Clippings 2010

[kcowan]

Except for the banks with their Mark to Make Believe asset valuations. I tend to believe in caution. More bullish of resources though. Dow no TSX yes.

[Taggart]

To access the article from The Financial Times (UK), copy and paste the following title into Google.

No time to be going negative on equities

By Steve Johnson

Published: January 17 2010 09:20 | Last updated: January 17 2010 09:20

The reaction of many institutional and retail investors to the dire performance of equities over the past decade, and the equally unwelcome volatility induced by stock markets’ sickening rollercoaster ride, has been a negative one.

[newguy]

I should warn you, I do all my market research at cracked. 6 Logical Fallacies That Cost You Money Every Day.

We're only half kidding. Hyperbolic discounting puts us on the level of pigeons and rats in the realms of fiscal responsibility.

newguy

[Doug]

http://money.cnn.com/2010/01/18/pf/bond ... /index.htm

"Had you held your entire portfolio in U.S. government issues -- which have a minuscule chance of default because they're backed by the full faith and credit of Uncle Sam -- you'd have earned an annualized return of 8.5% over the past two decades. That's about half a percentage point a year ahead of the stock market and three points above their historical average."

[Doug]

http://www.financialpost.com/personal-f ... id=2475394

The article points out that if you're going to use leverage, now is the time: interest rates aren't going to get lower than this.

[scomac]

The article points out that if you're going to use leverage, now is the time: interest rates aren't going to get lower than this.

A little late me thinks. Where was this article a year ago? Oh right, it got buried under the ITEOTWAWKI dross.

[Peculiar_Investor]

The article points out that if you're going to use leverage, now is the time: interest rates aren't going to get lower than this.

A little late me thinks. Where was this article a year ago? Oh right, it got buried under the ITEOTWAWKI dross.

When I saw the headline I thought the same thing. I must admit I was a bit surprised that it was written by Jamie Golombek. But read the article, it is more about clarification on the tax treatment of borrowing to invest based on recent rulings. I think the headline writer (and Doug) did a disservice to Jamie Golombek by not focusing on the main theme of the article, the CRA's position on interest deductibility on investment loans.

[Doug]

Peculiar Investor is quite right that the article is really about taxation of investment loans: his comment about me is correct.

[WishingWealth]

We're just about to witness an invasion of USians into Canada; soon the land of Small Government.
And some in Canada can stick the suitcases back in the closet.

@ The Economist: http://www.economist.com/world/internat ... d=15328727

Leviathan stirs again
The return of big government means that policymakers must grapple again with some basic questions. They are now even harder to answer
...
...
In America, George Bush did not even go through a prudent phase. He ran for office believing that “when somebody hurts, government has got to move”. And he responded to the terrorist attacks of September 11th 2001 with a broad-ranging “war on terror”. The result of his guns-and-butter strategy was the biggest expansion in the American state since Lyndon Johnson’s in the mid-1960s. He added a huge new drug entitlement to Medicare. He created the biggest new bureaucracy since the second world war, the Department of Homeland Security. He expanded the federal government’s control over education and over the states. The gap between American public spending and Canada’s has tumbled from 15 percentage points in 1992 to just two percentage points today.
...

[My ]
WW

[WishingWealth]

I read the whole Economist article and a more appropriate title would have been: We're all fu*#ed.

OTOH, I was reading an article on the history of Haiti and we could do like the just post-revolutionary rulers there.

...
Unable to replace the whites in their plantation manors, Haiti’s new elite moved from owning the land to fighting to control the one institution that could tax its products: the government. While the freed slaves worked their small fields, the powerful drew off the fruits of their labor through taxes. In this disfigured form the colonial philosophy endured: ruling had to do not with building or developing the country but with extracting its wealth. “Pluck the chicken,” proclaimed Dessalines — now Emperor Jacques I — “but don’t make it scream.”
...

@ the NYTimes: http://www.nytimes.com/2010/01/22/opini ... nted=print


WW

[Norbert Schlenker]

Rachel Porcaro knows she's hardly rich. When you're a single mom making 10 bucks an hour, you don't need government experts to tell you how broke you are.

But that's what happened. The government not only told Porcaro she was poor. They said she was too poor to make it in Seattle...

"I asked the IRS lady straight upfront — 'I don't have anything, why are you auditing me?' " Porcaro recalled. "I said, 'Why me, when I don't own a home, a business, a car?' "

The answer stunned both Porcaro and the private tax specialist her dad had gotten to help her.

"They showed us a spreadsheet of incomes in the Seattle area," says Dante Driver, an accountant at Seattle's G.A. Michael and Co. "The auditor said, 'You made eighteen thousand, and our data show a family of three needs at least thirty-six thousand to get by in Seattle."

