CMDF, my own toxic asset

• Updated February 4, 2010: add VenGrowth Advanced Life Sciences Fund's suspension of redemptions

LSIFs. If you're like me (poor cash drip, investment sense, et al.), years ago you loaded labour-sponsored investment funds (LSIFs) into your RRSP to claim some investment under your name via minimal actual money, and then maybe continued to do so even when the terms lost some of their appeal, and then perhaps even did a roll-over or two with whatever was left, in a futile attempt to come out ahead. Now you're probably getting out of them as soon as practically possible, moving that petty cash into something that doesn't merely recede.

But if you thought you could just mark February, future year(s) in your calendar as the expected day of Redemption (in more than one sense) and forget about it, forget it. Don't, that is.

Things are never easy with these funds. You'd think having invested in them is sufficient punishment. Keeping track of all the renamings and incestuous mergers & acquisitions makes it tough enough (what and how much can I dump this time around after the requisite 8 years?), with no need for added pain.

Festina lente. If you had CMDF (Canadian Medical Discoveries Fund — talk about discoveries...), and didn't yet know any better, you may have noticed in your portfolio its conversion last week to GrowthWorks Canadian Fund. That's all fine and dandy, you're used to this kind of thing, but come next/future February be very careful in your enthusiasm to sell. There is a heavy 35% penalty to pay if you withdraw more that 11.74% in the first, 15% in the second, and 20% in the third year following this felicitous merger. These figures are not cumulative.

This is also explained in a Morningstar article, from which I learned about the CMDF redemption freeze of last year, and that other funds are in a similar predicament. For instance, VALS (VenGrowth's Advanced Life Sciences Fund), which can no longer be redeemed, but will be wound down through annual distributions starting November 2010 and expected to last three to six years.

So I suspect, in case you own these things, that there is a good chance you were already peeved off...

Whither goest thou, inflation?

There is an ongoing debate among economists and historians on whether inflation will ensue, and to what degree, following the humongous government stimulus packages and central banks' liquidity boosts, released all over the place in the prolonged attempts to remedy the financial imbroglio we're witnessing.

How economists can misunderstand the crisis
By Niall Ferguson
Published: May 29 2009

Yet a cat may look at a king, and sometimes a historian can challenge an economist.

A month ago Mr Krugman and I sat on a panel convened in New York to discuss the financial crisis. I made the point that "the running of massive fiscal deficits in excess of 12 per cent of gross domestic product this year, and the issuance therefore of vast quantities of freshly-minted bonds" was likely to push long-term interest rates up, at a time when the Federal Reserve aims at keeping them down. I predicted a "painful tug-of-war between our monetary policy and our fiscal policy, as the markets realise just what a vast quantity of bonds are going to have to be absorbed by the financial system this year".

© 2009 The Financial Times Ltd.

Read the article here.

Which leads us to the thought of the day: invest in commodities and oil.

An abundance of investment opportunities to feed the world

A recent article in The Economist talks about outsourcing's third wave, identified to be the agricultural investment abroad. Although it can be argued that outsourcing traces its roots to thousands of years ago, on a global scale in modern history the manufacturing and services sectors may be deemed as the first and second wave of outsourcing.

An interesting paper signed by Joachim von Braun and Ruth Meinzen-Dick of IFPRI (International Food Policy Research Institute) provides more details about the new trend of global investments in farmland abroad.

Two companies that will benefit from this powerful, and potentially very fertile, global trend could be Deere & Co. and Monsanto.

Market history and investing in high supply-and-demand economies

What drives supply and demand? High wages and cheap energy, asserts Professor Robert Allen in his enlightening book The British Industrial Revolution in Global Perspective. Published last month by Cambridge University Press, this is the first volume in the Economic History Society’s series New Approaches to Economic and Social History.

Why was the Industrial Revolution British?
Robert C. Allen © voxEU.org
15 May 2009

It is still not clear among economic historians why the Industrial Revolution actually took place in 18th century Britain. This column explains that it is the British Empire's success in international trade that created Britain's high wage, cheap energy economy, and it was the spring board for the Industrial Revolution.

Read the article here.

Came so far for beauty, left so much behind...

