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Thursday's Top 10 with NZ Mint: How 'Mom and Pop' investors are abandoning the US stock market; 'You don't say no to a princeling'; The death of a Supergrass in Surrey; Dilbert

Posted in Opinion Updated

Here's my Top 10 links from around the Internet at midday in association with NZ Mint.

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must watch is #2 on how China operates. Jon Stewart is pretty funny too.

1. The slow death of the stock market investor  - Felix Salmon at Reuters highlights some useful charts showing 'Mom and Pop' investors are largely withdrawing from the US stock market.

He says they've lost faith in the market after the volatility of the last decade, fears about insider trading and the rise of the 'machines' nano-trading the market.

I think the ageing population is a factor too.

They are naturally keener on less risky investments such as bonds.

That's part of the reason bond yields are so low. There is so much demand for 'risk free' investments, even though yields are so low.

The irony of course is this withdrawal of 'Mom and Pops' in America is happening at the same time that 'Mum and Dads' seem to be reconsidering the stock market here.

Here's Felix:

What we’re seeing is the slow death of the stock-market investor — the kind of person who subscribes to Barron’s, idolizes Warren Buffett, and thinks of stock-market investing as a do-it-yourself enterprise. During the dot-com bubble, lots of people thought they were really smart when it came to stock-market investing, and then after the dot-com bubble burst, the rise of discount brokerages helped encourage new people to step in to the market and try their luck.

Nowadays, however, the message is sinking in: it’s a rigged game, you can’t win, and you’re better off with a passive strategy.

2. How China's Princelings profit - Henry Sender at FT.com looks at how the Princelings (children of China's revolutionary heroes) profit from their connections in China and what it means for foreign companies. He also makes the point that many people in China are not a fan of this corruption.

From abroad, observers prefer to believe that this dynamic is purely domestic. But foreigners may also be affected. For one thing, they employ the princelings. Mr Wen’s daughter Lily worked for Credit Suisse while former president Jiang Zemin’s grandson Alvin worked for Goldman Sachs before joining one of the local private equity firms, Boyu.

The daughter of Wang Yang, governor of Guangdong province, works for Deutsche Bank. And the daughter of Chen Yuan, head of China Development Bank who himself is the son of the former powerful official Chen Yun, worked for Morgan Stanley before attending Harvard Business School. If anything, investment banking, like private equity, has become far more political in hiring today than 20 years ago. Few of the first generation working for the foreigners were born with silver chopsticks in their mouths as is the case now.

3. Chart and table of the day - The Department of Labour (now the much snappier titled MoBIE) has released its quarterly employment update with a special look at migration to Australia and also migration out of Christchurch.

The chart and table below show (as you'd expect) that the majority of New Zealand born emigrants to Australia are young and slightly more skilled and professional than the workforce they are leaving behind. The high proportion of community and personal service workers suggests we may find it more difficult in the decades to come to look after all those baby boomers as they move into retirement homes. Unless we import a whole bunch of immigrant labour, which is possible.

Table 3 shows the occupation distribution of people departing to Australia over the year. While technicians and trades workers from New Zealand are somewhat over-represented in departures to Australia relative to the total New Zealand workforce, the general pattern is for Australia to draw broadly from New Zealand occupations. The high number of technicians and trades workers, and also machinery operators and drivers, may show the influence of Australia’s mining and resources boom, but it does not dominate the overall pattern.

There was a net loss in all occupation groups to Australia over the year to September 2012, especially for highly skilled workers. Professional workers had the biggest net loss (with 4,000 fewer people over the year), followed by technicians and trades workers (with 3,400 fewer people over the year).

4. 'Give us back our cash'  - Barron's reports US companies are lining up to hand back cash to their shareholders to take advantage of a 15% tax rate discount before it (potentially) falls over the fiscal cliff on January 1 and becomes a 40% tax rate.

But where are they putting all this cash? Government bonds. Money, money everywhere, but not a drop to invest and hire. The engine is flooded with petrol.

5. Sudden death in Surrey - The Independent reports a whistleblower on the Russian mafia has been found mysteriously dead outside his house in Surrey.

