Thursday, August 27, 2009

another Crystal ball

Andy Xie is an independent economist, former Morgan Stanley chief economist now living in China. The following is from the South China Morning Post:

The US will enter this second dip in the first quarter of next year. Its economic recovery in the second half of this year is being driven by inventory restocking and fiscal stimulus.

However, US households have lost their love for borrow-and-spend for good. American household demand won’t pick up when the temporary growth factors run out of steam.

By the middle of the second quarter next year, most of the world will have entered the second dip. But, by then, financial markets will have collapsed.

When the market sees the second dip looming, panic will be more intense and thorough.

By next spring, another stimulus story, involving even bigger sums, will surface.

After a month or two, people will be at it again. Such market movements are bear-market bounces. Every bounce will peak lower than the previous one. The reason that such bear-market bounces repeat is the US Federal Reserve’s low interest rate.

A stock market bubble is a negative-sum game. It leads to distortion in resource allocation and, hence, net losses. The redistribution of the remainder, moreover, isn’t entirely random.

The truly random part for the redistribution among speculators is probably 50 cents on the dollar. The odds are quite similar to that from playing the lottery. Every stock market cycle makes Chinese people poorer. The system takes advantage of their opportunism and credulity to collect money for the government and to enrich the few.

http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=e625067403743210VgnVCM100000360a0a0aRCRD&vgnextfmt=teaser&ss=China&s=News




Saverio Manzo

Monday, August 24, 2009

Old vs. Young

Old dogs, new tricks

Financial literacy is a hot topic these days. But teaching it is usually something aimed at kids and young adults. This Wall Street Journal article makes a compelling case that the people who actually need to take personal finance 101 classes are the elderly.

That may strike you as odd. After all, the older we get the more experience we have. Presumably that includes knowing how to handle money.

True enough, but what differentiates people in their 20s and their 70s when it comes to personal finance is that people in their 20s have time on their side. They can rack up giant credit card debt, learn for their mistake, and slowly pay the bills off. They can make a lousy stock buy and not lose any sleep over their retirement–still 40-odd years away.

Seniors and aging boomers, on the other hand, don’t have the luxury of time to make mistakes. Also, seniors have more wealth accumulated so a mistake can cost them tens of thousands of dollars, if not their life savings. No wonder scam artists and the Ponzi set tend to target people who are 50-plus. They actually have money to lose. A lot of it, in fact.

If we’re going to teach kids in school how to handle money, we might also offer a couple of refresher courses on money, investing and (most importantly) preserving wealth to seniors as well.

From MoneySense Blog, Aug 20, 2009
By: Rob Gerlsbeck




Saverio Manzo

Thursday, August 20, 2009

Dr. Reality on Canada’a Future

Widely respected Nouriel Roubini, famously dubbed "Dr. Doom" for his pessimistic forecasts, says we may be on the upswing, but things could go south again. By the way, he says that he would like his named changed to “Dr. Reality”.

Where is the Canadian, US and global economy headed?

Today, 20 months into the US recession—a recession that became global in the summer of 2008 with a massive recoupling—the V-shaped decoupling view is out the window. This is the worst US and global recession in 60 years. If the US recession were—as is most likely—to be over at the end of the year, it will have been three times as long and about fives times as deep—in terms of the cumulative decline in output—as the previous two.

On Canada:

Despite relatively sound finances that helped it outperform the rest of the G7 in 2008 and early 2009, Canada’s exposure to the U.S. for trade and investment suggests its recovery may lag that of the U.S. (a trend that Q2 2009 data seems to support).

However, a more consolidated financial sector with lower leverage, lower default rates, as well as a revival of domestic demand, should support recovery in 2010, albeit one characterized by below- potential growth.

Canadian households and corporations still have more access to credit than their U.S. counterparts, a factor that helped buffer Canada from a more severe property market correction. Yet the nascent revival in consumption may be weaker than the Bank of Canada expects.

