I'm not sure I understand what he did. It kind of sounds like "hedging," but there are legal ways to do that.
Here's a better article on this episode - apparently the trader did not profit from this, though it has amounted to a significant loss (over US$7.0b) for the bank.:
Frankly, I do not believe the Societe General on this one.
To lose $ 7 billion the trader in question would have had to have an amount of funds many times that in play. The idea that he could do so and keep it hidden, seems preposterous.
No, I�m with the critics and cynics on this one. The leadership of the Societe General is doing what many store owners do after a break in: they exaggerate the claim.
In this case I do not mean that the losses are any less real -- merely that a great part of them is due to the mismanagement of funds by many other of the bank�s investment handlers.
What has happened has been seized upon as a golden opportunity to conceal that massive ineptness. That is the theory of numerous banking experts, and one which I think has considerable credence.
I don't see any reasoning here about how to decide what you actually need to retire gracefully. At 71, I've already done so. Canada doesn't have a tax break on interest paid on a mortgage, so most Canadians who can do so, pay off their mortgage as fast as they can. I paid mine off in full a few years I retired. One expense out of the way -- just taxes to pay.
Look at one of your paycheck stubs -- how much are you paying for a pension plan, whatever you call unemployment insurance, etc., union dues, FICA (whatever that is)? That stops when you retire. My disposable income actually didn't change much when I retired, and luckily I've got more than I need -- 3 kids and 7 grandkids are the beneficiaries of the excess.
I belong to a government-sponsored pharmacare program ($400 a year, plus co-pay on drugs up to $400, free after that, and of course general health care is "free" (if one doesn't count hefty taxes, of course) in Canada.
Rather than wondering how you'll make it, you should be calculating what you'll realistically need.
Are you saying that Societe General lost the $7 billion on bad decisions elsewhere, like sub prime? Is the financial press in Europe saying this? Do you think the trader involved "took one for the team", so to speak?
You're right - as long as you can come with a realistic number and don't outlive your money! Health insurance coverage is part of the equation in the US, as you know, and that makes it a little bit more difficult.
from the FT online - re:Societe General
How much I'll need is hard to gauge, as I plan on working as long as I can, though only part-time after Social Security and IRAs kick in. I really enjoy my work, so retirement will not mean that I cease to do it, only that I do less -- maybe 50%. This really helps keep the other needs down, though I'm trying to build the IRAs as best I can.
Bluenose, I really like those Canadian Dividend Energy Trusts (aka canroys) -- like PVX, for example. Great dividends! I've heard they will be phasing out next year or maybe a little afterwards, barring political change. My hope is to have a variety of solid dividend funds in place and let my monthly distributions comes from them. With some of these funds paying 15% or so, that reduces the need for a huge nest egg. (Also check out PBT, FRO, ADVDX, CSE and MARPS -- great dividends and decent earnings.)
Re: CanRoys: Wow - that is a serious yield!
My understanding is that the Canadian govt. changed the tax rules governing these so that they will be taxed like standard corporations, which could limit payouts in the future. Speaking of taxes, how do you handle the tax liability on these, Phil? Does the fund deduct this, or do you have to pay and then claim a Foreign tax credit? Or is set up like a depository receipt?
My canroys are in an IRA with TD Ameritrade. The dividends are simply reinvested and Ameritrade sends the Canadian govt its cut, which is only about 1%
FRO and CSE are also great yields. Morningstar rates CSE 5 stars and has them underpriced now around 50%. Good time to buy! And with a dividend of 15%, you have a bit of a cushion in case it sinks a bit.
Timely economic news and thoughts:
Lots of bad news these days, for sure. I'm even hearing the term "stagflation" tossed around.
Maybe we can help each other by comparing notes as to what's working and not (in the stock market).
Here are a few gainers for the year that seem poised for ongoing growth.
PRPFX - Permanent Portfolio. Has done well, given its investments in precious metals.
OIBBX - B - class international bond fund, up over 6% this year.
PBT - oil/gas provider -- up over 30% this year; great dividends
MARPS and PVX -- also up with good dividends.
Dreyfus bond index fund - floating nicely.
All my other stuff is down, but some not as much as the overall market, which I gauge with VTI.
It's a tough time to grow a nest egg via the stock market.
How are the companies doing that are involved in the production of military arms? Or for instance BlackWater?