I wonder...

Alexander Perepilichnyy, a wealthy businessman who sought sanctuary in Britain three years ago after falling out with a powerful crime syndicate, collapsed outside his mansion on a luxury private estate on the outskirts of Weybridge. He was 44-years-old and was in seemingly good health.

The Independent has learned that Mr Perepilichnyy was a key witness against the “Klyuev Group”, an opaque network of corrupt Russian officials and underworld figures implicated in a series of multi-million pound tax frauds and the death in custody of the whistle-blowing Moscow lawyer Sergei Magnitsky. He is the fourth person to be linked to the scandal who has died suddenly.

6. Diana Fox Carney - The new boss of the Bank of England is the current head of the Bank of Canada, Mark Carney.

The Guardian points out his wife, a development economist, has some interesting views:

In a recent piece on inequality, the mother of four wrote warmly about the Occupy movement – which channelled public anger against the bankers. And despite her husband being set to earn £624,000 from his new role, she blames the "visibility and excess" of those in the "top 0.1%" for increasing the gap between the rich and the poor. She even goes on to enthuse about The Spirit Level, a book that suggests economic growth is less important than equality of income, declaring: "The politics of division are coming home to roost."

Then there is her environmental campaigning. As well as being vice-president of research in a "progressive" thinktank in Canada, Fox Carney also runs an eco-products review site. Alongside discussions of what she will buy her four daughters for Christmas (referring to them as the "young Foxes") she is scathing about our consumerist culture. She writes that she has "seen, firsthand, the devastation that our willful refusal to change our consumerist habits is wreaking on marginal communities".

7. Google non-plussed - The debate about how Google and Amazon pay hardly any tax in Europe is heating up.

Here's a non-plussed head of Google UK wondering via The Telegraph what he's done wrong.

Mr Brittin said MPs were blaming companies for a system that they had designed. "Google plays by the rules set by politicians," he said. "The only people who really have choices are politicians who set the tax rates."

Meanwhile, French ministers signalled they are ready to change the laws to force online companies to pay full levies on earnings made in France. Fleur Pellerin, the French technology minister, told reporters: "There's a serious issue around fiscal harmonisation in Europe. There's a will to change this in Europe but the timeline is too slow. Tax rules set at a time when commerce was physical are not appropriate any more."

8. One juicy airline meal - The FT.com reports corrupt executives at the Bank of Kabul smuggled cash out of Afghanistan in the planes of Pamir Airways. Overall, they stole US$861 million in what was described as a Ponzi scheme, forcing a state bailout of the bank that cost Aghanistan as much as 6% of GDP.

The brother of the current President Harmid Karzai was involved. Karzai used a Presidential decree to get his brother off.

New Zealand soliders have died to defend this regime.

Kabul Bank operated with two sets of books – one of them fraudulent to show the auditors – and used more than 100 corporate stamps for fake businesses to provide an appearance of authenticity as money was funnelled to Dubai for property purchases and other forms of personal enrichment, the report said. Money was smuggled out, sometimes in cash in the food trays of Pamir Airways.

Ten of the airline’s pilots were paid $320,000 in salaries over more than two years as “pilots of cash delivery”. The findings will embarrass not only the government of President Hamid Karzai – whose brother Mahmoud was one of the bank’s beneficiaries – but also the western nations that support him, and the Afghan and international auditors and agencies that failed to put a stop to the audacious Ponzi scheme.

The report criticised as “likely illegal” and “direct political interference” a presidential decree from Mr Karzai last April that absolved debtors of criminal and civil liability if they repaid the capital of the loans they received. His brother was one of those who took advantage of the amnesty.

9. CEO excess - The Press reports the CEO of the Port of Lyttelton was paid over NZ$1 million last year, up from NZ$430,000 the previous year. Some long term incentive payments were involved.

The annual reports also show the number of employees being paid more than NZ$100,000 rose to 93 last year from 70 the previous year.