In the interest of clarity, transparency, and full disclosure, here's an approximate but revealing summary of this blog so far. In the spirit of self-improvement, a matter we take very seriously, we undertake to broaden, extend, and expand our vocabulary, and in general lucubrate more. After we apply for some government stimulus.

My masterpiece unsigned

VIX and stocks run in opposite directions

The VIX (CBOE Volatility Index^®), or "investor fear gauge", measures market expectation of near-term volatility, as conveyed by a range of S&P 500 index option prices (both calls and puts). It is, essentially, the price of buying options in order to protect stocks.

A high VIX value is seen as a greater degree of market uncertainty, while a low value reflects greater stability. As the graph below shows, when the VIX goes up, the stocks go down (S&P, Dow, NASDAQ). Conversely, when the VIX goes down, the stocks go up. Hence, an investment in iPath S&P 500 VIX Short-Term Futures exchange traded notes (which track VIX futures) can act as a bearish hedge.

Other volatility indexes: VXN tracks the NASDAQ 100, VXD tracks the Dow Jones Industrial Average, and MVX tracks option prices on the S&P/TSX 60 index ETF. Note that Vicks is another thing entirely.

A couple of questions arise:

• Q: Are rising volatilities almost always a precursor to falling stock prices, as the market wizard stated in Steven Sears' Barron's article, or are falling stock prices the cause for rising volatilities?

  A: Yes.
  

• Q: What is the relationship between VIX and Viagra?

  A: With all due respect, it seems that the markets do just fine without Viagra, in particular when the VIX comes down.

All we need is benefits

I was glad to read in today's newspaper that Canadian taxpayers are forking out billions for GM pension aid. The article also quotes CAW President Ken Lewenza: "We have preserved our wages, we have preserved and secured our pension benefits, and we have protected most of our core benefits". As a taxpayer and strong believer in the right of everyone to live in decency after a life of hard work, I'm happy to oblige.

The guy next door, he's not so happy. And that's precisely because he shares my said strong belief — the everyone part in particular. He's already resigned himself to the fact that government employees (and Canadians are so blessed here, with three levels governing them with plenty of care) have indexed pensions and benefits, while he, having toiled for a private non-unionized very big Company, has effectively none of these. He was disturbed a few weeks ago to learn of the existence of a Viagra benefit that US GM pensioners enjoyed (literally), then had to give up (mostly), though the drugmaker came to the rescue ("for up to a year" or, as he — incorrectly — read it, "to up for a year").

Guy next door's not clear whether said medicine is also part of the aforementioned "core benefits" here in Canada. He is happy to have OHIP, but that plan won't even fork out the few bucks needed for a bottle of aspirin to subsidize Guy's own option, "Not tonight dear, I have a headache"...

Green shoots in the Garden of Canada!?

• Statistics Canada said today that Canadian retail sales rose for the third straight month in March, by 0.3 percent, on the strength of new motor vehicle sales. New cars, of all things...


• The Canadian currency pushed as high as C$1.125 to the US dollar, or 88.88 US cents, its strongest level since October 9.


• Toronto's main stock index rose at the open on Friday, bouncing from the previous session's 2.8 percent drop, as firmer commodity prices helped lift the resource-rich market.

Spring may be here.

In case you were waiting, the future's already here

The present being as it is, we turn to the past for solutions in some areas, while the future is decidedly close at hand in others. WolframAlpha, the latest computational knowledge engine's goal is to make all the systematic knowledge immediately computable and accessible to all.

The quest to make knowledge computable has a long and distinguished history. Indeed, when computers were first imagined, it was almost taken for granted that they would eventually have the kinds of question-answering capabilities that we now begin to see in WolframAlpha.

Try a few queries yourself, e.g., in the area of money & finance. Surprisingly, the answer to deeper questions is not necessarily 42.

PS By the way, there are many other interesting things to see and read and play with from Wolfram Research, developers of Mathematica, available on the Web.

Still thinking of investing in banks? Think Canadian first

A ranking based on the analysis of total assets and long-term credit quality ratings from Moody's Investor Service, Standard & Poor's, and Fitch, shows that out of the 500 largest banks in the world, Canadian banks are among the safest.


