Wealth Management

Voted #6 on Top 100 Family Business influencer on Wealth, Legacy, Finance and Investments: Jacoline Loewen My Amazon Authors' page Twitter:@ jacolineloewen Linkedin: Jacoline Loewen Profile

February 10, 2009

Oh, Canada

At school, American friends made a hobby of slagging Canada.  Pretty standard.  "Canadians are too polite", "Canadians are boring".  Luckily, "The Man Everyone Loved to Hate" was President of the U.S. at the time and the conversations were short.  We've all heard the swipes, some in Canada would agree with them, very politely and boring-ly, though despite our unflappable humility, we do love to have our skirts fanned from time to time.  

Fareed Zakaria, editor of Newsweek International is apparently taking a serious run at a Governor General's Award this year, despite the fact he's American.  Last week he published a column in Newsweek applauding Canada's virtues.  Mr. Zakaria writes in his article "Worthwhile Canadian Initiative", Canadians should be proud of the "common sense" and the capitalization rates of our banking system, which is getting recognition the world over.  Not exactly riveting stuff, but Switzerland must be hating us.

Canada is the only country in the industrialized world that has not faced a bank failure or calls for bailouts and government intervention.  The reason for this is our conservative, staid, risk-averse attitudes, the fodder of a-many jabs.  Our banks have been regulated to have far higher capitalization rates than the rest of the world.  Typically, our banks are leveraged 18 to 1 ($18 of debt for every $1 in the savings account), whereas the Americans are generally 26 to 1 and the European banks are a staggering 61 to 1.  Ooh la la.  Needless to say, this functions as a lot of profit in boom times, and, when the boom turns to bust the bank goes bursting and a Frenchman has one less half-caf, triple, Grande, three pumps sugar-free-vanilla, soy, no foam, 180 degree cappucino. 

Apparently, TD is brimming with pride these days.  They have gone from the backbenches of North American corporate obscurity, having been the 15th largest bank in N.A., to a major player, becoming North Americas 5th largest bank.

Mr. Zakari goes on to sing the praises of our 'responsible' natures when it comes to our fiscal policy.  We have been very good beavers and have stored up a lot of nuts through fiscal surpluses over the past decade to deal with the current financial crisis with a stable and sober approach. The Harvard PhD also likes our immigration program, our accountable mortgage policies, and our healthy life-expectancies.  Stop it, I'm blushing.

After having read this, I looked again at the the first line of the article.  It reads, "The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative".  This, for me, encapsulated much of the torn pride I felt throughout the article.  Though disguised as complements, we Canadians, can never escape the love affair foreigners have with taking a few jabs at our responsible, risk averse, common sensical, conservative selves.  Characteristics of good bankers it seems.

February 9, 2009

Business owners like the long view

"One of the reasons business owners are preferring private equity," says Jacoline Loewen, author of Money Magnet, "Is they appreciate that the investors go in for five years. It sure feels better than the short term view of shareholders in the public market who bale as soon as they see anything slightly off."
Long term trends are difficult to remember for investors in public markets.
This is an interesting chart as you can see we are still 5% above the trend line. Yet the public market ignored job loss information that came out last week, and ended up higher by Friday probably due to wishful thinking.
Private equity is in stark contrast to this short term thinking demonstrated in the public markets. Five years with a company before taking back the money is the shared goal. Think how this long term approach by shareholders helps business owners during these times.
One of the top fund managers at my secret handshake club said that these are historic times and our children will read about them. Now that is long term thinking.



February 6, 2009

Mining likes investing in Africa

Africa ain't for the faint hearted. Despite the harsh environment, and clash of cultures, Canadian mining companies are making huge advances.
The time when Canada's presence on the African continent was primarily characterised by numerous missionaries and food donations is well and truly over! In countries such as Congo, Mali and Tanzania, when it is learned that you are from Canada, Denis Tougas says you are immediately asked if you work for the ‘mining’, a perception entirely consistent with reality.
Canada is now dominant - in fact, some say superpower - in the African mining sector, a position the country intends to maintain and develop using all means at its disposal.The salient presence of Canadian mining is relatively new in Africa and is rooted principally in the programmes of liberalisation of the sector from the early 1990s. These programmes have been driven by the World Bank, which from 1992
(1) had begun defining the extractive sector as the main engine of development for many countries.
(2) The privatisation of state enterprise – promoted as a means of encouraging the entry of foreign investment – has opened the door to foreign companies. At the head of this development, especially with regard to the smaller exploration companies known as ‘juniors’, are Canadian companies. These companies have an immense commercial presence in Canada: of the 1,223 mining companies listed on the Toronto Stock Exchange, the largest in the country, more than 1,000 are juniors!
(3)A HUGE EXPANSION
Currently, according to the Ministry of Natural Resources Canada (NRC), only the Republic of South Africa, with over 35% of assets and investments, is just ahead of Canada in the African mining industry. But with South Africa’s assets concentrated on its own territory, Canada dominates the rest of the continent.The data compiled by the NRC demonstrates the speed with which the value of Canadian mining assets in Africa has grown over the last twenty years: at US$ 233 million in 1989, this figure grew to $635 million in 1995, and $2.8 billion in 2001, growing further to $6.08 billion in 2005, and $14.7 billion in 2007.(4) This total value is estimated to reach $21 billion by 2010.
Read more...
Thank you to Michael Power for the referral to this article.

