30 June 2008

Rich Countries Face Population Decline

I have been reading the New York Times article No Babies? about the falling fertility rate in Europe. In just about all European countries the birthrate is falling way below replacement rate of 2.1 babies per woman. In many southern European countries like Italy and Greece the total fertility rate is about 1.3 babies per woman. Some attribute this to the practice in these southern European countries of kids staying with their parents for a long time: "One, young people in Italy stay with their parents longer than maybe anywhere else. No. 2 is the percentage of children born after the parents turn 40. These factors are related, because if you have a late start, you tend not to have a second child, and especially not a third."

This however is puzzling because many African and Asian extended families have kids staying with their parents for a long and yet in Asia and Africa there is high fertility rate. In Asia, however, fertility rate has been on the decline as income rises, and Japan is the big exception. This leads me to believe that income is the biggest culprit here, not kids living with parents.

Here in Australia fertility rate is quite low at 1.7 or 1.8 babies per woman. Many in their 20s stay at home because of high property prices and high interest rates. The Rudd Government now pays mothers up to $5000 to produce one baby. This I think has virtually no impact on fertility rates. One child costs $250,000 or more. To give a $5000 rebate is barely going to put a dent in the costs of child rearing. The reality is that we live in a materialistic world where most people want status and prestige. If you raise an outstanding child, you might get some prestige, but it's terribly risky and terribly costly. All the tutors and prep schools in the world won't stop your child from becoming a drug user if that is what the child eventually chooses to do.

28 June 2008

Claymore Frontier Markets ETF

Claymore have released the Claymore/BYN Mellon Frontier Markets ETF (FRN), an ETF that invests in frontier markets, which are small volatile countries like Poland, Chile, and Lebanon. They are not emerging market such as China and Russia who are relatively more developed.

I must admit that my interest for investing in frontier markets comes mainly from the appeal of investing in something exotic and different. Because I try to be as thrifty as possible, investments are the only area where I can release my consumerist desires. I therefore love to shop for investments.

Unfortunately for me, this frontier markets ETF is not available for Australians. Only the Americans can get it. It is purchased I think on the New York Stock Exchange.

23 June 2008

As Stocks Plummet, My Career Flourishes

I have got a job offer! Let's just say I got a full-time job as an economist at a government department. This job makes sense since I studied economics at university. I'm also very happy because, as you may tell from reading this blog, I have a strong intrinsic interest in economics, finance, markets, and investments. I am therefore doing what I really love.

The bad news is that the last time I checked the ASX200 it was 5283. Now that is low! I remember last year it peaked at about 6400. I don't even want to think about how much money I have lost. All I know is that it is in the thousands. Some people are worse off since they are highly leveraged. But otherwise, I have no debts and no worries. Looking at things from an optimistic perspective, I could say that my investments are just undervalued at the moment and that this current depression is a good opportunity to pick up shares when they are cheap. What a pity the stock market starts to tank right when I don't have enough spare money lying around to invest. In a way I'm happy because I do believe that for a long time the world stock markets were booming too much, especially in Australia. This leads people to believe that the stock market can only go up forever and so people leverage and invest. This drives prices up and creates a bubble. The recent volatility hopefully will pop that bubble completely, allowing me to invest in a bubble-free environment where I can buy mutual fund units for a fair price.

Sticking with the optimistic tone, I am not too worried because I only have about $25,000 invested in shares. The rest of my net worth is in my car, in bonds, and in cash. Some people have millions of dollars in the share market. Any slight day-by-day tremor sees their net worth fluctuate by tens of thousands. But they don't seem worried. They understand that higher risk can lead to higher return.

21 June 2008

SBS's The Nest

At 28th June 2008 there will be a reality documentary on SBS called The Nest, which is about kids who live with their parents until adulthood. This is an issue of interest for me because I am 24 and still live with my parents. Most Australians who are my age do this as well mainly because property prices and interest rates are high.

Demographer Bernard Salt has the following to say:

[A] longer lasting co-dependence between parents and their children will leave both parties emotionally and financially unprepared for their future. In his book ‘The Big Picture’ Bernard says “The social contract being applied here is that adult children are allowed to continue their kiddish ways so that boomer mums and dads may continue as practicing parents.”

I suspect that Salt is saying that if kids live with their parents all the time they will not develop the ability to look after themselves.

One of the problems of living with parents is that you sometimes have to share the house with people you may not like. I like all my family members but often siblings bring in friends who get on my nerves. If I owned the house in which I lives, I could legally prohibit anyone I don't like from coming into my house because they would otherwise be trespassing. When I live with my parents I don't have that freedom because my parents run the house, not me.

One reason why I don't want to move out is because I have read OECD and IMF reports that claim that Melbourne property is 25 per cent overvalued. Why would I buy a house that's too expensive? Couple this with the sky-high interest rates and it makes little sense for me to move out.

