How to spot a Ponzi or pyramid scheme

Video: Money Monitor: How to spot a Ponzi or pyramid scheme
Aug. 07 2014

How can you recognize a pyramid or Ponzi scheme before you get scammed? Sylvain Theberge from the Quebec securities regulator has some tips.


Source: http://fw.to/ACVTW5R

Don't get caught in your own web

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Leadership

Harvard Biz Review ‏@HarvardBiz  

What leadership skills do you need the most?

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Investment Books

The Intelligent Investor by Benjamin Graham

Written by the father of modern value investing (and Warren Buffet’s mentor), The Intelligent Investor is a wonderful read and vocational masterpiece, but it’s also important for every investor to understand, since it has likely impacted almost all participants in the broader capital markets with and from whom you intend to profit.

Read it multiple times since you will always walk away with a new appreciation of Graham’s genius, as well as a healthy dose of reality.



When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein


This is the best book ever written about investing and investors. Following as almost a sequel to Liar’s Poker, it tells the incredible story of Long-Term Capital Management, an American hedge fund boasting not one, but two Nobel Prize-winning economists among its partners.

The story of LTCM’s rise and subsequent blow-up is soap opera worthy, and would be almost impossible to believe credible were it fiction and not fact. It tells the story of what happens when greed, 

A cautionary tale if ever one there was, it will make even the most self-assured investors reflect on their own mortality and imperfections.

Too Big to Fail by Andrew Ross Sorkin

Two parts history lesson and one part voyeurism, Too Big to Fail brings us right into the key decisions that shaped what happened (and could have happened) at the apex of the 2008 financial crisis.

From inside the boardroom at Lehman Brothers to the corridors of the Capitol and the West Wing, the book serves as a reminder that even the greatest institutions are run by humans — humans capable of outrageous greed and who may lack any moral compass.

For those whose memory has waned in the nearly six years since the crisis passed, this book will transport you right back to September 2008 and remind you that all of itcould happen again.

Calculating investment returns

Calculating investment returns: Actuarially speaking, 6% is a good rule of thumb


If you are trying to predict your cash flow in retirement, it’s useful to know what investment returns you can expect.

From an actuary’s perspective, this involves less guesswork than you might imagine. Just like it’s easier to forecast the average climate over the next 25 years than the weather next week, you can make a reasonably good estimate of long-term returns.

Actuaries face this problem all the time since future investment returns are key to estimating the liabilities in defined benefit pension plans. And the magic number we come up with — 6%.

The 6% estimate may seem unrealistically low. After all, the typical pension fund manager achieved an 8.5% return over the past 50 years, so why should returns be so much lower in the future?

For the individual investor, returns can be lower than 6% depending on investment fees. If you go with mutual funds, expect to pay 2% to 3% in annual fees which would reduce the 6% return down to 4% or so.  As a result, you might decide ETFs are the better bet since management fees are so much lower.

Here’s how actuaries arrive at a 6% return:

Estimate future inflation The average inflation rate since 1924 has been 2.94% though actuaries generally assume lower future inflation because (a) inflation has been low for quite a while, (b) economic growth in the developed world looks like it will remain sluggish for a long time to come and (c) the Bank of Canada is targeting inflation at 2% per annum.  Taking all this into account, the typical estimate of future inflation is about 2.25%.

Forecast the real return Calculate the return on each asset class over and above the inflation rate. Assuming three asset classes with 40% in long-term government bonds, 30% in Canadian equities and 30% in international equities.

Expect bond yields to rise Bonds are currently at the bottom of a 60-year interest cycle so yields are expected to rise over the next 25 to 30 years. As yields rise, long-term bonds will produce capital losses that will reduce total return. This has already started as bond funds have registered a net loss in the first eight months of 2013. 

Indeed, there have been 25-year periods when bonds lost money in real terms. Nevertheless, we will go with the consensus that real returns on long-term bonds will average about 1.25% over the next 25 years.

Expect equities to rise less Actuaries generally expect that Canadian equities will generate real returns of 5.25% over the next quarter century; this is less than the 6.7% or so that they have generated historically but an aging population implies a slower economy.  Real returns on international equities are expected to be a little higher, about 5.75%.

