Canada’s housing market shows the “classic signs of over valuation, speculation and over supply,” but Bank of America Merrill Lynch says that’s no reason to think that there will be an epic crash of American proportions.

In a report issued Monday, the bank’s Canadian analysts said record Canadian household debt and increased joblessness are cause for concern over the next year. There will likely be fewer sales, and prices could slip as much as 5 per cent in the next year.

Preet Banerjee
Last updated Friday, Nov. 18, 2011 6:08AM EST

The index ETF business is sometimes referred to as a margin compression game.

The plain vanilla, broad index tracking exchange-traded funds compete heavily on price. An investor with $100,000 in a large capitalization, actively managed mutual fund might pay $2,250 per year in fund management expenses, but if they used the Horizons S&P/TSX 60 Index ETF that cost would only be $80.

But since mutual funds come with the cost of investment or financial planning advice whether you want it or not, and also whether you get it or not, a fairer comparison would be to strip out the cost of advice. This averages 1 per cent a year for equity funds in Canada. That brings down the comparison to $1,250 per year versus $80. Add a few bucks in commissions to buy and sell ETFs and you’re still paying rock bottom costs.

Active managers compete on performance, but so do index ETFs. Two of the big determinants of index ETF performance variation are costs and tracking error. HXT takes a unique approach to controlling both by using some financial engineering that some people may not understand. Due to its structure, some don’t consider HXT a plain vanilla ETF but it does track a plain vanilla benchmark.

None of the people I spoke to expects these concerns to miraculously vanish. Indeed they suggest we are in the first phase of a long, painful adjustment to lower living standards.

The CPP was founded in 1966 as a way to give all working Canadians some financial security in retirement. Over the years, the plan’s obligations have grown, leading to worries over whether there will be enough in it to pay out as baby boomers retire.

In 1997, then finance minister Martin and provincial premiers did something about it, boosting premiums and allowing the excess to be invested in the stock market by the newly created CPP Investment Board. Last year, the CPP Fund managed by the CPP IB grew by 16 per cent to $153 billion. In the last six months, in contrast, the TSX S&P Composite Index has fallen almost 15 per cent. According to the Chief Actuary of Canada, that means there will be enough money in the fund to pay out CPP benefits for at least the next 75 years.

The cash in the fund comes from premiums deducted from your paycheque, and income from investments made by the investment board.

“Inflation normally suggests investors should go for gold. But its stratospheric price, and the fact that most economists think that inflation will fall back as the global economy slows, argue against it.

…

The result could be a very sharp fall in European GDP, with knock-on effects in the rest of the rich world. That scenario argues in favour of US Treasuries.

…

If markets continue downwards, equities could be a bargain next year; already some companies with global brand names trade on dividend yields of more than 5%.”

Still, nobody said index tracking investments would be low volatility. The hope is that they will produce a good return over a multi-decadal timescale.

http://m.theglobeandmail.com/globe-investor/investment- ideas/features/the-buy-side/the-secret-of-vanguards-vir al-appeal/article2055150/

What I am not sure about is the ethical appropriateness of investing in Japanese stocks now. It certainly seems more ethically appropriate than selling them off or short-selling them.

If charity is your motivation, they could probably use the cash more than your investment.

Canon and Nikon shares aren’t a terrible idea.