The reaction this story is getting in Christchurch will grow, and is growing all around the world as rise in incomes and wealth of the 0.1% happens as incomes and wealth of the middle to lower tiers stagnates. Spending by middle to lower tiers is stagnating too as they repay debts built up in past years to keep growing spending despite flat incomes.

The irony is the 0.1% are nervous about the future of consumer spending, so are saving their money in 'safe' investments such as government bonds and government guaranteed bank term deposit accounts. This hoarding and lack of investment is worsening the unemployment situation. It's a vicious cycle. Rinse and repeat.

10. Totally Jon Stewart on the demise of The Twinkie

 

(Updated with cartoons)

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11 Comments

Re #1 - yer dinnae need to

Re #1 - yer dinnae need to read too much ZH to realise that, as always happens, the M&P's are just catching up with what insiders have known for years now.  
 
A toxic combination exists of HFT, QE, revolving doors (Carney, new BoE wallah, is ex GS, f'rinstance), and the bought-and-paid-for 100% possession of useful idiots like BHO to front the whole spectacle, not to mention the collusion of ratings agencies, the bought-and-paid-for MSM, and need I go on?
 
It's a thoroughly rigged game.
 
MOM and other sober analysts are the ones who just plough on, reading the actual data, and making real calls.  Oh, and she doesn't ever trust China stats...

Speaking of Mum and Dad

Speaking of Mum and Dad investors - watching Mum lose several thousand dollars on Rada back in the 80s successfully innoculated me from catching the sharemarket bug. Nothing I've seen since has shaken my belief that it's a mugs game unless you're one of the big players.

yes, sort of....DIY shares

yes, sort of....DIY shares has one advantage....some what liquid, you can pick your exit (I have already). Otherwise trouble is if you are locked into pension funds you cant bail and generally they are mediocre at best....
I'd suggest these are the ones that will take huge losses as the nano second fast traders bail at some point in the future leaving them stuck....
Me I bailed 30 months ago....
regards
 
 
 
 

6 - she gets it (the

6 - she gets it (the intellectual 'it', that is). Reminds me of Bollard's better half enthusing on solar power. Question is how much influence she has. That's a treacle-like mass of non-thinking suits, if ever.

Kunstler has a nice Gloomster

Kunstler has a nice Gloomster riff...Modernity Bites!

Waymad Thank you for the

Waymad
Thank you for the link.
 
Just two days ago on the radio I heard the owner of Harvey Norman confirming the 'predictions' in Kunstler's blog.
 
Have a look in the big boxes. It is already happening.

As a largely buy and hold

As a largely buy and hold share investor, am actually pleased to see the decline in volumes as per #1; if a large part of the cause of that decline is that day traders and hedge funds have found it much more difficult to profit out of short term manipulation of, or insider trading in, share prices. Some focus back on likely short or long term dividend streams seems to be a better structured market. 
I've no doubt the dot com bust and the GFC has put some investors off the stockmarket; as has the naturally more conservative ageing population. Massive salaries and bonuses of CEOs and other senior executives; almost regardless of the performance of their companies, probably haven't helped either.
But with reurns on other investments looking very low, then a solid say 7-10% return in the sharemarket does not compare too badly to many options, even if it is a bit lower than the 15-20% returns that seemed common for a while. Pick a balanced portfolio, including at least ASX as well as NZX stocks, look for dividends and a likely sustainable business, and it still looks pretty good to me.
 
 

Once again Labour show how

Once again Labour show how financially illiterate they are.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10850796

They are of course yet

They are of course yet another Pollie beating on the drum of big corporates dodging tax...and (as much as anything) rightly so.  So step back from the odd calc failure and consider what they are saying....there will be an accounting....if only via a tax law change that says pay tax at point of use of the NZer...and they will get or have got ever increasing voter support.
I dont see that as bad for NZers...any small NZ owned and located business is at a serious dis-advantage in this game...so fix it and move on.
regards
 
 

looking pretty financially

looking pretty financially literate to me rc. I wish those foreign multinationals would pay tax rather than squirilling their money off shore with ruses like overblown management fees etc.

#3 - Figure 18 Scariest chart

#3 - Figure 18
Scariest chart I've ever seen.