February 5, 2009

Does mean marketing grab market share?


German Engineering, Swiss Innovation, American Nothing.
Ouchy!
This is an advertisement used by Daimler and is it mean? It's good business. Competitive companies get on with growing their business. Brand America is tarnished and Mercedes is using the anti-American sentiment to grow their market share.

February 4, 2009

Does an experienced partner win private equity more?

The quality of your partner counts big time. In the case of entrepreneurs seeking capital from Venture Capitalists, nothing helps more than having a partner with past success.
Venture-backed firms tend to cluster in industries. Those that are most common for venture capitalists to fund are Internet and software, biotechnology, and telecommunications. SJ Gibson of Harvard Business School recently completed a study on these industries to measure who gets financing and who tends to be those who have had a successful start-up.
Here's an excerpt:
Q: Was there anything in your findings that surprised you?
A: The size of the effect of past success was surprising. We know that there was likely to be some degree of performance persistence, but the magnitude was quite striking.
Q: Given the current economic conditions, do you have any advice for entrepreneurs who are considering launching a new venture at this time?
A: Certainly one lesson that emerges from our analysis is to find an experienced (and successful) partner! Given the very difficult investment conditions, venture investors are paring back their portfolios and are hesitant to make new commitments. To get serious consideration, the more that you can do to seem like a "sure thing," the better off you are.
More generally, being as careful as you can be with resources, and flexible.

The Big Mac Index


Another way of looking at prices and inflation with regard to different countries/regions is to consider the concept of Purchasing Power Parity (PPP).
Definition from Wikipedia:

"The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price."
A popular derivative of the PPP concept is the Big Mac Index, developed by The Economist Magazine. The Index is based on the notion that a dollar should buy the same amount in all countries and that in the long run; the exchange rate between two countries should move towards PPP rate and hence moves the prices of the same goods for each country towards equilibrium.
The Economist just published the latest Big Mac Index on January 22nd:

Based on the latest findings, Switzerland has the most overvalued currency whereas the currencies of South Africa, China and Russia (as part of the industrialized nations) are the most undervalued in relation to the US Dollar. Canada looks strong.

February 3, 2009

Think of the US mortgage and credit market as a giant pyramid scheme. The people closer to the top of the pyramid usually get out relatively unscathed. But the investor closer to the bottom of the pyramid end up with nothing.
That would explain why US markets faired relatively better than India, China and other countries of the developing world who seemingly ended up lower down the chain in this massive pyramid scheme.
Here's a link to George Soros discussing his trading philosophy and how he did so well in 2008 relative to the rest of the world - drink your strong coffee before you read it.

February 2, 2009

David Rubenstein at Davos

Davos has a more subdued David Rubenstein of Carlyle discussing the future of private equity. Read more at Carried Interest blog.

Will inflation hit private equity?

This is a copy of an old 10 Billion Mark coupon.
Ponder this extraordinary piece of paper (which is obviously no longer is in circulation). Use it as a reminder of the hyper-inflation of the 1920s in Germany. In those days, these sums were the cost of daily groceries.
Certain early childhood experiences stay with you forever and some of these can impact the way you look at money and finances. In my case, I've always been weary about the hidden loss of value from inflation due to my upbringing in Zambia and Zimbabwe. So, yes, the 1920s were very different times which hopefully never come back. But with the current economic climate, particularly in the epicenter of leverage and deficit spending i.e. US government and households, we should never loose sight of the danger of inflation.
Look no further than Zimbabwe where in 2008, a loaf of bread cost 1.6 trillion Zimbabwe Dollars. In short, various prices have come down and quite rightly so are now at much more realistic levels, but we should fear inflation much more than deflation.
Private equity has cash but is not coming into the market at valuations business owners want. This dance will continue for 2009.


Where Do I Get Money?

Money is the grease the helps businesses operate; it also allows a company to grow. Entrepreneurs who decide that they want to get wealthy put aside their egos and surround themselves with experts. They also learn what makes others put money into their companies.
"CYBF is a terrific place for young entrepreneurs to begin their journey," says Jacoline Loewen, author of Money Magnet. "CYBF will take entrepreneurs through the steps to managing their money and also help out with a mentor."
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