Markets. Business. Life.

Newt Gingrich

2012-01-30T15:57:00.003-05:00

the ever-cheeky Barron's comes through again with this gem:

As for Newt [Gingrich], he outdid himself by unveiling a lunartic plan to build an American colony on the moon within eight years once he gets past the preliminary nuisance of being elected president. Cynics were quick to seize on the fact that he made the announcement in Cocoa, Fla., in the heart of NASA country, where there's a heap of unhappiness because of layoffs from a much-reduced space program as evidence that the scheme was brazenly political.

But we think that's unfair. For one thing, Newt's indisputably spacey. For another, he's already promised the moon to the voters so there's no reason to doubt his desire to give them a colony on that celestial body as well.

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Doom and Gloom - All About Jobs

2011-11-23T06:57:00.001-05:00

More doom and gloom from Barron's:

A tally by the International Labor Organization shows the world will have to add 80 million jobs over 2012 and 2013 just to get back to where employment was in 2007. The reckoning is that the developed nations need to generate 27.2 million jobs in the next two years to return to normal. But the likelihood is that only 2.5 million will materialize, or a woefully shocking 25 million fewer than necessary.

As for the developing nations, even though they've been growing somewhat more aggressively than their more developed counterparts, their employment prospects aren't exactly coruscating, either. They'll have something in the neighborhood of 53 million slots to fill in the next couple of years, but the projection is for the addition of 38 million jobs, or 15 million shy of that mark.

Joseph Quinlan, chief market strategist of U.S. Trust offers this commentary:

"millions of dissatisfied and idle workers are a combustible political-economic variable that will keep politicians and investors on edge for the foreseeable future. Nothing saps the confidence or the animal spirits of consumers, businesses and investors more than the ugly images of rioters in the streets."

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Quote: Hot Peppers

2011-11-11T12:12:00.004-05:00

Heard today:

"As my grandpa used to say, that's the thing about a good hot pepper. You get to enjoy it three times."

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Austerity Measures

2011-11-11T12:12:00.001-05:00

From Barron's:

Albert Edwards, head of Societe Generale's strategy team, passes along this observation from the bank's interest-rate group:
"As an example of how long it could take to work through a massive austerity program, it was only in 2010 that Germany made the last payment required by the Treaty of Versailles from 1919, which called for reparations of what would be the equivalent of €325bn in today's currency. Back then, the treaty was not particularly popular with the German population [not unlike the current reaction of Greek citizens to Greece's austerity program]. Following the treaty, the German parliamentary republic [the so-called Weimar Republic] fell into a massive crisis and disintegrated quickly. The rest is history. One of the lessons learned is that a nation can only be pushed so far and positive incentives need to be set to guarantee cooperation. After World War II, a different strategy was applied with the Marshall Plan."

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US Debt, Debt and More Debt

2011-11-11T12:05:00.003-05:00

from the Economist:

America’s predicted deficits over the next decade come to as much as $12 trillion, to be piled on top of an existing net national debt of around $10 trillion.

By November 23rd, a “supercommittee” of 6 Democrats and 6 Senators (drawn equally from the House of Representatives and the Senate) is supposed to come up with a plan to save at least $1.2 trillion-1.5 trillion from the US budget over the next ten years.

Good luck with that. Not that we're not so high and mighty here in Canada as our debt is a disaster also.

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Surprise

2011-09-27T08:54:00.002-04:00

Alan Abelson (from Barron's) always has a way with words:

"The ostensible trigger for the panic was that Ben Bernanke and cohorts on the Fed's Open Market Committee pulled a skunk instead of a rabbit from their bag of monetary tricks."

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From Barron's

2011-08-30T09:37:00.001-04:00

i always enjoy Barron's - some good quotes this week:
Anything that smacked of action Beneficent Ben pointedly put off until the Fed's Open Market Committee meets on Sept. 20 and 21. The extra day was added ostensibly to give those worthies more time to argue, but over precisely what -- whether the Yankees or Red Sox would cop the American League pennant? Or, weightier matters like the menu for lunch? -- was purposefully not spelled out.

What struck us as particularly noteworthy was his admission toward the end of the speech that "most of the economic policies that support robust economic growth in the long run are outside the province of the central bank." In other words, the Fed has pretty much done as much as it can. That means, in a neat passing of the buck, that pumping some life into the economy now rests mainly with fiscal policy, which, in turn, means Congress, a prospect that prompts one loud, undiluted "ugh" and is cause enough to abandon all hope.

THERE HAS BEEN NOT a little derision grounded in envy about Warren Buffett's latest coup, his $5 billion investment in Bank of America, an idea he claims he got while taking a bath. It's rare, we suppose, for a legend to reveal just where he got the inspiration for a stunning investment idea, but, hey, why not the bathroom? We think it's great that Warren came clean and, when you ponder it a bit, what better place to contemplate soaking Wall Street's know–it-alls than a bathtub.

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The Case of Sino-Forest

2011-06-06T13:17:00.000-04:00

It has been a few days now since the Sino-Forest "take-down" and we can conclude a few interesting things. Certainly the report hit at the heart of investors' fears over China companies, and despite the sensational language contained enough validity to motivate people to act (by selling shares). I personally think that the timing was everything, as the report was released into a market that was already weak, thus allowing the obscure firm, Muddy Waters, to move markets. Where do we go from here? I think that this will prompt more attacks by short sellers, given how profitable this operation was to date. Ultimately this is good for the markets, as tough as it is for the company under scrutiny. Dissenting opinions encourage discussion, and in this case, forced the company to disclose GPS co-ordinates and proof of ownership for facilities visited. This is one of those rare, market defining moments that will forever change the way people do business. Whether it proves to be a fraud or not (I think it is highly unlikely that the entire business is a fraud, even though there may later prove to be some exaggeration along the way), investors will learn to be dissenting and always question what is put in front of them. Research firms will be scrutinized (perhaps registered?) to determine legitimacy going forward. Muddy Waters may have picked the wrong firm to target, as with a billion dollars in cash one can hire a lot of lawyers. Incidentally, if the shares outstanding are to be trusted (likely, since it's a Canadian transfer agent), and the cash is to be trusted (likely, since this is under intense scrutiny and held in international banks), then $1bn divided by ~250mm shares outstanding is ~$4/share in cash, plus value for the business. It's a shame that the markets take a shoot first, ask questions later approach. (whatever happened to innocent until proven guilty?) It makes for interesting viewing to say the least - I only wish I was making money one way or another! (short or long!)

Disclosure: no positions

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Get it through your head Microsoft

2010-12-24T09:46:00.002-05:00

After dominating the PC world for so long, mr softy (ie microsoft) is now getting hammered by a competitor they nearly put out of business (in fact some will remember that mr softy invested in apple to keep the company afloat in order to appease the justice department). The issue I have with microsoft is these stupid updates. After being annoyed by 'restart now' reminders for the better part of 2 days (popping up in the middle of what I'm working on in the most inopportune times) I finally bit the bullet and clicked restart). Thus begins a 10-15 minute process of closing all programs and re-opening them to become productive again. The problem is this is like a tax on those who make more money. Case in point, for a professional making $100k, 15 minutes of time is worth about $13. Assuming 6 restarts per year, thus equates to $79. At $300k, this jumps to $238. At $500k , it is $397. And at $1mm per year, $794. Who cares you say? (or more specifically, who cares about the "rich" as they can easily afford the money). The problem is this generates feelings of resentment towards one party: Microsoft, from a heavily influential group with strong purchasing power (those with money). Enter Apple with instant on and minimal updates and you start to see why they are crushing the competition, despite in many cases anti-competitive behavior and bizarre software quirks of their own. For PCs that are seldom used (like a laptop) the situation from Microsoft is more intolerable. In fairness I think mr softy is starting to understand as I hear windows 7 is supposed to be easier to use (although I've never tried it). I viewed the announcement this week of a new operating system from microsoft as a real yawn. who cares? this gravy train is over, with the never-ending cycle of license fees and upgrades. (actually calling the death of microsoft is premature as i love what they are doing in the business accounting/erp software market). but the dominance of apple (with billions generated in media sales from a hardware/software base that's already out there) is the new reality.

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Stop Counting Turkeys

2010-12-14T08:50:00.002-05:00

great quote from Market Wizards (William O'Neill) on holding losing stocks. Quit counting your turkeys! (I will have to reproduce it in full when I have more time)

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The Kind of Market We're In

2010-12-14T08:46:00.002-05:00

I have a hard time reconciling this market and yet I need to remind myself that this is the market we're in. Valuations in the metals space are seemingly outrageous, and yet every time I sell a stock after a 3x, 4x or 5x gain I immediately regret it as the stock moves even higher. Companies with no revenue, in questionable jurisdictions, that are years away from generating first revenue in a volatile commodity cycle are trading at $1 billion or more. Sooner or later you know the music will stop and yet it keeps going. Stupid people can make a lot of money, in fact they make more money because they are too stupid to sell. It is a crazy market--best to keep playing it until the music stops!

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Disconnect?

2010-12-02T08:36:00.001-05:00

Not sure what's going on in the markets these days. Shanghai and the TIPS have rolled over, which suggests to me that inflation expectations are benign while the Chinese market is slowing. Then again, inflation in China (esp. food inflation) is pushing higher and the Chinese central bank is raising rates to cool the economy. In Canada on the other hand, markets are moving higher and oil is also pushing higher, in direct contrast to what's happening in China. The VIX is poking a little higher but generally signals things are quiet on the volatility front. I think QE 2.0, end of year and the holiday season are throwing things off. It appears the US shopping season (marked by Black Friday) is doing well, suggesting that consumers are opening their wallets a little bit at least. Europe is still a mess (and London is stalled), so no help from this group in the near term. The new year is a different ball game altogether, and I think we will start the year down as people sell in January to avoid paying capital gains in 2010. Longer term the commodity run appears to be intact, copper could touch $5.00/lb in 2011, silver looks really good, gold good and zinc good (2 yrs out). Giddyup!