Some say that living with parents makes you less able to handle the shock of the outside world. I think it's the opposite. If you live in the outside world, you have to pay for your own food, your own electricity, your own laundry, etc. You have less money to save up. Therefore, if something happens to you, e.g. you have a medical emergency, then you're in a lot of trouble. The best way to deal with the shock of the outside world is to have a stash of money saved up to get you through the tough times. This stash of money cannot be saved up if you are not living at home with your parents, or at least it is harder to save up.

Another reason why living with parents is a good idea is because it reduces carbon emissions. This proves that adults who live with parents are not selfish. If you live in a house with Mom and Dad then three people living in a house share things like TV and heating is going to create less carbon emission per person than one person living in one house of the same size. Three people watching one TV is more environmentally friendly than three people watching three TVs.

Living with parents is an economically responsible and environmentally responsible lifestyle choice.

14 June 2008

Coveting Mitt Romney

I have been looking at Mitt Romney's photo gallery. I know he and his wife have a combined net worth of over $200 million. That is so much compared to what I have. However, I am only 24 while Mitt is in his 60s now. When he was 24 he had just graduated from university. In fact, when he graduated from Brigham Young University in Utah he went to Harvard to study a combined JD/MBA postgraduate degree.

I must admit I feel envious of Mitt when I look through his family album. I notice he has big mansions, a very nice wife, and lots of cute grandchildren. I'm guessing you need heaps of money to be able to buy all that.

According to Wikipedia, Mitt Romney is "an American businessman and former Governor of Massachusetts. Romney is also a former candidate for the Republican nomination in the 2008 United States presidential election."

My Dream Job As a Writer

I wish I were a writer. I am not a writer right now because I don't think writing is an easy career. It is a fun hobby but I have heard many horror stories of writers trying to get their books published.

The reason why writing is hard I think is very simple: how can books compete with TV and the Internet? TV and Internet offer a barrage of high-quality entertainment at low or no cost. It will be very hard for any writer to compete against that. Plus being a writer is not particularly hard. Being a dentist is hard because you need good grades to go to dental school. However, just about any bored housewife can start writing. All you need is a computer with a word processor and even if you don't have that then pen and paper will do. As a result, the supply of writers is much higher than the demand, which ensures intense competition among suppliers.

I hope one day I will be able to make a transition into a career as a writer once I am financially secure. I will write what it is I want to write about, and even if it fails to be profitable I can still live off my investments. What I would absolutely hate is to write about someone just because I think it might be popular. I want to write what I want to write about and if a publisher thinks one of my many pieces could be a commercial success, together we can take the risk and see whether the investment pays off.

I don't necessarily have to write fiction. I can write a non-fiction book that teaches other people things. I can also write for websites and newspapers. The possibilities are endless.

11 June 2008

Help Pay My Mortgage

Link: Mortgage Help! (Video)

On A Current Affairs there is a family begging on the Internet, asking each person out there to donate $1 each. If 300,000 people do it, they will have enough money to pay off their mortgage. They advertised on Brisbane Craigslist (the ad there is now taken down) as well as producing a begging blog with ads. The Craigslist ad claims that if you donate $1 to them they will randomly select a person and give that person permission to do something similar. Isn't that a pyramid scheme?

The family claims that A Current Affairs portrayed them as arrogant when really they are nice people. They are at risk of losing their homes because of high interest rates and high petrol costs. It does not look as if this family is at risk of starvation like the recent victims of the Burmese cyclone are.

10 June 2008

Index Fund Versus Hedge Fund

I've just read Buffet's Big Bet from Fortune Magazine.

Warren Buffet, the world's richest man, claimed that he was willing to bet one million dollars that ten hedge funds cannot beat an S&P500 index fund from Vanguard.

A hedge fund from New York called Protege took this bet up. If Protege wins the bet, the money will go to Absolute Return for Kids, an international charity that helps children. If the hedge funds from Protege do not beat the S&P500, the money will go to Girls Incorporated of Omaha.

What I'm unsure about is why Buffet chose the S&P500 index. Buffet has said many times that he believes the future of the American economy is bleak. He claims that he is now looking for opportunities outside of America. E.g. he made a lot of money buying stocks in PetroChina, a company many accuse of human rights violations in Darfur, Sudan. My understanding of hedge funds is that the hedge fund managers have a lot of freedom to invest the money however they want to invest it without the burden of having to comply with too much regulation. Therefore, if Buffet believes America is in for a bleak economic future, he was unwise to use the S&P500 index as a combatant against the hedge funds. Instead he should have used the MSCI World Index.

Today the US economy makes up about 40 per cent of the world economy, which is very significant. However, in the future, emerging markets are expected to rise. Hedge funds have the freedom to invest in these emerging markets while the index fund that tracks the S&P500 cannot.

