Clippings 2009

[Taggart]

[Earlier thread here]

The Economist

Jan 8th 2009

Yielding to none

The dilemma facing investors in government bonds

[bender]

For Ayn Rand fans, 'Atlas Shrugged': From Fiction to Fact in 52 Years in the Wall Street Journal.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you.

[Taggart]

London Business School: Size matters: worst year for UK smaller companies since 1974

16/01/2009

The Hoare Govett Smaller Companies (HGSC) Index report, published today by The Royal Bank of Scotland (RBS) and London Business School professors Elroy Dimson and Paul Marsh, shows that in 2008 small-caps suffered one of the worst years on record.

[Taggart]

Bernie Madoff Offered Glorification of Smoothness: John Dorfman

Jan. 16 (Bloomberg) -- I admit to feeling a twinge of schadenfreude in regard to the Bernie Madoff scandal.

Madoff, a former chairman of Nasdaq, is accused of running the largest Ponzi scheme in history, swindling investors out of as much as $50 billion.

The reason for my emotional reaction is simple. In the past few years, two of my clients and several prospects have asked me, in effect, “Why doesn’t your firm have nice smooth returns like that guy Madoff?”

[Taggart]

The good news....I don't see any Canadian companies on the list.

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

SocGen’s Montier Sees 42 Stocks That May Cause ‘Permanent’ Loss

By Michael Patterson and Adam Haigh

Jan. 27 (Bloomberg) -- Societe Generale SA strategist James Montier identified 42 stocks around the world, including News Corp. and BAE Systems Plc, that may cause a “permanent loss of capital” for investors as valuations fall, earnings trail estimates and the companies struggle to repay debt.

[NormR]

The good news....I don't see any Canadian companies on the list.

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

SocGen’s Montier Sees 42 Stocks That May Cause ‘Permanent’ Loss

By Michael Patterson and Adam Haigh

Jan. 27 (Bloomberg) -- Societe Generale SA strategist James Montier identified 42 stocks around the world, including News Corp. and BAE Systems Plc, that may cause a “permanent loss of capital” for investors as valuations fall, earnings trail estimates and the companies struggle to repay debt.

Here are a few Canadian Losers

[Doug]

(Fortune Magazine) -- Is it time to buy U.S. stocks?

According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy - its GNP.

Fortune first ran a version of this chart in late 2001 (see "Warren Buffett on the stock market"). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.

But he visualized a moment when purchases might make sense, saying, "If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you."

Well, that's where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham's statement about the stock market: "In the short run it's a voting machine, but in the long run it's a weighing machine."

Not just liking the chart's message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing (outside of Berkshire Hathaway (BRKB) stock) but U.S. government bonds.

He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling - the Dow Jones industrials have dropped by about 10% since Oct. 17 - so presumably Buffett kept buying. Alas for all curious investors, he isn't saying what he bought.

http://money.cnn.com/2009/02/04/magazin ... 2009020409


I encourage you to use the link. It gives a chart showing the total market value of US stocks as a percentage of GNP going back to 1924. Unfortunately, my keyboarding skills are not good enough to provide the chart. Yes, the number is 75% now. However, 75% is about as high as it ever was prior to 1995. Based on this metric, the poor stock returns of the last 10 years should improve. But based on this metric, stock returns will be far from stellar.

[Shakespeare]

I encourage you to use the link. It gives a chart showing the total market value of US stocks as a percentage of GNP going back to 1924.

The chart, from the link:

[Taggart]

Saving banks from themselves

By James Saft Reuters

Published: February 5, 2009


LONDON: Our brains are wired for bubbles, it would appear, and strict regulation is the only way to save ourselves from ourselves.

Bankers, traders and investors effectively became addicted to the pleasure that comes from making money, while at the same time they increasingly lost touch with how much risk they were taking.

The result was a bubble in debt and many other financial assets and the inevitable crash.

[Doug]

IN the last 82 years — the history of the Standard & Poor’s 500 — the stock market has been through one Great Depression and numerous recessions. It has experienced bubbles and busts, bull markets and bear markets.

