The Stingy News Weekly (07/10/2011)
Stingy News Flash
I recently added the new income trust conversions to the S&P/TSX 60 screening lists. As a result, Yellow Media (YLO) gets top billing on the dividend front but the firm is frankly rather weak and not for the faint of heart. I suspect that its generous dividend will be cut at some point in the future. It's best to do extra due diligence on the trust conversions.
How rising rates may affect bonds
"While many have been calling for the end of the bond bull market and the damage that awaits bond-heavy investors, I have rarely seen any quantification of the potential losses that bond investors could suffer. So, I ran some simple calculations."
Once Greece goes…
"The economic crisis in Greece is the most important thing to have happened in Europe since the Balkan wars. That isn’t because Greece is economically central to the European order: at barely 3 per cent of Eurozone GDP, the Greek economy could vanish without trace and scarcely be missed by anyone else. The dangers posed by the imminent Greek default are all to do with how it happens."
A free checkup for low-cost investors
"Here’s some free advice for you. If you’re interested in building a portfolio with low-cost mutual funds, you can sometimes get ongoing investment advice at no extra charge. Wondering how much you should invest in stocks and bonds, or how much global diversification you should have? This is exactly the kind of free advice that is available when you buy funds directly from Leith Wheeler Investment Counsel, Matco Financial, Mawer Investment Management, Phillips, Hager and North and Steadyhand Investment Funds."
Mr. Innovation and his buddy, Mr. Great Idea
"Imagine you have $500,000 to feed, shelter and clothe your family for the next 30 years. You need to invest this money to protect your family against inflation. Now, imagine Mr. Innovation shows up on your doorstep and says, “I have a business to sell you and the price I put on it is $500,000.” You reply, “As it turns out, I have that sum to invest, so tell me about your business.” He responds: “All you need to know is that a bunch of PhDs have analyzed the business’s historical share-price movements. Based on their super-computer algorithms, they believe its price will be higher in three months’ time. So give me your money.” Would you do it? My guess is no. Would it surprise you to hear that billions of dollars change hands on the stock market every day based on this approach?"
"The result has been a vicious circle: because tax evasion is so common, people trust the system less, which makes them less willing to pay taxes. And, because so many don’t chip in, the government has had to raise taxes on those who do. That only increases the incentive to cheat, since there tends to be a correlation between higher tax rates and higher rates of tax evasion."
Only millionaires should invest in bonds
"A Bond ETF will have a management expense ratio of 25-35bp. The bid-offer spread on seven year bonds purchased in amount of $5,000 will almost certainly exceed this. Additionally, there will be costs associated with further trading, unless you spend amounts exactly equal to your coupon income."
Fear and loathing in the Eurozone
"The problem, as Mundell anticipated, is that if the shocks to the system are not random and are specifically and continually related to one country the concept of currency union begins to fall apart. In particular, if specific countries are characterised by lack of price flexibility and rigid labor laws restricting wage adjustment in response to lack of competitiveness the only alternative is to transfer money from one region to another: and potentially to keep on doing it, till the voters squeak."
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