Paying for performance is one thing, paying someone a bonus to lose your money is another-and despite protestations, it is still happening in institutional investment.

Consulting and actuarial firm LCP’s fourth annual review of investment manager fees has found market returns, rather than the skill of a specific fund manager, remain both the main drivers of performance and the supplemental fees investors pay for the privilege.

…..read the rest of this British article HERE

On the same topic:

An article by Justin Fox appeared on the Harvard Business Review website in May.  It was titled, “Just How Useless is the Asset-Management Industry?”  Some months before, I had read a report by a hedge fund allocator who wrote that, as part of their compensation, managers “will extract” a portion of a fund’s profits for themselves.  The imagery stuck with me.

…..read more HERE

The Million-Dollar Illusion: Why Many Retirees Could Outlive a $1 Million Nest Egg – HERE

The Top of the Market bell ringing has begun in Vancouver but is not heard in Calgary or Toronto. 

VANCOUVER average single family detached prices in May 2013 ticked up 0.4% M/M but remain 13.9% ($147,600) below their peak set last April 2012 (Vancouver Chart). On an annual basis, Vancouver is on a choppy sea of red (Scorecard) with combined residential prices down 4.3% Y/Y and detached housing taking most of the hit. Average strata units, for the commoners, continue to trade at 2007 prices but up in the penthouses it’s zenga zenga and who knows, maybe bunga bunga as a $25,000,000 condo sale get’s printed up in all the media as the biggest Canadian MLS condo sale on record, eg: CBC

Now that you have the May data, where do you think Vancouver SFD prices will be one year hence? VOTE HERE.
 
CALGARY average detached house and condo prices in May 2013 broke out again to new record highs (Calgary Chart) with townhouses not far behind. I have added the TSX Energy Index plot to the chart to see when correlations occur with housing prices, so far the correlation has been negative for the last 2 years. Although there is pricing joy in Calgary, it’s not showing up on the Momentum Chart. What is showing up is a different world of earnings in Alberta compared to the rest of Canada.

The sentiment in Calgary is the least bearish of the 3 markets polled with only 23% of the survey thinking Calgary SFD prices will be 20% lower in 12 months. What do you think? VOTE HERE.

EDMONTON average detached house prices in May 2013 also moved up on a rally of 3.9% M/M (Canada Chart), while condo prices sold off 2.4% M/M. Where Calgary has mostly positive sales numbers, Edmonton has red ink in the Y/Y column with single family detached sales down 14.4% Y/Y and townhouses down 20.3% Y/Y (Scorecard). The current enthusiasm from bidders puts Edmonton SFD prices within a mere 1.9% of the May 2007 peak price (Plunge-O-Meter).
 
TORONTO average detached house prices for the GTA in May 2013 broke out to new highs along with townhouse and condo prices for a trifecta record breaking month (Toronto Chart). For anyone keeping score, the gap between Vancouver and Toronto housing prices (Vancouver vs Toronto) is narrowing, especially condos and marketers should note that HNWI has fallen in love with Toronto.

Never mind the boom, polled sentiment here continues to suggest that prices will be down another 20% in 12 months. What do you think? VOTE HERE.
 
OTTAWA average detached house prices are not available, instead the chart on this site reflects Ottawa’s average combined residential prices. OREB’s report is sparse and opaque and the CMHC, records for Ottawa inventory remain one month lagging. In May 2013 Ottawa combined residential prices retreated 0.3% M/M from the record high price set the previous month (Scorecard). Month over month sales boomed 14.7% M/M but annually are down 4.9%.

MONTREAL median (not average) detached house prices in April 2013 (I WILL PUBLISH THE MAY DATA WHEN I GET IT – PROBABLY NEXT WEEK JUNE 10-14) ticked up 1.1% M/M in a narrow price channel just 0.7% shy of the peak set 10 months ago in June 2012 (Canada Chart). Prices are floating on sales resistance (Scorecard) with combined residential sales 11.4% below last year. In the 2011 Census, Montreal added 6.4% more dwelling units while only adding 5.2% more people. There is no shortage of housing, but there is a shortage of earnings; the Province of Quebec ranks 6th in Canada’s 10 provinces for earnings and prints an unemployment rate of 7.8% in April; 0.1% above Ontario’s.

For some perspective on the all-important US real estate market, the chart below illustrates the inflation-adjusted median price of a single-family home in the United States over the past 43 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased — increased. All those gains were given back during the following 6.5 years. Over the past three months, however, the median price of a single-family home has surged by over 10% — the second biggest three-month gain on record (the data goes back to 1968). Not surprisingly, this three-month surge has resulted in new post-financial crisis highs.

