blog02nov2008

Hot Off the Web- November 2, 2008 Past week’s papers were filled with articles on why Ottawa should be considering “pension relief” for corporations with underfunded pension plans. But most commentators missed the real story.  This is not about the impact on companies which are contractually responsible for the pensions; it is about the potentially devastating impact on pension plan beneficiaries- retirees! Pensions are deferred wages and must be protected. Read my just posted blog dedicated to the pension crisis and potential solutions Pension relief for corporations? Yes, but not without protecting the pensioners

CARP (on RRIFs) joins AARP (on IRAs) demand “immediate action to temporarily freeze mandatory retirement account withdrawals” to give more “financial flexibility” to retirees in “Tax strategies for retirement savers”   and in “Organization for elderly warns against pension funding requirements”

If you are interested in U.S. real estate prices, check out the August S&P Case Shiller index out this week; the deterioration continued. This shouldn’t come as a surprise given that in “Nevada has highest percentage of ‘underwater’ households”  it is reported that 48%, 29% and 18% of the outstanding mortgages are larger than the market value of the mortgaged homes in Nevada, Florida and the U.S., respectively. You can read my last week’s update on Florida real estate at Site (and Sight) Unseen: Florida Real Estate Update (October 23, 2008) .

For those who still sitting on un-invested cash and are underweight in equities relative to their strategic asset allocation, some suggest that “Stocks look cheap worldwide” and it is “Time to begin the bargain hunt” (though many believe that we have still not bottomed; but who knows when we are there?)

Meanwhile, a reminder that while annuities (and other guaranteed income insurance products) may be part of the solution for some very risk intolerant investors, the guarantees that come with the income stream may be affected by the financial condition of the insurance company from which you bought the product. See “Are annuities at risk now? Some answers”  and “Regulator gives insurers more flexibility” . As some of those guarantees have to last 30-40 years or longer an a lot can change in the financial condition of a guarantor, you may not want to put all your eggs in one basket.

For those who want to or must go back to work because of drastic reduction in their retirement assets, WSJ’s Sarah Needleman has tips for you in “Easing back to work after you’ve retired” . Among her tips are to: “leverage your expertise”, “pursue your passion” and “hide any resentment”.

For holders of PPNs (Principal Protected Notes) the news is not good, and not just because they are likely burdened with large annual fees which erode their potential returns. The Globe and Mail’s Boyd Erman reports in “Investors told not to expect gains on PPNs” that many PPN holders have been notified that ‘protection events’ have occurred and irrespective of future upside market changes they will receive on maturity only their original investment. (This may not sound bad considering the current market conditions, but getting your original investment back after typically six year of inflation is far from breaking even. GICs would have been a lot better!) And in “Tax event may be next for bruised PPNs” the Globe’s Rob Carrick reports that CRA is contemplating tax changes based on market value of PPNs prior to maturity. “If the CRA goes ahead with this change, and there’s no certainty it will, then PPNs would be lumped in with strip bonds on the list of investments that are best held in registered accounts.” (Or even better, just forget about them altogether.)

For those who are fans of fundamental investing (and the jury is still out on them, though there are some heavyweight supporters like its inventor Rob Arnott with great credibility), the good news is that “PowerShares to cut fundamental index ETF prices” from 0.6% to a more palatable 0.39%. (Only PRF, their U.S. 1000 ETF, has accumulated more than the $100M required for profitability and likely long-term survival.)

With all the bailout money that’s being handed out, no doubt that you are worried about downstream inflation. But to add to your list of worries consider Jacqueline Thorpe’s “The next worry: A deflationary slump, like Japan” or the even more catastrophic view reported by Janet Whitman that Dr. Doom forecasts depression”, both in the Financial Post.

Or you could just look out for signs of turnaround as in WSJ’s “Economists search for end of woes” where Lahart and Evans list signals to identify the turnaround. Among the signals are: banks easing rather than tightening lending standards, sustained housing inventory reduction, improvement in University of Michigan index of consumer expectation together with improved sales of consumer major purchases, initial unemployment insurance claims (in the U.S. >400,000 indicates coming recession), and (interestingly) the South Korean market index (a proxy could be EWY) which is dominated by export oriented companies is a predictor of the direction global economic trends.

And finally, Jeffrey Trachtenberg in “What to read in financial crisis”has list of WSJ readers’ suggested reading list, some which are: Burkett’s “The coming economic earthquake”, Chilton’s “The wealthy barber”, Galbraith’s “The great crash 1929” and Kindleberger’s “Manias, Panics and crashes: A history of financial crises”.

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