The rebound in commodity prices is mixed news. Higher commodity prices and greater demand for metals, if not yet for oil and cheap natural gas, should contribute to an expansion of mining and energy output–but too strong a surge could boost the Canadian dollar, exacerbating Canada’s manufacturing weakness as it boosts labor costs.

http://www.rgemonitor.com/roubini-monitor



Saverio Manzo

Wednesday, August 19, 2009

Man's Best Friend

With countless problems facing America today the US government offers billions in tax deductions for qualifying “pet” expenses. Dog spa hotels and shrinks, when 8+ million are unemployed.

Americans now spend $41 billion a year on their pets—more than the gross domestic product of all but 64 countries in the world.

The Pet Economy

That puts the yearly cost of buying, feeding, and caring for pets in excess of what Americans spend on the movies ($10.8 billion), playing video games ($11.6 billion), and listening to recorded music ($10.6 billion) combined. "People are no longer satisfied to reward their pet in pet terms," argues Bob Vetere, president of the American Pet Products Manufacturers Assn. (APPMA). "They want to reward their pet in human terms."

That means hotels instead of kennels, braces to fix crooked teeth, and frilly canine ball gowns. Pet owners are becoming increasingly demanding consumers who won't put up with substandard products, unstimulating environments, or shoddy service for their animals. But the escalating volume and cost of services, especially in the realm of animal medicine, raises ethical issues about how far all this loving should go.

Thanks to passionate consumers like that, the quality gap between two-legged and four-legged mammals is rapidly disappearing in such industries as food, clothing, health care, and services. The race now is to provide animals with products and services more closely modeled after the ones sold to humans. Most of the pet business world's attention is directed at the country's 88 million cats and 75 million dogs.

THOROUGHLY VETTED
Fancy food products are easy targets for critics of indulgent pet owners. But a far more controversial issue is animal medicine, especially at a time of urgent national debate about human health care. Americans now spend $9.8 billion a year on vet services. That doesn't include the over-the-counter drugs and other supplies, which add $9.9 billion in costs.

And for some pet lovers, no medical procedure is too extreme. Plastic surgeons offer rhinoplasty, eye lifts, and other cosmetic procedures to help tone down certain doggy features, from droopy eyes to puggish noses. Root canals, braces, and even crowns for chipped teeth are also becoming more popular.

If there's still any doubt whether the pampering of pets is getting out of hand, the debate should be settled once and for all by Neuticles, a patented testicular implant that sells for up to $919 a pair. The idea, says inventor Gregg A. Miller, is to "let people restore their pets to anatomical preciseness" after neutering, thereby allowing them to retain their natural look and self-esteem. "People thought I was crazy when I started 13 years ago," says the Oak Grove (Mo.) entrepreneur. But he has since sold more than 240,000 pairs. "Neutering is creepy. But with Neuticles, it's like nothing has changed." Nothing, except there's a fake body part where a real one used to be.

GRAVY TRAIN
Once acquired as sidekicks for kids, animal companions are more popular now with empty-nesters, single professionals, and couples who delay having children. What unites these disparate demographic groups is a tendency to have time and resources to spare. With more people working from home or living away from their families, pets also play a bigger role in allaying the isolation of modern life. About 63% of U.S. households, or 71 million homes, now own at least one pet, up from 64 million just five years ago. And science is starting to validate all those warm feelings with research that documents the depth of the human-animal bond.

http://www.businessweek.com/print/magazine/content/07_32/b4045001.htm?chan=gl




Saverio Manzo

Tuesday, August 18, 2009

Deficient Charities?

The Wealthy Continue Charitable Giving

The wealthy are still giving despite the economic downturn, according to a study by Barclay’s Wealth and luxury market consultant Ledbury Research. The study queried 300 Americans and 200 British with an average of $5.4 million in investable assets and found that the wealthy were much more willing to give up luxury goods, staff, eating out, holidays and travel before they would stop giving to charity. Only their children’s education ranked higher than charitable giving when they were asked what they would give up if the downturn proves more protracted.

Even given losses of up to 37% in the stock market, 75% of the high net worth said they wouldn’t decrease their levels of giving; 26% said they would even increase their levels of giving to help charities weather the downturn. That was particularly true of younger donors (under age 45) and entrepreneurs who were likely to increase their giving by 3% to 4%. However, overall, giving was cut back by 2% to 3% on average among all respondents, especially those over 55.

