Archive for category Global Markets
Measure for mortgage profitability
Posted by admin in Financial Advice, Global Markets, bonds, budget, business, expenditures, finances, fixed costs, incentive on October 26th, 2009
A common measure for profitability is the ratio of retained earnings to total assets. We defined retained earnings as undistributed profits, that is, after-tax profits minus dividend payments. Like the working capital ratio, the profitability measure is on a downtrend in the longer term. During recessions the profitability of the companies usually declines. It is worth noting that the latest recession in 2001 marks an exception with respect to the ratio of internal funds to total assets. Whereas the profitability declined like in any other recession before, the cash flows of the companies on average improved in this period due to rigorous cost cutting in the corporate sector.
How to compensate for default payday risk
Posted by admin in Global Markets, Money Tips, financial information, fixed costs, marketing, material costs on October 23rd, 2009
The spread needed to compensate for default risk depends upon future default rates, recovery rates and ratings transition probabilities. The rating agencies publish their forecasts of future default rates based on historical data. Usually required spreads come out significantly lower than current spreads for investment grade companies. For high yield, however, observed spreads tend to be too low, given the actual risk of default. While over the long term buy-and-hold strategies may earn an excess return over government bonds for pure investment grade portfolios, this strategy is not appropriate for high-yield portfolios. Here, investors need to focus much more on the process of selecting the right companies and avoiding the blowup names. A look at historical data shows that market spreads tend to overshoot at the end of credit cycles, especially in the wake of a recession.
For example, even if the historically high default rates of 1990/91 had persisted over the following years, investors should have required a BBB credit spread of only 115 bps for medium-term bonds. At that time the average market spread for BBB-rated issues, however, peaked at more than 180 bps.
Consequently, the market was much too bearish in 1991. Conversely, in 1997, at the beginning of the severe bear market for credit, spreads were too tight for the period of downgrades and credit blowups that followed. Note that these observations apply for bonds with a maturity of roughly 4 years.
While the cushion is not as comforting as for shorter maturities, even at the long end the spread levels reached in recessions provide sufficient protection, even when assuming that default rates stay high for a sustained period of time.
The 3 Steps of Investing
Posted by admin in Financial Advice, Global Markets, Investment Opportunities, Money Tips on August 4th, 2009
To get from the chaos of your investment life to your comfort zone, you need to take three steps: study the emotional content of different investments, study your own emotional makeup, and match your emotional makeup to the appropriate investments.
To avoid confusion, I have divided this book into three steps rather than three parts:
Step 1: Chapters 3 through 7 set out the emotional content of the different investments. Step 1 requires study but no writing or analysis. The material in Step 1 will also be used as a reference when you reach Step 3. Per the discussion in Step 1, saving, investing, and speculating are different activities. However, throughout this book, the term “investor” is used to signify a person engaged in all three activities unless otherwise specified. The term “investment” also includes savings, investments, and speculations unless clarified. Among other things, Step 1 is about learning the difference between a saver, an investor, and a speculator.
Step 2: Chapter 8 shows you how to study your emotional makeup. It requires writing and analysis. Step 2 is the workbook section of Comfort Zone Investing.
Step 3: Chapters 9 matches you to the appropriate investments.
What’s So Important About Accounting? – part 1
Posted by admin in Global Markets, effective budgeting, incentive, material costs, paperwork on August 2nd, 2009
For accountants, the i proof is in the y paperwork. Accurate, well-organized records are a must. Sloppy bookkeeping is the road to financial failure—or at least to slowing down success, perhaps a lot. As a first step in becoming “accounting literate,” take the time to write down all business activities, and make sure your records are accurate.
Good salespeople know all about the items they’re selling. Really good salespeople know the engineering calibrations, size, velocity coefficients, or other technical data about their product.
Why do salespeople need to know these things? Here are some reasons:
Extensive product knowledge impresses the customer.
Product knowledge gives customers faith in the salesperson’s claims that the product is exactly what they’re looking for.
It gives the salesperson better insight into the product and its uses, which makes him or her better able to help customers believe this product is the solution to their problems.
It makes the salesperson more successful. That means higher income, greater job security, and better opportunities for promotion, besides the obvious benefits for the company.
The same argument holds true when it comes to accounting knowledge for nonfinancial managers. The more a manager knows about how the people who deal in numbers handle department finances and the methodologies they use, the more that manager will be able to intelligently work with them, making everyone’s job a little easier. So, let’s take a few steps into that world of accounting.
Defining Budget Type – part 1
Posted by admin in Companies, Global Markets, budget, expenditures, production cycles on July 30th, 2009
Budgets, like business plans, come in different makes and models depending on the purpose for which a company wants to use them. If its purpose is to plan strategies for the future, the company uses a long-term budget to set general goals for the next five or ten years. If its purpose is to plan the details of its operations, the company prepares a short-term budget, generally for a single year, to translate its goals into financial terms. Whether a budget is long-range or short-range, smart managers will revise them periodically, as conditions change.