But it has never seen a 10-year stretch as bad as the one that ended last month.

Over the 10 years through January, an investor holding the stocks in the S.& P.’s 500-stock index, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation, as is shown in the accompanying chart.

Until now, the worst 10-year period, by that measure, was the period that ended September 1974, with a compound annual decline of 4.3 percent.

http://www.nytimes.com/2009/02/07/busin ... f=business


In this forum, the Great Depression is often used as the worse case scenario for stocks. However, for American stocks, the worse case scenario is for the last 10 years. It would be interesting to see how bonds did in the same period, and what the comparable Canadian data are. A limitation of this data is it doesn't provide after tax return. In Canada, that would decrease any shortfall of stock return compared to bond return.

[scomac]

To Dec. 31, 2008 the 10 year returns in CAD are:

TSX Total Return: 5.34%
MSCI World: -2.40%
S&P 500 Total Return: -3.56%
Canadian Fixed Income Peer Index: 4.12%
Citigroup World Gov't Bd. Index: 3.61%

[Taggart]

Cheap passive fund provider finally arrives in the U.K.

By Jonathan Davis

Published: February 8 2009

About a decade ago, on my way back from a holiday in the US, I took a thousand mile detour to Valley Forge, Pennsylvania to visit the head office of an investment firm that all the big beasts in the finance and economics departments at MIT had raved about during my year’s fellowship programme there. At the time I had never met anybody in the UK who had heard of Vanguard, let alone found someone who knew anything about it or had visited its operations.

[adrian2]

Cheap passive fund provider finally arrives in the U.K.

Clicking on the above link leads to the first couple of paragraphs of the article and then asks for registration at ft.com

Checking for a login at bugmenot.com led to a suggestion on how to trick the ft site:

If you change the false in the link to true, delete &_i_referer and everything after it (if it's there)or it won't work

After clicking the above link, change the url to
http://www.ft.com/cms/s/0/cdee8786-f4f2 ... =true.html

[WishingWealth]

Some people's sleeping at the switch.
In The Big Money / Slate
http://tbm.thebigmoney.com/articles/his ... -it-keynes

Blame It on Keynes
Everyone's got a view of the theory, but what about the man?
...
The man was as complex and engrossing as his theory. Keynes' most recent biographer, Lord Robert Skidelsky (whose one-volume abridged treatment runs more than 1,000 pages), portrays him as equal parts genius and jerk. He ran with the Bloomsbury Group, which counted painters and writers like Virginia Wolf and E.M. Forster in its circle. The Bloomsbury crowd was known for free love and raunchy language, but even they complained in letters to each other that Keynes was too dirty for them. He was an openly gay figure who took his boyfriends to fancy parties at a time when homosexual sex could get you thrown in jail, and he slept around with women, too. But he married Lydia Lopokova in 1925 and apparently stayed faithful to her for the rest of his life.
One constant was Keynes' faith in the elite. He generally believed that almost any problem could be solved by getting together young men who had been schooled at Cambridge and asking them to take over. (Every once in a while, he could tolerate an Oxford man.) This extended beyond his own country; he even wanted Cambridge men to run America, because he didn't think anyone in the United States was smart enough to do so. His contempt extended to Jews, the French, and the working class.

Keynes wrote that these Cambridge-led government boards should do everything from running individual companies to determining how many babies should be born and, cryptically, of what quality. (He was, after all, also on the board of directors of the British Eugenics Society.)
...

WW

[Taggart]

From Times Online

February 11, 2009

Global stock market losses total $21 trillion

Stock market losses totalled $21,000 for every individual in the developed world between the market peak of October 2007 and the trough of November 2008, according to research from Credit Suisse Global Investment Returns.

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

10 February 2009

Markets 'will take a decade' to recover

Equity markets will probably remain below their previous peaks until at least 2019, according to research published this morning by London Business School, spelling prolonged gloom for asset managers, which rely on high asset values for fee income.

Economists Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School said: "There is a 50% chance it will take a decade for the FTSE 100 index to recover its previous high. In the US, the Dow may stay below its high until 2022."

