Investment Advisor Criteria, What Underlies Canadian Housing Prices!

Financial Markets >> General: Investment Advisor Criteria
Three years ago I was asked to summarize the criteria I would want to find in an Investment Advisor. Given what I see as ongoing significant changes in the financial markets, and what I believe to be an even more disconcerting macro-economic environment than the one that prevailed in mid-2009, I decided to update my previous investment advisor ‘wish list’. Here it is.

1. While it goes without saying, I'll say it anyway: Criteria #1, #2, #3 to infinity are openness, honesty, integrity, etc.
2. Smart, with a commitment to detail. Actually, preferably a Chartered Accountant (or if I was in the U.S. a CPA) with a strong theoretical accounting background and some real business operating experience.
3. Someone evidently in good health, who has a real chance of 'being on the right side of the grass' for some time.
4. Someone who is well traveled – in particular someone who has traveled (preferably on business) to China in particular. The ideal candidate would also have traveled in India, Brazil, Europe, and perhaps Russia.
5. Student of macro-economics with no predetermined view on how things are going to unfold going forward – i.e. A good listener and flexible thinker who is not ‘locked in’ to any given mantra, such as “the U.S. is resilient and so always will be the world's #1 economy”. While that view might prove to be right, I would only be interested in dealing with someone who constantly tested such a theory and was prepared to adapt away from it if logic so dictated.
6. Proven track record, particularly in the difficult market conditions of all or some of the early '80's, the early '90's, the period immediately after the 'dot.com meltdown', and the post-2007 financial markets.
7. Has strong references from an existing client base.
8. Skeptical of the manner in which the Investment Business generally operates.
9. A disbeliever in the 'efficient market theory'.
10. Someone who understands the changes in the financial markets, and who has a sensible strategy to invest and trade in markets that are dominated – and increasingly so – by high frequency algorithmic trading.
11. Someone who charges reasonable fees, who does not consider ‘returns equal to the ‘market indices plus their fees’ to represent ‘investing success’, and who does not expect participation in annual returns over a stated percentage.
12. Someone who is a 'clients first' person, and who has a great sense of responsibility to their clients.
13. Someone who has a clear understanding of each client's risk/reward tolerance and hence appropriate 'asset allocation' (broken down into measurable steps), and is not locked into the 'investment business mantra' of diversification where market conditions and prospects ought to dictate 'investment focus'.
14. Someone who actually does meaningful research on the companies they invest client's money in, including visiting with company presidents, company facilities, etc.
15. Someone who purposefully involves his or her clients in the investment 'decision making ' process.
16. Mature, with at least 10 – 20 years investment management experience and good judgment.
17. Good listener open to communication with his/her clients, who has strongly held opinions, but who adjusts those opinions continuously with both conversational and documentary exposure – and has sound logic to back up their opinions.
18. Good communicator of their opinions.
19. Proven track record, particularly in the difficult market conditions of all or some of the early 80's, the early 90's, the period immediately after the 'dot.com meltdown', and the post-2007 and current financial markets.
20. A monthly reporting system that suits the way the client wants to review their portfolio and related investment return results.
21. Recognizing it is unlikely that any one Investment Advisor would satisfy all of the criteria in this wish list, you might want to go beyond the individual Investment Advisor and look to see if the people in the Investment Advisor's firm collectively satisfy all these criteria.

Finally, if you know or identify an Investment Advisor that satisfies all these criteria please let send me their coordinates by e-mail at info@srddi.com.

North America >> Canada: What Underlies Canadian Housing Prices!

Over the past week more than one article has questioned whether Canada’s housing prices – which have continued to escalate after 2008, and continue to – are ‘in a bubble’ and are about to correct either modestly or severely. Infrequently do these articles discuss what would cause a change in direction in Canadian housing prices. Clearly things that could/would change the direction of Canadian housing prices to ‘general downward’ include:

• at a micro-level:
• Canadian consumer household debt levels,
• Canadian unemployment rates, and
• future changes to mortgage rates, mortgage rules, and mortgage lending policies; and,
• at a macro-level:
• what happens in the world economy, and if we see world further recession or worse, the contagion consequences as they affect Canada on a regional basis.

In our integrated world economy be sure that the Canadian economy will not be exempted from further economic downturn. The Canadian populace will not be sheltered from its effects of decreased exports, decreased employment, likely rising food prices, and so on. All these things will negatively impact Canadian house prices – and perhaps no more so than in the major metropolitan areas.

