Archive for the ‘Finance’ Category

universal pensions and retirement savings in New Zealand

Sunday, November 25th, 2018

New Zealand has a simple, very successful pension system that could serve as a model for other countries. Unfortunately, despite its simplicity, few understand how the system works. The Government of Ireland, which is reforming its system, is an example of this misunderstanding, Susan St John points out.

New Zealand recently added an auto-enrolment, voluntary savings scheme, known as KiwiSaver, to its pension system. KiwiSaver has many shortcomings, is fiscally costly, and and is considered by many to be unnecessary since nearly all residents of New Zealand are guaranteed a basic old-age pension for life. (more…)

factor investing vs hedge funds

Sunday, July 22nd, 2018

In 1992 Eugene Fama and Kenneth French, two professors at the University of Chicago Booth School of Business, published a paper that showed how investors could beat the stock market’s returns … by taking advantage of two simple factors: the tendency of small or cheap companies to outperform over time.

… [T]he Fama-French paper was a bombshell, largely because Prof Fama is the father of the “efficient markets hypothesis”, which argues that investors cannot consistently beat the market.

New Zealand’s universal pension is in danger

Saturday, June 16th, 2018

New Zealand has a universal pension scheme that is the envy of the world. It is simple, affordable, and eliminates poverty in old age. When a qualified resident reaches the state pension age, he or she receives a basic, flat pension, regardless of income, wealth or employment history. This benefit, called ‘Superannuation’, is financed from general government revenue. Earmarked taxes are not levied to support it, but benefits are taxable as regular income, so net benefits are lower for pensioners who have income from work or from savings. (more…)

the source of US power

Monday, May 28th, 2018

FT columnist Wolfgang Münchau explains that acceptance of the US dollar as a global currency gives the country extraordinary power. The United States alone can impose and enforce extraterritorial sanctions. This privilege is not available to other countries because no currency exists to replace the US dollar. (more…)

pre-funding social pensions in Bermuda

Sunday, April 22nd, 2018

At least some residents of Bermuda, a wealthy self-governing British Overseas Territory in the North Atlantic Ocean, with a tiny population of 63,779, are worried that government has not saved enough to pre-fund its noncontributory old-age pension promises. Benefits as of 2015 were US$103.81 a week for residents aged 65 and older with total annual income greater than $4,000 and US$106.83 a week for residents with less income. Additional requirements are citizenship and at least 10 years of continuous residence in Bermuda in the past 20 years. (more…)

tips for personal investors

Monday, February 19th, 2018

It is best to ignore short-term fluctuations in financial markets. “Staggering amounts of time and intellectual energy,” writes Miles Johnson, Capital Markets Editor of the FT, “are expended by market watchers who treat the latest leg up or down in US Treasuries or stock markets as imbued with meaning, only to reverse their view the following week.”

Benjamin Graham (1894-1976), a British-born American economist and investor, would agree. A prudent investor should either buy-and-hold, when prices are steady, or purchase assets when the price is low, and sell when they are high. Most investors do the opposite. Graham’s seminal text on investing, The Intelligent Investor, was first published in 1949, and reprinted many times before and after his death. It is still relevant today, and continues to be ignored by most investors.

Ben Graham, the famed father of value investing, used the analogy of the market as a business partner so mentally unstable he would on some days offer to sell you his share for a rock bottom price, and on better days would ask for a stratospheric valuation. This character, Mr Graham noted, would be a fantastic person to do business with.

“Price fluctuations have only one significant meaning for the true investor,” he wrote. “They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.”

Miles Johnson, “Beware the all-knowing macro forecasting genius“, Financial Times, 19 February 2018 (gated paywall).


Why is the US dollar falling?

Saturday, January 27th, 2018

No one knows. Last Thursday, the day before Trump’s scheduled arrival for the World Economic Forum’s annual meeting at Davos, Treasury Secretary Steven Mnuchin endorsed the dollar’s decline and said that its short term value was of no concern. (more…)

billionaire Ray Dalio on income inequality

Sunday, January 14th, 2018

Ray Dalio, founder of the investment firm Bridgewater Associates, last week had lunch courtesy of the Financial Times at the Jackson Hole burger bar in midtown Manhattan . In the Great Recession he “propelled his flagship fund, Pure Alpha, to gains of almost 10 per cent in 2008, at a time when most funds suffered searing losses”.

Surprisingly, the billionaire is not bullish on markets today, for political reasons. We know the world economy is in trouble when billionaires worry about unequal distribution of income and wealth. (more…)

speed trading in financial markets

Tuesday, January 2nd, 2018

High-frequency trading (HFT) by computer replaced trades on traditional exchange floors a decade ago, and the speed of trading is fast approaching the speed of light. The increased speed of transactions makes it difficult to make money trading equities and bonds. In addition, financial markets are increasingly vulnerable to flash crashes such as the one experienced in May of 2010.

The following timeline, from a Big Read column in the Financial Times, summarizes the accelerating pace of trading since a telegraph cable was first laid beneath the English Channel in 1851. (Much of the early history is left out, including a successful transatlantic cable, laid in 1866 between England and the USA.) (more…)

the Bitcoin bubble

Monday, December 11th, 2017

The Bitcoin bubble is rather unusual, because it is pure speculation. Prices go up today only because they are expected to go up tomorrow. An FT reader, in an online comment, expressed this very clearly:

Bitcoin is speculation pure and simple because everyone can deduce that it can have no long-term value since new cryptocurrencies can be produced infinitely and at better quality ….


Still, there can be no doubt that at least some bulls are playing in this market. The twin brothers Cameron and Tyler Winkelvoss, who run the digital currency platform Gemini Exchange, last Friday predicted that Bitcoin would rise by 10 to 20 times its current value. Did they say when this might happen, though? My source for this information is the Financial Times, which did not provide a date for their forecast.

For more information, see Philip Stafford and Gregory Meyer, “Prices soar as new bitcoin futures start trading“,, 11 December 2017 (gated paywall).