The one-year budget is most commonly known as an operational budget, designed to help a company or the departments within that company get through one more year of sales and production cycles with some semblance of financial success. The 12-month time frame does make the budget somewhat strategic in nature, but by and large its purpose is to anticipate and plan for coming issues and trends within the business year.
How Bad is it?
Posted by admin in Global Markets, Investment Opportunities, Money Tips, Real estate on July 20th, 2009
When it comes to eliminating your debt, we’ve arrived at that point. It’s time for you to pull back the sheet and see how ugly this thing really is. It’s time to grab pen, paper, and calculator and get the numbers on paper.
For now I just want you to break down your debts between long- and short-term debt. If you’ll recall from Chapters 2 and 3, long-term debt includes your mortgage and student loans, while short-term debt includes credit cards, car loans, medical bills, and everything else.
Add everything up and record the numbers here:
Total short-term debt: $___________
Total long-term debt: $___________
Investing Abroad
Posted by admin in Financial Advice, Global Markets, Save Money, Taxes on May 23rd, 2009
A few years back I was shown a property by Craig Donnell, a colleague who consistently ferrets out opportunistic deals, in Melbourne, Australia. The building was located directly opposite the University of Melbourne, and comprised 12 stories of student accommodation (277 rooms) along with ground-floor retail space and a basement. (See Figure 22.1.) There was a new 10-plus-5-plus-5-year lease in place to the university at a starting rental of A$950,000 per annum, with annual reviews in line with the consumer price index (CPI). To an outsider looking at market cap rates, returns, location, strength of lease, and in deference to the fact that the building had been completely renovated, it appeared as though the building was being offered at a price substantially above market. This would also explain why it had not sold.
However, this building also highlights the need to conduct thorough due diligence. It turns out that despite the recent renovations, the building did not comply with the fire code. Before long, the students had to be evacuated and relocated, and the university commenced legal action against the owner. We were informed that an offer would be entertained by the owner, who was eager to extricate himself from the situation.
Panama Real Estate Possession Rights: Buyer Beware
Posted by admin in Global Markets, Investment Opportunities, Real estate, Save Money on April 27th, 2009
Not all properties in Panama are in the private domain. Many beachfront properties, islands, and real estate in special tourism zones and historically protected areas are owned and managed by the national or local municipal governments. In those areas, possession rights are granted for a determined period of time. Two such protected areas are the archipelago of Bocas del Toro (mouth of the bull), which to many visitors fits the description of tropical paradise, and Portobelo, a beautiful harbor on the Caribbean visited by Columbus and the final resting place of Sir Francis Drake. Some beachfront property is available for purchase but is subject to the law that all beaches are public. All beachfront properties must provide a right of way starting twenty-two lineal meters from the highest tide to the property line.
Because of the lack of uniformity regarding the granting of possession rights, possession rights should be approached with caution.
When considering properties located in such areas, you should ensure that the possession right has in fact been granted by the relevant national or local government authorities and that the length of the time right is adequate for the purpose of the investment. The possession right should also contain a complete description of the property, including boundaries, encumbrances, and any other significant features or details (with an accompanying complete blueprint drawn and approved). You should make sure that any anticipated construction, activity, or improvement is acceptable by the national or local government. Transferring a possession right can take up to six months, depending on many factors, such as the date of recognition of the possession right and inspection by the granting entity.
Real Estates Taxes
Posted by admin in Financial Advice, Global Markets, Money Tips, Taxes on April 26th, 2009
Although tax shouldn’t be the most important consideration when choosing a property, it’s not to be overlooked. The tax implications vary in complexity and impact according to the country you are investing in and what you intend to do with the property. In addition, you need to take into account that the United States taxes you on your worldwide income. Taxes levied on international property investments usually fall into the following categories:
- Capital acquisitions tax, inheritance tax, stamp duty, or transfer tax for purchasing, inheriting, or transferring property
- Local and national property taxes and land tax for owning and/or residing on the property
- Income tax on rents received, of which there may be additional taxes imposed on nonresident or foreign landlords
- Capital gains tax, gift taxes, or death duties and estate taxes for disposing of the property
To avoid or minimize taxation, there are countries or jurisdictions with no taxes on income or capital gains, such as the Turks and Caicos Islands. However, some of these tax havens are an option only for the very wealthy who are willing to contribute substantially to the local economy and purchase luxury real estate, and some of these locations limit the number of foreigners permitted residence or work permits. In comparison, governments in nontax-haven countries tend to impose fewer restrictions on nonresidents purchasing property, yet the likelihood is that you will face more taxes on your investment. But some high-tax countries provide advantages over the long term. For instance, in France rents over the last fifty years have averaged a net operating income (NOI) of about 7 percent, which is not terrific. But if you hold onto the property for at least fifteen years, your tax on capital gains is vastly reduced. And when you consider that property values have gone up about the same rate as rents, you will have an enormous gain.