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Reversal Time

2010-11-12T07:58:00.002-05:00

In keeping with the spirit of Elliot Wave, they say write more when you are are sure of something and less when you are not sure. While we can't be sure of anything in the markets, there are a lot of warning signs these days. As I wrote on Nov 5/10, when the sentiment is universally bullish it usually means a reversal is coming, and today we got confirmation. Shanghai down 5-6% overnight, which means the commodity rally is on hold for a few days at least or possibly longer. I'm not sure why I'm always surprised that we can give back gains so quickly in the market and reverse all the upward momentum in a matter of days/weeks. All the warning signs were there: lots of new highs, universally bullish sentiment, cracks appearing (in the form of flash crashes), etc, etc means I need to be hyper-vigilant for signs of a reversal. The next question becomes how long is the reversal? Longer term I'm still bullish but we need to digest this correction. Funny too, commentators are blaming fears of a rate hike in China for sparking the correction. A brand new fear for the markets - nothing fundamental but that's what gets blamed today.

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Man Sues Company for Wrongful Dismissal as He is Being Hired

2010-11-11T08:24:00.002-05:00

How strange is our modern business world these days? I know a guy who was let go by a company and he sued for wrongful dismissal. He then finds a new job with a new blue chip firm and while he is in final round interviews the blue chip firm acquires his old firm. So in effect he has a wrongful dismissal case case going against the firm that is planning to hire him. Weird indeed!

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ABX vs. RY - part II

2010-11-10T14:26:00.001-05:00

As a follow up to the June 8, 2010 article, here is the updated scorecard on Barrick (ABX) vs. Royal Bank (RY) market cap:

ABX: $51b
RY: $77b

Another 50% to go for Barrick. Game on!

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Feeling Bullish

2010-11-05T13:18:00.001-04:00

feels so bullish these days. in fact, every time I start wanting to buy the market like this it usually means we're at a top. problem is, the markets have been climing the wall of worry for some time. fear is still rampant and doom and gloom abounds, not typically the stuff that crashes are made of. on the other hand, with over 250 new highs in Toronto yesterday and the straight up climb in the TSXV index (and even IBM shares) it makes me think we're due for a correction. quantitative easing (QE) is throwing things off. I predict we hit 16,000 on the TSX within 12-18 months, although we could see a major reversal before we get there. everyone is so bullish on copper these days it makes me think the opposite will happen. at least in the short term. longer term it's hard not to be bullish but when everyone plays the same side of the trade we all know how that turns out. inflation is not running rampant either, at least that's what the TIPs are telling us. people say that guys are selling the long end of the yield curve to buy mid range treasuries and I agree with that (judging by the recent twist in the yield curve). zinc is looking good ~2 years out. on one hand I feel like selling but all the stocks I'm playing look technically poised for a breakout, like the golds. we broke higher on the HUI and GDX, only to consolidate and now move higher? the cash flow generation potential of the producing gold co's is excellent. even oil is looking stronger. what will sink this market? one this is certain, we don't know what we don't know. something will come out of left field that will tank the market. it's even shrugging off the election results (US), bad housing numbers, you name it. one scenario no one is pricing in right now is a return to and breakthrough to the pre-2008 levels. and yet, there appears to be little resistance to get there. if that happens all bets are off. another negative is the market is having trouble digesting equity issues, and the equity issue market is good but not great (again, not the stuff that market tops are made of).

Update: Nov 8/10
347 new highs in Toronto today, that's the most I've ever seen since I started tracking this in '04. In fairness, the y/y comparisons are skewed because '09 was such a garbage year. But having said that, typically a major reversal follows such a universally bullish sentiment. Flash crashes abound as well, another negative sign (a la Spring 2010, and we know how that turned out). Net net, while I think we're closer to the top than the bottom, I think this market still has room to run on the upside.

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Feels like '02 again

2010-09-10T10:49:00.000-04:00

Interesting look at the charts this morning. the tsx venture exchange has had a good move lately but appears to be hitting resistance. much like end of '02 as the recovery took hold but people didn't believe and fear was still rampant. markets later broke out and staged the big '04 move after treading water for awhile. i think we could see something similar here. strong resistance on the gold charts for HUI and GDX, maybe we stay at these levels or below for awhile. US markets are at a crucial juncture as Dow and S&P are sitting right at the 200d; could go either way. GMP also in a nice wedge pattern, looks like it wants to move higher but everything depends on the next few weeks!

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Iphone 4 Review: First Impressions Good, but some Drawbacks

2010-08-20T08:05:00.004-04:00

I just picked up my Bell Canada Iphone 4 yesterday and although I haven’t had it for a full 24 hours, I put it through some rigorous testing last night and thought I’d jot down some of my first impressions. My first thoughts are this is one seriously cool phone but it has some drawbacks. I’ve summarized the pros and cons below.

The Good
Easy to use and set up, and lives up to the hype with all the features like camera, video, Ipod, music store, Apps, WiFi, etc etc.

The Bad
Doesn’t sync with MS Exchange Notes and Tasks, small screen & fonts hurt the eyes, lack of customization, lack of horizontal view and spellcheck in many apps, online music store is limited, no auto-on feature(?), ringtones are limited (and expensive to buy), no default calendar reminders (a minor point), surfing the web is tricky sometimes, no Adobe Flash, and of course typing on it will make you crazy!

(By the way, I should say that I ditched an old Blackberry for the Iphone, so I'm sure some of my experience is related to the switch of platforms. I would also consider myself an average “business” user. While this review may focus on the negatives, I haven't focused on the positives because these are well covered in the media and the phone delivers as advertised.)

Out of the box it is a really cool phone: very small and light, bright screen, and sleek lines. In fact I was surprised by how small the box itself was. The woman asked me in the store if I was excited, and I must confess yes, I was like a little kid at Christmas. It’s silly that one phone can generate this much hype but of course because the phone is so hard to get it makes it even cooler! (I have been trying since launch date in Canada and was on the waiting list for the last 2 weeks). Mostly it lives up to the hype and I was impressed how easy it is to use and setup. I was expecting that it would take me a few days to get it set up but it only took a few minutes and then I could actually get down to the business of using it.

My first disappointment came when I discovered that it won’t sync with MS Exchange Notes and Tasks, which is something I use frequently. I will need to develop a work around for this. Email, calendar and contact were a breeze to sync with MS Exchange server and our IT guys set this up quickly. Another small complaint I have is the default calendar reminders – when you set up an appointment on the iphone there is no option to allow a default reminder and you have to set one up as another step in making an appointment. Also, the minimum reminder is 5 minutes, where on Blackberry I often used the 0 minutes reminder for some appointments. There is also no "snooze" function on calendar reminders. Minor points but will take some getting used to.

Of course typing on the phone is a pain, but I don’t need to elaborate and people say it gets easier. It is especially difficult though through the setup because many WiFi keys and passwords can be quite long with upper and lower case letters and numbers and they must be typed in exactly or they won’t work. Once I got through that everything else was pretty easy. I went onto the Itunes store and made some purchases – it was easy and then later synced to my computer easily. Surfing the web is such a different experience on the Iphone over Blackberry. It was generally very good, although because the text is so small it makes reading tricky. When I blow up the web page by pinching the screen, it then requires scrolling back and forth, and in many cases I end up selecting the banner ads by mistake when I do this (which then opens up a new window.) I think that will get easier to use over time.

My biggest complaint is the small screen and fonts. After heavy use last night testing it, my eyes are really strained. I hope this gets better because I don’t want to keep the device if this continues. I should add that because I work for long hours in front of the computer my eyes are sensitive anyway, and anyone who has looked at home theatre equipment can appreciate when I say that DLP projectors also hurt my eyes.

No Adobe Flash is a pain also, as the sites where I watch TV all use Adobe Flash. This was no surprise, but it was still disappointing to get the pop up message from Adobe saying “Apple doesn’t support our technology”. Get it together people!

Lack of customization – maybe I’m just being picky, but on the Blackberry nearly everything is customizable, such as different ringers for different message types or volume levels, etc etc. The Iphone 4 is great because it is so simple and most of the pre-set settings are the ones you want, but sometimes I’d like to be able to customize things a little more. It will take some getting used to. (or maybe I’ll look into jailbreaking!)

The online music store is limited. This was especially apparent in the ringtones and TV sections. It was easy to find the Top Ten ringtones or TV shows, but then to scroll through categories was frustrating and in some cases brought up empty categories. It seems I will be surfing the music store on my PC and then syncing from there as the selection is much better.

This next point will make you think I’m stodgy. I wanted to pick a “normal” ringtone, but the only one available is the old style telephone ringer and I know many people in my office who use that already. Most of the ringtones are fun, but not really suitable for a business setting. Not to mention, $1.29 to buy a 10 second ringtone? I can buy a whole song for $0.99 - how do you spell profit?

Perhaps I’m nitpicking over some things, but the lack of horizontal typing and spellcheck in many apps is a pain. I’m not sure when I can use the horizontal screen and when I can’t, so I’m always rotating the device and waiting for the display to turn but sometimes it doesn’t. Because the typing is so tricky I wait for the auto-correct to kick in but many times it doesn't either. I'm sure that will improve over time.

Lastly, I should say that I set the alarm to go off this morning but the phone was off and so the alarm didn't go off. Maybe there is a way to turn it on with the phone off, but I couldn't find it. Blackberry allows you to set the auto on/off feature for the phone. I will keep playing around with this. At least you know with the Iphone there are enough online forums out there I'm sure I can't be the only one with these issues.

That's it in a nutshell as far as first impressions go, so hopefully this is helpful. Overall it's a great phone and I will probably keep it, although it does take some getting used to!