The wealthy were also most committed to global social problems such as health and medical issues, helping children, and the environment as opposed to traditional gifts to churches and the arts. The study also found that the wealthy are likely to play a greater role in funding welfare projects compared with governments in part because governments are innately conservative while the newer breed of donors are more innovative, and partly because government budgets worldwide are constrained by the recession.

Entrepreneurial donors in particular want to treat philanthropy more like a business where they contribute their skills and money directly to a charitable project and can solve a problem rather than merely support a charity. They want to see or measure the impact during their lifetimes as opposed to after their deaths. In the philanthropic new world order, “charities will no longer be able to rely on bequests to the same extent and will have to engage and involve major donors in order to show them the impact their gift will have,” write the study authors.

Barclay’s Wealth and luxury market consultant Ledbury Research




Saverio Manzo

Monday, August 17, 2009

Wanted: Farmland

In the developing world there is the mass move towards urbanization; farmers moving in to the cities. In other parts of the world, including Canada, the opposite trend exists; an increased interest in farmlands persists. Who and why would so many seek interest in owning a piece of raw acreage?

Farmland Recovery Seen

Canada, Australia, Africa Show Signs of Renewed Interest

Investors are showing signs of renewed interest in farmland, especially in Canada, Australia and Africa.

Land prices around the world rose sharply in the lead-up to the recession, buoyed by high food prices and increased investor demand. When food prices fell in the second half of 2008, the price of the land that produced them did as well.

But the underlying fundamentals of the market -- limited land availability, water scarcity, increasing food demand and food security concerns -- lead analysts to expect land prices in some countries to recover quickly.

http://online.wsj.com/article/SB125046762719635487.html




Saverio Manzo

Ma and Pa Banks continue to fail

Failed Banks Weighing on FDIC

Banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry's last crisis, a looming problem for the government agency charged with insuring deposits.

At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency's deposit-insurance fund is expected by the Federal Deposit Insurance Corp. to be about 50% of their assets.

The biggest hit on a percentage basis is coming from Community Bank of Nevada, a Las Vegas bank with $1.52 billion in assets ...

http://online.wsj.com/article/SB125046283572235251.html



Saverio Manzo

Friday, August 14, 2009

Exuberance once again?

New bull, new bubble, new meltdown by 2012

“Yes, folks, America loves talent, wants to be a millionaire, loves to destroy stuff, and then rebuild. Cars, jobs, careers, retirement portfolios, the economy, the stock market. You can see this metaphor in other great television programs: "Big Brother," "Hell's Kitchen," "Lie to Me," "Criminal Minds," "Are You Smarter Than a Fifth-Grader?" The point is, TV's a great barometer for the American soul, and it's screaming "bull!"

Americans want another bull, another bubble, even another meltdown. Guess what? It's already here, folks. The next big market-economic-business cycle has arrived ahead of schedule. This is what makes us America. We love challenges, risk-takers and winners.

Yes, folks, a new bubble cycle is already in motion. You can feel the energy building, the kind that fueled the meltdowns of 1998, 2000 and 2007. We never resolved the problems fueling the dot-com insanity. We made matters worse feeding the subprime credit-derivatives disaster with cheap money, Reaganomics ideology and two costly wars. Lessons were never learned, nothing was resolved. Today matters continue deteriorating.

"There's a false sense that it's over, that the crisis is passed." The bailouts have merely postponed the inevitable. "We are in for another day of reckoning down the road."

“Something's in the air. You can feel it. A new bull. Hype? Maybe, but also a roaring new bull -- and eventually another meltdown.”

Source: marketwatch, Aug. 12, 2009
http://www.marketwatch.com/story/story/print?guid=500B9744-277D-4674-99AC-E99ADF0D308E

Quote of the Day

"The Stone Age didn't end because they ran out of stones; the Oil Age won't end because we run out of oil." - Don Huberts


Saverio Manzo

Thursday, August 13, 2009

We’re not getting any younger

The impact on healthcare, healthcare costs, under funded pension funds, a shrinking labour force and a global shift to developing economies are just a few implications of what this means in a future of less young and more old. The world will look very different in years to come.


GLOBAL ELDERLY POPULATON GROWING RAPIDLY

“The world’s population is now aging at an unprecedented rate,” according to a recent report by the National Institute on Aging (NIA) and the U.S. Census Bureau. The number
of people age 65 and older worldwide was estimated at 506 million as of mid-2008, and is expected to reach 1.3 billion by 2040.

The report notes the current growth rate of older people in developing countries is more than double that in developed countries. And in 30 years, the proportion of older people will rise from 7% to 14% of the total world population.

“Aging is affecting every country in every part of the world,” said Richard Suzman, director of NIA’s Division of Behavioral and Social Research. “While there are important differences between developed and developing countries, global aging is changing the social and economic nature of the planet and presenting difficult challenges.”

The rapid increase in the world’s elderly population will present challenges and opportunities for health care, the study suggests.
Art Epstein




Saverio Manzo

Wednesday, August 12, 2009

Slightly 'Less Bad'

Everything that is slightly “less bad than expected” is being taken as a positive at the moment.

We live in different times – at least for the time being. Since when is something less bad a good thing? The direction is still negative – in whatever it is.

Take for example ‘less bad’ GDP numbers. This, of course, means that the economy is still retracting, not expanding, but the pace of the retraction is less than it was in the prior period – hence ‘less bad’.

I’ll agree that many – and no thanks to the media – only a few short months ago felt that the end of the world was upon us, that economic Armageddon was at our doorstep. So, ya, when compared to this doom and gloom, ‘less bad’ is significantly more ‘positive’.

But at some point we must return to something greater than less bad. We need growth. Increase. Expansion. If we don’t, (sticking with the economic example) then we run the severe risk of a long-term trend towards a decreasing and shrinking standard of living. Less income, less goods, less consumption. Less of a future for our children.

A ‘’less bad’ economy in today’s terms is like you running your household in the red – spending more than your family income brings in. At some point something will have to give. Some sacrifice has to be made.





Saverio Manzo

Tuesday, August 11, 2009

Children worth more than money?

Kids Cost Parents $200,000

According to a recent study by IBISWorld, a typical family spends $12,658 a year raising a child. Those who live in the west spend about 8 percent more than the average and those residing in eastern regions, shell out about 4 percent more.

Parents will spend, on average, more than $200,000 raising a child by the time their teen graduates from high school. Those couples earning more than $75,000 a year will shell out over $300,000.

http://moneywatch.bnet.com/saving-money/blog/family-finance/kids-cost-parents-200000/846/?tag=video-318415;related-link-1



Saverio Manzo

Monday, August 10, 2009

Farrell's 10 Rules

Bob Farrell’s 10 Rules For Investing

Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.

Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage.

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras - excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years, only to get cut in half.

As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it - human nature - is never different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.

5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.

6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.

8. Bear markets have three stages - sharp down, reflexive rebound and a drawn-out fundamental downtrend
I would suggest that as of August 2008, we are on our third reflexive rebound - the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July.

We have yet to see the long-drawn-out fundamental portion of the bear market.

9. When all the experts and forecasts agree - something else is going to happen
As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.

Source: MarketWatch, June 11, 2008.





Saverio Manzo

Thursday, August 6, 2009

Is it really good for you?

There are lots of great articles recently about the confidence (or lack thereof) that people have in their financial advisor. Turns out many have been great “salespeople”, but lack the ability to give wise and prudent investment and financial guidance. But the growing question is not whether to seek out a new advisor for your financial well-being (many agree that they should – and need too), but ‘how to break up’ with a ‘friend’.

In Search of Competent (and Honest) Advisors

“It may be someone you like and trust, but is it someone competent to manage your money?”

YOUR RESPONSIBILITY But the burden of finding a competent adviser rests solidly on you. Even if you decide that the broker trying to sell you the latest offering does not have your best interests at heart, how do you pick someone better?

“Does the person you’re talking to understand?” said C. Steven Crosby, head of PwC’s wealth management practice. “It’s not going down a checklist and saying how many wives, how many kids, how many homes? It’s what wealth means to you.”

http://www.nytimes.com/2009/08/01/your-money/financial-planners/01wealth.html?emc=eta1

Thinking of Switching Financial Planners?

It can be a difficult, even emotional decision.

