The Stingy News Weekly (02/05/2012)
For savers in Canada, a sinking feeling
"Bank of Canada Governor Mark Carney, among other central bankers, has kept interest rates near historic lows since the onset of the global economic crisis in an attempt to stimulate the flagging economy, and there’s no sign of a rate hike any time soon. But some critics say the playing field is now tipped too far in favour of borrowers rather than savers. Canadians in droves have piled on debt to buy new homes and make other purchases, prompting warnings from Mr. Carney of the dangers of carrying too much debt – even as his policies encourage borrowing and provide little ability for savers to generate substantial low-risk income. “It’s one thing for Carney to say this is a problem and warn people,” says William Robson, president of the C.D. Howe Institute in Toronto. But “actions speak a lot louder than words.” Inflation, while low at an annual rate of 2.3 per cent, compares with one-year guaranteed investment certificates (GICs) paying roughly 1 per cent a year. Simply put: A dollar saved today will be worth less a year from now."
United States then, Europe now
"Under the Articles of Confederation, the central government of the United States had limited power to tax. Therefore, large debts accumulated during the U.S. War of Independence traded at deep discounts. That situation framed a U.S. fiscal crisis in the 1780s. A political revolution – for that was what scuttling the Articles of Confederation in favor of the Constitution of the United States of America was – solved the fiscal crisis by transferring authority to levy tariffs from the states to the federal government. The Constitution and Acts of the First Congress of the United States in August 1790 gave Congress authority to raise enough revenues to service a big government debt. In 1790, the Congress carried out a comprehensive bailout of state governments’ debts, part of a grand bargain that made creditors of the states become advocates of ample federal taxes. That bailout created expectations about future federal bailouts that a costly episode in the early 1840s proved to be unwarranted."
Look out below
"When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. “Canada was not a part of the problem,” Stephen Harper, the prime minister, boasted in 2010. Today the consensus is growing on Bay Street, Toronto’s answer to Wall Street, that Mr Harper may have to eat his words."
Pension forecasts are way too sunny
"Consider a corporate plan projecting a long-term average annual rate of return of 8% and holding 50% stocks and 50% bonds. With the Barclays Capital U.S. Aggregate bond index yielding around 2.2%, a 50% allocation to bonds contributes 1.1% annually to the portfolio's overall return. Stocks have to make up the remaining 6.9% for the entire portfolio to hit the 8% target. If stocks gain 10% annually, a 50% allocation to them will provide 5% of return, not the 6.9% needed. For this hypothetical portfolio to return 8%, stocks need to gain an average of 13.8%. That would be nice—and unlikely. Over the past 10 and 20 years, respectively, the Dow Jones U.S. Total Stock Market Index has returned 3.9% and 8% annually."
Negative stimulus, 1946
"It's fun to go back and see how really smart people understood things at the time. Maybe it should give us some humility -- so much policy debate seems based on the idea that we know everything so well. If we understood things as well as we now see Klein understood things, would we still want to spend trillions on our best guesses?"
Why the clean tech boom went bust
"In 2005, VC investment in clean tech measured in the hundreds of millions of dollars. The following year, it ballooned to $1.75 billion, according to the National Venture Capital Association. By 2008, the year after Doerr’s speech, it had leaped to $4.1 billion. And the federal government followed. Through a mix of loans, subsidies, and tax breaks, it directed roughly $44.5 billion into the sector between late 2009 and late 2011. Avarice, altruism, and policy had aligned to fuel a spectacular boom. Anyone who has heard the name Solyndra knows how this all panned out. Due to a confluence of factors—including fluctuating silicon prices, newly cheap natural gas, the 2008 financial crisis, China’s ascendant solar industry, and certain technological realities—the clean-tech bubble has burst, leaving us with a traditional energy infrastructure still overwhelmingly reliant on fossil fuels. The fallout has hit almost every niche in the clean-tech sector—wind, biofuels, electric cars, and fuel cells—but none more dramatically than solar."
Have wages stagnated?
"Prof. Don Boudreaux responds to 'The Truth About the Economy', a recent video featuring former Labor Secretary Robert Reich. In the video, one of Reich's key points is that most people's wages have barely increased since 1980. However, when Reich's numbers are examined in greater detail, his claim does not hold up."
DOW 30 Value Screens
S&P/TSX60 Value Screens
The Rothery Report
(Learn More | Subscribe)
The Rothery Report provides research on select deep-value stocks in North America. Discover overlooked and undervalued stocks in quarterly investment reports which provide detailed analysis of Canadian and U.S. stocks. Weekly email news and additional updates keep subscribers informed about new opportunities and developments.
Graham Value Stocks
The Graham Value Stocks letter is designed for investors who want to keep up with our sensational stock selection methods inspired by Benjamin Graham. We comb through mountains of data to highlight U.S. and Canadian stocks that we believe to be both cheap and relatively safe.
|Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...|