Source: Global Finance: World’s 50 Safest Banks, European Central Bank, Eurostat.

If clicking on the image to enlarge is not an option for you, here are the Canadian rankings: 10. Royal Bank, 14. Toronto Dominion, 23. Scotiabank, 32. Bank of Montreal, 42. CIBC. Top spot went to Germany's KfW.

Canadian inflation hits 14-year low - agricultural commodities gaining even more appeal

Thomson Reuters published this morning a report on the latest inflation figures in Canada.

Canada's annual inflation rate in April dropped to a 14-year low of just 0.4 percent, a move analysts said meant the Bank of Canada would be in no rush to raise record-low interest rates.

The central bank last month cut its benchmark interest rate to 0.25 percent and promised to keep it there until mid-2010 as long as inflation remained tame.

The core annual inflation rate - closely watched by the Bank of Canada - dropped to 1.8 percent from 2.0 percent in March. The rate excludes the costs of volatile components such as fruit, vegetables, natural gas, fuel oil, and gasoline.

The fall in energy costs helped offset a rise in food prices, which have been steadily increasing since February 2008. Prices in April were 7.1 percent higher than a year earlier, slower than the 7.9 percent year-on-year increase in March.

The Canadian dollar firmed following the data and by 8:30 am was at C$1.1488, or 87.05 US cents, from around C$1.1553, or 86.56 US cents.

To oversimplify here, and joining the chorus of other bulls on the sector, I believe that agricultural commodities may be a safe place to deploy some money. The due diligence, as required before any investment, could start off with a close look at the two Canadians icons playing in the agricultural space, Agrium and Potash Corp of Saskatchewan.

Derivative real estate tactics in the economic downturn

The slump, as severe and worldwide spread as the one of 2008-2009 is, poses a difficult challenge for those trying to move from one place to another. But life goes on, and people always find creative solutions to their problems.

With all the disadvantages and difficulties of trading over in today's stagnant global housing market, swapping, or permanent real estate exchange, is growing rapidly. A return to the primeval bartering of our ancestors?

From Lake Muskoka in Canada to the ensoleillé south of France, any kind of swap can be done. For reference, these sites

• GoSwap.org


• Easy House Exchange
  

contain a large variety of listings from a broad range of countries.

Carbon trading: world's next biggest market

Almost two years ago, the New York Times ran a rather visionary article which quoted Louis Redshaw, head of environmental markets at Barclays Capital, claiming that "carbon will be the world's biggest commodity market, and it could become the world's biggest market overall."

Currently valued at over $60 billion, the carbon credit trading market is set to skyrocket to over $1 trillion as the price of carbon becomes more and more valuable, and the US joins the world in cap-and-trade regulation this year.

This is an institutional market, played by the large polluters, major financial institutions, and some hedge funds. For retail investors, the easiest way to benefit from this huge market is to invest in companies that gain from reduced emissions simply by the nature of their business. Companies that generate clean energy would benefit by selling both their power and the carbon credits they acquired while producing it. ETFs are bound to appear sooner or later.

The Montreal Climate Exchange (MCeX) - Trading Canada carbon dioxide equivalent (CO₂e) units. Each CO₂e unit is defined by the Government of Canada as an entitlement to emit one metric ton of carbon dioxide equivalent.

The system proposed by the Canadian government is based on the allocation of units to a company for exceeding its intensity-based greenhouse gas (GHG) emissions reduction targets.

GHG emissions (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, sulphur hexafluoride, and perfluorocarbons) are calculated based on the equivalent quantity of CO₂ required to produce a similar warming effect.

The European Climate Exchange (ECX) - Trading European Union alowances (EUAs) and Certified Emission Reductions (CERs). Each EUA is an entitlement to emit one tonne of carbon dioxide equivalent gas. Trading on ECX began in April 2005.

The Chicago Climate Exchange (CCX) - Trading Carbon Financial Instrument (CFI) contracts, each of which represents 100 metric tons of CO₂ equivalent. CFI contracts are comprised of Exchange Allowances and Exchange Offsets.