Factor in rebalancing Put this all together and we derive a nominal return of 6.05%. (Nominal means we added back in the inflation component.)    We can then bump this up by the closest thing to a free lunch that you are apt to find in the investment world: If we assume the portfolio is going to be re-balanced regularly (to maintain the 40-30-30 mix), the actual return will be a little higher than if the asset mix is allowed to drift. We can therefore round up our estimated return to about 6.4% to reflect regular re-balancing.

Assume 6% gains Finally, we knock off about 0.5% for management fees to come up with our final estimate of 5.9%, which we will round up to 6%.

Even though this seems like a lot less than the 8.5% return that fund managers actually achieved over the past 50 years, the past and the future may not be as different as they look.

The 8.5% return cited above does not factor in management fees. If we assume the same 0.5% annual fee, past returns are now down to 8.0%. Next, the average inflation in the period 1963-2012 was 4.1% versus our forecast of 2.25% for the next 25 years.
If we subtract out inflation, we get a real return of 3.9% for the past 50 years versus 3.75% for the next 25 years (6% less 2.25%). Our forecast is starting to look a lot more reasonable.

Can you do better than 6%? It will be very difficult in a low inflation environment; to have any real chance, you would have to take on more risk (meaning investing heavily in equities) and avoid high investment management fees. It also helps to stay away from long-term bonds, especially government bonds.

You would also need a little luck, and you just might get it. If you look at all the 25-year periods since 1924, the average real return on Canadian equities has ranged from a low of 3.0% to a high of 10.3%, so it is certainly possible we will beat the 5.25% estimate for real returns on equities that we used in this analysis.

Consider the 1979 article in BusinessWeek entitled “The Death of Equities.” It argued that equities had fallen into disfavour by 1979. Evidence included a 10-year rise in gold prices, individual investors leaving the stock marketin droves after suffering big losses a few years earlier, people putting their faith in housing as their major investment rather than stocks, and institutions seeking alternative investments in order to boost real returns. Sound familiar? The return over the next 20  years on supposedly dead U.S. equities averaged 17.87% a year. All we can do is hope.



Fred Vettese | September 21, 2013
Source: http://business.financialpost.com/2013/09/21/calculating-investment-returns-actuarially-speaking-6-is-a-good-rule-of-thumb/

Fred Vettese is chief actuary of Morneau Shepell and co-author of The Real Retirement.

Billionaire investor Paul Singer thinks stocks are way overvalued.

Paul Singer, founder and president of Elliott Management Corp.
Jacob Kepler | Bloomberg | Getty Images
Paul Singer, founder and president of Elliott Management Corp.
Billionaire investor Paul Singer thinks stocks are way overvalued.


"By all measures, the U.S. stock market is currently frothy," the founder of $24.8 billion hedge fund firm Elliott Management wrote in a letter to investors Monday.

Singer repeated his long-held view that central banks are creating asset bubbles through their market stimulus programs.

"Investors are pushing out the risk curve and once again piling on leverage to juice returns, while short-term interest rates in Europe are actually negative," he said. "Although the levitation of financial assets has not yet spread to gold, we will grit our collective teeth on that score and await either 'asset price justice' or the 'end times,' whichever comes first."

'Severe risk' of 'financial crisis': Paul Singer

In his typically cantankerous fashion, Singer warned of what could happen if the printing of money spurs substantial inflation.

"We believe that if and when inflation passes from a phenomenon that affects only a certain list of assets (a growing list, presently a combination of things owned by the well-off plus a number of things that are basic necessities) to a widespread 'in-your-face' phenomenon affecting the cost of living of almost the entire population, then the normal yardsticks of risk, return and profit maybe thrown into the garbage can," he said.

"These measures may be replaced by a scramble by citizens and investors to preserve value on a foundation of shifting sand, together with societal unrest that may make the current politically-useful 'inequality' riffs, scapegoating of the '1%' and complaining about those 'millionaires and billionaires' who are not 'paying their fair share,' look like mere warm-ups for real class warfare."

The flagship Elliott Associates fund is up 4.6 percent this year through June 30. It has produced a net annualized return of 13.9 percent since inception in February 1977.

A spokesman for Elliott declined to comment.