The chart below shows the S&P TSX Real Estate, Gold, Energy and Financial Services Indices as well as the Bank of Canada Commodities Index (CCI) all valued in CA$. In April 2013 Gold slumped again and for the first time since November 2008 it dropped decisively below the energy and real estate indexes barely above the financials. The Bank of Canada Commodities Index has been rising on a slumping CAD/USD pair as the U.S. Dollar rally puts pressure on a lot of orthodox positions. We should note that March 2013 is when the Eurozone introduced its bank “bail-in” template for Cypriot investors. In common parlance, bank accounts are akin to a Bernie Madoff deposit scheme. Will Canadian asset prices be jacked up via Eurozone capital flight as it has with the Asian carry? It is showing up at the whale level. On the other side, one feature of a massive global post bubble deflation is debt revulsion. In Japan during their decades long contraction, savings increased as investors repaired their balance sheets. These are volatile times.

 Notes:
Does the real estate rally continue? The answer may surprise you. Find out now with the exclusive & highly regarded charts of Chart of the Day Plus.

Four-plus years into a bull market and stocks keep hitting new record highs. 

The economy keeps recovering, too. Granted, it’s sluggish. But it’s a recovery, nonetheless. 

And, of course, the Fed keeps promising to backstop the whole shebang with easy money and absurdly low interest rates.

So what’s not to like about the current market backdrop? 

Well, finding bargains to profit from the continued boom keeps getting harder and harder.

In fact, the valuation boogeyman is lurking around every corner.

Beware of the P/E Creep

We know that stock prices ultimately follow earnings. But prices have gotten a little ahead of themselves.

Case in point: In the first quarter, S&P 500 companies reported earnings growth of 3.3%. Yet, on average, stock prices are already up 11.5% this year.

As Garth Friesen, Co-Chief Investment Officer at III Associates, says, “The whole move we’ve had in the S&P this year has been due to multiple expansion.”

Now, Mr. Friesen might be stretching the truth a tad. But not much. Take a look:

Since the beginning of the year, the trailing 12-month price-to-earnings (P/E) ratio for the S&P 500 Index has crept 12.6% higher, from 14.13 to 15.92 (as of Friday’s close).

As you can tell, the “multiple expansion” accelerated in recent weeks, too.

So with screaming bargains getting harder and harder to come by, what are investors doing? The absolute worst thing possible. 

They’re going dumpster diving in hopes of finding an undervalued gem.

Don’t Join “The Dash for Trash”

A recent analysis by Bespoke Investment Group reveals that the 50 stocks in the S&P 500 with the highest short interest outperformed the 50 stocks with the lowest short interest. (So far this quarter, the former is up 12%, versus a decline of 5% for the latter.)

So investors are betting on the most shorted stocks, simply because their valuations might be beaten down relative to the broader market.

It’s a recipe for disaster. And Bespoke rightly labels the trend “the dash for trash.” 

Whatever you do, don’t join it!

Instead, be patient and more selective. Take the time to unearth companies that trade in line with the market valuation, and benefit from accelerating sales and earnings growth rates. 

Even if the current trend of a multiple expansion for the S&P 500 Index slows down or flat-lines, these companies will demand a much higher stock price in short order.

I’m about to reveal one such company to WSD Insider subscribers.

As we speak, I’m finishing up my research report on an under-the-radar and undervalued small-cap opportunity – one that could easily double in price by the end of the year. 

It sells one of the hottest lines of specialty merchandise in the Southeast. And it won’t be long before the rest of the country catches on.

I plan to release the report next week. All you have to do to be included on the list is sign up here.

Bottom line: Finding bargains in the current market might require a little more work than in years past. But nobody ever said that stock picking is so easy a caveman could do it!

In all seriousness, as valuations start to get stretched and the average investor starts rotating into the stock market, now is the worst time to throw caution out the window. 

Instead, we need to be more and more selective if we hope to boost our profits in the months ahead.

Ahead of the tape,

Louis Basenese

Super hedge fund manager Mohnish Pabrai has been lucky enough to have chances in person to tap into the wisdom of Charlie Munger and Warren Buffett.

From his conversations Pabrai learned five key things.

From Munger:

1. Follow other top notch investors; study what they are doing and why they are doing it.
2. Focus carefully on companies that are aggressively buying back their own stock.
3. Pay attention to spin-offs for opportunities.

From Buffett:

1. Patience.
2. Smart investors don’t need leverage, bad investors shouldn’t use it.

Enjoy the video!