Miscellaneous

This and That: China Housing Bubble, Gold and more…

May 3, 2013

8 comments

If you thought Canada has a housing bubble, this 60 Minutes story on China’s real estate bubble, where entire city blocks, malls and even cities are virtually empty, will make us look like small potatoes. One particularly scary statistic: a typical apartment building in Shangai costs 45 times an average resident’s annual salary.

CBC Television’s DocWorld featured a story called The Secret World of Gold that alleged that the price of gold is manipulated. That may be. But it seems to me that the rise in the price of gold can be traced to the enormous increase in demand from investors. It shouldn’t be surprising, therefore, that the price of gold moves in the other direction when the demand from investors falls.

Some advisors are reported to be experiencing “goldenfreude” or pleasure from the suffering experienced by gold investors this year. Any such feelings may be premature considering that stock prices can plunge sharply as well.

If you need another reminder to get your wills and power of attorney done, here is a story on a wealthy New York resident who died intestate and whose estate could end up going to the state.

The renting v. owning debate is being played out in the wake of discussions around the housing bubble in Canada. Robert Shiller argues in this New York Times column argues that forecasting future housing prices may not be possible. His advice: “it may be wisest to choose the housing that best meets your personal needs, among the choices you can afford”.

“Always look at the productive ability of the asset you are buying, whether it is a farm, apartment house or company” counsels Warren Buffett in an interview with Fortune magazine.

The CBC’s Neil Macdonald takes a critical look at the power wielded by the world’s central bankers and the unintended consequences Quantitative Easing is having on savers. Outgoing Bank of Canada Governor Mark Carney points out that the consequences of high interest rates will likely be much worse.

This column in The New Yorker argues essentially that savers should simply “shut up”. It seems to me a far too unsympathetic attitude towards primarily older savers and pensioners.

Money apparently does buy happiness. A new study contradicts widely held belief that more money beyond a certain point does not make people happier. It suggests instead that the relationship between money and happiness is much more complicated than earlier believed.

The Wall Street Journal featured a story that contained four tips to simplify your portfolio.

This and That: Grantham Interview, RESPs and Another Giveaway

April 4, 2013

15 comments

In a wide-ranging interview with Charlie Rose on PBS, Jeremy Grantham says that the era of 3 percent economic growth is over.

Jason Zweig says that automatic enrolment with opt-out can help alleviate the retirement savings crisis.

Rob Carrick says that you can give your kids their inheritance early by starting early and contributing regularly to a Registered Education Savings Account (RESP). It’s good advice because the Government kicks in at the very least an extra 20 percent.

Bitcoins were in the news this days as the value of these virtual coins soared in the wake of events in Cyprus. This blog post takes a deeper look into the strengths and weaknesses of Bitcoins.

As the old saw goes, investing is simple but not easy. This article offers ten tips for overcoming some common investment errors.

Larry Swedroe highlights the findings of a study that found that there is no special advantage to a strategy of investing in dividend-paying stocks.

Michael James calls value averaging — an investment strategy that involves adding or withdrawing money from a portfolio based on a pre-determined rate of return — “non sense”.

Canadian Financial Stuff says that he finds passive investing still means you have to pay attention to your portfolio. I tend to agree but it should be mentioned that the time demands of a passive portfolio are fairly minimal.

Google recently announced that it is shuttering the Reader product. Blessed by the Potato wonders why Google is killing off some of its useful products.

H&R Block Online Giveaway

Thanks to H&R Block, I am giving away five (5) online coupons for filing your family’s tax returns (valued at $23.95). To enter just leave a comment in this post and don’t forget to include a valid e-mail address. If you are reading this through your favourite RSS Reader or via-email, you have to click on the headline, get through to the website and scroll down to the bottom of the page and type in your comment.

Some quick rules:
(1) No purchase necessary. A skill-testing question may be required.
(2) Deadline for entries is 11:59 p.m. EDT on Tuesday, April 9, 2012.
(3) One entry per person please.
(4) I treat your privacy very seriously. Your email will be used for the sole purpose of contacting you if you happen to win.
(5) I’ll pick five (5) entries at random and announce the winner after the deadline. All decisions are final.

The Hysteria Over Bail-ins (and a Giveaway)

April 2, 2013

35 comments

In Budget 2013, Finance Minister Jim Flaherty proposed the establishment of a risk management framework for systemically important banks. At first glance, the proposal looks fairly innocuous (See Pages 144-145 of the Budget document available here) because the Minister is simply proposing that the Government of Canada “intends to implement a comprehensive risk management framework” for the Big Six banks. The framework will include higher capital requirements, a “bail-in” regime that will convert “certain bank liabilities” into regulatory capital and more oversight from regulators.

Many Canadians (aided and abetted by certain vested interests) began to conclude that the Canadian Government is calling for insured bank deposits to take a haircut in the event of a major bank failure. That does not appear to be the case. Bail-in simply refers to a partial conversion of certain unsecured debt into equity under specific conditions. A 2011 paper titled Contingent Capital and Bail-In Debt: Tools for Bank Resolution put out by the Bank of Canada has some ideas on the liabilities that can be converted into equity [emphasis mine]:

There is some debate about the scope of the liabilities that should be subject to such bail-in conversion, but a focus on senior, unsecured debt instruments would be relatively straightforward. This particular scope of application would leave secured creditors, insurable depositors, short-term securities holders and a bank’s counterparties unaffected by bail-in provisions.

In other words, deposits in a bank up to CDIC insurance limits will likely be safe during a bank failure. In fact, The Financial Post is now reporting that a Finance Ministry spokeswoman clarified that “the bail-in scenario described in the budget has nothing to do with depositors’ accounts and they will in no way be used here.”

One would think that a bail-in mechanism for banks is a good thing because recapitalizing too-big-to-fail institutions with tax payer money (a.k.a bail outs) while leaving bond, preferred-share and sometimes even equity investors with little or no losses will incentivize reckless risk taking. After all, who wouldn’t love to gorge on a free lunch if someone else gets a stomach ache?

UFile Giveaway

Thanks to UFile Online, I have ten (10) online coupons that are good for filing your family’s tax returns (valued at $24.95 plus tax) to giveaway. Entering is real simple — Just leave a comment in this post and don’t forget to include a valid e-mail address. If you are reading this through your favourite RSS Reader or via-email, you have to click on the headline, get through to the website and scroll down to the bottom of the page and type in your comment.

Some quick rules:
(1) No purchase necessary. A skill-testing question may be required.
(2) Deadline for entries is 11:59 p.m. EDT on Friday, April 5, 2012.
(3) One entry per person please.
(4) I treat your privacy very seriously. Your email will be used for the sole purpose of contacting you if you happen to win.
(5) I’ll pick ten (10) entries at random and announce the winner after the deadline. All decisions are final.