09 June 2008

Where Millionaires Live and How They Invest

I have been reading The Age of Millionaires and here is some interesting stuff I have learned about millionaires or high-net-worth individuals.

This site was written in 2005, which is three years ago, so global economic conditions have changed a little since then.

Most millionaires are located in America, Europe, and Asia.

According to the latest figures, the number of high-net-worth individuals included 2.7 million in North America with a total of $9.3 trillion in assets; 2.6 million in Europe with $8.9 trillion; 2.3 million in the Asia-Pacific region with $7.2 trillion; 300,000 in Latin America, including Mexico, with $3.7 trillion; 300,000 in the Middle East with $1 trillion; and 100,000 in Africa with $700 billion.

What I find amazing is how conservative millionaires seem to be collectively. They hold only 34 per cent of their wealth in stocks. This may be because many of them are old and don't like their returns to fluctuate too much.

The wealthy decreased their stock holdings to 34 percent last year from 35 percent in 2003 and increased their fixed-income investments to 27 percent last year from 25 percent the year before. Their other holdings in 2004 were 12 percent in cash and other liquid investments, 13 percent in real estate and 14 percent in "alternative" investments such as hedge funds and commodities.

Keep an Emergency Fund to Cover Credit Card Expenses

I spoke before about how the dentist suddenly charged me $240. He normally charges me $60 but all of a sudden that went up because he x-rayed my mouth. Dentistry I believe is very important. When I was young I had very poor teeth. Perhaps it was my fault because I didn't brush my teeth often enough and because I loved sweets. My parents also didn't send me to the dentist as much as I would have liked. In fact, I never went to the dentist until major problems developed. I try not to blame my parents for everything wrong with me, but I just wish that they knew that prevention is better than cure. What went wrong with my teeth? Two giant teeth was growing out from my gums and it looked like I had vampire fangs. I remember at school I never wanted to smile around anyone because I knew how horrible my teeth looked. Not only were my teeth really crooked but because I didn't brush or floss much my gums was receding and it looked like I had really big teeth.

After I went to see the dentist, things got better. The dentist did some major orthodontic work at a cost of $3000. The work took about 5 years. All in all, I'm very happy with what my dentist did. My teeth now are much better. They aren't perfect. I still have to wear plates at night, but compared to how they were in the past I believe there has been some major improvements. I'm no longer afraid to smile in public and I find that I am a lot happier, which I think makes me more sociable. For a long time how I have been aiming to floss at least once a week. When I went to the dentist I asked him if this was enough and he said no. I needed to floss once per day. Nowadays I try to floss at least 30 minutes per week, which is approximately equivalent to once per day. My teeth still look big and I was told that no amount of flossing will repair it. Once it is gone it is gone. However, by flossing and brushing often I can delay gum decay. It is normal for gums to recede as I age.

A week ago I got my credit card bill and I expected it to be about $300 but it turned out to be $430. I didn't have that much in my bank account so now I have to wait one whole week for the next payday before I can pay off this credit card debt. I am annoyed because the credit card I use has a very strange system of reporting debt. It seems as if they deliberately put you in the dark and make everything so confusing so that you don't pay on time and subsequently you are charged interest. I use the Coles Group Source Mastercard. What is good about this credit card is that it is free. I don't have to pay any annual fee. I also get a fairly long interest-free period. The problem is that it's difficult to get information on what is happening.

This negative experience I had with credit card is not going to make me cut up my credit card. Rather, I will keep myself safer by now keeping at least $500 in my bank's savings account just in case the credit card bill is higher than I anticipated. I still think having a credit card is good because it allows you to delay spending, which means you can extract more interest.

06 June 2008

$50 Million Powerball

In Australia recently there was a Powerball game that included a $50 million jackpot. Powerball is a lottery game. Many people at my work had purchased tickets. The jackpot was the largest in Australian history.

What really surprises me is how many people seem to think lotteries are clean and legitimate yet when they speak about games played in the casino they are heavily against it. For example, my dad buys lottery tickets all the time. He warned me however never to go to Crown Casino because "the odds are against you." He reminded me that in its first year of operation, Crown made $250 million profit.

But lotteries make huge profits as well. My dad was the one who told me that for every dollar spent on lotteries, 50 cents must by law go to the Government, 25 cents to the lottery company, and 25 cents to the jackpot. This means that for every $1 that lottery players spend, they can expect to collectively get back 25 cents. Those percentages do not look good.