Read MorePaul Singer identifies worst danger in the world

Singer didn't add much on his contentious stake in Argentinean debt despite the country potentially being days away from default.

"The path forward is uncertain. No matter what happens, thousands of bondholders, including Elliott, will continue to pursue our rights, attempting to generate a rational discussion with someone on the other side and trying to forge a solution," the letter said.

Read MoreArgentine debt defiance may strengthen holdouts' legal position 

Singer said the fund is finding new investment opportunities in activist equity positions, arbitraging corporate events, and global real estate in Europe and Japan.

Lawrence DelevingneEnterprise Reporter

Bruno J. Navarro | @Bruno_J_Navarro

Link: http://www.cnbc.com/id/101875542

Warren Buffett’s stock gauge better than Robert Shiller's

Alex Crippen @alexcrippen · Jul 24
Buffett’s Stock Gauge Seen Outdoing Shiller’s: Chart of the Day
Warren Buffett’s favorite stock- market ratio is a more telling indicator of the outlook for share prices than one developed by Yale University’s Robert Shiller, according to a newly revised study.
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Warren Buffett’s stock gauge better than Robert Shiller's, says study

David Wilson Jul 23, 2014 9:00 PM PT

Warren Buffett’s favorite stock-market ratio is a more telling indicator of the outlook for share prices than one developed by Yale University’s Robert Shiller, according to a newly revised study.

The CHART OF THE DAY shows the market value of U.S. companies as a percentage of gross national product before inflation, using data compiled by the Federal Reserve and the Commerce Department. 

In a 2001 article for Fortune magazine, Buffett wrote that the ratio was “the best single measure of where valuations stand.”

A similar indicator, based on non-financial companies and gross domestic product, was cited in the study. 

The barometer was compared with Shiller’s cyclically adjusted price-earnings ratio, or CAPE, calculated by dividing the Standard & Poor’s 500 Index by average annual profit for the previous 10 years.

Shiller’s method is flawed because corporate events can affect a specific company’s earnings and the broader profit outlook differently, Stephen E. Jones, president of String Advisors Inc., wrote in his report.

CAPE’s ability to predict stock performance appears to be tied to “the tendency of longer periods of historical earnings to track GDP,” the New York-based money manager wrote.

The market value-GDP ratio works even better to forecast stock returns after adjustments for demographics and household income and spending, according to the study. The latest version was posted July 8 on the Social Science Research Network, an online repository.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net Jeff Sutherland, Jeremy Herron


http://bloom.bg/UpfyP6 via @BloombergNews


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Bullish BofA calls for correction

Adam Jeffery | CNBC

Bullish BofA changes gears, calls for correction

Jeff Cox | @JeffCoxCNBCcom

Thursday, 17 Jul 2014 | 12:59 PM ETCNBC.com

Another prominent market bull has joined the growing ranks of Wall Street strategists who think a correction is not far away.

Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, believes stocks are setting up for a drop of 10 percent or better in the fall. That would come after the market repeatedly dodged big declines despite numerous predictions that the two-year run without a correction was near an end.

The S&P 500 has gained 6.7 percent year to date, and Hartnett thinks the market index will finish the year higher still—the firm has a 2,000 target—but not before some turmoil.

"High cash levels say the summer 'melt-up' is not over yet," he said in a note to clients. "But with both institutional and private client allocations to stocks at multi-year highs, we think an autumn correction is increasingly likely."

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In its forecasts, BofAML likes to use sentiment indicators and portfolio allocations among Wall Street managers as contrarian indicators. When bullishness runs high, Hartnett and his team sour on the market.

Just a few weeks ago, the firm's strategists said they remained positive on stocks because portfolio allocations were barely above the 50 percent mark. That apparently has changed, and markedly.

Stock weighting has surged to 61 percent in private client portfolios—a nine-year high, Hartnett said.

"Equity price gains have boosted allocations; investor cash levels remain higher-than-normal; and investor sentiment toward stocks is far from 'irrational exuberance,'" he said. "Nonetheless, a necessary condition for an equity market correction is 'greed' and measures of greed are increasingly boosting the case for volatility and a correction in the autumn, in our view."

Read MoreWhy stock market bears may need summer hibernation

Adam Jeffery | CNBC

Another prominent market bull has joined the growing ranks of Wall Street strategists who think a correction is not far away.

Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, believes stocks are setting up for a drop of 10 percent or better in the fall. That would come after the market repeatedly dodged big declines despite numerous predictions that the two-year run without a correction was near an end.

The S&P 500 has gained 6.7 percent year to date, and Hartnett thinks the market index will finish the year higher still—the firm has a 2,000 target—but not before some turmoil.

"High cash levels say the summer 'melt-up' is not over yet," he said in a note to clients. "But with both institutional and private client allocations to stocks at multi-year highs, we think an autumn correction is increasingly likely."

Read MoreStocks sell off onreport of plane crash in Ukraine

In its forecasts, BofAML likes to use sentiment indicators and portfolio allocations among Wall Street managers as contrarian indicators. When bullishness runs high, Hartnett and his team sour on the market.

Just a few weeks ago, the firm's strategists said they remained positive on stocks because portfolio allocations were barely above the 50 percent mark. That apparently has changed, and markedly.

Stock weighting has surged to 61 percent in private client portfolios—a nine-year high, Hartnett said.

"Equity price gains have boosted allocations; investor cash levels remain higher-than-normal; and investor sentiment toward stocks is far from 'irrational exuberance,'" he said. "Nonetheless, a necessary condition for an equity market correction is 'greed' and measures of greed are increasingly boosting the case for volatility and a correction in the autumn, in our view."

Read MoreWhy stock market bears may need summer hibernation

For protection, Hartnett recommends investors buy puts—options allowing but not requiring holders to sell—on the Taiwanese stock market, which is up more than 16 percent in 2014.

Hartnett's call comes about two weeks after the also-bullish Jeffrey Saut, chief market strategist at Raymond James, predicted the market is likely to correct 10 percent to 12 percent before the summer ends. He argued that technical factors along with headline risk are likely to dent the rally.

Read MoreWhy this bullish pro sees big market drop soon 

They're hardly the only ones looking for some type of pullback.

S&P Capital IQ said in a note that while it also holds to a bullish thesis and a 2,100 12-month target for the "500," technical indicators are presenting some near-term danger.

"The blue chip stock indices moved higher from support and remain well-positioned to continue to advance," the firm's analysts said in a note.

"The small caps, however, have failed to bounce from the recent test to support and are once again threatening to become an anchor to further gains as they move closer to bearish territory. In addition, breadth is showing a deteriorating picture that we haven't seen since the February pullback, and is signaling that the new highs and current rally are in jeopardy."

—By CNBC's Jeff Cox

Source: http://www.cnbc.com/id/101845457

Permabear Faber expects correction by October

Marc Faber predicts 20% to 30% drop in stocksPaul Singer: US stocks 'frothy' by 'all measures'
Lawrence Delevingne | @ldelevingne
Tuesday, 29 Jul 2014 | 10:17 AM ET
CNBC.com


















Permabear Marc Faber said Monday he expects stocks to drop 20 percent 30 percent by October.


"Don't forget many stocks are already down 10 percent. The home builders are down roughly 15 percent. Airlines have just dropped around 10 percent," he said on CNBC's "Halftime Report."


Faber, publisher of the "Gloom, Boom & Doom Report," also noted that several large-cap stocks were down by double-digit percentages.


"So, we're not exactly in a uniformly strong market," he said. "The Russell 2000, which represents 2,000 companies, is down 2 percent for the year. And big deal, the S&P is up 6 percent, whereas the Philippines, Indonesia, India, Thailand, Vietnam are all up between 15 percent and 25 percent."









Permabear Marc Faber said Monday he expects stocks to drop 20 percent 30 percent by October.


"Don't forget many stocks are already down 10 percent. The home builders are down roughly 15 percent. Airlines have just dropped around 10 percent," he said on CNBC's "Halftime Report."


Faber, publisher of the "Gloom, Boom & Doom Report," also noted that several large-cap stocks were down by double-digit percentages.


"So, we're not exactly in a uniformly strong market," he said. "The Russell 2000, which represents 2,000 companies, is down 2 percent for the year. And big deal, the S&P is up 6 percent, whereas the Philippines, Indonesia, India, Thailand, Vietnam are all up between 15 percent and 25 percent."





