Short Takes: Bleak Future in Fixed Income, SPACs, and more

I got interested in a math problem and haven’t written anything about money lately.  A researcher thought there was a mistake in a 50-year old paper about trying to choose the largest number in a sequence, but it turns out the old paper was right, and the researcher was considering a subtly different problem.  Retirement has allowed me to indulge obsessions like this now and then.

Here are some short takes and some weekend reading:

Warren Buffett’s annual letter to shareholders is out.  He says “bonds are not the place to be these days.”  “Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.”

Tom Bradley at Steadyhand explains why the odds with SPACs are stacked against the individual investor.  He also had an interesting take on why Canadians’ net worth isn’t rising as much as it seems.

In a recent Rational Reminder podcast, Ben Felix explains some interesting ideas for retirement simulations to capture serial correlations in stock returns.   Retirement simulators test the likelihood that a particular financial plan succeeds.  Few such retirement simulators take into account the fact that long-term returns tend to be lower starting from high stock prices.  Ben describes a method of changing the expected stock return for each time period based on the current CAPE (Shiller’s Cyclically Adjusted PE ratio).  If I understood correctly, the simulator would still sample from a probability distribution to choose the return for the next time period, but the mean of this distribution would be a function of the current CAPE.

Alexandra MacQueen explains the payday loan industry, including how it operates within the law.  There’s little doubt that payday loans pick the pockets of many people who are falling off the cliff to bankruptcy or a consumer proposal.  I’d like to know what proportion of payday loan customers actually use the service the way the industry claims: as a way to smooth out temporary financial problems.  Evidence for this would be the proportion of customers who pay off their payday loans and stay away from bankruptcy or a consumer proposal for, say, a year.

John DeGoey makes a good point about lowering our return expectations for the coming decade.  Some may take this to mean that it’s time to sell in anticipation of a market crash.  I don’t do this.  I just use lower future returns when deciding how much to save (pre-retirement) or spend (post-retirement).

Canadian Couch Potato takes a look under the hood of Horizons One-Ticket ETFs.  One thing that got my attention is the costs baked into the trading expense ratio:  “the three one-ticket ETFs reported TERs between 0.15% and 0.18%, pushing their overall costs to 0.29% to 0.34%.”  Another concern I have is the risks with the swap structure.  Even if we only expect a once-in-a-century 10% loss, this amounts to a 0.1% annual cost.

Preet Banerjee interviews Alyssa Davies to discuss how couples can talk about money.  Preet revealed that he’s going to be a stay-at-home dad.

The Blunt Bean Counter explains how to claim your home office on your 2020 tax return.