Keywords: iphone4 review, blackberry, iphone 4

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Agrium: Let's Go Buy Something

2010-08-16T08:30:00.000-04:00

(article originally posted on my seekingalpha.com blog)

The recent announcement that Agrium wants to buy AWB of Australia is a real head scratcher. Most people remember the never-ending takeover saga for CF Industries in 2009 where Agrium was ultimately unsuccessful. Management worked really hard to convince shareholders that Agrium had to be the "box" on North American nitrogen fertilizer and CF Industries was a "strategic" fit. Barely 12 months later, Agrium (arguably) overpays for an Australian grain handler in a market they don't know in a country they also don't know. Maybe I'm missing something here and yes AWB does have a strong network in Agri-products, but at first blush it appears AGU is more concerned with growth for the sake of growth (through acquisition) than executing on a well defined long-term strategy. The market will decide but I think I'd be inclined to hit the "sell" button until the dust settles on this one.

Disclosure: no positions

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Nature Sells

2010-08-16T04:21:00.000-04:00

from the Economist:
Discovery has been churning out shark programmes for 23 years. Yet ratings are sound. Nature sells. Indeed, it is one of the best businesses in media. Discovery Communications, which also owns Animal Planet, TLC and a few smaller channels, made a profit of $372m in the second quarter of this year. That is about as much as the film studios of Fox, Paramount and Warner Bros put together.

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Quote - Bad Bonds/Prices

2010-06-23T13:00:00.001-04:00

"There are no bad bonds, only bad prices."
-anon

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BP - Short Short

2010-06-18T15:36:00.003-04:00

Old news by now but I'm still negative on the prospects for BP. UK government has shown support now so I don't think it will go bankrupt but as a corporation there are some serious issues to work through. Not to mention the initial flow rate estimate of 1,000 bpd now looks like a joke against a current estimate of 60,000 bpd. For a company with oil as their main business we can conclude one of two things: (1) they are hopelessly incompetent and legitimately underestimated the initial flow rate, or (2) they knew the flow rate was higher and engaged in deceptive tactics to "cover it up" or obscure the truth, likely to minimize the legal liability. The truth does come out in the end, and BP has mud (oil) on its face. Transocean is another story (RIG-US) - old news as well but I wonder about their long term viability. At best, their market has been cut by a third to a half in the near term, at worst they will be tarred with the same brush and could face financial difficulties. I should have shorted both when the crisis was started!

Disclosure: no positions

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Barrick Gold vs. Royal Bank

2010-06-08T13:07:00.003-04:00

If we get into the kind of gold market I think we are going to be in, we could see a market cap faceoff between Royal Bank and Barrick Gold in my view. Current scores below:

RY: $74.4b
ABX: $45.8b

While not scientific, the top dog award on the TSX has been a good predictor of future poor returns, if we use Nortel and Potash Corp as two recent examples. Let the games begin!

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Quiet Times

2010-06-08T13:00:00.002-04:00

I haven't written much these days. In fact, not a single post in all of May. Why is that? Partly I haven't had time to watch the markets with this new job, also I have been keeping offline diaries as I have been working on some new trading models. I've been doing investment reading, and I think I'm nearing the end of my quest for investment knowledge. Not that I'm done learning, on the contrary, there is still much to learn. But after awhile all the investment books tend to blend together and repeat the same themes. Too much reading causes too much second guessing. Time to start doing. Like a golf swing, you can only tear apart your golf swing so many times and rebuild it. Sooner or later you need to quit rebuilding and make some money. Having said that, after doubling my account last year I'm up 33% for the year and sitting on nearly 90% cash (against a market that is negative for the year) so I think that life could be worse. Investing is beautiful in that you can sit and wait forever. There is no reason to HAVE to invest - only the self generated need to trade. Imagine standing at the plate in baseball and being able to wait for the perfect pitch. That's what I'll be doing. In the meantime, enjoy your summer!

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Oil Spill

2010-04-29T15:17:00.004-04:00

Wow did we ever screw this up. A beautiful area of our planet, the Louisiana wetlands, are going to be destroyed shortly. Massive loss of wildlife, fish, and natural vegetation. What a shame. All in the pursuit of oil. I'm as guilty as the next guy as I drive a car and I profit from trading in oil stocks. But I am ashamed today. Let's just hope for a speedy recovery to the area once the oil slick touches shore.

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The Internet Stock Craze

2010-04-23T12:36:00.002-04:00

Keywords: Internet bubble, stock mania, overvaluation, stock market excess

I was reminded this morning of a hot IPO in Canada during the peak of the Internet craze in Feb/March 2000. One firm took a company public at $11.00/share, intending to raise $10-15mm. Even before the deal was closed, the stock was over $20/share and the book had been upsized to $50mm! There was over $80mm in demand and accounts were screaming, "If you don't let me in this deal I will never ever do another deal with you again!" The deal was done and the money raised. Problem was, there was a four month hold on the stock. By the time the hold period came off the stock, the quote was around $8.00. The Internet meltdown was in full swing. The stock ultimately traded down to $1.80 even though there was about $3.00/share in cash. The firm was later purchased for just over $3.00/share. Insiders made money, as did the brokerage. Those were crazy times, and some money managers lost their jobs as a result of this IPO (and other crummy deals).

What is ironic about it all is that the craze of the day was young, energetic whiz-kid CEOs that the market adored. After this particular company went public, the 30-something CEO appeared on television. He talked a big game, used lots of buzzwords, but after the segment ended no one spoke. Everyone collectively and simultaneously realized they had been sucked into the hype. Not long after, the real stock price slide began.

Around the same time, a colleague of mine borrowed money to play the markets. He turned a $5,000 loan into over $750K, only give back nearly 2/3 of it. It was so crazy that you would put in an order to buy a stock and have no idea what price you would be filled at. Market orders were the only way to buy stock as the market was moving so fast. Even if you overpaid by a few dollars a share it didn't matter because the next day and the day after stocks just kept going up.

Even after the dispersion top and the blowoff, stocks rallied back in an attempt to reclaim the old highs. But they didn't make it, and then it was over. The window closed and then there were two kinds of companies: those who raised money and those who didn't. Sadly ironic was that mining companies were selling off mining properties as fast as they could to re-invent themselves as tech companies, only to buy back the properties at 10x the price a few years later. Everyone was so keen on the Internet revolution they forgot to ask how the revolution would run without raw materials. Thus enter the commodities rally of 2003!

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How to Lose a lot of Money - Part II

2010-04-23T12:31:00.004-04:00

The first article, titled "The Trap" talked about a perilous situation in small cap investing. As a follow up, see the chart below for Sprott Asset Management (SII.T). Initial Public Offering (IPO) was at $10. Current price: $3.80. Notice the initial fall, rally back to $10, then collapse to $3.50.

Of note is the downside momentum. Once the market turned sour there was no stopping that freight train. The only people who made money were the underwriters and the insiders as the offering was 100% secondary (ie. insiders cashing out vs. the company issuing new shares to fund IPO demand). Lesson learned. And a painful one at that!

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The Trap

2010-04-14T11:22:00.004-04:00

Here is a picture of how to lose a lot of money as a small cap investor. The following chart (stock name not important) shows a stock that has been drifting for some time and has consolidated in the $0.95 range. Then the stock starts to break out, trading up to $1.09. It looks like the rounded bottom pattern has played out and the stock is back on an upward move. To the contrary, within 4 trading days, the stock trades down to $0.70, a 35% downward correction. What is more painful is that on the way down, the stock appeared to find support at $0.81, only to fall by another 13% the following day! Once the stock trades down to $0.68 many investors will then decide that this has changed from a short term trade to a "long term hold". Investors in at higher levels (around $1.40) have seen a near 50% loss of capital. The unforgiving rule of percentages is that it takes a 100% gain to get back to even. Ask yourself if you would be a buyer of the stock at these levels. Sometimes it's better to cut losses and move on. As to why the stock fell, who knows: maybe a large aggressive seller or concerns about the business fundamentals? It's a painful experience and I have been there before (thankfully not this time). As to how to avoid it this is a tricky one. Maybe monitor for big moves and put the stock on high alert once this happens?

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Crash Cash

2010-04-06T07:56:00.003-04:00

"I sold in November '08 and I'm still sitting on cash."
-Name Withheld

This statement was made by a retiree who was proud of the move to cash. In hindsight, it was a good call for a few months, but robs the gains that could have been made from the bottom. Hindsight is 20/20. And if this is any indication, there are a lot of people out there like this, meaning the rally could keep going until it draws everyone back in, only to crash again.

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Breakingviews | Bond-buying frenzy

2010-04-06T07:55:00.001-04:00

Breakingviews | Bond-buying frenzy

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hedge fund managers

2010-04-01T09:44:00.001-04:00

http://www.nytimes.com/2010/04/01/business/01hedge.html?ref=business

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Nat gas - hurting

2010-03-30T12:45:00.001-04:00

nat gas really in the tank right now - as evidenced by the juniors... storage levels already trending up... not a pretty picture...

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Apple vs. Microsoft

2010-03-30T12:44:00.002-04:00

Apple market cap: $213b
Microsoft market cap: $260b

when will we see Apple take over MSFT???

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Debt Market: Warning Signs Ahead

2010-03-26T07:25:00.001-04:00

Strange things afoot in the US debt markets. Does not bode well for stocks. I'm not smart enough to know the significance of it all. Time will tell but proceed with caution in my view...

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Inflation Everywhere!

2010-03-24T06:52:00.001-04:00

I was shocked this morning when I bought a new monthly GO pass and was hit with over 3% inflation! At my barber too last time I got a haircut they shrugged their shoulders and passed on a 5% price increase. Minimum wage rate in Ontario escalates this month also, clearly these people don't know that deflation is the name of the game these days!

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Gold Pump and Dump?

2010-03-16T08:28:00.002-04:00

Interesting points this morning on gold. Together with other commentary on gold ETFs loading up I tend to agree that gold will not do as well in 2010 as it did in 2009.

Given that “hedge fund” and “highly secretive” are usually said in the same breath, don’t you get suspicious when so many of the top managers are so vocally out there about their gold investments? And when their positions are structured in a way that make them open to view? Paulson and Soros have huge positions in gold ETFs. We know that, because if you buy ETFs, they show up in your 13-F filing. Granted, with an equity investment you can’t help putting that information out into the market, but with an asset there are plenty of ways to take the position without signaling it.