Adam Jeffery | CNBC


Marc Faber


Earlier this month, Faber said the market is setting up for a big decline that could be as bad as the crash of 1987. But he stopped short of predicting what would set it off.


Read MoreMarket will crash, just don't know catalyst: Marc Faber


While Faber's worst-case scenarios often make headlines, he has also been criticized for making dire predictions that didn't bear out.


Last August, he called for a 1987-style crash. Meanwhile, the S&P 500 is up 17 percent since then.


Read MoreMarc Faber: Look out! A 1987-style crash is coming


After President Barack Obama's re-election in 2012, Faber joked that investors "should buy themselves a machine gun" to protect their assets. Since then, the S&P is up 45 percent.






Faber defended his record.


"Over my career, somewhere, somehow I must've made some right calls," he said. "Otherwise, I wouldn't be in business."


Faber claimed that over the past 12 years, his Barron's stock picks on average have been up 22.7 percent annually. Faber also said that the Market Vectors Junior Gold Miners ETF, which he owns, is up 42 percent this year.









Permabear Marc Faber said Monday he expects stocks to drop 20 percent 30 percent by October.


"Don't forget many stocks are already down 10 percent. The home builders are down roughly 15 percent. Airlines have just dropped around 10 percent," he said on CNBC's "Halftime Report."


Faber, publisher of the "Gloom, Boom & Doom Report," also noted that several large-cap stocks were down by double-digit percentages.


"So, we're not exactly in a uniformly strong market," he said. "The Russell 2000, which represents 2,000 companies, is down 2 percent for the year. And big deal, the S&P is up 6 percent, whereas the Philippines, Indonesia, India, Thailand, Vietnam are all up between 15 percent and 25 percent."





Adam Jeffery | CNBC


Marc Faber


Earlier this month, Faber said the market is setting up for a big decline that could be as bad as the crash of 1987. But he stopped short of predicting what would set it off.


Read MoreMarket will crash, just don't know catalyst: Marc Faber


While Faber's worst-case scenarios often make headlines, he has also been criticized for making dire predictions that didn't bear out.


Last August, he called for a 1987-style crash. Meanwhile, the S&P 500 is up 17 percent since then.


Read MoreMarc Faber: Look out! A 1987-style crash is coming


After President Barack Obama's re-election in 2012, Faber joked that investors "should buy themselves a machine gun" to protect their assets. Since then, the S&P is up 45 percent.


Faber defended his record.


"Over my career, somewhere, somehow I must've made some right calls," he said. "Otherwise, I wouldn't be in business."


Faber claimed that over the past 12 years, his Barron's stock picks on average have been up 22.7 percent annually. Faber also said that the Market Vectors Junior Gold Miners ETF, which he owns, is up 42 percent this year.





Overall, higher stock prices, he added, were the result of the Federal Reserve's quantitative easing and M&A activity.


Read MoreSuperbear Marc Faber: Here are the markets I like


"And the asset purchases by the Fed have done little for Main Street, for the average family in the United States, for the average or median household. But it's lifted some asset prices, including luxury property prices, and particularly stocks and bonds," he said.


"And in the stock market this year—maybe you find this healthy—corporations are very liquid, but they don't build capacity. They don't spend on capital equipment. What they do is to buy other companies because their currency, their shares, are a good way to buy other companies. And that has driven the companies. Not so much individual buying. There has been very little individual buying."


—By CNBC's Bruno J. Navarro

Alan Greenspan says stocks to see 'significant correction'

Equity markets will see a decline at some point after rising for the past several years, former Federal Reserve chairman Alan Greenspan said in an interview on Bloomberg TV.

"The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction," Greenspan said on Wednesday.

Andrew Harrer | Bloomberg | Getty Images

Alan Greenspan

Greenspan's comments come amid growing concern that interest rates near record lows are creating asset-price bubbles. 

Federal Reserve Chair Janet Yellen earlier this month had also expressed concern about stretched valuations in certain corners of the equity markets including the small cap, biotechnology and social media sectors.

The Standard & Poor's 500 index has gained 17 percent in the past year and has almost tripled since March 2009, its low point during the financial crisis. The benchmark index was down about 0.1 percent on Wednesday. 

—By Reuters

Source: http://www.cnbc.com/id/101882401