The Chicago Climate Futures Exchange (CCFE) - A subsidiary of CCX, it's a derivatives exchange for futures and options contracts on emission allowances and other environmental products.

Romania hit but not down from financial crisis

A relatively new member of the European Union, "Romania is one of the most beautiful, intriguing, and little-known countries in Europe," says the blurb on John Villiers's upcoming book.

International institutions have stepped up lately to help Romania weather the current financial crisis and revamp its ailing economy. The Executive Board of the IMF (International Monetary Fund) approved a 24-month SDR (Special Drawing Right) Stand-By Arrangement for Romania of 11.4 billion (about €12.9 billion, or US$17.1 billion). This aid will be combined with money from the European Union, the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the International Finance Corporation (IFC), for a total international support package of €19.9 billion (about US$26.4 billion) to address Romania's 2009-2010 financing gap.

Lots of wallets, for a sum that pales in comparison to what your typical failing large bank or car company in the States got used to receive...

Foreigners can invest and buy stocks in Romania through a stockbroker, though trading volume on the Bucharest Stock Exchange is small.

The tiger is happily roaring and the Indian stocks are surging

There are numerous Indian stocks trading as ADRs (American depositary receipts) on the NYSE and NASDAQ. Worth taking a look at.

Following the Congress Party decisive victory in India's election, with the most seats since 1991 and no longer needing communist partners in the coalition, the Bombay Stock Exchange, founded in 1875, halted trading within seconds of the market’s opening at 9:55 am local time as shares surged. For the first time ever, after the trading resumed at 11:55 am stocks jumped further, triggering an automatic shutdown for the rest of the day.

India's economy quadrupled in size since 1991 as a result of free-market reforms. Asia's third-biggest economy expanded 5.3 percent in the quarter through Dec. 31, the slowest pace since 2003, while factory output in March shrank the most in 16 years.

Still, a caveat. Although India will benefit from a large amount of capital flowing into the country, Credit Suisse Group said in a report,

the rally may be halted by global markets, monetary and fiscal constraints, and data disappointment.

Who in your merry merry month of May?

Rob Carrick's column in today's Globe and Mail is altogether Canadian, title allusion and all.

He draws attention to a few 'beautiful losers' (so called because they didn't rise as much as others in the recent rally), Canadian utility stocks that pay good reliable dividends (in the range of 3% - 6% as of the end of the week), are still reasonably priced, and may be worth adding to your portfolio. The list consists of several of the usual suspects: TransCanada, BCE, Fortis, Canadian Utilities, and Telus. And who shall I say is calling?

David Baskin, president of Baskin Financial Services, whom he interviewed, "is highlighting shares like this for conservative clients who are still wary of the markets and might otherwise put their money in bonds and treasury bills." Rob adds, "Share price appreciation is another reason to own stocks like these. Over the past five years, Fortis, Telus and Canadian Utilities have outperformed the S&P/TSX Composite on a cumulative basis." Who for his greed?

Of course, as a general rule (thank you, wise ml), seeing stock advice anywhere is not a prescription for prompt purchase. Check it out yourself first. Also, if the current market correction goes on for a while (or longer), the patient investor may be able to get their pick(s) here at an even better price. In Canada, sit on it over the long weekend. Timing and luck are of the essence... Who by accident?

Beer, Fries, and Globalization

The day started with pouring rain in Toronto and bad unemployment numbers in the US. In the afternoon, the sun is out and North American markets are in the green again, which might offer a crumb or two of comfort.

I met an old friend for lunch today, and we discussed business and our kids' education. On the subway (instead of at Starbucks as usual), I enjoyed reading through Tim Harford's book The Undercover Economist.

The post's title above is the name of one of the chapters in this book. Some excerpts, for the benefit of my cognitive fog, follow:

Once upon a time there was a prosperous trading city called Bruges, nestling on the Zwin estuary in what is now Belgium. Bruges grew up around a castle built in late ninth century by the founder of the Duchy of Flanders.

[I]t was the center of gravity for the Hanseatic League of trading cities. But in the fifteenth century something strange began to happen. The Zwin began to silt up. The great ships could no longer reach the docks of Bruges. The Hanseatic League moved up the coast to Antwerp.

