The Stingy News Weekly (12/18/2011)
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It's all in the index you choose
"Canadian and U.S. stock markets get equal treatment on the evening news but it’s easy to forget just how different they really are. Investors, though, have had the distinction pressed upon them this year, as the S&P/TSX 60 has slid 14.5 per cent, while the Dow Jones industrial average (DJIA) has risen 6.8 per cent in Canadian dollar terms. To see what’s going on, you have to look under the hood. Once you do, the gaps between the two indexes loom large."
Chavez rolls back seizures
"Venezuela’s President Hugo Chavez is enlisting Mexico’s Gruma SAB, French retailer Casino and other international companies to boost supplies of milk, corn flour and cement as shortages threaten to dent his bid for re-election in 2012."
Art donation scheme raises questions
"The biggest and longest-running financial fiascos in Canada have been 'donate low, deduct high' charitable donation tax-credit schemes. These schemes are all variations on the same theme: The donor purchases something for 'x' dollars and then donates it for 'x plus y' dollars, generating a tax credit that exceeds the original out-of-pocket costs. One of the most outrageous was the art-donation scheme. The participant would, for example, buy a piece of art for $10,000, get it appraised for $30,000, and then donate it to a university or hospital. The donor would receive a tax credit equal to 43.7 per cent of the appraised value, or $13,110, which was $3,110 more than his original cost. Problem is, Canada Revenue Agency has consistently rejected such schemes. To date, it has disallowed a stunning $4.5 billion in donations claimed by more than 130,000 Canadian taxpayers on account of these dodgy deals."
Mutual fund critics missing the big picture
"Every time markets bleed red, mutual fund investors and the media become much more price-sensitive. So it’s no surprise that print media have featured a barrage of anti-fee articles. Interestingly, Canada’s two national papers have united in a recent Investors Group bash-fest. I agree with the broad message, which is to keep an eye on fees. Since fees are pretty transparent and easy to understand, they get most of the attention when trying to explain poor investor performance. But the media and the industry would do investors more good by identifying and trying to remove the handful of barriers to satisfying long-term performance."
Advice and Investor Portfolio Performance
"This paper investigates whether financial advisers add value to individual investors’ portfolio decisions by comparing portfolios of advised and self-directed (execution-only) Dutch individual investors. The results indicate significant differences in characteristics and portfolios between these investor groups, but no evidence of differences in risk-adjusted performance. The findings indicate that portfolios of advised investors are better diversified and carry significantly less idiosyncratic risk. In addition, evidence from an analysis of investors who switch to advice taking indicates that these findings (at least in part) reflect the effect of advisory intervention."
Curbing short sales
"The New York Fed did a quick study this fall after markets plunged in August when Standard and Poor’s decided to downgrade the credit of the United States government. That study, by Hamid Mehran, a Fed economist, and two finance professors from Notre Dame, Robert Battalio and Paul Schultz, also looked at the impact of the 2008 bans on short sales of financial stocks, which were imposed in many countries at the height of the financial crisis. They concluded that there was no evidence that stocks then being sold by short-sellers did worse in August than did shares of other companies, and in fact a little evidence that they did better. That would seem to indicate that short-selling did not play a major role in the market turmoil."
Growth in the age of deleveraging
"Accumulating the mountain of debt now weighing on advanced economies has been the work of a generation. Across G-7 countries, total non-financial debt has doubled since 1980 to "68%" per cent of GDP. Global public debt to global GDP is almost at 80 per cent, equivalent to levels that have historically been associated with widespread sovereign defaults."
"We’ve heard about “peak oil.” We’ve heard about other resources, and how production will decline over time. But what of credit?"
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