That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.

source: http://www.businessinsider.com/secs-rick-bookstaber-hedge-funds-are-pumping-the-gold-bubble-and-luring-investors-off-the-cliff-2010-3

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Investment Process is Key

2010-03-11T11:38:00.006-05:00

from Financial Post, Jonathan Chevreu's review of James Montier's just-published The Little Book of Behavioural Investing.

Results of an investment process:

	Good Outcome	Bad Outcome
Good Process	Deserved Success	Bad Break
Bad Process	Dumb Luck	Poetic Justice

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Welcome to the New America

2010-03-10T08:56:00.000-05:00

from Business Insider:

The Mayor Of Detroit’s Radical Plan To Bulldoze One Quarter Of The City

Michael Snyder | Mar. 10, 2010, 6:28 AM | 684 | 8
Tags: Foreclosure, Recession, Depression, Housing Crisis

(This guest post previously appeared at the author's blog The Economic Collapse)
How do you save a city that is dramatically declining like Detroit? Well, for the mayor of Detroit the answer is simple - you bulldoze one-fourth of the city. Faced with a 300 million dollar budget deficit and a rapidly dwindling tax base, Detroit finds itself having to make some really hard choices.
During the glory days of the 1950s, Detroit was a booming metropolis of approximately 2 million people, but now young people have left in droves and the current population is less than a million. The true unemployment rate for those still living in Detroit is estimated to be somewhere around 45 to 50 percent, and poverty and desperation have become entrenched everywhere. In many areas of the city, only one or two houses remain occupied an an entire city block. In fact, some areas of Detroit have so many vacant, burned-out homes that they literally look like war zones. And yes, it is true that there are actually some houses in Detroit that you can actually buy for just one dollar. According to one recent estimate, Detroit has 33,500 empty houses and 91,000 vacant residential lots. So what can be done when an entire city experiences economic collapse?
Well, Detroit Mayor Dave Bing (pictured) believes that the answer is to downsize on a massive scale. Bing believes that Detroit simply cannot continue to pay for police patrols, fire protection and other essential services for areas that resemble ghost towns.
So his plan is to bulldoze approximately 10,000 houses and empty buildings over the next 3 years and direct new investment into stronger neighborhoods. In the areas that the city plans to bulldoze, the residents would be offered the opportunity to relocate to a better area. For buildings that have already been abandoned, the city could simply use tax foreclosure proceedings to reclaim them. Of course if there were some residents that did not want to move, eminent domain could be used to force them out.
So which areas would be bulldozed and which areas would be left standing?
Nobody knows yet, and those decisions could make a lot of people angry.
Also, the city of Detroit simply does not have the money to purchase land and relocate residents without federal assistance.
So there are problems.
But other smaller cities are already doing this kind of thing on a smaller scale.
The city of Youngstown, Ohio has been bulldozing a few hundred houses a year since 2005.
Flint, Michigan has already torn down approximately 1,100 houses mostly in outlying areas. The program in Flint was actually the brainchild of Dan Kildee, treasurer of Genesee County, which includes the city of Flint.
In Flint, no residents are forced out of their homes unwillingly. Instead, the city has been buying up houses in more affluent areas of Flint to offer to those in areas that the city wishes to bulldoze.
The program in Flint has been so successful that Mr. Kildee has been asked to help implement it in other cities that are in decline.
And there are a whole lot of U.S. cities that are in a serious state of decline - mostly in what is known as "the Rust Belt" of America. Because of reckless U.S. trade policies, the once great U.S. manufacturing base centered in the Rust Belt has been dismantled and those jobs simply are never going to come back.
So now cities like Detroit and Flint are faced with either dealing with the economics of decline or going bankrupt for good.
But the truth is that Detroit and Flint are just on the cutting edge of what is happening to America as a whole.
The U.S. is experiencing a very painful economic decline, and what is happening in Detroit and Flint could happen in your city very soon.
Are you ready?

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Out of Cash

2010-03-08T14:47:00.002-05:00

from Bloomberg:
Equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007 in a sign that gains for the Standard & Poor's 500 Index may slow. Cash dropped to 3.6% of assets from 5.7% in January 2009, leaving managers with $172 billion in the quickest decrease since 1991, Investment Company Institute data show. The last time stock managers held such a small proportion was September 2007, a month before the S&P 500 began a 57% drop, according to data compiled by Bloomberg. For Parnassus Investments and Janney Montgomery Scott LLC, depleted reserves is a sign returns will fall from last year, when the S&P 500 rose 23%, the most since 2003. Bulls say any pullback is a buying opportunity because investors have $3.17 trillion in money-market funds and may return to stocks after putting 16 times more money into bonds since last March. Investors are trying to gauge how much money is left to move shares after the S&P 500 surged 70 percent in the 10 months starting in March 2009, and then began an 8.1% slide on Jan. 19. The drop, which matches the average size of 117 "moderate corrections" tracked by Birinyi Associates Inc. since 1945, may herald a second phase of the bull market after last year's advance surpassed every rally since the 1930s.- Bloomberg News.

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Decision Time

2010-03-08T11:19:00.003-05:00

It's decision time in the markets - can we take out the old interim highs (on Toronto)? The magic number is 12,070 on Toronto vs. current 11,984. Decliners now outnumbering advancers favors a pullback. My call is sharp and swift if the pullback happens!

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Quote - Fundamentals

2010-03-04T07:06:00.003-05:00

"A known fundamental is a useless fundamental."
-Richard Dennis

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Nice Drill Hole on OGR!

2010-03-03T11:01:00.001-05:00

OGR-V.... sweet! Up 29% on the resumption of trading.

Disclosure: No positions

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The Only Way to Prove a Concept (from Canadian Tire)

2010-03-03T08:38:00.006-05:00

This is interesting - Canadian Tire says that food in stores as a concept is working, despite marketing surveys that show it wouldn't work. There is an important takeaway here, one that business owners have known for a long time that somehow got lost in MBA land along the way. The only true test of a concept is to put it in action, even though that takes money. Or as Jesse Livermore said:

"When I think I have found the solution I must prove I am right. I know of only one way to prove it; and that is, with my own money."

There is only one true way to test theories, and that is by putting up one's own money. You see, as an MBA we look for ways to reduce the risk - a marketing survey instead of actually putting a concept into action. But at the end of the day, a survey is just that: a theoretical question on whether or not people will be willing to part with their money. In actual practice, when people have to part with their money a different decision making process takes place. Kudos to Canadian Tire for having the cohones to test this out! (even though I personally don't plan to buy milk and eggs there in the near future!)

http://www.vancouversun.com/business/fp/Canadian+Tire+grocery+experiment+gains+converts/2602820/story.html

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Goldman Ups the Ante

2010-03-01T18:01:00.000-05:00

from Financial Times:

Goldman Sachs made at least $100m in net trading revenues on 131 days last year – equivalent to once every other trading day, according to a filing with the Securities and Exchange Commission on Monday.

Goldman managed the result even as it took greater trading risks in 2009 than in the previous year. Its daily “value at risk” (VAR) – the most that the bank estimates that its traders could lose on a given day – was $218m in 2009, up from $180m during the previous fiscal year, which closed in November 2008.

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Get Long the Market!

2010-03-01T07:17:00.003-05:00

Doom and gloom may be around the next corner but for now one needs to be long in the market (in Canada at least). Shanghai looking strong, back up above the 200d. Copper up, oil at $80, even TIPs are hanging in there. GMP back above the 200d although Canaccord is lagging now. Of course the world looks great this morning in Canada thanks to the BEST EVER SHOWING FOR GOLD MEDALS IN A WINTER OLYMPICS!! The off the charts GDP reading in Canada sure helped as well.

Next test is the old high, 12,000 on the TSX, 10,700 on the Dow. If we can't break that then get short with all you can. For now, we've got some near term upside for the longs!

Go Canada!

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Inflation: Not Likely in the Near Term

2010-02-26T08:51:00.000-05:00

This chart says it all:

And This chart:

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U.S. ‘Problem’ Banks Soar, Lending Drops, FDIC Says

2010-02-24T10:49:00.000-05:00

Check it out - this is not the stuff of which sustained recoveries are made...

http://www.businessweek.com/news/2010-02-23/u-s-problem-banks-soar-27-fund-deficit-widens-fdic-says.html

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National Ad Identity

2010-02-24T08:01:00.003-05:00

Is it just me or does anyone else have heartburn with the Olympic advertising to Canadians? I'm a proud Canadian and pro-capitalism, but being told by Coke (based in Atlanta) about our "national game of hockey" or MolsonCoors (based in Denver) about what it is to be Canadian just irks me. Yes I like the products, and yes I'm glad to showcase Canadian talent, but these two companies are about as Canadian as a New York taxicab... That's my two cents.

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Calm Before the Storm

2010-02-23T07:12:00.004-05:00

Is it just me or does it feel a bit like the calm before the storm? Markets could be tracing out a double top pattern, it seems half the prognosticators are predicting a continued recovery while the others are saying that the Euro-zone will drag us all down. I'm in the bearish camp for now until I see sustained evidence to the contrary.

As usual, Don Coxe proves entertaining as this month he coins the phrase "the multitudinous tiers of Brussels Snouts", in reference to the European bureaucrats. Well said.

Still working on my new prop trading model. Likely to be quiet here in the coming days/weeks.

Over and out.

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Double Top?

2010-02-19T15:50:00.002-05:00

I feel like chicken little waiting for the sky to fall, but I continue to be nervous on this market despite the ongoing upward move. We could be setting up for a double top which would make for good money on the short side. I haven't posted much lately as I'm working on a new trading system right now. More to follow.

