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moneysense.ca, 20/08/09
This and That: The Greenback Effect and more…
- In an op-ed piece in the New York Times, Warren Buffett worries about the threat of inflation and the purchasing power of the greenback due to the printing presses working overtime in Washington. Foreign investors will worry about the implications of buying into US-based stocks denominated in a potentially depreciating currency.
- Jeff Matthews, who writes the fantastic I am Not Making This Up blog, points out that companies vigorously repurchase their own shares at higher prices and suspend their share repurchase programs when prices are lower. How does that qualify as “returning value to shareholders”?
- CARP has a simple motto: Just give us more! Jon Chevreau blogged about CARP’s latest multi-part proposal for pension “reform”. Michael James points out that math doesn’t seem to play a big role in CARP’s proposal for a new and improved OAS and GIS.
- In a recent issue, Maclean’s magazine laid out the case against having kids. Canadian Financial DIY wonders who will pay for our healthcare and pensions when we are old if too many of us decide not to have kids. Canadian Money Forum members also discussed the article here.
- Million Dollar Journey says why stop with double leverage ETFs? Now you can gamble your money away with triple leverage ETFs.
- With three young children at home, it is a rare treat for us to go to the movies. Preet shows how you can save money by becoming a mystery shopper.
- Canadian Financial Stuff cautions that automatically renewing your anti-virus software is an expensive proposition.
- Emerging markets are not exotic enough these days. The Intelligent Speculator reports on investment opportunities in 28 countries classified as “frontier” markets.
- Scotia Bank announced this week that it has begun selling life, health, auto and home insurance. Thicken My Wallet analyses whether banks selling insurance is a good thing for the consumer, the shareholder and the economy.
- Mr. Cheap warns investors not to confuse ex ante expectations with ex post results.
moneysense.ca, 20/08/09
Thanks for the mention and have a great weekend
I remember doing stock buybacks in Railroad Tycoon 2. It was a scam for you, the CEO, to use company money to increase your stake in the company. I assume the same is true here.
Thanks for the link. Have a good weekend.
Well duh… It’s a foregone conclusion that the greenback is set for a massive drop. The only thing is that the USA is the world’s biggest customer (one of the few and by far the biggest net importer), their currency is the global standard currency by which all other currencies are measured and that countries like China, South Korea, Japan all need the USA to buy their exports so they continue to prop up the greenback by buying it in massive quantities.
I would think that once the greenback plummets against all other currencies, then you definitely want to be in US stocks. US companies would be able to have the same cost competitive advantage that Canada had when our currency was a measly $ 0.62. A low currency is almost like an artificial trade barrier – Canadian companies were selling so much and Canadian consumers were importing (and traveling abroad) so little!
@Aleks: That’s very funny. I’ve never player Railroad Tycoon 2 and who knows, maybe they teach this in MBA courses!
@Phil: I don’t know — the US is our largest trading partner. If our goods get expensive, won’t we suffer too? Won’t we contract “Dutch Disease” where our strong currency be a handicap? Would the Canadian Government stand idly by and watch it happen? The last time our currency appreciated, strong commodity prices kept our economy robust despite the travails of the manufacturing sector. Would history repeat itself? I don’t know and I don’t have a view either way, so I assume the market is baking all this in the price. Of course, the markets could turn out to be wrong.
Thanks for the mention. In the spirit of “Just give us more!”, my earlier proposal that everyone named Michael be exempt from taxes doesn’t seem to have been adopted yet. To show that I’m willing to compromise, I’m willing to couple this legislation with a pay raise for members of parliament.
Share repurchases are a perfectly legitimate way for corporations to return excess cash to shareholders. All things being equal, it is typically better for investors if corporations with excess cash pay it out as repurchases rather than simply sitting on the excess cash in a corporate bank account (a strategy that most certainly destroys value), or using it for profligate acquisitions. Unfortunately, share repurchases favour the investors that actually choose to sell at that moment.
In theory, corporate share repurchases increase earnings per share, if EPS is held constant. This at least creates the illusion of increasing shareholder value. By comparison, a dividend increase has no effect on EPS. Whether it increases shareholder value or not depends on how one values their equity holdings.
Hi CC, thanks for the mention. Though I must say that when we had our three kids, we weren’t thinking of our national duty!
Thanks for the mention CC!
It seems increasingly likely (or at least somewhat reasonable) that we’ll see more tax credits or even stronger incentives for having kids in the future. If they come soon enough and they’re big enough to actually make it profitable, we could avert the demographic shift and help aging men’s retirement plans
(their wives might lobby against it though)
Robillard: Another thing that favours investors who sell out is having liquid markets. I’ve heard this one a lot, but in theory there’s nothing wrong with letting people sell their shares at or near the going price and giving everyone who holds on a bigger portion. In practice, does anything good happen when the managment of large companies get their hands on more cash than they know what to do with?
Thanks for the link and have a great weekend!
If our system requires a growing population to be sustainable, then our system is not sustainable in the long term. This seems pretty self-evident, and yet people seem to ignore it.
Thanks for the link. You are right about CARP’s motto!