A Review of Retirement Age in OECD Countries

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Tomorrow civil service workers in Greece plan to go on strike protesting the government’s pension reforms. A recent article in the NY times discussed the current situation in Greece.

From a BBC article titled Greece plans to ban early retirement:

“Greece’s government intends to raise the national pension age and ban early retirement as it tries to tackle its huge budget deficit.

The socialist government said it wanted to increase the average retirement age from 61 to 63 by 2015.

The steps would be part of a series of austerity measures aimed at curbing the country’s deficit and national debt.

But the moves have angered many of the unions, which have scheduled strikes in protest.”

According to OECD data, the average legal retirement age in OECD countries is 64. However in Greece it is as low as just 58. This is another reason why Greece is in turmoil now and the government is raising the retirement age. Millions of Greek workers retire early and receive fat pensions.In some countries like Norway and Iceland the retirement age can be as high as 67. Recently Spain inceased the retirement age from 65 to 67.

The  graph below shows the “labour force exit age – i.e., the actual average age when people stop working – is often higher or lower than the official retirement age” in  OECD countries:

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OECD-Retirement-Age-Comparison

In Austria the average man exists the workforce at age 59 a full 6 years ahead of official retirement age.

Equity Tier 1 Ratios of Asian Banks

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In the journal article “Sins of Past Guide Asian Banks“, Peter Stein notes that Asian banks are well capitalized than their U.K. and European peers. Singapore banks have higher equity Tier 1 ratios based on the proposed Basel 3 standards than Chinese and Indian banks. Australian banks are just a notch above European and British banks.

Chart

Asia-Banks-Tier1-Ratio

Related:

The Complete List of Foreign Bank ADRs Trading on the OTC Markets 

The Complete List of Foreign Bank Stocks  (includes Canadian Banks)

Are Coal Stocks a Good Buy Now?

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Coal is the main source of electricity generation in many countries. In addition, coal is used in industrial and other sectors. The global consumption of coal is projected to increase each year by over 1.5% annually.

Yesterday Australia signed a $60B deal to supply coal to China for the next 20 years. As part of the contract each year Australia will ship 30 million tonnes of coal to energy-hungry China. It must be noted that China is the largest consumer of coal in the world and relies on coal to meet 70% of its energy needs.The deal is the largest single export deal ever signed by Australia. Thousands of jobs are expected to be created as a result of this contract.

 

world-coal-use-projection

In the U.S., coal-fired plants accounted for 44.4% of the country’s power generation thru October last year.

 

us-power-by-source

From the U.S. Energy Information Administration site:

“Coal use in the United States totaled 22.5 quadrillion Btu in 2006 92 percent of total coal use in North America and 48 percent of the OECD total. U.S. coal demand rises to 26.6 quadrillion Btu in 2030 in the IEO2009 reference case. The United States has substantial coal reserves and relies heavily on coal for electricity generation, a position that continues in the projections. Coal’s share of total U.S. electricity generation (including electricity produced at combined heat and power plants in the industrial and commercial sectors) declines from 49 percent in 2006 to 47 percent in 2030.”

14 Coal stocks that trade on the New York Stock Exchange are listed below:

[TABLE=371]

One of the stocks shown above is the ADR Yanzhou Coal Mining Co(YZC) of China. Yanzhou is engaged in the mining, processing, transportation of coal and generation of electricity. As for the answer to my title question, investors may want to consider coal stocks for the reasons mentioned above.

Why Diversification Still Matters

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I posted The Importance of Diversification chart last year in an article on Callan charts. In 2008, diversification across countries did not work well for investors as the majority of stock markets fell. However that does not mean diversification is dead. Diversification still matters. One can diversify by not only investing in different countries but can also diversify picking various sectors within a country. The following charts show the importance of diversification:

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1. Periodic Table of Style Rotation — Why Diversification Matters

Diversification-Matters-Chart-1

2. Periodic Table of Sector Rotation — Why Diversification Matters

Diversification-Matters-Chart-2

 3.Annual Returns for Key Indices – 20 Years (1989-2008)
The IFA Periodic Table of Investment Returns 

IFA-Table-of-Investment-Returns

For the pdf versions, click here and here.

Consumer Staple Stocks May Provide Shelter

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The S&P 500 is down 4.25% YTD. The consumer staples sector in the S&P 500 index is down only 2.11% YTD. In 2008 when the global credit crisis ravaged markets worldwide, consumer staples was the best performing sector with a decline of 16.61%. For example the financials were down about 50% that year.(Source: Periodic Table of Style Rotation — Why Diversification Matters, American Century Investments).

Generally consumer staple companies that make basic necessities of every day life such as dish washing liquids, soaps, toothpaste, etc. tend to offer stable growth and offer downside protection in adverse market conditions. People rarely cut down on consumer staples even when the economy is in recession. Items such as toothpaste, deodorant, soaps, etc. are cheap to afford. Companies in this sector make profits using economies of scale and product differentiation strategies. Investors looking for shelter in the coming storm this year may want to check out some of the stocks in this sector.

The table below lists 18 stocks in the Consumer Staple stocks traded on the NYSE:

[TABLE=386]

Some of the companies in the list have strong international presence. For example,Colgate-Palmolive (CL) makes a multitude of products such as Colgate Toothpaste, Palmolive dish-washing liquids, Irish Spring bath soaps, etc. Some of Colgate’s brands like Colgate toothpaste are highly popular in emerging countries. Colgate-Palmolive stock has been a long-term winner for investors. In the past 25 years (12/31/83 to 12/31/2009), the total return on a CL stock is a cool  4619% compared to 2989% for peer companies and just 1123% for the S&P 500.(Source: Colgate’s Investor Relations site). Similarly Cincinnati,OH -based Proctor & Gamble (PG) is a Fortune 500 company with operations in many countries. P&G is the owner of many global brands such as Gillette, Iams, Scope, Pampers, Bounty, Olay, etc.