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One Cool Car

2010-02-14T08:02:00.000-05:00

If you have $155K burning a hole in your pocket, check out the new Tesla...

http://www.nytimes.com/2010/02/07/automobiles/autoreviews/07tesla.html

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Trading is Hazardous to Your Wealth

2010-02-12T09:31:00.001-05:00

I finally found an article that cites the trading studies I had heard about, you can read it here. Some good insight:

http://www.travismorien.com/FAQ/trading/futradersuccess.htm

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Correction in the Works?

2010-02-12T08:40:00.007-05:00

Evidence is mounting that we are heading for a big correction, possibly in the coming days or weeks. A caveat of course is that this is a probabilistic scenario, so while not 100% it could be wrong. But ask yourself, what would you rather: 1) be in cash and miss a market rally or 2) be in cash when the market corrects by 10% or more? I would prefer the latter even it means missing a rally.

evidence:
-market is weak, with no follow through
-volume and breadth are weak
-trucking stats way down for january (see richard russell)
-shanghai hovering at the all important 200d
-china on holiday next week
-tightening in china
-canadian independent brokerage stocks breaking down (see prior posts)
-ongoing fears of PIGS countries
-euro freefall
-debt/deficit worries around the world
-deadlock in d.c.
-market sentiment at lowest level since march 09 (which could signal a contrarian rally indicator, although as always it could go lower) see: http://www.businessinsider.com/bullish-sentiment-plummets-to-levels-not-seen-since-march-09-2010-2
-there are eerie similarities to the market pattern in 1987 just prior to the crash (see: http://www.businessinsider.com/beware-a-trojan-horse-rally-like-the-one-we-saw-before-1987-2010-2
-elliott wave structure indicating an imminent correction (yes i suppose i'm a closet EWT fan)
-housing, commercial real estate, consumer all remain weak
-other indicators

as always, i hope i'm wrong but i also like to preserve capital and will trade accordingly.

Update: Feb 17/10
more negative indicators:
-government bond issuance down 90% last week
-The Markit iTraxx Crossover index measuring yields on lower-grade debt has jumped by almost 130 basis points since mid-January to 514, while the main index of investment grade bonds has jumped by a third to 93. "This is the biggest move since the financial crisis in early 2009, said Gavan Nolan, Markit's credit analyst.

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Economists' Forecast Accuracy

2010-02-12T08:34:00.005-05:00

Get yourself a copy of the May 09 issue of The Elliott Wave Theorist (EWT) for a brilliant discussion on economists' forecast accuracy. It contains these gems:

"Economists generally stay bullish on the macro economy. In most environments, this is an excellent career tactic. The economy expands most of the time, so economists can claim they are right, say, 80 percent of the time, while missing every turn toward recession and depression."

and uses this analogy:

"Suppose you eat at an outdoor cafe daily, but it happens that on average once every 100 days a terrorist will drive by and shoot all the customers. The economist has no tools to predict these occurrences, so he simply stays bullish and tells you to keep lunching there. He's right 99 percent of the time. He is wrong only 1 percent of the time. In that one instance, you are dead."

from: www.elliottwave.com

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Investor Sentiment at March 09 Lows

2010-02-11T16:39:00.001-05:00

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The Dumbest Thing Ever

2010-02-10T08:24:00.002-05:00

Back in 2003 I attended an investment luncheon and sat next to a representative from one of Canada's large "blue chip" investment firms. The markets had just been through some tough years with the dot-com meltdown and we were talking about investment returns. He professed to me that their office had adopted an absolute return strategy, as if this idea was the greatest bit of new thinking since the invention of the electric toaster. He went on to say, "If you're a single mother in Red Deer (Alberta) trying to put your child through school with your investment savings, you don't care that the mutual fund you hold was a top quartile performer if the fund still lost 20% while the benchmark index lost 30%. All you care about are positive returns at the end of the day."

Duh, yeah.

A multi-billion dollar fund company had just figured out that investors are concerned with making money through good markets AND bad.

Hands down that still stands as one of the dumbest things I've ever heard anyone in our industry say. Sadly we are reminded of this not five years later after the carnage of 2008. We once again learn the lesson that a -60% return applies to ALL funds invested, including prior years' gains, losses and contributions. The sooner our industry moves to absolute return strategies the better for everyone.

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Sobering Chart

2010-02-09T14:50:00.003-05:00

from Gary Schilling:

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Global warming; Email overload

2010-02-09T14:38:00.003-05:00

miscellaneous points:

There is $28 trillion in real estate/infrastructure at risk from a half meter rise in sea level.
-Bloomberg magazine (March 2010)

These days, 2.3 seconds seems to be the average time between sending out an email and getting a response.
www.freddestin.com/blog/2010/02/in-search-of-stillness-or-why-personal-high-availability-is-a-generally-a-bug.html

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Quote - black swans

2010-02-09T14:34:00.004-05:00

"The only black swans are the history that we have not read."
-a modern interpretation of a Harry Truman quote (by William Bernstein)

or this:
"Financial markets are plagued not by “black swans”—seemingly inconceivable events that come up very occasionally—but by vicious snow-white swans that come along a lot more often than expected."
-the Economist

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Westland Meat Packing

2010-02-07T08:39:00.000-05:00

"…a recent investigation of Hallmark/Westland Meat packing Company, once rated as a supplier of the year for school cafeterias in the United States. A rule of thumb in meat processing plants is that only “standers” can go into the meat supply. That is, if a cow cannot stand up, it is probably diseased and should be euthanized, not processed. But because of an incentive program in the company, employees had developed a rather liberal definition of what constitutes a stander. In this case, it appears that employees had decided that if they could prop a cow up with a forklift or shock it into standing up, it was a stander."

from Marianne Jennings, Of Candor and Conflicts: What Were We Thinking?

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It's All Over

2010-02-05T13:08:00.003-05:00

The breakdown in Canaccord Financial (CF.T) does not bode well for the Canadian markets, and granted the take-over chatter about Genuity is probably not helping things much. However today's decisive break below the 200d (intraday, we need wait for the close) signals the worst is yet to come. GMP (GMP.T) is also hovering on the 200d, a break lower would be another bearish sign. See my prior posts on Shanghai, all signs point that we are standing on the precipice - the next few trading days will be crucial to determine direction.

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Shanghai due to Bounce?

2010-02-05T08:31:00.003-05:00

With all eyes on the jobless numbers today it's hard not to get caught up in the daily ups and downs. We are at a pivotal point right now so we have no choice but to look for direction in the daily tea leaves. Given Shanhai's leadership position of recent months, I tend to think it is as good an indicator as any, particularly for the future of the Canadian resource markets. Thus the pattern shaping up, indicating oversold conditions, possible reversal to the upside but struggling to get back over the 200d will (in my humble opinion) dictate the future direction of the equity markets. Trade accordingly.

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How Low Can We Go? (or Inflation vs. Deflation - cont'd)

2010-02-04T08:56:00.001-05:00

Amazing how the optimism of only a few weeks ago has turned into outright pessimism - North American stocks are breaking down, brokerage firm stocks in Canada are breaking down, Shanghai has broken below the 200d average (although rallied back in recent days), and everyone is now re-evaluating pricing metrics and discovering that stocks are overpriced relative to the likely future of earnings growth. As the market does, stocks are being repriced in a rapid fashion, begging the question "How low will we go?". Will this be a routine mini-correction on the road to sustained recovery, or the beginnings of another rout that will test the '09 lows and make fresh new lows? And more importantly, will the inflation or deflation camp win and what will be the effect on stock prices (ie. the Beta of the equation?)

This blog has spelled out some of the arguments favoring inflation or deflation. I have presented a summary here. At present I am probably biased towards deflation but I am hedging my bets. Also I fear for the future of our economy and industry if the deflation camp wins.

In favor of inflation:
-governments around the world want to stimulate inflation as it is a known enemy; inflation increases asset prices (ie. homes) and reduces the value of debts (ie. mortgages), making voters happy
-monetary policy is a blunt tool and has to overshoot to ensure effectiveness (ie. policy makers want to ensure that inflation is firmly entrenched before withdrawing liquidity from the system); in an effort to stimulate inflation we could/will see a hyperinflation scenario, where governments have pushed too far, causing a huge jump in interest rates - this would spread enormous pain to homeowners (the middle class) who are over-extended on debt
-the massive liquidity and the (mistaken) rush by pension funds and money managers to diversify from traditional asset classes has found its way into the (publicly traded) commodities markets; given the relatively small size it takes very little new money to push prices up
-new commodities money pushes prices up across the futures curve
-as a result of rising spot and futures prices, traditional supply/demand and pinch point charts don't work as well as they once did - futures markets are telegraphing the wrong signal to producers; thus producers have responded by increasing supply (as noted by rising inventories of copper, corn, wheat, soy, oil, etc) and prices remain above historical levels
-BRIC countries have real demand that will resume, notwithstanding the great recession meltdown and related ongoing aftershocks
-thus far market participants fear inflation more than deflation, judging by the prices on gold, TIPS, oil futures, etc
-Feb 11, 2010-Morgan Stanley lays out an interesting case for governments inflating their way out of debt, Morgan Stanley, The Return of Debtflation, Joachim Fels, 10 Feb 2010

In favor of deflation:
-in my uninformed economic opinion, wage inflation is the only real cause of "bad" inflation
-we don't have any worry about wage inflation for some time, given the spare capacity in the economy
-deflation remains a risk, as people use any new money they come in contact with to retire debt
-governments will be reluctant to commit more funds to stimulus programs as the eye-popping deficit and debt numbers hit home- the trend will turn to deficit and debt reduction
-trend can be self-reinforcing - a sustained bout of falling prices could trigger spending reductions and increase the deflationary risk (note: the inverse is also true)
-years of overspending and debt pile-up have pushed the Debt-to-GDP ratio to unsustainable levels- historical experience dictates that the only way out of this predicament is to increase the denominator (GDP; unlikely given long term growth rates of 1-3% and structural limitations in developed countries that prevent much faster growth) or shrink the numerator (Debt; slow and steady as she goes repayment)
-Robert Prechter lays out a very detailed case for deflation; given his track record of success this is not to be ignored
-another astute contrarian, Eric Sprott also lays out a case for deflation and future bank failures, the difference with Prechter being Sprott is very bullish on gold
-4.5 million homeowners in the US have a home value at 75% of the mortgage value, which is the inflection point where they consider walking even if they can make the payments- this could trigger a self-reinforcing trend where defaults trigger fallling prices trigger more defaults etc
-the loss of a gold-backed currency regime (and the rise of a banking system that extends nearly all bank deposits out in the form of loans, thus causing people to think they have more money in the bank than they actually do)- this raises the risk for bank failures or "bank runs"
-the market's optimistic view, or long term positive bias-few people truly believe in deflation thus making the market vulnerable to downside surprises
-the Japanese experience-we know what happened in Japan when asset prices deflated-this was a real success story, and a developed economy, the 2nd biggest in the world with the same body of economic data to draw upon, and they were unable to avoid deflation; why should the US be any different?