"They thought she must have unreported income. That she was hiding something. Basically they were auditing her for not making enough money."

Seriously? An estimated 60,000 people in Seattle live below the poverty line — meaning they make $11,000 or less for an individual or $22,000 for a family of four. Does the IRS red-flag them for scrutiny, simply because they're poor? ...

h/t

...TA: As my colleague here has incontrovertibly demonstrated to you, the numbers don’t lie. At the outset of the Porcaro case, the DMIT for a family of 3 in Seattle was $36,000. As we’ve improved our analysis, that number has risen. The DMIT for a family of 3 in Seattle is now $63,000. The DMIT for that same family if they move to Chicago is $92,000, and it’s $104,000 in New York City. If the Porcaro case were started today, the liability would be much higher. In any event, we’re reviewing returns of U-DMITs and expect to be launching another wave of audits shortly. The one exception is Detroit. The DMIT in Detroit has actually dropped to $8; however we’re reviewing the analysis as we think perhaps there was a glitch in the Kashkari we used to calculate the DMIT. Anecdotally, we got that one used from Treasury some months ago after someone departed. As I recall, that was the first Kashkari we received - and I still don’t know why we call them that - and results always seem way off……

OTCB: I take it then that you suspect anyone who reports less than the DMIT for their area is underreporting?

TA: Absolutely. There’s no other explanation.

OTCB: Could one explanation be that wage gains have not matched increases in costs?

TA: We’re not saying wages have matched cost increases. We’re saying they’ve exceeded the increases.

OTCB: What about the unemployed?

TA: That’s a great question. The so-called unemployed are the worst offenders as far as we’re concerned. We believe they are unemployed merely to avoid paying taxes. They pay virtually NO taxes. That is so terribly unfair to those citizens who avoid paying taxes legally. We actually have a proposal in Congressional subcommittee suggesting that poverty should be criminalized. We think that’s the kind of policy making that will get this country rolling again. In the meantime, we’re planning mass audits of U-DMITs to attempt to recapture some of that lost revenue. Our biggest challenge is auditing the homeless. That’s another strategy that these conspirators use to thwart or collection efforts. They reside in vehicles, cardboard boxes, doorways; all sorts of domiciles intended to impede our determination of their location and applicable DMIT .

OTCB: How do you calculate tax on zero income?

TA: We use the DMIT as the reported income – basically a number we make up by punching a few figures into our Kashkaris. And just a short, funny anecdote, we were running a calculation on a suspected U-DMIT with that buggy Kashkari and the tax liability that popped out was $700 Billion! HAHAHAHAHAHA! You should have seen the eyes bug-out on THAT guy! Anyways, we think the shirking of personal responsibility in our society has gone too far. We are now requiring citizens to be responsible for earning enough to match the DMIT for their location or we’ll tax them at that amount anyway. And there will be no complacency allowed; we will be escalating all DMITs quarterly untill we feel sufficient revenue is coming in...

[Norbert Schlenker]

This last point—people knowing that they are not alone in the fight—seems to be the biggest hurdle when it comes to transforming norms vis-à-vis corruption. For people to speak up against corruption that has become institutionalized within society, they must know that there are others who are just as fed up and frustrated with the system. Once they realize that they are not alone, they also realize that this battle is not unbeatable. Then, a path opens up—a path that can pave the way for relatively simple ideas like the zero rupee notes to turn into a powerful social statement against petty corruption.

http://blogs.worldbank.org/publicsphere ... c-services

[WishingWealth]

Some bloody tenants just can't say uncle when they're down; thrice (or more) they must be sued.
The NYTimes: http://www.nytimes.com/2010/01/31/busin ... f=business

All Those Little Stuyvesant Towns
By GRETCHEN MORGENSON
...
The most famous such bet was the $6.3 billion purchase in 2006 of Stuyvesant Town and Peter Cooper Village on the East River in Manhattan. The buyer was a partnership that Tishman Speyer Properties and BlackRock Realty oversaw. But last week, the properties — now valued at less than $2 billion — went back to the banks that had financed this top-of-the-market deal. The investors in the project had defaulted.
...
“Vantage’s ability to satisfy its projected profits largely depends on its ability to evict rent-regulated tenants and raise rents to market levels,” wrote Alphonso B. David, chief of the Civil Rights Bureau in the attorney general’s office, in a letter to the company last week. Vantage tried to force out long-term tenants “by serving baseless legal notices and commencing frivolous housing court eviction proceedings,” he wrote.
...
One Vantage tenant cited in the attorney general’s letter had lived in his apartment without incident for 14 years. After Vantage bought his building, the company put the tenant through three unfounded eviction proceedings in one year, the attorney general’s office said.
...

Someone (the AGs) is interfering yet again with the Mighty Hand of God; shame.