Antwerp, still connected to the world via the Scheldt River, took over from Bruges as the greatest economic power in Western Europe. The wealth of that time is clearly visible today. Antwerp remains an economic powerhouse. It is still the diamond capital of the world, and the mighty port on the Scheldt operates around the clock.

The contrasting stories of Bruges and Antwerp suggest a simple message: if you would like to be rich, then it is a good idea to forge close links with the rest of the world. If you prefer nothing to change, then it is best to have a harbor that silts up. If you would like to be rich and have nothing change, then you will be disappointed.

The last sentence, a veritable call to action, is thoroughly edifying...

Antwerp

Bruges - Venice of the North

Employment in the US ain't getting any better

Highlights - initial claims for the week ended May 9, 2009

Initial claims for the week ended May 9 jumped to 637,000 from 605,000 in the prior week, while continuing claims through May 2 increased to another record high of 6.56 mln from 6.36 mln in the prior report.

The 4-week moving average for initial claims rose 5.3% to 630,500.

The 4-week moving average for continuing claims rose 3.2% to 6.34 mln.

CDSs between the haves and have-nots

This sunny afternoon, while studying a bit what the Credit Default Swaps are all about, the idea came up of proposing a new financial instrument (an innovative financial tactic of sorts). Namely, a new application for CDSs.

Paul Krugman, winner of the Nobel Prize in Economics, in his book The Return of Depression Economics and the Crisis of 2008, answers the question "what is depression economics?" thus:

Essentially it means that for the first time in two generations, failures on the demand side of the economy - insufficient private spending to make use of the available productive capacity - have become the clear and present limitation on prosperity for a large part of the world.

Given that the demand side is always a problem during downturns in the economy, why not have contracts, CDSs, between the wealthy and the less fortunate that stipulate that once the wealth is diminishing at the Palace, the poor, harder hit by economic crises, receive a return based on the premium they previously paid. In this manner, during good times reserves are responsibly created for the eventual bad times. Not a social program, but unadulterated good old-fashion market action.

We leave the implementation to the sharper minds in the industry. The new sharper-and-regulated ones, given that the merely-sharp engaged only recently in what Gillian Tett describes so:

the [...] derivatives dream collided with the housing boom, and was perverted — through hubris, delusion, and sheer greed.

Though of course we volunteer to act as the Clearing House for the proposed instrument.

The Sound of Markets

In an interview last week David Rosenberg, still of Merrill Lynch, offered his views about the current markets direction. He said:

Market likely to peak the end of the week [Friday]. Just as the clock is winding down on my tenure at Merrill Lynch, the equity market is winding up with an impressive near-40% rally in just nine weeks. For those that were still long the equity market back at the March 9 lows, a good 'devil’s advocate' exercise would be to ask yourself the question whether you would have taken the opportunity, if the offer had been presented, to have sold out your position with a 40% premium at the time. What do you think you would have said back then, as fears of financial Armageddon were setting in? We haven’t conducted a poll, but we are sure at least 90% of the longs at that point would have screamed "hit the bid!"

Read more here: Goodbye, Thank You, Yes It's Just A Sucker's Rally...

Buying opportunities - a view from Boston

It was a very pleasant trip driving from Toronto to Boston on Eisenhower Interstate 90 on Friday morning. For someone who checks the markets diligently before investing, ideas may come from real life experiences such as shopping or travelling.

That said, buying Caterpillar and/or Wall-Mart at the moment, or after the markets pull back, may constitute a profitable investment for the future. Eisenhower Interstate 90 was full of CAT bulldozers (doing maintenance and improvement work to the highway) and Wall-Mart trucks (hauling merchandise for the masses).

An introduction to stocks

Companies raise money by issuing stocks. This is a brief introduction to common stocks — ordinary shares with voting rights attached. A company may have more than one class of stock, with different voting rights and dividend payments for each, e.g., class A and class B.

When you purchase stocks (shares, equities), you essentially own a piece of that company (and can go around and brag about it). As a shareholder, you have a claim on its assets, earnings, and have a say in its management. Even though you may not own stocks directly (in your portfolio), you most probably do in mutual funds or your pension plan.