Or a third scenario, stagflation
-US and China in a spat right now over mutliple issues-if it escalates into a full out trade war and China stops buying treasuries, rates will skyrocket, choking off the economy

Finally, I would say that the market will know long before most participants, therefore like most people watching the market will give the proper clues, although the rush for the exit will become very crowded. In hindsight it will be so clear that we will want to hit ourselves in the head for not seeing it.

What is your view? Please leave a constructive comment to share your thoughts. (Note comments such as "you are stupid" or "I disagree" offer little insight. Please state why or cite evidence. Thank you)

Disclosure: no positions

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The Tug of War Continues

2010-02-03T12:55:00.004-05:00

Shanghai rallied big today, back to the 200d (see pic). This market is struggling to find its footing, with so much negative news on the horizon and yet markets seem oversold and are trying to stage a comeback. Guess we'll have to stay tuned to see how this plays out...

I had a look at the TMX stock chart today (X.T - the actual group that runs the Toronto Stock Exchange). Talk about a technical behavior pattern. Following the collapse through the 200d in November 09 it rallied back to the 200d but couldn't hold and has been in free-fall ever since. I guess the new listings are down and competition is coming hard from all sides, that has to hurt...

Lastly ROB reporting the Canaccord could buy Genuity. I don't see that happening but I hope it does - we could use a little less competition among the independents and 1+1 only equals about 1.5 in my view. Bring it on!

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Headwinds

2010-02-03T09:26:00.005-05:00

This is nothing new, but NYT put together a good article today on homeowners walking away from their mortgages even though they could pay. 4.5 million homeowners have a home worth less than 75% of the mortgage balance. These are some serious headwinds to overcome for the US economy...

NYT Article: No Help in Sight, More Homeowners Walk Away

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Hitting the Nail on the Head

2010-01-29T08:40:00.001-05:00

Article in WSJ this morning hits the nail on the head. The money flow into commodities is playing havoc with prices as producers attempt to manage supply in response to market signals. That money though is fickle, triggering higher volatility. Some excerpts:

Matthew Maloney, a corn trader with R.J. O'Brien & Associates, who called the reaction to the Jan. 12 crop report "one of the most dramatic changes of fortune" he has seen in 19 years on the trading floor.

Takai, general manager of financial services at Sumitomo Corp., said the amount of money wagered on commodities has risen sharply in the past decade and likely will keep climbing.

The number of open contracts to buy or sell copper has dropped by more than 7% since the end of last year, according to the Commodity Futures Trading Commission.

"The high prices of a year ago are still having their effect," [Dan Basse of AgResource] said. "The market does its job."

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Shanghai breaking down

2010-01-27T11:52:00.002-05:00

That all important indicator, Shanghai is breaking down, sitting on the 200 day moving average. A decisive break lower would be very bearish. Although markets look oversold in the short term, I will be selling into strength if we get a bounce...

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Depressing...

2010-01-26T16:18:00.002-05:00

now this is depressing!

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All is Not Well in the World

2010-01-26T12:38:00.003-05:00

Look no further than this tidbit to see that all is not well in the world. Key takeaway: investors don't trust GMAC (or GM for that matter). Or at least not at the price of this deal. Which means that the Canadian government is effectively giving an interest rate subsidy to GM, knowing that businesses will always take the low cost route. Why the auto industry has adopted this "protected status" is another issue. Let's just hope these assets don't implode on BDC's balance sheet.

the Business Development Bank of Canada, an entity owned by the federal government, completed the purchase of $1.263-billion in auto loan receivables-backed notes from GMAC Canada under the so-called Canadian Secured Credit Facility (CSCF) program. That $12-billion program, which is slated to close at the end of March, was set up last year by the federal government in response to the global financial crisis and the resulting drying up of liquidity. The BDC, which is the administrative agent under the CSCF, was the sole buyer of the securities, which yielded 2.716% and whose so-called final scheduled distribution date is May 2016. This deal is the second by BDC.

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Great Site

2010-01-26T07:03:00.001-05:00

I'm a little late on this one admittedly, but here is a great site:

www.BusinessInsider.com

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Correction Day

2010-01-21T14:46:00.002-05:00

Correction day in full swing, what more to say? Great piece in Business Week today:

http://www.businessweek.com/news/2010-01-21/options-traders-boost-bets-vix-will-jump-74-as-stocks-retreat.html

My call is a near term relief rally, followed by continued selling pressure. (see image - technicals indicate market is moving into near-term oversold territory but medium term is still bearish) My internal target on TSX is 10,000. Sell into strength, is my view.

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Commodities - the place to be?

2010-01-20T09:22:00.003-05:00

Dan Basse, President of AgResource, noted recently that close to $250 billion has been invested in the commodity market.

From Report on Business:
Barclays Capital figures show commodity investments in passive, long-only commodities funds increased by $93-billion last year [2009] to $255-billion with $67-billion in fresh inflows hitting the market. Fund managers estimate that inflows this year will match or even exceed 2009.

“Three years ago, people were thinking of about 3 per cent allocations for commodities,” said Douglas Hepworth, director of research at Gresham Investment Management, which saw its assets in commodities more than double to $7.5-billion last year. “Now, what I am seeing is people starting at 5 (per cent).”

Kevin Baum, a fund manager at Oppenheimer's Commodities Strategy Total Return Fund, sees the trend accelerating. “I wouldn't be surprised longer term to see those allocations move even higher still,” Mr. Baum said. “For the moment, 5-10 per cent is definitely becoming more common.”

These figures comes as no surprise to people following the commodity markets. In the last 18 months, copper has gone from a low of $1.30 to $3.40 a pound. (this trend is especially remarkable as inventories on both LME and Shanghai are INCREASING, causing a breakdown in the traditional inverse relationship) Oil from $30 to $80 a barrel. Gold from $720 to $1100 per ounce. Etc, etc.

The argument that commodities move counter-cyclically to the equity markets is debatable however as correlations are increasing with many of the same players straddling both markets. They do provide a decent hedge against inflation though, and if one believes that inflation is a threat then commodities are a natural choice.

The financial evidence however is indisputable. The sheer money flow is driving up prices across the curve. If this trend continues commodity prices will continue to be supported into the future. (and related equities)

Having said all this I do think we're in for a short term correction though. Longer term though it's hard not to be bullish, unless of course deflation rears its ugly head.

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Community service

2010-01-19T17:11:00.001-05:00

The equivalent of community service from Morgan Stanley for its role in the sub-prime meltdown:

Morgan Stanley Launches $110 Million Commitment for Affordable Housing With National Equity Fund

Disclosure: no position

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Digging Out of Debt (from Economist)

2010-01-18T08:54:00.004-05:00

The Economist says it best:

The rich world’s debt reduction has barely begun:

http://www.economist.com/businessfinance/economicsfocus/displaystory.cfm?story_id=15269334

The only thing I could add is that according to Soros, in 1929 total credit was 160% of GDP, peaking at 260% in 1932. Ouch.

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Quotes - Don Coxe

2010-01-17T09:42:00.001-05:00

Don Coxe is always entertaining, and his December note proved no exception. It offered these gems:

The cash the Fed created to save [the banks] from the consequences of their own folly sits as T-bills or fed funds on their balance sheets, providing little more stimulus to the real economy than sending out daily re-broadcasts of Jimmy Carter speeches on economic malaise."

There are three considerations in global equity investing: the first is currency, the second is currency, the third is, what makes this an attractive company?"

Some years ago, Washington's National Press Club ran a contest for a newspaper headline that would attract the least readership. The hands-down winner: "Interesting new policy proposals from Canada."

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Quotable - Boom-Bust

2010-01-17T06:41:00.001-05:00

"In every boom-bust sequence people come to believe that the normal rules do not apply, but they usually do."
-George Soros

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Goldman vs. Morgan

2010-01-14T08:04:00.000-05:00

Goldman (GS) and Morgan Stanley (MS) both scheduled to report earnings on Jan 21. Looks like a case of someone trying to "one-up" the other!

Disclosure: no position

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We've seen this movie before - (from Soros)

2010-01-13T08:51:00.003-05:00

Continuing with the theme that we haven't learned anything from history (of public markets, that is), I came across these writings by George Soros in the "Alchemy of Finance". This was written in the mid 1980s in response to the international lending crisis, but we could almost substitute the word "sub-prime" for every instance of "international lending". I wish I had read this in early 2007! (Note I have re-ordered the text and made some minor deletions/changes [in brackets] for ease of readability.)

On the credit cycle:
It is only net new lending that stimulates, and total new lending has to keep rising in order to keep net new lending stable.

The process continues until a point is reached where total credit cannot increase fast enough to continue stimulating the economy. By that time, collateral values have become greatly dependent on the stimulative effect of new lending and, as new lending fails to accelerate, collateral values begin to decline.

Eventually, the realization that the trend is unsound and unsustainable comes crashing in. The prophecy is self-fulfilling and the trend is reversed, often with catastrophic consequences. ... the boom is drawn out and acelerates gradually; the bust is sudden and often catastrophic.