WW

[CROCKD]

A thought provoking article about the unemployment plight of young graduates in today's Britain.

A long article by a young man but worth reading because of the various sides of the issue that he explores.

Our parents had free education, fat pensions, and second homes. We've got student debt and a property ladder with rotten rungs. Thanks very much, says Andrew Hankinson, BSc

No doubt the older generation will have a good time with their free bus passes and villas in Spain.

"The schools. False expectations were raised. I also think there's an element of young Brits wanting the job they want and not being willing to take a job. They haven't got from their schools the idea that the best way to get to the top of the ladder is to get on one of the lower rungs and start climbing

I ask Dad how he coped with recession. He left school at 14, started as an office boy ("fetching the senior partner's tobacco"), learned his trade and created a company from nothing. Then suddenly his business was liquidated in 1993 and he was working in a paper shop and delivering Thomson directories.

Lost Generation

[ghariton]

Some bloody tenants just can't say uncle when they're down; thrice (or more) they must be sued.

One more example of the evils of rent control.

George

[mw]

Kauffman survey of notable or prolific economic bloggers, lots of charts. Value? Unclear, although some of the recorded opinions are interesting.

http://www.growthology.org/files/economic-bloggers-survey-q1-2010.pdf

If you care to answer the same question set, here's an on-line version of the very same survey:

http://www.surveymonkey.com/s/QG699NL

[Pickles]

...TA: As my colleague here has incontrovertibly demonstrated to you, the numbers don’t lie...
OTCB: I take it then that you suspect anyone who reports less than the DMIT for their area is underreporting?
TA: Absolutely. There’s no other explanation...
OTCB: What about the unemployed?
TA: That’s a great question... We actually have a proposal in Congressional subcommittee suggesting that poverty should be criminalized...
OTCB: How do you calculate tax on zero income?
TA: ... We are now requiring citizens to be responsible for earning enough to match the DMIT for their location or we’ll tax them at that amount anyway.

While the above is satire, it was close to reality in the recent Mike Harris regime in Ontario where welfare workers were told to rigorously investigate families who "couldn't possibly live" on what they received from the province. Among the unauthorized gifts docked from a recipient's cheque was the "retail value" of a bag of vegetables grown in the garden of the recipient's father....

[brucecohen]

Here's what I think is a nice overview of what caused the financial crisis. By Newsweek economics columnist Robert Samuelson.

[newguy]

All these articles tend to mention FF being too low, but the fed doesn't set the long term rates that mortgages are based on, the market does. Very few stories mention the wholesale buying of longer dated treasuries by the Chinese as the reason mortgage rates were so low. I think without that buying we would have had higher rates a long time ago. Now that they seem to have stopped, we need the QE to keep them low ....you know...to reinflate the bubble.

newguy

[brucecohen]

All these articles tend to mention FF being too low, but the fed doesn't set the long term rates that mortgages are based on, the market does.

Are short-term mortgages based on long-term rates? Short-term mortgages have been very popular in Canada over recent years and also in the US, I believe.

[newguy]

All these articles tend to mention FF being too low, but the fed doesn't set the long term rates that mortgages are based on, the market does.

Are short-term mortgages based on long-term rates? Short-term mortgages have been very popular in Canada over recent years and also in the US, I believe.

Good point. I don't know how it breaks down in duration terms. But nobody takes out an overnight mortgage. One effect is the banks trying to get more yield than treasuries so they lever up on the higher yielding mbs. When they run out of capital, they call their mbs AAA somehow .

newguy

[ghariton]

Here's what I think is a nice overview of what caused the financial crisis. By Newsweek economics columnist Robert Samuelson.

Agree. I would quibble on a few details and add some others (such as the failure of corporate governance) but over all he makes a lot of sense.

George

[investnoob]

Here's what I think is a nice overview of what caused the financial crisis. By Newsweek economics columnist Robert Samuelson.

Great article, thanks for the link.

[Taggart]

I don't like this. This associate portfolio manager is interested in the same Canadian sectors as I've been lately.

As usual, copy and paste the title into Google to access the full article.

Wall Street Journal

FEBRUARY 11, 2010

Zohny Looks Beyond TSX Leaders

Now, however, the managers are looking more closely at grocers, telecommunications providers and utilities, what Zohny calls "stable revenue companies" which remain undervalued even after the market's gains.

"Last year, a lot of the hot stocks and hot sectors did very well, and a lot of these companies didn't participate," Zohny says. "If the market flatlines, even on a valuation basis, a lot of these companies will at least catch up to the market."

[Taggart]

The Wall Street Journal

FEBRUARY 13, 2010

High Trading Is Bad News For Investors

By JASON ZWEIG

"Buy-and-hold hasn't looked too good lately, but churn-and-burn is no better."