Stocks are riskier investments that savings accounts, GICs, and bonds, but with risk comes the potential for bigger gains.

Here is information about a stock representative of what you'll find on any investment site. This one is a snapshot from the Globe and Mail (where a new format for stock quotes is in Beta) of Royal Bank of Canada common stock (its symbol here is RY-T; Yahoo! Canada Finance uses RY.TO) during a trading day in Toronto. We'll go through its main bits of information.

C$ 43.990 — the current price at 1:43pm (the quotes outside trading platforms are usually delayed, here by 15 minutes), which represents a net gain of 52 cents (or +1.20%) over yesterday's closing price (which was 43.99 - 0.52 = $43.47); the Open price (at which Royal Bank shares first traded today), at $43.24, was therefore slightly lower than yesterday's close
High, Low — today's price fluctuation
Bid, Ask — information on the current bid - ask haggle on the trading floor
Volume — the number of shares traded so far today
52-wk High, 52-wk Low — the trading price range of the stock during the last year (see also the one-year chart later below); if you were smart & lucky you would have bought Royal Bank on February 24th of this year (02/24)
Mkt Cap — market capitalization (market cap): the total dollar market value of all of a company's outstanding shares, i.e., the number of all its shares multiplied by the current share price. This figure gives you a company's size, as opposed to its sales or total asset figures. RBC's $61B makes it a large-cap company
EPS (ttm) — earnings per share in the past twelve months
P/E — price/earnings per share. Generally speaking, a high ratio of the share price to the company's earnings per share (a more expensive stock) suggests that investors are expecting higher earnings growth in the future, in comparison to companies with a lower P/E (cheaper stocks)
Forward P/E — forward price/earnings
PEG — price/earnings to growth
Annual Div. — some companies are even more attractive to the long-term investor, as they also issue dividends (usually quarterly) - part of the company's earnings are returned directly to its shareholders. For each Royal Bank share an investor receives $2.00 annually, which works out to a Yield (based on yesterday's closing price) of 2/(43.99-0.52) = 4.6%. So if you buy shares at roughly this price you'll get a return of 4.6% (unless the company gets into cash-flow troubles and cuts the dividend in the future, unlikely in the case of a Canadian bank) plus whatever appreciation the share price achieves (capital gains). Both dividends and capital gains are taxed outside a registered plan such as an RRSP or TFSA, but at a lower rate that interest income.

The quote box described above relates directly to the intraday chart below. The red dashed line is previous day's closing price. The trading volume is also tracked.

And here is the one year chart:

On the same Web page you'll also find the latest headlines related to the company, its annual financial results, and earnings estimates.

Finally, this chart compares Royal Bank's stock to the S&P/TSX Composite index (whose symbol on Yahoo! Canada Finance is ^GSPTSE) since 1995:

The two small, black arrows indicate stock splits, detailed at the bottom of the chart. In a split a company's existing shares are divided into multiple shares. Although the number of shares outstanding increases by the specific multiple, the total dollar value of the shares remains the same, as no real value is added. In a 2:1 split, you receive one additional share for each share you hold. One reason for stock splits is that a company's share price has grown too high for many investors to buy in round lots (for instance, this one). Pre-split chart values are adjusted, to provide a consistent picture.

You may also want to check out:

• OSC's Investor Education Fund:  How does the stock market work? Is this stock a good investment for me? How much do stocks pay? How do I buy and sell stocks and bonds?


• RBC Direct Investing's Education Centre:  Equities 101


• Investopedia's Stocks Basics.

ECB cuts main rate to 1%

The ECB (European Central Bank) lowered its key interest rate by a quarter percentage point to 1 percent but kept the overnight deposit rate, which is acting as a floor for money markets, at 0.25 percent, narrowing the gap between its policy rates, rather than cutting the lowest of these to zero. The ECB has been lowering rates, from 4.25 percent, since last October.

"The Eurosystem will purchase euro-denominated covered bonds. [...] We expect to engage in a program which could be around 60 billion euros (US$80 billion)," ECB president Jean-Claude Trichet told a news conference after its monetary policy decision.

