Juggling Dynamite

If only the world economy and portfolio returns were based solely on Canadian financials and the S&P 500 this year. Unfortunately, the global economy is not cooperating with QE magic, neither are emerging markets or real economy sectors like materials, metals and mining. See: Hit like a ton of bricks: 2013 tough year for emerging markets

“In November, the Organisation for Economic Cooperation and Development, the rich world’s number-crunching club, lowered its global growth forecast for 2014 by nearly half a point, to 2.7 percent, because of the slowdown in emerging-market economies (EMEs).

The fate of the whole world economy is now tied to that of the emerging markets, it said.

“Contrary to the situation in the early phases of the recovery when stimulus in EMEs had positive spillovers on growth in advanced economies, the global environment may now act as an amplifier and a transmission mechanism for negative shocks from EMEs,” it said.”…

“Chinese investment growth fuelled commodity demand and supported many economies as far away as Brazil and Australia,” said the bank, warning: “There is no ‘China after China’.

“In other words, there will be no superpower growing in double-digit GDP terms now that China is slowing.”

Will there be growth in the world in 2014? Absolutely. The investment risk though is that it won’t be nearly as robust as the sell-side crowd is projecting:

“The U.S. market at roughly 1,800 on the S&P is trading at 19 times earnings. I am always sort of befuddled because people use a much lower figure on that…we went back and triple-checked trailing 12-month S&P 500 earnings and they are only $95. A lot of companies report earnings before the bad stuff and we’re talking about GAAP earnings — actually talking about real accounting earnings — they are only $95. So for you to believe that the market is only at 14 times, 15 times next year’s number, you have to make some pretty robust assumptions on earnings growth to get $95 to that $120 or $125 figure”
–Jim Chanos, Nov 25, 2013 at Reuters conference

78% of NFL player, 60% of NBA players go bankrupt within 5 years of retirement. The reasons are typical human behavior: sudden big wealth is overspent, wasted and mismanaged by the players themselves and their spouses, and by the self-focused financial “advisers” brought in to mangle manage the money. See: Five reasons professional athletes go bankrupt.

Eugene Lee, CEO at ETL Associates, discusses the personal economics of NFL players from an agent’s perspective. Here is a direct video link.

Agent Lee: “We have a duty to align our clients with the right financial advisers.”
With 3/4’s going broke: easy to say, hard to do. Clearly.

Financial success over a lifetime is a marathon of personal discipline.
It requires advisers and managers that are willing to do the right thing and offer the right advice for the client (the opposite of investment salesmanship) even when it is not sexy or popular, and clients who wish to hear and adhere to disciplined advice year in and year out without getting seduced or distracted by shiny things and fast talkers. Hence the financial failure rate is very high across all walks of life. The above graphic from Behaviorgap.com says it all.

The extractive mentality is booming in college executives.

Presidents of U.S. colleges and universities fundraise with donors, preside over graduation ceremonies and provide his or her university with long-range strategic vision. They are also paid handsomely for their work. Forty-two private college presidents earned more than $1 million in 2011, according to a new analysis by the Chronicle of Higher Education. The median total compensation for a college president in 2011 was $410,523, up 3.2% from 2010. Of the 550 presidents’ salaries that were included in the analysis, 180 took home more than $500,000 in 2001 compared to 50 in 2004. Here is a direct video link.