Investment competitions in France

I have entered two investment competitions sponsored by the magazine "Capital", capital.fr, in France.

One is to invest a fake 5 million euro portfolio in different currencies. In order to do so, you create a "demo" account in RTFX, through the magazine competition page, and buy or short seven different currency combinations (only major currencies, unfortunately - otherwise, I would be buying Australian and Canadian dollars :-)

The accounts with the top 20 performances win a total of 27,000 euro each month, which is then placed in a real account.

At the end of the competition, 100,000 euro is divided amongst the best 15 performers.

It is fun, and after a couple of hours of competition, I have won about 3,000 (fake, alas) euro - betting against USD, GBP and JPY, and in favor of EUR and CHF - no great science, there.

The same magazine has another competition, in which you invest 1,000 real euro in French stocks and bonds. The top 20 investors each month share 40,000 euro in prizes. To participate in this competition, you have to fill out a long questionnaire, and send a check (or transfer) for 1,000 real euro.

This is a fun way to practice your investment skills.

By the way, why is the plural of euro "euro"? In other languages, euros is used!

My picks for world's scariest stocks

The Motley Fool (fool.com) has an entertaining contest going on right now, to find the "World's Scariest Stock":

http://www.fool.com/investing/general/2009/10/30/the-worlds-scariest-stocks.aspx

My own vote:

SCARY: Crocs, Fannie Mae/Freddie Mac, Palm, Research in Motion and Sirius XM Radio (Palm and RIM basically because, in the long run, they will not be able to compete with Apple and Google).

SCARY AWESOME: Baidu, First Solar, Goldman Sachs and Pfizer.

It is interesting to note that of last year's top 10 scariest stocks, only Citigroup and First Solar underperformed the market. Starbucks actually returned 80 %, whilst Dendreon (a biotech company) returned nearly 500 %!

Happy Halloween!

Mexico, Argentina and Venezuela in severe recession; Peru and Uruguay still growing

The IMF has published its World Economic Outlook (October 2009).

http://www.imf.org/external/pubs/ft/weo/2009/02/pdf/text.pdf

It is forecasting a contraction of -2.5 % for Latin America (on average), and a recovery of 2.9 % in 2010.

The only two countries forecast to show growth in 2009 are Peru (+1.5 %) and Uruguay (0.6 %).

On the other hand, Mexico will fall by -7.3 % (and that might be an underestimation.

Argentina will contract by -2.5 %, and Venezuela by -2.0 %. Although these, again, could be underestimates.

"Especially significant export revenue losses were experienced by the energy-intensive economies of Bolivia, Ecuador, and Trinidad and Tobago".

Crank theories and Austrians

The Financial Times has an interesting article about the "unconventional schools of thought" on investing, also known as "crank theories".

These would be "fund managers, brokers and advisers who distrust the whole structure of the economy and markets and believe that returns can only be made by exploiting the inherent flaws".

One of these, Peter Schiff, is advising his clients

"to avoid any dollar-denominated assets and to invest in overseas stocks and bonds, particularly in Asia and especially in companies that do not have significant exposure to the US. Commodities and precious metals are also recommended".

This seems to be too extreme. While a heavy degree of diversification is always in order, completely divesting from dollar-denominated assets, as well as U.S. equities and bonds, is absurd.

I have recommended, of course, investing a (small) portion of your portfolio in commodities and precious metals, although at $1015+ a troy ounce, gold may be in a mini-bubble.

Too many people?

There is an interesting debate in "The Economist" on whether there are too many people on planet Earth.

My perspective: All of the current crises (financial, economic, energy, climate change, food, water) are, in essence, expressions of the excessive population of the world, which will only grow worse as the 9.2 billion population figure is reached.

In some cases (food, energy, climate change) the connection is rather obvious. Prices are rising as demand outstrips supply. Greenhouse gas emissions are increasing as the population produces and consumes more and more. Other asset bubbles (housing, financial assets) are also related to the growing pull of demand.

It was appropriate that one of President Obama's first actions was to overturn Bush's ban on funding and promoting population control activities. But, as others have noted (for example, an article in Newsweek last week), perhaps it is too late to revert global warming.

A bottom to house prices?

Paul Krugman blogs that the end is in sight for the bursting of the house price bubble.

He quotes an entry in the "Calculated Risk" blog, which states that:

"especially [in] the mid-to-high priced bubble areas, there will be further price declines... It seems there are many more foreclosures coming. Some of this depends on the success of the modification programs, but the Q2 MBA delinquency report shows a growing number of homeowners in the problem pipeline".

Krugman himself thinks that:

"In 2005-6 it was a slam-dunk prediction that housing prices were headed for a huge fall; that was obvious to everyone except the likes of Alan Greenspan and everyone else who mattered (and a few who didn’t, like Larry Kudlow.) At this point, squinting hard at various measures suggests that housing prices are still a bit high, but we’re within debating range. Home prices could stabilize not too far from here".