[Bylo Selhi]

OTOH... Train to get in financial shape

Imagine that you had the psychological fortitude to invest in stocks on Nov. 1, 1930, after the market fell 41%. This was by no means the bottom: The bear still had another 20 months to run, bringing eventual losses to 83%, according to Ibbotson. Even so, equities delivered a real (after inflation) return of 2.9% annually over the subsequent 10 years and 4.5% over the next 20 years.

But that's the worst-case scenario. Buying stocks after the 1937-38 and 1972-74 debacles provided far better results. If you invested in equities on Oct. 1, 1974, for example, your real annualized return was 7.5% over the next 10 years and 9% over 20. This suggests that high future returns are a good possibility now.

[Taggart]

A lament for savers

Prudence gets penalised

Feb 12th 2009

BORROWERS get bailed out. Run your bank into the ground and the taxpayer will lend it money. Buy a house you cannot afford and the central bank will cut interest rates to ease your burden.

Meanwhile those who have lived within their means and put money aside for the proverbial rainy day, have seen interest rates slashed to 2% in the euro zone, 1% in Britain and virtually nothing in America. No one offers to help them out, even though saving is needed to allow business investment which, in turn, generates growth. Asians, told off in the 1990s for their current-account deficits, now get lectured for saving too much.

[Peculiar_Investor]

A lament for savers

Prudence gets penalised

Feb 12th 2009

BORROWERS get bailed out. Run your bank into the ground and the taxpayer will lend it money. Buy a house you cannot afford and the central bank will cut interest rates to ease your burden.

Meanwhile those who have lived within their means and put money aside for the proverbial rainy day, have seen interest rates slashed to 2% in the euro zone, 1% in Britain and virtually nothing in America. No one offers to help them out, even though saving is needed to allow business investment which, in turn, generates growth. Asians, told off in the 1990s for their current-account deficits, now get lectured for saving too much.

Thanks for the link. Read the full article and it reflects what I've been thinking for a while now. It reminds me of the some of the articles published when the US mortgage market was diving off the cliff and how those that were prudent and staying current on their mortgage were starting to consider the merits of continuing to pay and therefore not get a government bailout. Seems backward to me and many others.

[Taggart]

Telegraph (U.K.)

11 Feb 2009

History of gloomy decades indicates a silver lining for equity investors

When the Barclays Capital Equity Gilt study is published today it will confirm what every investor already knows. The last 10 years have been a grim "lost decade" in the stock market.

[Taggart]

The New York Times

By DAVID CARR
Published: February 15, 2009

The Market Is Still Dead

[couponstrip]

From the article by David Carr:

When the reporter on the radio says, “Stocks were down 2 percent on news that the jobless figures were worse than expected,” is there any reason to believe him?

“The headline that you will never hear is ‘The market was down 110 points, a random fluctuation in a very complex system,’ ” said Eric Schurenberg, the former managing editor of Money magazine who is busy building — get this — a financial Web site for CBS. “No one has ever known what was going to happen, but there is this temptation to act like you did.

Isn't that the truth. The capsules beside the market indices in the newspaper are always entertaining:

"The TSX, Dow, and broader market S&P indices tumbled today due to the fed's speech indicating that a recession is a possibility".

If only it were that simple.

[WishingWealth]

I'm sure there must be some logic behind this one but it always brings a smile.
"The $CA was down today due to a strong performance by the $US."

Wonder how long the weather guy would last if he said that a few times: "It will rain today due to the absence of sunshine."

WW

[Taggart]

The Economist

Feb 17th 2009

Doubling up

The IMF is sharply increasing its lending capacity. It expects that more countries may need its help

[Taggart]

Reuters

Wed Feb 18, 2009

Trump's 'golden' image on trial after bankruptcy

[Taggart]

Stanford Burns Latin Americans Seeking Shelter From Currencies

By Matthew Walter

Feb. 19 (Bloomberg) -- Investors across Latin America who placed funds offshore to escape financial instability at home have seen their strategies backfire after trusting alleged fraudsters R. Allen Stanford and Bernard Madoff.