But when his IRA started to "dive bomb" a couple of years ago and his adviser wanted to stay the course, Keating and his wife started soliciting a little advice on the side. "My adviser was a friend, a good guy, and those are awfully hard phone calls to make,"

"But we just had to stop the bleeding. It's almost like you're breaking up: 'You take the dog, I'll take the silverware.' "

"If you fire Fred and hire George, who's to say that George isn't even worse than Fred?" "They might just be trying to win your business, so there's a natural bias there. And if you ask for a sample portfolio, they're never going to show you a bad one. So you'll never really know what they've produced for an average client."

http://www.businessweek.com/magazine/content/09_27/b4138058215500.htm



Saverio Manzo

Wednesday, August 5, 2009

“Inside” folks Selling Like 2007

Yet again a 'page 17' article I came across today that highlights the simple fact that those in the know, the captains of the ships, yes the ones making the big strategic decisions that set the fate of their respective companies – are selling their holdings in their companies.

Insiders are selling: Corporate insiders more bearish than at any time in nearly two years

“Corporate insiders are a company's officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.

One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.

I don't need to remind you that the 2002-2007 bull market topped out that month
Does that mean you should immediately start lightening your equity exposure?”

By Mark Hulbert, MarketWatch
http://www.marketwatch.com/story/insiders-have-quickened-the-pace-of-their-selling-2009-07-28




Saverio Manzo

Tuesday, August 4, 2009

And so Swings the Pendulum

I am really glad that we, as human beings, seem ready and willing most of the time to take the optimistic point of view on things. That ‘half-full glass’. But sometimes it comes at the expense of a greater outcome.

It is true that we are ALL tired of hearing the relentless negative news on so many economic and market fronts, that a little good news is having a magnified effect. So much so that in the past two weeks our current positive economic and market outlook is swinging the pendulum too far the other way.

The street estimates for the 3rd quarter real GDP in the United States is now 'upped' to a +2.5 to 3.0% range. This from -5.4% in Q1 2009? But the bigger question is: has this been a one-time, manufactured GDP “push” at the expense of future performance as opposed to there being any real permanent change in the trend?

Car Sales Splurge: The U.S. "Cash for Clunkers" $1 billion program that ran out of money in barely more than a week and it looks like we will see another $2 billion added to this ‘spendthrift program’ – this is now being debated in the Senate.

Inventory withdrawal and replacement and Business spending no longer contracts.

Housing, for the first time in three years, does not contract and shows some healthy blips.

Companies low-balling earnings expectations. Of the S&P 500 index, 337 or 74% of the companies have reported and most have exceeded analyst expectations compared with 17% who have missed. If the quarter ends up this way, that 74% will be a record.

What about valuations? The S&P 500 is trading at 16.5x calendar year 2009 earnings estimates, not ‘cheap’ by historical standards.






Saverio Manzo

Monday, August 3, 2009

Old habits hard to break

There is some evidence to suggest that, after recession has reached a certain size or duration, recovery is then harder and more sluggish. Keynes’ animal spirits become depressed. But it takes an awful lot to depress them for more than a couple of years. Capitalism seems to be a pretty resilient beast.

Global recessions are now approaching one-year in duration.

Animal spirits rarely stay down for long

“In the US, the consensus among forecasters is that growth at or near trend will not resume until the second half of 2010 and that the 2008 second-quarter peak level will not be regained until the first half of 2011.

Since the late 19th century, there have been 255 recessions in western economies. Of these, 164 have lasted just one year and only 32 have lasted for more than two years. In other words, two-thirds of recessions last a single year, and only one in eight lasts more than two years.

An analysis of recessions shows that those lasting one year or less typically end more abruptly. The average growth rate in the year after such a recession was 3.5 per cent, and in the subsequent year 3.8 per cent. This is compatible with the view that short recessions are essentially inventory cycles. Once inventories are reduced to satisfactory levels, normal production levels resume, and fixed capital investment expenditures postponed during the recession are carried out.

The caveat to all this is that the current circumstances, the current recession, are unusual. But so was the Great Depression.”

Source: FT, Finanical Times, July 31, 2009
http://www.ft.com/cms/s/0/5768b08a-7ad7-11de-8c34-00144feabdc0.html?nclick_check=1




Saverio Manzo