Monday, September 26, 2011

Ireland Escaping the Recession. GDP, GNP, and Consumption are up, but Irish Wages are Down.

This week's Economist notes that the Irish economy expanded at a faster rate then expected in the second quarter. GDP, GNP, and domestic demand and consumption all increased during the same period. Though GDP and GNP increased by only 1.6 percent and 1.1 percent respectively, two quarters of successive growth is a bright spot amidst the doom and gloom of contemporary Europe.

Ireland's economy features a number of characteristics that give it a benefit compared to other nations as they pull out of the recession. It has a highly educated labour force, it is open to free-trade, and the populace speaks English, always a plus in a globalized environment. In addition, the national economy is structured around exports, as they make up about 70 percent of Irish GDP.

Also, corporate taxes in Ireland are very low, and do not seem to be rising like in other nations. Wages too are very low, great news for European employers looking for a hub in Western Europe. But as other countries race to the bottom with regards to corporate tax rates and wages, the entire Euro-Zone may suffer. If consumers in other countries are not making enough money to buy your goods and services, exports and production will plummet.

Thursday, September 15, 2011

Stocks Rally on Greek Debt Default Relief. France and Germany Agree to Continue Bailouts.

Stocks Rally on Greek Debt Default Relief. France and Germany Agree to Continue Bailouts.

French and German taxpayers are again backstopping years of Greek excess. In return, Greek's prime minister was forced to once again pledge support for reforms that will hopefully ensure deep cutbacks in government spending.

Investors have been pleased with the news as it prevents, for the time being, a Greek default or expulsion from the Eurozone. The International Monetary Fund and the World Bank will review Greek finances again in the coming days to ensure that reforms are being implemented.

In Europe, all stock markets headed higher on the news, with Germany up over 2 percent. However, Greek debt still stands at 150% of GDP and citizens across Europe's capitals are largely going to reject more efforts to bailout foreign governments.

Wednesday, September 14, 2011

A milestone in low-cost investing - The Globe and Mail

A milestone in low-cost investing - The Globe and Mail:

How to buy index investments for free:
1. Commission-free ETFs
Online broker Scotia iTrade now offers commission-free trading of 46 exchange-traded funds.
2. Claymore Investments' PAC Plan
Under this pre-authorized cash contribution plan, investors pay a commission to buy an initial position in Claymore ETFs and then arrange to make regular subsequent investments at no additional cost. Check with your brokerage firm to see if it's enrolled.
3. Bank index funds
Costs to own these funds vary, but all are sold on a no-load basis. The best deal is TD's e-series, which you must buy online via TD Asset Management or TD Waterhouse online brokerage.

Wal-Mart cashes in on income gap - The Globe and Mail

Wal-Mart cashes in on income gap - The Globe and Mail:

After the 20th of each month, when government cheques go out, Wal-Mart gets a pop in sales. It gets a surge in business at the beginning of the month, when many people are paid, and softening sales at the end of the month when they run out of money.

At the same time, the retailer enjoys a sales boost in pricier items from more affluent consumers who are returning to the discount chain after having shopped there during the recession.
To respond to these trends, chief executive officer David Cheesewright is dipping into a recessionary-like tool kit that includes weekly price comparisons with competitors; stocking smaller, more affordable packages of diapers and other essentials; $1 greeting cards at outlets next to a dollar store; and beefing up lower-cost private labels. But he’s also testing a new own-brand high-end food line called Our Finest; planning for a smaller city store, dubbed Urban 90, to broaden its customer base; and stocking higher end brands such as Bauer hockey equipment.
Mr. Cheesewright’s race over the past several years to add more Super centres with full supermarkets is paying off, more so in market-share gains than in same-store sales increases, he said. Since 2005, Wal-Mart drove 77.3 per cent of the growth in food, health and beauty and other consumer product sales in Canada, according to market researcher Nielsen. That business makes up more than 40 per cent of Wal-Mart’s total estimated $20-billion of annual revenue.

Monday, September 5, 2011

Good Countries and Economies for Investment. Economic and Financial Indicators of Health for Businesses.

When on the hunt for new investment ideas, macroeconomics, or the larger economic picture can often be over-looked. One source for macroeconomic analysis that provides investors with valuable insights is the Economist. In particular the "economic and financial indicators" on the back pages provide the Intelligent Investor with a wealth of information from which to make broader decisions regarding where in the world to invest your money. This week, six countries or economies stuck out to me as being particularly favourable for the enterprising investor.

The metrics I used to measure the general health of the following economies was their trade balance, current account balance, and general level of interest rates and inflation. If inflation or interest rates are out of control, they should not be considered as stable areas to invest.