Or companies with strong international brand names like CocaCola�, McDonalds�, Philip Morris� (of Marlboro�, Benson&Hedges� and Virginia Slims� fame)...? I don�t have the impression that their long-term profits are in danger of nose-diving in the near future.
And as far as I know oil is not likely to drop (Exxon, British Petroleum, Statoil� or PBT that you mention yourself)
Might be worth looking at companies whose share prices have declined significantly, i.e. more than there is objective reason for. They�re likely to climb, if not in the short run.
Another question is this: Who is likely to profit from a deep recession or depression? I don�t know the answer, but someone always does -- and if you�re a pessimist you can invest accordingly.
HP, Blackwater isn't a publicly traded company. Don't know much about who the arms providers are, but that's a politically unpredictable investment. Tobacco, I don't know. Exxon-Mobile is down during the past three months. Most of the multi-nationals like McDonalds and CocaCola are also down, but not as much as the overall market. Generally, these are the best bet for hanging tough as their products are always in demand and they have good savings.
Don't know about the last question, except that people going short and betting against the market have been raking it in. The financial sector will eventually come back. Who knows when to get in? I've thought a few times that it's bottomed out, but it keeps going down.
via Rod Dreher - worth looking at when you have the time:
Uhm, perhaps it�s time to debate that good ole� Republican plan to privatize Social Security. Anyone?
HP, what this meant was that individuals could voluntarily designate a percentage of their SS to be invested in a manner of their choosing (don't know how the details would work out). Yes, the market is down, now, but, in the long run, it's the most profitable way to invest, averaging over 10% a year (beats even real estate). Young workers might be interested in doing so rather than taking the low rate that SS gets.
In today�s turbulent marketplace, what do you deem the best placement of assets? I�ve expected this for a long time, but didn�t actually think it would take so long.
My own situation...
For the last ten years, my own focus has been on eliminating debt. The idea being that if I have a debt-free house: a) No one can legally take it away from me, and b) I�ll need far less income if I don�t have debts to service.
I�m almost there.
Furthermore c) With more space than I need after the kids have moved out, I expect to be able to rent out a flat. This income is tax free here, since it accounts for less than 50% of total floor space.
In short, by the end of this year, I expect to finally have some significant funds to invest, in addition to what should be a steady stream of extra income.
But I haven�t a clue as to how best to invest it.
Any advice would be appreciated. (JohnBoy, are you out there? ) For the time being I may simply allow excess assets to accrue in a high-interest account.
But I am certainly open to other ideas.
Sounds like a good plan, HP.
I know what JB would say as he's said it to me (about fixed income).
a. Fixed income: use your age as the percentage; bonds, CDs, money market. Maybe a little higher during these times until things blow over. I go 50% here, which is a little less than my age.
b. Index funds. That way you don't get less performance than the market. I like VTI, for an all-round stock market index fund. I go 25%, with several different funds, here.
c. International funds. Keep the percentage small. I was higher earlier this year, am down to about 5% now and wish I didn't even have that!
d. High quality conservative allocation funds: 10%. PRPFX, FAIRX.
e. High quality stocks/mutual funds. 10%. I like McDonald's and BPT, which is an energy trust that pays a high dividend. Lots of other good choices out there if you take your time and look at a variety of factors. It's a great time to buy if you take a long view.
This sort of spread will give a good mix of sectors and asset groups. Adjust the percentages according to your risk tolerance, and the content of each group to the funds/stocks you like.
Good luck, everyone! Better times are coming.
Phil/HP: SOme thoughts-
Fixed income - Agreed - in fact, Suze Orman just said last night that most(over 90%) of her holdings were in tax free municipal bonds. In times like these, HP has the right approach in focusing on debt reduction, especially if it carries a high interest rate.
The index funds may be a dicey right now -
Mutual funds -watch the fees and expenses in your funds..
Be careful, but remember that the financial markets are but one part of the global economic scene.
I read an article recently blaming Alan Greenspan for this. His solution to every problem was to reduce interest rates. This created artificially low rates that led to the mortgage-fueled housing bubble.
I've heard that, too, Derek, only low interest rates ought to be the default unless there's a reason to raise them. Low interest rates doesn't excuse banks and mortgage companies from lending to very risky borrowers. Surely they weren't expecting the mess we're in now, however; no one was.
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