Watch for Canadian:

• monthly net trade balances decreases;
• manufacturing data downturns;
• negative unemployment data;
• increases in labour unrest; and,
• decreases in consumer confidence

in the weeks and months to come. Don’t be shy about asking retail clerks, automotive salesmen, people who work in new construction, and in particular real estate agents ‘how is business?’. Make sure if you ask that question of real estate agents that you read their body language, not just their lips.

If unemployment data in particular begins to worsen that will be an indicator that Canadian house prices likely have peaked and will begin to reverse.

Topical Reference: Will Canada’s housing boom end with a whimper or a bang, from The Financial Post, Pamela Heaven, July 17, 2012 – reading time 2 minutes.

Snippets From Today’s Brief Commentaries

Snippet #1: United States >> Politics: As things have turned out, it appears CNN has uncovered a loophole in the new (Stocks Act re: Congressional insider trading) law that could still allow family members of some lawmakers to profit from inside information. Assuming this is true, and the report seems very credible, this once again goes to the issue of trust in a number of contexts – not the least of which is the feeling this sort of thing must leave with Main Street Americans.

Snippet #2: Country Risk >> General: Put ‘Country Risk’ ever higher on your ‘risk/reward monitor’ if you invest or trade in resources company shares.

Brief Commentaries prompted by world headlines

World >> Public Pensions: Public Service Employee Pensions!

I have wondered for some time about the consequences if public service employee pension plans are or become significantly underfunded. Employees covered by such pension plans include retired Federal, State/Provincial, and Municipal employees, and teachers. Some of the largest pension plans in both the United States and Canada are the caretakers of such plans.

My belief, and something you might consider if you haven’t already done so, is that at the end of the day if those pension funds come up short of funds to meet their contractual obligations it is highly likely the obligation for the shortfall will be borne by taxpayers – irrespective of whether the funds were well or poorly managed by the fiduciaries responsible for them.

Topical Reference: CalPERS earnings fall flat, from Marketplace Your Money, Bob Moon, July 17, 2012 – reading time 2 minutes; and More Bad News for Public Pensions, from Wall Street Journal Real Time Economics, Neil Lipschutz, July 19, 2012 – reading time 2 minutes.

North America >> United States: Congressional insider trading – trust issue revisited!

CNN’s Anderson Cooper last evening (July 19) carried a story highlighting the Stocks Act once again. The Stocks Act, signed into U.S. law early this year, was quickly passed following a CBS 60 minutes expose on the ability (prior to its passage) of U.S. Congressmen (and women) to trade on insider information in certain circumstances.

As things have turned out, it appears CNN has uncovered a loophole in the new law that could still allow family members of some lawmakers to profit from inside information. Assuming this is true, and the report seems very credible, this once again goes to the issue of trust in a number of contexts – not the least of which is the feeling this sort of thing must leave with Main Street Americans.

See most of the Anderson coverage by at the following link.

Topical Reference: CNN exclusive: Possible Congressional insider trading loophole, from CNN, July 19, 2012 – eighth video from top of page, viewing time 5 minutes.

North America >> United States: U.S. statistics – importantly trending down?

Yesterday both U.S. existing housing sales (down 5.4% in June) and the Philly Fed factory index (reported down in June for the third straight

month) were released. Even though they are statistics for but one month, both are important. This is because of:

• the comparative importance of U.S. housing as an indicator of Main Street America’s ‘economic mood’ where some believe America’s housing declines have stabilized; and,
• the importance of manufacturing to any developed country economy.

A three month trend has to be a more important statistic than a one month drop, but both these statistics bear close watch when the July and August numbers are announced.

As the November 6 Presidential election day looms ever larger, President Obama increasingly must be holding his head and reaching for ever stronger ‘smelling salts’. Fortunately for him, Mitt Romney seems to have very large foot, a loaded revolver in his hand, and a very bad aim.

Topical Reference: U.S. existing home sales drop 5.4% in June, from The Financial Post, from Reuters, Jason Lange, July 19, 2012 – reading time 2 minutes; and Philly Fed factory index shrinks for third straight month, from The Financial Post, from Reuters, July 19, 2012 – reading time 2 minutes.

Brief Country Risk Commentaries prompted by world headlines

South America >> Argentina: Gold exploration project work halted

Following yet another announcement from Argentina, a gold exploration project, agreed only one year ago between Argentina’s La Rioja Province and Montreal based Osisko Mining, has been halted pursuant to an Argentine Court Order.

Put ‘Country Risk’ ever higher on your ‘risk/reward monitor’ if you invest or trade in resources company shares.

Topical Reference: Argentine court puts brakes on mining project by Canada's Osisko, from Mining Weekly, from Reuters, July 19, 2012 – reading time 1 minute.

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