"The Economist" also sees signs of continuing trouble:

"the recovery’s foundations look shaky. Rising joblessness will continue to weigh on demand for homes. The unemployment rate, currently 9.4%, is expected to peak at more than 10% some time next year... Consumer confidence remains fragile... For those seeking a mortgage, credit is still hard to come by... With 1.8m homes already in foreclosure, a “similar amount” may be heading that way... the rise in negative equity — when a borrower’s mortgage debt exceeds the value of his home— is also fuelling foreclosures, not least because many would rather walk away than keep making payments on a home that is worth much less than the sum owed on it. Zillow.com, a property-information service, estimates that 23% of homes with mortgages are underwater. Others put it higher. A staggering 60% are submerged in Las Vegas. Deutsche Bank’s securitisation team expects negative equity to peak at 48% of total homes by 2011. That may be too pessimistic, but all agree that the number will rise further".

"The Economist" concludes that: "

Most economists expect them to fall by a further 5-10 percentage points, to their long-term trend line at roughly 40% below their peak, and not to reach bottom until some time in 2010. The pessimists predict they will go crashing through the trend-line to as little as half their 2006 high.

Personally, I think prices will continue to fall, especially in metropolitan areas where they had more than doubled in the 2000-2006 period (Miami, Los Angeles, Washington D.C., San Diego, Las Vegas, etc.).

Top sectors by Return on Equity

Cigarrettes and alcohol I can understand, but why would "Information & Delivery Services" have the top Return on Equity (ROE) by sectors?

http://biz.yahoo.com/ic/827.html

Top companies by market capitalization in this sector are Dun and Bradstreet (DNB), FactSet Research Systems Inc. (FDS), DST Systems Inc. (DST), and Interactive Data Corporation (IDC). I guess something about providing financial information generates efficiency!

Number 2 on the ROE ranking is cigarettes; third is "Aerospace/Defense - Major Diversified"; and in the seventh slot we find "Beverages - Wineries & Distillers"

http://biz.yahoo.com/ic/l/roe.html

I guess the sin investments (alcohol, tobacco, gaming, defense) are worth another look - although the FocusShares ISE SINdex Fund (PUF) is closing. There is a mutual fund in this sector, VICEX.

Investing for the really long-term (or, profiting from baby boomers)

I was checking my portfolio today, and, other than rejoicing that I am back in the green overall, I noticed that my best single investment was in Sunrise Senior Living Inc. (SRZ), with a gain of 500 %!

This, of course, is by no means average, and you should not be able to reproduce it (I bought it at 37 cents per share). However, the basic principle, of investing in companies or indices that will benefit from the ageing baby boomers, is, I believe, a sound long-term strategy.

What other broad sector indices could you buy:

- Powershares Dynamic Leisure ETF (PEJ)
- iShares Nasdaq Biotechnology Index Fund (IBB)
- iShares Dow Jones US Healthcare Sector Index Fund (IYH) (although, in the short term, might show some volatility based on the health sector reform plans).
- Dow Jones US Healthcare Providers Index Fund (IHF)
- Market Vectors Gaming ETF (BJK) (can't quite figure out why seniors love casinos so much).

This CNBC article picks up on the topic, recommending, for example "Ventas [VTR] and Senior Housing Properties Trust [SNH], both of which are real estate investment trusts weighted toward nursing homes". They also recommend Starbucks and Barnes and Noble, as "Baby boomers also will seek out casual leisure places".

Yet another take on "Why Economics Failed"

Yet another take on "Why Economics Failed".

- "I am wholly unconvinced most macroeconomic theory can ever hope to make consistently accurate predictions. There are entirely too many variables, and people just aren't as rational as economists like to assume they must be".

- "the concept of rationality even exaggerates rationality. Even with good information, people often make stupid decisions based on emotion. I would even argue that generally people are more emotional than rational -- and that's a huge problem for modern economics".

On the other hand, truly modern economics takes into account behavioral factors and irrational behavior of some economic agents.

Why is the yen rising?

Can someone please explain to me why the yen keeps rising?

The ratio of public debt to GDP is approaching 200 %, more than twice the OECD average.

Public finances are in disarray, the ruling "Liberal Democratic Party" will soon lose power, the economic rebound is very weak, exports and industrial output have not recovered, and Japan is losing market share to other Asian companies.

Even with a slip today versus major currencies, the yen seems to be grossly overvalued. I would expect the euro to strengthen, in particular due to the improving economic fortunes of Germany and France, and their relatively modest stimulus packages (and deficit).

But I would still suggest investing in inflation-protected equities, as mentioned in a previous entry.