomable. That it is suggests how debauched our ruling class has become.

The widening chasm between rich and poor may well threaten our democracy. Yet if that banker's lament staggers your brain as it did mine, you're on your way to seeing why America's income gap is arguably less likely to spark a retro fight between proletarians and capitalists than a war between what I call the "lower upper class" and the ultrarich.

...
Lower uppers are doctors, accountants, engineers, lawyers. At companies they're mostly executives above the rank of VP but below the CEO. Their comrades include well-fed members of the media (and even Fortune columnists who earn their living as consultants).

Lower uppers are professionals who by dint of schooling, hard work and luck are living better than 99 percent of the humans who have ever walked the planet. They're also people who can't help but notice how many folks with credentials like theirs are living in Gatsby-esque splendor they'll never enjoy.

This stings. If people no smarter or better than you are making ten or 50 or 100 million dollars in a single year while you're working yourself ragged to earn a million or two - or, God forbid, $400,000 - then something must be wrong.

...

Hey there can only be one alpha per territory.


WW

[patriot1]

Another way, possibly more satisfying in the long run, would be to ask yourself how the top 1 percent of wealth holders and income earners got to be that way, and then to try to do it yourself.

By having rich parents for the most part (yes I know there are exceptions). Can I get some to adopt me?

Or maybe I could buy a software package from another company, get IBM to use it while retaining the rights myself, and become the world's richest man!

All people have the capacity to improve their financial position, but the fact is most superrich are very lucky, very crooked, very talented, or some combination of these.