Longing for the next distraction

I'm all strung out. All this non-stop talk about the stress test is stressing me out. My sweater is on backwards and inside out. Biovail cut its dividend. Oil is still rising. The reporters are shouting the news on Bloomberg TV. Less worse is the new good. And what's the deal with the metals?

I'm resetting this recalcitrant modem and heading off to the nearest SBUX. I may even bump into Alanis there...

Are we in for a correction?

May 5 2009, S&P TSX closed at 9,880.72, S&P 500 closed at 903.80.

Bollinger Bands, which are curves drawn in and around the price structure, and define high and low on a relative basis, suggest a near term correction in the North American indices.

Free markets boost economies and raise global prosperity

Globalization and prosperity are synonyms for the free movement of goods, people, and capital around the world. While this is something easy enough to understand, it's equally important to be aware of the downside effects when international imbalances take place. Although Cédric Tille's paper tackles the Swiss banks, it's an insightful tale about how global finance operates.

What are Switzerland’s vulnerabilities?
Cédric Tille © voxEU.org
12 March 2009

The biggest risk facing the Swiss economy is its large financial sector with substantial international exposure. Foreign currencies, mostly held by UBS and Credit Suisse, account for nearly two-thirds of banks’ balance sheets - an amount equivalent to four times annual GDP. This column suggests splitting the two large banks’ domestic and foreign operations, so that losses on the latter do not jeopardize the domestic financial system.

Read the article here.

Zeke the Greek the Mouthpiece in Toronto

Larry King, the iconic figure of modern TV talk-show, will discuss his autobiography, My Remarkable Journey.

Friday, May 22, 2009, 7:00 pm, John Bassett Theatre - Metro Toronto Convention Centre, 255 Front Street West. Tickets available through Ticketmaster. Book signing to follow at Festival Hall, 142 John Street, (416)595-7349.

Gold outlook for the second half of 2009

Royal Bank of Canada sees gold staging a near-term seasonal pullback of 10-15% from its April 1 value, suggesting a potential downside risk to US$750 - $800/oz this summer. According to their continued bullish longer-term outlook, gold may reclaim $900/oz later in the year, and perhaps retest $1,000/oz late this year or into 2010.

For an even more glittering view, see 2009 Gold Outlook on the Gold World Web site.

Money, money, money, and the financial markets

This readable and meaningful book review of The Origins of Value: The Financial Innovations that Created Modern Capital Markets (edited by William M. Goetzmann and K. Geert Rouwenhorst, Oxford University Press, 2005), written by Stephen Fidler for the Financial Times, may shed some light on money and its usage. Loans bets and trades, or bonds stocks/options and commerce.

A globe-trotting history of modern finance
By Stephen Fidler

Published: December 27 2005. © The Financial Times Limited 2009

Loans, bets and trades. These three words, more or less, encapsulate all transactions in the world's financial markets. Raw computing power in the past 20 years has pushed modern finance to levels of sophistication that make it hard for laymen to grasp. But understand these building blocks and you understand, at root, what financial markets are about.

Read the article here.

Europe, and Lesser Europe

As was to be expected, Europe's suburbs are in deeper, shall we say, crisis. A systemic response appears to be in order.

Collapse in Eastern Europe? The rationale for a European Financial Stability
Daniel Gros © voxEU.org
25 February 2009

The European periphery faces significant economic turmoil. This column argues that Eastern European woes threaten the core of Europe and necessitate a systemic response. It proposes a new, massive European Financial Stability Fund (involving about 5% of EU GDP) run through the European Investment Bank.

Read the article here.

The Jolly-Great Recession vs. the Great Depression

We all knew, before the current crisis that is, that all the controls in place nowadays would prevent anything even remotely close to what happened during the Depression. Sure thing.

How similar is the current crisis to the Great Depression?
Thomas Helbling © voxEU.org
29 April 2009

Despite the stunning contraction of industrial production and trade across the globe, the global economy is still a far cry away from the calamities of the Great Depression. However, if the economic damage of the current global crisis may have been contained so far, worrisome parallels to the early 1930s remain and preventive policy actions must be kept up.

Read the article here.

What every investor ought to know

... according to Marc Faber.

