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Trading Shots

A new forum for investing hot topics and reader-driven discussions

Entry archive:

Spot the recession: the key warning sign of economic slowdown

LARRY MACDONALD

Federal Reserve tapering, government shutdowns and the like: there is always something to worry about. But the fears are usually overblown. What matters more is “inversion of the yield curve.” When it shows up, then we can really start worrying about recessions and bear markets in stocks and housing.

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Ready to buy low? U.S. debt ceiling fight draws nearer

Andrea Tse

Markets generally indicate future concerns rather than present day obsessions, and true to form, fund managers appear to be preoccupied with the coming debate over the U.S. debt ceiling rather than the current government shutdown.

Debt ceiling-related worries are also overshadowing frustrations with the Federal Reserve’s confusing communication about its plans for cutting back on quantitative easing. The U.S. central bank will have its October and December meetings to better indicate its intentions. A pullback could boost confidence about the economic recovery.

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High house prices do not derail retirement plans for most

LARRY MACDONALD

Some people claim that rising house prices are preventing Canadians from saving for retirement. Not much money is left over after mortgage payments, they say. But there is little factual evidence to support this view.

According to the National Household Survey released in early September by Statistics Canada, few Canadians are overspending on mortgages. It found that 59 per cent of homeowners have a mortgage and just 26 per cent of them spend more than 30 per cent of gross household income on housing (Statistics Canada’s threshold for affordability).

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Can government debt be inflated away? Not likely

LARRY MACDONALD

A popular notion these days is that inflation will take off as central banks print money to buy up the debt of overleveraged governments. Many investors, in fact, are betting on this scenario. However, I fear they may end up disappointed.

For one thing, central banks are committed to inflation targets. The Bank of Canada is presently anchored to a range between 1 and 3 per cent. The Federal Reserve has an implicit target of 2 per cent and Ben Bernanke’s likely successor, Janet Yellen, wants it made explicit.

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Reality check: Stock markets do not 'always' go up

LARRY MACDONALD

It’s now five years since the bankruptcy of Lehman Brothers tipped the world into a financial crisis. Stock markets have clawed their way back from the abyss, prompting observers to comment that “stock markets always come back.” Alas, stock markets do not always come back.

For countries with reliable data back to 1921, close to a third suffered a permanent closure in their stock market due to war, invasion or revolution. The majority of the surviving stock markets experienced interruptions averaging several years. Only five avoided major breaks: U.S., Canada, U.K., New Zealand and Sweden. So says a paper by William Goetzmann of the Yale School of Management and Philippe Jorion of the University of California.

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Apple’s new products could shove Microsoft off a cliff

Rocco Pendola

Given Microsoft’s global Windows and Office-installed base, it sounds a bit nutty to claim Apple killed it on Tuesday, Sept. 10. But it did.

We’re in the early stages of a BlackBerry-like crash that, instead of taking a few years, could span decades. But it will happen.

First, there’s the obvious – Microsoft can’t compete with Apple (or Google, for that matter) on smartphones or tablets. We’re at the point where the notion of mobile competition between the companies has become farcical.

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Microsoft may be a day late, but rarely a dollar short

Edward Trapunski

Mobile computing is the biggest challenge Microsoft is facing today. Although it is late, it is trying to address that challenge with the $7.2-billion Nokia acquisition.

While Microsoft may have misjudged the transition from PC computers to mobile devices, even when it is late to market, Microsoft has traditionally had the size and power to catch up and overtake its competition.

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CAPE says stocks are seriously overvalued – should we worry?

LARRY MACDONALD

Stocks are seriously overvalued according to the cyclically-adjusted price-earnings (CAPE) ratio developed by Yale University professor Robert Shiller. This measure stands at 23.6 compared to its long-term average of 16.5, implying U.S. stocks need to fall 40 per cent in order to revert to the mean.

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Ballmer’s exit necessary, an outsider as successor is vital

DAVID MILSTEAD

In this little corner of Trading Shots, where we’ve taken shots at CEOs who needed to lose their jobs, we’ve had quite the track record in the last year.

We suggested, and then witnessed, the departures of Andrew Mason from Groupon, Mark Pincus from Zynga, and Ron Johnson from J.C. Penney (Although we suggested Mr. Johnson would stay because the board would give him more time to oversee his strategy).

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Barnes & Noble's hard turns should worry investors

DAVID MILSTEAD

For much of the year, major investors in Dell have been complaining that Michael Dell is trying to walk off with his namesake company with a bargain-priced going-private bid.

The grim news at bookseller Barnes & Noble is that its founder may not have found the company worth buying at any price.

Len Riggio, the company’s chairman and largest shareholder, had said in February that he was mulling a bid for the company’s retail bookstores. Barnes & Noble’s digital-reader business, Nook, would remain with the company.

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Will Google stock reach $1,000? What about $1,200?

Richard Saintvilus

Known for wanting to be everything to everyone, Google often seems misunderstood in the eyes of investors. Whether in smartphones or tablets, apps or maps, and now Google is working to become an ISP, an internet service provider.

While you would be correct to call this variety of ambitions scattered, you must also call Google successful. And the company’s stock price, which recently hit a wall after reaching $928, has become a concern for investors, who are worried about the company’s growth potential.

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Indexers vs. dividend lovers: How to pick a winner

PREET BANERJEE

Index investing and dividend investing both have cult-like followings. And, like many cults, both groups have a tendency to believe they have a monopoly on the truth.

While the two strategies emphasize many of the same ideas, such as maintaining a long-term viewpoint and keeping buying and selling to a minimum, dividend investors and index investors are akin to oil and water. They just don’t mix well.

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What investors should like about stock buybacks

GENE MARCIAL

Predictably, investors are getting a deluge of warnings about the coming of a sharp market pullback. What to do? One thing is sure, volatility will again dominate the scene, but that isn’t necessarily bad for investors. Volatility presents buying opportunities for both the bulls and the bears.

The bears love to short stocks when prices swing way up, as they are doing now, while the ardent and seasoned bulls jump at opportunities to buy their favoured stocks when the pendulum’s downswing pulls prices way down.

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Bet on fracking with this oil services firm

MURRAY SOUPCOFF

In the booming energy sector, oil and natural gas prices are currently climbing every trading session. It’s not every day that one sees the price of oil topping $105 per barrel. So is there a way to make some money from this phenomenon?

One way is to avoid the shares of energy companies themselves – which seem to wax and wane with every oil and gas price change – and consider a more steady alternative (price-wise): energy-service stocks.

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In defence of a simple index-fund investing philosophy

PREET BANERJEE

Earlier this week, a column appeared on Globeinvestor.com that many readers feel was riddled with questionable assertions.

I agree.

As quoted in “Can a ‘Boglehead’ Approach to Investing Work?” two financial services professionals challenged a portfolio strategy known as the Bogleheads’ investment philosophy. (“Bogleheads” take their name from Vanguard Group founder John Bogle and favour index investing.) This philosophy is mainly composed of the following simple principles:

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Inflation-beating cash accounts deserve a share of your portfolio

LARRY MACDONALD

The focus on maximizing investment returns is pervasive. Instead, why not focus on the return required for achieving your investment objective of building a retirement fund of a certain size?

If an investor has a good savings regime in place, annual returns of 2 to 3 per cent might suffice for generating the amount of capital they need to retire on. There is no need to take on the extra risk of chasing higher returns. Let others ride the emotional roller coaster that comes with a high exposure to the stock market (all the more so now that stocks have had a multi-year run-up in price).

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'Buy what you know' investing harder than it sounds

LARRY MACDONALD

Many years ago, pop singer Barbra Streisand told Fortune Magazine that she invested a part of her wealth by herself. When asked where she got her ideas, Ms. Streisand replied that they came from relatives, friends and daily life. “We go to Starbucks every day, so I buy Starbucks stock,” she added.

This is the “buy what you know” approach, where an investor buys shares in companies whose products are attracting crowds at the mall, or getting rave reviews from friends and relatives. Having talked to a number of investors for the Globe and Mail’s Me and My Money column, I can attest that the strategy is still in vogue some two decades after mutual-fund star Peter Lynch wrote his seminal book, One Up on Wall Street: How to Use What You Already Know to Make Money in the Market. But as Mr. Lynch cautions, there is more to it than just shopping trips and chit-chat.

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Time to get aggressive with your TFSA

DARCY KEITH

It’s time for Canadians to stop playing it safe when it comes to the tax-free savings account.

When the TFSA was born in 2008, it was celebrated as a way to stash some cash into a piggy bank that the taxman could never touch. It increased the appeal of saving up for a rainy day, or for a major purchase a few years down the road.

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Microsoft’s next reorganization needs to start at the top

DAVID MILSTEAD

Microsoft CEO Steve Ballmer is implementing a massive reorganization at the software stalwart. There’s one key problem with the new org chart, however: Mr. Ballmer’s name is still at the top of it.

This is not the first time I’ve made such a suggestion in this space: Last December, in a piece called “Why Microsoft must end the Ballmer regime in 2013,” I suggested “It’s time for Microsoft to do one of two things: Admit that it’s the equivalent of a slow-growth utility and start paying significant dividends. Or find a new CEO to replace Steve Ballmer and completely change the culture.”

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Listen to Poloz: Debt is not a dirty word

Edward Trapunski

The world is drowning in debt, the Doomsday economists tell us. Public debt, personal debt and corporate debt is bound to sink us and to plunge our children into a future they will never be able to swim out of.

For right-of-centre politicians, debt, and accompanying taxes, is the filthiest dirty word, representing the most vile of social evils infecting the civilized world.

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Globe Investor Blog Contributors

David Berman

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense.

Follow David on Twitter @@dberman_ROB

David Milstead

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers.

John Heinzl

John Heinzl has been writing about business and investing since 1990. A native of Hamilton, he earned a master's degree from the University of Western Ontario's Graduate School of Journalism and completed the Canadian Securities Course with honours.

Follow John on Twitter @johnheinzl

Preet Banerjee

Preet Banerjee, B.Sc, FMA, DMS, FCSI, was originally trained as a neuroscientist at U of T before joining the financial services sector.

Follow Preet on Twitter @preetbanerjee

Ian McGugan

Ian McGugan is Senior Editor of The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010.

Follow Ian on Twitter @IanMcGugan