Still my dad argues that at the casino because there are bet limits and because you play often and because the prizes are small, it is certain that the casino will win and you will lose. However, with lottery you pay a small amount with the expectation of winning big. It is true that in casinos the odds are against you. Your expected profit must be zero otherwise the casino will go out of business in the long run. However, this must also apply for lottery operators. If the odds weren't against you when you play the lottery, lottery operators would go out of business. It does not matter that the prizes won may be bigger. To keep expected profits positive for the operator, that bigger prize must be compensated for by a lower probability of winning. This may explain why in casinos you see quite a few people making money. One casino operator on a documentary on TV said, "We want to make them win a little so they come back. Then we take all their money." Lotteries however are almost impossible to win. My parents have been playing for decades now. They are not millionaires yet.

One could criticize gamblers by saying that their activities have negative expected payoff. However, many other activities have negative expected payoff e.g. watching a movie or having children. It is important then to see gambling as entertainment. Spending time at the casino can be good for socialization. Lotteries don't seem to offer much opportunity for socialization. Rather, they give people the opportunity to imagine that they would be millionaires. My dad always says, "If I won the lottery, I would..." It seems as if he has his whole life planned out, yet this plan is all contingent upon him winning the lottery.

02 June 2008

Behind Enemy Lines (2001)

I've watched the movie Behind Enemy Lines. This movie stars Owen Wilson who normally plays in comedy movies. This is very much a serious movie. Owen plays a US fighter pilot who is bored with his job. He believes that nothing much ever happens during war. He wishes he could be involved in more action, saying that most soldiers join the army or air force so they could "punch a Nazi in the face." Owen's character gets what he wishes for when he breaks regulations and flies into a no-fly zone.

Behind Enemy Lines is a very enjoyable movie. The action scenes and special effects are quite impressive. This movie is filled with gunfire. Viewers are treated to stunts involving explosions as well as nice slow-motion effects at one point.

If I had to give a criticism of the movie it would be the fact that this film would never convince anyone that it's a true story. It's hard to believe Owen could dodge so many bullets at the end. I didn't really think I understood what it really is like to be a fighter pilot. The montages and loud music seems to give a false impression of the reality of warfare.

Behind Enemy Lines is about the Bosnian War. Before watching the movie I admit I was very ignorant about this war. After watching the movie I researched it on the Internet. I think this movie is good if it encourages other people to learn about the Bosnian War, which unfortunately involves genocide, including mass rapes of Bosniak women and girls by Serbian soldiers. Serbian soldiers even killed fellow Serbians who refused to participate in the slaughter of Bosniaks, which is similar to how Nazi soldiers treated those Germans who refused to kill Jews or tried to hide them.

Ethical Purchasing: Buying Unilever Products

I was at the supermarket today purchasing tea. I drink a lot of tea. I am not a coffee man. One of the issues that annoy me is whether tea is good for you or not. Some people say tea is good for you while others claim that the caffeine is bad for you.

Nevertheless, I was at the supermarket deciding which tea I wanted to get. I don't particularly have any brand loyalty. As far as I see it, tea is like petrol. It is more or less the same no matter which brand you buy. I normally purchased black tea from Tetley but I decided instead to buy tea from Lipton. The reason why is because Lipton is owned by Unilever, and I know from playing Free Rice that Unilever helps feed hungry people by aiding the UN World Food Programme.

I decided then to exercise my ethical purchasing power by buying tea from Lipton. I believe that if enough consumers make purchasing decisions based on how ethical the company seems it can give companies a very strong incentive to do good.

01 June 2008

Net Worth Report for May 2008

Age: 24


Cash: $313
Managed Fund: $23,993
Super Fund: $3,216
Car: $5,825
Kiva: $105


Credit Card: $300

Net Worth: $33,152


I put in $200 in my mutual fund a few days ago and it is not showing up in my managed fund. This is normal. Sometimes when I send the money to the fund manager it goes in the day after and other times it sometimes takes a week. This is why market timing using a traditional mutual fund is futile. If you want to time the market, consider using ETFs.

The larger-than-normal credit card debt comes from a dental checkup during which I had my teeth cleaned and x-rayed. The x-ray was painful because they made me bite on a piece of plastic. I have no idea why they did this. I also used credit card to pay for petrol. Petrol is about $1.60 per liter now, which is an all-time high. I hate it when people say that high petrol prices don't bother them because they can "afford it." I can afford it too but I just don't like to pay more. One of my friends said, "I wish petrol was higher. There are too many cars on the road. If you can't afford to drive, walk. By the way, I drive a V8." Instead of deterring people from driving large cars, high petrol prices seem to be attracting some types of people to large cars because of the exclusivity of driving a gas guzzler during times of high petrol prices.

A few weeks ago the All Ords was reaching for 6000 but then all of a sudden it went back down again. It is now at 5700 or so. When the All Ords was at 6000 I had about $24,000 in my managed fund. Now I have only $23,000. I notice that the downturn seems to have hit the Australian market more severely than it did the non-Australian (e.g. American) markets.