1. There is no investment rule that always works.

If there was one single rule, which always worked, everybody would in time follow it and, therefore, everybody would be rich. But the only constant in history is the shape of the wealth pyramid, with few rich people at the top and many poor at the bottom. Thus, even the best rules do change from time to time.

2. Stocks always go up in the long term.

This is a myth. Far more companies have failed than succeeded. Far more countries' stock markets went to zero than markets which have survived. Just think of Russia in 1918, all the Eastern European stock markets after 1945, Shanghai after 1949, and Egypt in 1954.

3. Real estate always goes up in the long term.

While it is true that real estate has a tendency to appreciate in the long run, partly because of population growth, there is a problem with ownership and property rights. Real estate in London was a good investment over the last 1000 years, but not for America's Red Indians, Mexico's Aztecs, Peru's Incas, and people living in countries which became communist in the 20th century. All these people lost their real estate and usually also their lives.

4. Buy low and sell high.

The problem with this rule is that we never know exactly what is low and what is high. Frequently what is low will go even lower and what is high will continue to rise.

5. Buy a basket of high quality stocks and hold.

Another highly dangerous rule! Today's leaders may not be tomorrow's leaders. Don't forget that Xerox, Polaroid, Memorex, Digital Equipment, Burroughs, Control Data were the leaders in 1973. Where are they today? Either out of business or their stocks far lower than in 1973!

6. Buy when there is blood on the street.

It is true that, very often, bad news provide an interesting entry point, at least as a trading opportunity, into a market. However, a better long term strategy may be to buy on bad news, which has been preceded by a long string of bad news. When then the market no longer declines, there is a chance that the really worst has been fully discounted.

7. Don't trust anyone!

Everybody is out to sell you something. Corporate executives either lie knowingly or because they don't know the true state of their business, and the entire investment community makes money on you buying or selling something.

8. The best investments are frequently the ones you did not make!

To make a really good investment, which will in time appreciate by 100 times or more, is like finding a needle in a haystack. Most 'hot tips' and 'must buy' or 'great opportunities' turn out to be disasters. Thus, only take very few investment decisions, which you have carefully analyzed and thought about in terms of risk and potential reward.

9. Invest where you have an edge!

If you live in a small town you may know the local real estate market, but little about Cisco, Yahoo, and Oracle. Stick with your investments in assets about which you may have a knowledge edge.

10. Invest in yourself!

Today's society is obsessed with money. But the best investments for you may be in your own education, in the quality of the time you spend with the ones you love, in your own job, and on books, which will open new ideas to you and let you see things from many different perspectives.

© Copyright 2009 by Marc Faber Limited - All rights reserved.

A brief history of Genoa

As il mio amico ml discovered the other day, all the roads may have once led to Rome, but they certainly start from Genoa. Giuseppe Felloni, Guido Laura - Genova e la storia della finanza: una serie di primati? / Genoa and the history of finance: A series of firsts? is a fairly readable history of Genoa's innovations in the world of economics in ten chapters.

These apparently include public debt, government bonds, discount on state bond coupons, the clearing house, and double-entry accounting. At least, that is, based on the existing documentation in Genoa and lack thereof elsewhere.

You can read the first edition (2004) of this bilingual (Italian/English) book, in PDF format, on Giuseppe Felloni's site. Chapter 4 deals specifically with the history of the House and Bank of St. George (Genoa, 1407-1805), whose archives, the basis for this book, Felloni has catalogued for years.

If nothing else, you'll certainly enjoy the pictures.

The above illustration of Genoa, around 1490, is a woodcut from Hartmann Schedel’s Weltchronik (Nürnberg 1493), fol. lviii verso. Source: Wikimedia Commons.

The World Is Flat, and synchronized

The randomly picked graphs below (for the week that passed) illustrate how we all cope together on this small planet Earth...

Together indeed. The big picture (looking at the fuzzy graphs on this page, before clicking on any one in particular) is clearly that we're all very much in sync. Investors of the world, unite!

Maximizing profits by timing the market

CNBC posted this table on their Web page today:

And here's a thorough research by BeSpoke, from a couple of days ago: