Saturday, October 24, 2009

Income of American Retirees

Interesting discussion in the comments on a Krugman post on retirement income based around this pie chart of income sources of Americans of 65 and older in the 75% to 50% quartile (second from top):

The chart shows that only 9% of this group's income comes from assets - i.e. 401k's, taxable accounts, rental housing etc. But some major caveats are needed in order to understand the results:

1. The asset income does not include capital gains or drawdowns of principal. In reality this group is far more reliant than this on assets they own for their income.

2. The data is for 2008 when interest rates were hitting record lows and dividends were being cut. Income in previous years would have been higher.

3. Defined benefit pensions rely on underlying investments in capital assets, usually the retirees are not exposed to the fluctuations in the underlying investments unless the plan ends up collapsing due to underfunding...

By the way, here is the income sources for the top quartile:

They do get a greater share of their income from assets but they are also working more or more of them are working.

Saturday, October 10, 2009

Global Housing Market Trends of the last 40 Years

A nice chart from McKinsey of real house prices over the last forty years in a wide range of countries:

The UK saw the largest rise in prices. The US housing bubble was really quite moderate by comparison. By contrast, house prices just don't go up in Germany ever (but they seem high).

Friday, October 09, 2009

First Look: Credit Suisse Tremont Hedge Fund Index for September 2009

Preliminary figures from Credit Suisse Tremont show a 2.62% return for hedge funds for September. Macro returns are pretty strong and not bad for the year, in contrast to HFRX and to a lesser degree HFRI. There are other differences too. Credit Suisse Tremont shows nice returns for Distressed Securities for the year, for example.

HFRI Reports a 3.02% Hedge Fund Gain in September

HFRI, which covers a larger sample of hedge funds than HFRX, has come in with a larger gain for September. And unlike HFRX, with the exception of "short bias", every style of fund gained including Macro. HFRX's sample is designed to be representative but only includes funds that report daily NAVs.

Wednesday, October 07, 2009

Moominmama Performance September 2009

Moominmama's portfolio gained 1.98% this month compared to the 4.62% gain in the MSCI World Index and a 3.73% gain in the S&P 500. That's not surprising as beta is only 0.47 - only one quarter of the portfolio is in unhedged stocks. Brazilian stocks were the strongest performer this month. The portfolio value is 12% below the all time high recorded in May 2008. The rate of return over one year is now 1.65%. Moom is also showing a positive one year return of 1.76% while the MSCI remains down 4.77% and the SPX down 6.91% over the same period. Moom's and Moominmama's portfolios are very different from each other. Moom has 60% or so in Australian stocks while Moominmama has no intentional Australian investments. So this is likely to just be a coincidence.

September 2009 Report

This report is based on the available data as a couple of funds as usual won't report till near the end of the month. As usual everything is in US Dollars unless otherwise stated.

It was yet another good month month. The MSCI World Index gained 4.62% in USD terms and the SPX gained 3.73%. The Australian Dollar continued to appreciate, this time gaining by 4 US cents. We gained 9.88% in USD terms (4.91% in AUD terms and 6.92% in currency neutral terms). I'm feeling a little bit superstitious about saying too much about how great things are going. But it is a relief that we're bouncing back towards our former position faster than my most optimistic expectations. Some more good news today, was that UniSuper have refunded the retirement contributions that they mysteriously deleted.

Our spending was quite low when some refundable business expenses are deducted: $3,167 ($A3,588):

Non-investment income was high because we each received 3 biweekly salary payments and received Moom's tax refund. All other categories of net worth accumulation were strong. Net worth reached $380k ($A431k). Asset allocation moved away from our target but there were no dramatic changes this month:

Rather than selling stocks I will be adding to investments outside the large cap Australian stock category as much as possible. The following is estimated performances for this month (net of forex movements) by asset class:

Sorry for the missing labels - they are in the same order as the allocation above... Australian stocks again performed strongly and hedge funds are estimated to have gained reasonably well too. The above market returns this month boosted estimated alpha and beta. Alpha measured against the USD MSCI was 6.5% with a beta of 1.27 currently. Beta remains very high and will have to come down at some point. Performance in AUD terms is similar.

Moom's Tax Assessment

I didn't get as much of a tax refund as I was expecting for two reasons:

1. You can only claim the low income tax offset to the extent that tax is payable on your income in the first place. The offset can be as much as $A1,200 but if tax payable is, say, $A573.75 as in my case then that is as much as you can claim.

2. Foreign tax credits can only be claimed if after the low income tax offset you have some tax liability. Mine was zero and so I couldn't claim $A251 in foreign tax paid.

But I could claim $A1,606.68 in franking credits on Australian dividends and I'd already paid $A3,706 in tax and so my refund was $A5,312.68.

HFRX up 2.22% for September 2009

In general, those strategies that have been doing well this year, like Convertible Arbitrage, continued to do well and those that haven't, like Macro, continued to underperform. There were some exceptions such as Distressed Securities which performed OK this month for a change.

Friday, October 02, 2009

Tax Refund

I got my tax refund credited to my account (amazingly fast) but it's about $A800 less than I was expecting. I'll have to wait for the letter to find out why.

Henry Seems to "Get It"

I recently commented on leaks from the Australian government's Henry tax review that seemed to be heading in the direction of just grabbing revenue wherever possible from Australians while reducing taxes on foreigners on the basis that they could invest somewhere else instead. But this speech by Ken Henry to an economics conference is much more subtle and nuanced. He does seem to not only a command of the issues in this speech but sympathy for some of the more radical ideas. He leaves us in suspense about which way he and his team will jump in their advice to the government - tax savings more heavily (but uniformly) than now, or tax savings less (but again uniformly)? If I can read between the lines this seems to be favoring lighter but some taxation on capital?