Tuesday, December 31, 2013

Financial Review - December, 2013

This is the last monthly review for 2013. An annual review will be posted later.

December was the first month in which there is no employment related income hitting the bank account - something that I am still getting used to. At the moment, it looks like I will get a small adjustment in late January or early February.

December was a poor month for my investments. Net worth fell due to the combined effect of flat to slightly lower equity valuations, adverse FX movements (primarily the AUD), a small transfer to Mrs Traineeinvestor and living expenses. Accrued dividends, rent and interest payments were not enough to swing the balance sheet back into positive territory.

Here are the details:

1. my Hong Kong equity portfolio was more or less flat. During the month. There were no sales or purchases this month. I hold shares in CMR which is currently suspended following an attack by a short seller alleging fraud. I am currently assuming a 100% loss on this position;

2. my AU/NZ equities declined - mostly due to my largest position Westpac falling;

3.my equity ETFs were fractionally down in line with the local markets. There were no new purchases;

4. my commodities appreciated marginally. Silver is my only position;

5. all of my properties were occupied with all tenants paying on time. There were several minor repair bills this month and will be at least two more in January (all related to buildings which received notices for a mandatory window inspection). One tenant has given notice to terminate her lease effective mid-February. Two properties are debt free;

6. currency movements were negative, with a material fall in the AUD;

7. my position in bonds remains small. Some RMB bonds matured and I have purchased some PRC sovereign RMB bonds;

8. expenses were moderate with the usual Christmas spending on gifts and meals and a trip to New Zealand.

My cash position rose slightly. I currently hold 56.1 months of expenses in HKD cash or equivalents. The IShares RMB Bond fund is included a a cash equivalent. This is above my target floor of 24 months.

For the one month period, my net worth fell by 0.26%. The year to date increase is 14.84%. This means that my mark-to-market investments have appreciated this year. 

Note 1: my calculation of cash and near cash needs to be revised.

Note 2: my net worth calculation includes accruals for long term expenses such as tax, holidays, home repair etc. At the moment, it appears that I have over provided for both tax and holidays. I will make an adjustment at year end.

Tuesday, December 24, 2013

100 Years of Currency Debasement

The US Federal Reserve was created on 23 December, 2013. From Wikipedia:

"The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximum employment, stable prices, and moderate long-term interest rates."
Using this calculator the US has experienced cumulative inflation of 2254.2% since 1913. In other words, the US dollar has lost about 96% of its purchasing power under a century of Federal Reserve oversight.

While many lament the decline in the real value of the dollar and the impact of inflation on savers and fixed income holders, for my part, I believe that the Federal Reserve has done a mostly good job of steering the US economy through two world wars, the great depression, the inflationary oil shocks of the 1970s and economic cycles generally.

Any judgement of the Fed's track record has to take into account (i) that they are operating in an country where the political leaders habitually spend more than the annual tax take, (ii) that the US has remained the largest and (by some measures) most dynamic economy in the world over this time period and (iii) that the US dollar is still the world's dominant reserve and trade currency. Sure, the US's proportionate share of the world economy is shrinking, but this is largely because much of the developing world is belatedly playing economic catch up. For all its many and severe problems, the US has been a better place to live than most of the rest of the world during this time period. Lastly, it also has to be noted that the (on average) mild inflation over the last century has to have been a better outcome than periods of deflation which occurred regularly prior to the Fed's creation.

Of course, the Fed's track record has been far from perfect - contractionary monetary policies at the beginning of the Great Depression unquestionably made that even far worse than expansionary policies would have and we are still being haunted by the very avoidable  bubbles of the Greenspan era.

Tuesday, December 10, 2013

You just can't make this stuff up

The benefits of China's leathal air pollution: smog bolsters military defenses.

As noted in the comments, it could also be an effective tool for population control.