On International Lending:
... international lending was too profitable to leave much room for caution. Business could be transacted on a large scale, the risk of adverse interest rate movements could be minimized by the use of floating rates, and administrative costs were much lower than in the case of corporate loans. Fierce competition kept spreads between borrowing and lending rates quite narrow; nevertheless, international lending became one of the easiest and most profitable forms of banking activity, attracting many banks with no previous experience in the field. ...more than a quarter of Citicorp's earnings came from Brazil. ...international lending became the fastest growing sector of the banking industry. Naturally, if banks had set up reserves that would have been appropriate in light of the subsequent experience, the business would not have been as profitable as it seemed at the time.

Banks were so anxious to obtain business that they asked very few questions. It is amazing how little information borrowing countries had to supply in order to obtain loans. Lending banks did not even know how much money the countries in question were borrowing elsewhere.

International lending grew so rapidly that the banks involved became overextended: their capital and reserves could not keep pace with the growth of their balance sheets.

The larger banks typically leveraged their equity 14 to 16 times, with the Bank of America running as high as 20 times. ...many banks had reached the point where they were pushing against the limits of what was considered prudent leverage by the standards of the time. If they wanted to continue growing they would need to raise additional equity capital.

On the reasons for the international lending boom and regulators response to it:
Why the commercial banks were willing and able to sustain such explosive growth in their international loan portfolios is a fascinating question that will be hotly debated for years to come. Part of the answer is that banks did not consider themselves responsible for the soundness of the system. Banking is an intensely competitive business, which is, however, subject to regulation. It is the job of the central banks to prevent excesses. Commercial banks operate under a protective umbrella; they seek to maximize their profits within the framework of existing regulations and they cannot afford to pay too much attention to the systemic effects of their activities. A commercial banker who refuses to go after what seems like profitable business is liable to be pushed to the side, and even if a bank decided to abstain there are many others anxious to take its place. Thus, even those who realized that the international lending boom was unsound found themselves obliged to participate or lose their places.

There is an important lesson here: participants are not in a position to prevent a boom from developing even if they recognize that it is bound to lead to a bust. That is true of all boom/bust sequences. Abstaining altogether is neither possible nor advisable. The best a participant can do is to cease to be a participant at the right time.

The history of central banking is a history of crises followed by institutional reform. It is truly surprising that the lessons of the international debt crisis have still not been learned. The champions of unregulated competition are more vocal, and more influential, than ever. ...regulations are generally designed to prevent the last mishap, not the next one.

Why did the [regulators] fail to [regulate international lending?] ... Had the [US regulators] imposed regulatory restrictions [on US banks], the banks under their supervision would have lost business to [foreign banks].

Thoughts for the future:
Monetarism holds that inflation is a function of money and not of credit. If monetarism is valid, the growth of money supply needs to be regulated, not the growth of credit.

...I can point to the empirical evidence that shows that the money supply always fails to behave in accordance with regulators' wishes.

Economic activity takes place in the "real" economy, while the extension and repayment of credit occur in the "financial" economy.

the Collective system is held together only by the threat of breakdown.
-George Soros

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Tough day for the Ag complex

2010-01-12T11:14:00.001-05:00

Corn limit down, soy, wheat all getting hammered with the USDA WASDE release this morning. Tough day for the softs!

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Orion Flyin'

2010-01-12T11:12:00.001-05:00

Orion oil & gas (OIP-T), up another 56% today on the 2nd day of trading! yikes!

Disclosure: no position

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Conflicting Signals

2010-01-12T09:41:00.001-05:00

There is a divergence taking shape right now in the Canadian markets. Looking at two bellwether brokerage stocks for the resource-heavy Canadian market, Canaccord Financial (CF.T) and GMP (GMP.T), they are both rolling over and could soon test their 200 day moving averages. What is notable about this trend is that these stocks both correctly predicted the market bottom in Q1 2009. They touched their lows in early December '08, while the TSX bottomed several months later in March 2009. They triggered a buy signal (on the weekly MACD) at the end of December 2008/early January 2009. By March '09 GMP was up 59% from the lows, and Canaccord was up 40%, as they ultimately rose ~380% (GMP) and ~250% (CF) to their highs. I know I for one did not believe the buy signal in late 2008 was for real, and yet with the benefit of hindsight this signal proved to be entirely accurate.

What is conflicting about the current weakness in the brokerage stocks is that the TSX and TSX-V are hitting new highs in recent days, and both oil (WTI) and gold futures curves are shifting higher in recent weeks. The global shipping index (a proxy for the world economy, along with oil) is also looking very healthy (SEA-US), as is the regional bank index (KRE-US), a proxy for US economic activity. One of these indicators is wrong: either a commodity related pullback is coming (with negative implications for the Canadian equity markets), or the boom-times will continue and CF and GMP should move higher. I tend to believe the former.

Disclosure: no positions.

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Bold Call

2010-01-11T16:15:00.002-05:00

We all know that trying to predict the markets is mostly a futile exercise. Investment pros have been humbled in the past 18 months as they missed the fall and/or missed the rally. It seems everywhere one looks these days there are forecasts of impending doom, those who are waiting for the fall before buying into the markets. These people are stuck in a bad place however. Whether the market is going to fall or not is not the big issue right now, what is the issue is that commodities are rallying. Big time. The TSX is over 12,000 again, and the Dow is over 10,600. So long as commodity prices stay strong, Canadian markets continue to rally. The market is saying that it doesn't care so much about the economic forecast as about the here and now. The here and now is that commodity prices are strong and Canada's resource heavy index is responding accordingly. UP.

Against this backdrop, I would add that as we stand here today we don't know what we don't know. Inevitably some element will crop up that will sink the markets, that will change the prevailing optimism to pessimism, but as of today we don't know what that will be. Many people are looking for the doom and gloom within the debris of the credit crisis, and I would say that this is the wrong approach. And here is my bold call, interest rates will be what sinks this market. Many could criticize this statement for its lack of originality and its overly simplistic view. But let's face it, with interest rates at 1% or less, there is little incentive to buy bonds. Stock ETFs return over 1.5% in dividends alone in most cases, plus the upside potential for capital gains. Until this situation changes, stocks are a seemingly better bet. At 4-5% bond returns the situation starts to change. At this point we will need to consider bonds again. North of 5% (say 8-10% rates), stocks will have a very hard time making new highs as the risk/return trade-off will be highly questionable. (not to mention that the NPV effect of higher discount rates could sink stocks at the same time, and/or make borrowing more attractive for its tax deductibility). Debt's time will come, largely at the expense of equities.

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Quotes

2010-01-08T14:51:00.000-05:00

"As we make our way in the world our sense of self evolves. The relationship between what we think we are and what we are in reality is the key to happiness - in other words, it provides the subjective meaning of life."
-George Soros

"Mothers may still want their favorite sons to grow up to be President [...] but they do not want them to become politicians in the process."
-John F. Kennedy

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Lack of Conviction

2010-01-08T14:43:00.002-05:00

I don't have strong conviction lately, thus I've been keeping a low profile. Trading some stock specific issues, sitting on cash, waiting for opportunity. That's not to say that money is not being made out there, on the contrary, lots of new highs in Toronto every day. VIX index continues to decline, small cap juniors continue to rally. It feels like we are setting up for a big correction but so far it hasn't happened and the short side of the trade is a painful place to be. Soon enough I think we will have our conviction. Maybe some leadership from the Agriculture complex? (new highs on Agrium today.) When in doubt, wait it out. And that's what I'll be doing...

Disclosure: no positions.

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Berens

2010-01-04T08:49:00.000-05:00

Petrobakken buying Berens Energy (BEN.T) for $2.70/sh cash - good for the longs!

Disclosure: no position (regretfully!)

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Quote - Changing World

2010-01-02T08:43:00.001-05:00

"The world moves so quickly it's hard to keep pace with the times."
-David Sarnoff, President of RCA made this statement to the NY Times in 1929.

Some things never change (or the pace of human innovation never ceases)

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Crocs anyone?

2009-12-24T13:32:00.002-05:00

Clearly more work is needed but a friend forwarded this to me today.(From the Crocs (CROX-US) quarterly)

As the Company continues to re-evaluate its operating plans for 2009 and beyond, it has undertaken certain restructuring and right-sizing activities to address the potential for continued decreases in revenues. The Company's ability to continue as a going concern is dependent upon achieving a cost structure which supports the levels of revenues the Company is able to achieve. There can be no assurance that any actions taken by the Company will result in a return to profitability. As discussed in the previous paragraphs, the Company faces various uncertainties that raise substantial doubt about its ability to continue as a going concern.

I don't know the company but I do know the product and I can say that as with nearly all fashion, things come and go. Judging by the pounding this stock took it seems the market agrees and and now they are having trouble getting up off the mat, maybe a good short candidate. The stock behaves very well technically also, which makes sense if the momentum guys are on board. Maybe short with a stop just above the 50d average, and hope for a slide when Christmas sales disappoint. Life is tough when you are a one trick pony!

Disclosure: no positions

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Ahhhh, the holidays

2009-12-24T13:31:00.000-05:00

Ahhh the holidays. It strikes me that people are too complacent heading into the new year. Or in monetary terms, the pricing of risk is wrong as valuations are too high to justify the risk of a stock market decline. Why not take some money off the table in the hopes of buying it back more cheaply next year?

I'm working on some other "thought pieces" and will publish more soon. In the meantime, have a safe and happy holiday!

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Glass-Steagall, Act II?

2009-12-17T10:36:00.005-05:00

This is a little uncanny. I wrote on Dec 15 that perhaps we should consider splitting banks and brokerages. This headline appeared today:

Senators propose reinstatement of Glass-Steagall Act


Source: CNBC

U.S. Sens. John McCain, R-Ariz., and Maria Cantwell, D-Wash., proposed reinstating the Depression-era act that forced banks to split investment- and commercial-banking operations. "Under our proposal, 'too big to fail' banks would be forced to return to the business of conventional banking, leaving the task of risk-taking or management to others," McCain said. John Douglas, former general counsel of the Federal Deposit Insurance Corp., said "trying to split them up is crazy." CNBC (16 Dec.) , San Francisco Chronicle/The Associated Press (16 Dec.) , The Wall Street Journal (16 Dec.) , Bloomberg (16 Dec.)