1. Hungary. Hungary is poised for substantial growth when Europe rebounds from the doldrums. It has a +$9 billion trade balance, +$2.9 billion current account balance, and a budget balance of +1.9% of GDP.

2. Norway. With vast amounts of oil and natural gas wealth, Norway is poised to be a great provider of scarce resources to the rest of the world for still some time to come. It has a +$63.4 billion trade balance, +$49.6 billion current account balance, and a budget balance of +12.5% of GDP. Much like Canada in its abundance of resources, Norway has been a much better steward of its wealth for future generations.

3. Sweden. Another Nordic economy, Sweden does not benefit from the oil and gas reserves of Norway, but it has a highly skilled and educated workforce. It has a +$12.3 billion trade balance, +$32.2 billion current account balance, and a budget balance of +0.5% of GDP.

4. Singapore. With an excellent base in South-East Asia, Singapore will surely benefit from the significant growth and investment there going forward. As global trade moves eastward, Singapore has much to gain. It has a +$48.3 billion trade balance, +$52.5 billion current account balance, and a budget balance of +0.3% of GDP.

5. South Korea. Another bastion of Asian growth going forward, the South-Korean economy has been an export powerhouse for years. It has a +$40.7 billion trade balance, +$28.2 billion current account balance, and a budget balance of +1.6% of GDP. The important caveat with a country like South Korea is its low birth rate. As the people tend to focus more on consumerist elements of their society, population growth slows and future productivity can be seriously threatened.

6. Chile. The only South American country on my list, Chile is often neglected by investors due to a rough history of corrupt and inept governments. However, Brazilian consumer growth means that neighbouring markets could experience a halo effect and also gain a massive new market for their resources. It has a +$16.6 billion trade balance, +$2.4 billion current account balance, and a budget balance of +0.4% of GDP.

It is often said that a rising tide lifts all shifts. In the vein of investing, this means that the national or macroeconomic picture, if positive, bodes well for the business and investment climate in the country, and for those who invest there.

Saturday, September 3, 2011

Investment Bubbles, Manias, and Panics. Remain Patient and Rational when Investing. Tulip Mania, The South Sea Company, the Great Crash.

According to most, an investment bubble could be described as a period of high trading volumes at prices that are at odds or at a high variance above common measures of intrinsic value. For housing, the intrinsic value of the property might be a multiple of its net rental income, for a common stock, a multiple of its book value, earnings, or dividend payments.

During the "dot-com" or technology bubble stock prices for most technology and telecommunication companies were trading well above any reasonable measure of current earnings or dividends. To be sure, a vast number of the companies involved in the tech bubble had little to no earnings at all. Former Federal Reserve Chairman Alan Greenspan coined the phrase "irrational exuberance" to describe the psychology of investors and markets during this time. Many people believed that prices would go up forever because modern technology would transform business and enable them to achieve future earnings that seemed unfathomable only a decade before. So goes the usual mantra at least. More sensible minds, however, would conclude that vast amounts of people, acting of their own volition, chose to casually disregard all semblance of reason with regards to corporate fundamentals and instead act on faith... a faith that other people would be dumb enough to keep buying securities of dubious intrinsic or real value and thus provide someone to whom they could sell their shares at a higher price in the future.

Acts of faith, however, are better left to theological or religious spheres than investment ones. Crowds are prone to turn and panic with little warning and little chance for the average investor to escape. When an investment bubble bursts, unless you got in near the point of its initial ascent, you will most likely be waiting years to recover your losses and return to break-even. And in other instances, your break even point may be unattainable as your investment dropped to zero.... a 1,000,000 % gain on zero is still zero.

There have been numerous investment bubbles and manias over the centuries. Tulip Mania first hit Holland and then began to burst circa 1637. During this time, a single tulip bulb could fetch the price of a home or 10x the annual earnings of a skilled craftsman. Rational? Of course not, but investors were hoping that another sucker would come along and buy their tulip bulbs for a little higher in a week, month, or year down the road. They wanted to ride the upsurge in tulip bulb prices and make it rich quick.

There was also the South Sea Company and Mississippi Company Bubbles of the 1720s, the Railway Manias of the 1840s, the Great Crash of 1929, and countless others on markets all around the world. What propels bubbles? Behavioural psychologists could undoubtedly write books on people's particular motivations, but stupidity and greed mark the top of my list. If something does not make money, don't buy it. If it would take over 25 years to make your money back given present earnings levels, move on to another investment. There is no need to succumb to get rich quick schemes when honest rational investments are in plentiful supply. Rationality and patience will always win the day in the investment business, it just might take some time, and a fair amount of resistance to greed.