Granted it's not the first time this issue has come up. And more importantly, how does one make money on this concept?

Junior golds are having a correction today after yesterday's spectacular run-up. Hopefully it's nothing more than pre-Christmas jitters or end of year blues.

More to follow...

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High VOLTAge!

2009-12-16T09:56:00.001-05:00

nothing like good results in a hot gold market! Volta (VTR.T) is on a tear - I don't like Africa but this might make me change my mind!

-Volta intersects 136m @ 1.66g/t on the KMZ Zone at Kiaka Projecdt in Burkina Faso

Disclosure: no position

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Rainy Day!

2009-12-16T09:43:00.002-05:00

Nice results from Rainy River (RR.V) too, market likes it!

Rainy River Resources Ltd. (TSX VENTURE:RR) (the "Company" or "Rainy") announces continued success in the 11 latest holes drilled at its Rainy River project located in the southwest corner of northern Ontario. Significant results from the ODM17 Zone include 48 metres grading 4.29 g/t gold in Hole NR09-406 (including 10.5 m of 16.73 g/t). This hole also indicated a continuation down plunge of the 433 Zone, intersecting 25.5 metres of 6.04 g/t gold 260 metres below an intersection of 18.0 metres of 7.61 g/t gold (including 10.5 metres of 12.59 g/t) in Hole NR08-250 reported May 27th 2008. In addition, the Company has made a potential new discovery 100 metres stratigraphically above the 433 Zone where hole NR09-408 intersected 1.5 metres of 122.3 g/t gold.

Disclosure: no position

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Farallon is On!

2009-12-16T09:34:00.001-05:00

At first glance, drill results from Farallon (FAN-T) look compelling and market is liking it:

5 m of 36% zinc, 2.9% copper & 13 m of 20 grams of gold/tonne in the North zone

Disclosure: no position

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Miscellaneous Musings

2009-12-15T07:23:00.002-05:00

I think it's brilliant that banks are paying back the TARP funds. As a bank operator, it's not hard to see why. So long as the government is involved, no one is going to earn excessive salary and bonus. And as one astute industry commentator put it, "No one goes to Wall Street to save the world". In other words, the money is everything, and without the ability to pay big dough to performers, the bank would be confined to a lifetime of mediocrity. Also, that is the way the system was supposed to work. The government stepped in as a lender of last resort, and now that the private sector is willing take over those obligations the government should move as quickly as possible in the other direction. The bigger question remains long term about what to do with the banks. Having entities that are too big to fail is an ongoing systemic risk and (I can't believe I'm about to say this) perhaps we should consider breaking up these entities? Maybe combined banking and brokerage ownership wasn't such a good idea after all? However let's move on.

Claude Resources raises $10M with RBC - a positive indicator on risk appetite for the juniors and for golds, but begs the question what RBC is doing wasting time on a $10M financing? Must be tough times at the big banks? Good call by Claude though, when it comes to raising money and someone is passing the cookie tray, take the cookies.

Lots of new highs in Canada yesterday, a sign that people continue to be optimistic despite the "impending doom" of a Canadian housing market crash (depending on who you listen to). One stands out among these, AlarmForce Industries (AF), granted it's on small volume. I don't know anything about the company other than the ads on the radio, but let me see if I understand the thesis here. People are feeling more affluent as the Great Recession fades therefore they will be more inclined to sign up for monthly alarm services right? Seems like an indicator of a market top to me, but then again I've been wrong before! I think most people are waiting to see what Santa brings for the New Year. Happy trading.

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Dubai, CAD$, Nat Gas and More...

2009-12-14T08:58:00.005-05:00

Looks like Abu Dhabi will rescue Dubai after all. This is one of those rare moments when I allow myself the intrinsic satisfaction of knowing that I was right. Did I make any money on this development? Sadly no, but in this business there are many times when you are wrong. Therefore, in the interest of self promotion, I thought I would republish a comment I made on this blog on November 26:

Overseas markets are spooked by the Dubai news. Not sure why this is big news, when you build a city in the desert and islands in the ocean where previously there were none, you need a quite a few things to go right for the payback to work out on these projects. Dubai isn't as fortunate as its neighbours that have large oil revenues - much of Dubai's building spree was debt financed with predictable results. Perhaps one day Abu Dhabi steps in to the rescue, but to speculate on this I would be straying from my own areas of expertise.

Moving on, there are many other things happening in the market. Nothing like a weekend to clear the mind and get focused again.

I had started to write about the CAD$ falling this morning, but by the time I went to publish the CAD$ had actually gained on the day. That brings to mind one of my pet peeves with financial journalists who announce in big headlines "Stock Market Rallies", or "Profit Taking Sinks Stocks", only to see the markets reverse course and nullify their writing. I suppose I too am victim to this in fast moving markets, but the CAD$ weakening is something that I think could play out over the coming weeks/months. I am long USD$ mostly because everyone else isn't. As a Canadian, an interesting way to play this is the BIL (Spider 1-3 month T-bills ETF). Yield is next to nothing but the value (in USD$) rarely changes.

Markets are fired up by the Exxon takeover in the nat gas space - ECA up over 4% today and many of the other juniors and mid-caps also rallying. Makes me wish I owned more! Hats of to Martin King at First Energy - on August 31 he was pounding the table on why one should get long nat gas and was one of the most bullish guys out there. NYMEX was trading at $2.97 then, today it's at $5.27, up 77%. Good call Martin.

Amazon Mining (AMZ.V) halted the stock today to release some (arguably mediocre) drill results - stock is down about 5% on the resumption of trading. Maybe too much was baked in with the recent run-up? Nonetheless it's been a big winner so far this year.

Lots more going on as well, so much for quiet time before Christmas. Please feel free to leave a comment with what's on your mind. Cheers.

Disclosure: Long BIL.

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Duluth on Fire!

2009-12-11T18:00:00.004-05:00

DM.T, Duluth Metals, up 69% today with the release of resource report that had apparently already been disseminated. Guess what folks, the market decided to reprice the stock. All ye longs rejoice!

Disclosure: no position (regretfully!)

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Santa Claus Rally

2009-12-11T10:06:00.002-05:00

Latest thinking says we could get a little Santa Claus rally here. Trying to call the trend of the overall market though is a mug's game, and nowhere is this more evident than in this blog where I have already been humbled in recent days/weeks! Unfortunately the need to make the right call on the broader markets is self-evident even if one only plays individual stocks, as we are constantly reminded that total return comprises alpha AND beta components.

Back to Santa. 2009 has been infinitely better than '08 and most money managers are still so shell shocked they chose to do nothing rather than risk blowing the gains already in the book. Seasonally we are entering the time of year when large unexplained price swings are common. At least this year we don't have to contend with huge tax loss selling as most accounts are sitting on gains for year. We bounced off the 50d average in Toronto, which is a good sign (for the longs). A major IPO in the junior resource space was canceled recently, which is indicative of selective risk appetite out there.

I will close today with this quote (and I paraphrase):
"Never has so much data been so poorly analyzed by so many people" - Norman Fosback (from the book, Stock Market Logic)

Enjoy the weekend!

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VIX May Double as Stock Gain Slows, Rosenberg Says

2009-12-10T16:57:00.002-05:00

looks like Rosenberg and I think alike! (see my Dec 7/09 post) -LoneRngr

By Rita Nazareth

Dec. 10 (Bloomberg) -- The benchmark index for U.S. stock options may almost double in 2010 on investors’ concern that the Standard & Poor’s 500 Index’s rally outpaced prospects for economic and earnings growth, according to David Rosenberg.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, has dropped 72 percent from its record high of 80.86 in November 2008, two months after Lehman Brothers Holdings Inc. filed for bankruptcy. The index, which measures the cost of using options as insurance against declines in the S&P 500, has risen 9 percent after reaching a 15-month low on Nov. 24, closing today at 22.32. The VIX has averaged 20.29 during its two-decade history, data compiled by Bloomberg show.

“We’ll be in a year of heightened volatility,” Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview. “We’ll see periods in 2010 where the VIX will be north of 30 in a period of risk aversion as the economy and earnings very likely fail to hold up to expectations. I see more of a 30 to 40 range in the VIX.”

Rosenberg, 49, the former chief North American economist at Merrill Lynch & Co., the brokerage bought by Bank of America Corp., says investors are underestimating risks to the global economy.

“There’s just a general level of complacency in the marketplace right now,” he said. “The cost of buying insurance to guard against a possible decline in equity valuations is currently very low. That’s very low because most investors don’t believe they need it.”

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Reversal Time?

2009-12-08T14:31:00.006-05:00

I have been speaking to a lot of people lately about specific TSX stocks, as everyone is asking the same question: Why is the stock down? What don't we know? Thus far my answer has been mostly "profit taking" or "end of year jitters", and I will keep with this explanation until I have reason to change it. No sooner did I make my bold proclamation on this blog for the TSX to hit 12,000 then the momentum abruptly died with no staying power to follow through. While I have mixed views on technical indicators, sometimes they can adequately capture the prevailing sentiment and as a result serve as a good guide to what is happening in the market. Pictured below is the TSX daily chart with the momentum reversal.

Whether the TSX can hold support at the 50d average will be a key test for the market, and so far today is not looking so good. Another troubling indicator is the rising wedge formation on the TSX, typically a bearish indicator. This same pattern presented itself on the Dow Jones average in the late spring this year just prior to a 9% reversal.

One doesn't have to look very far to find negative sentiment indicators out there, and whether the markets keep trending up or not it probably makes sense to take some profits.

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Wandering Markets

2009-12-07T16:27:00.003-05:00

Markets are “wandering” is the best way to describe it. Gold is trying to claw back today after a sizable correction these last few trading days. The recent retracement in gold is potentially troublesome. For a few days last week it seemed that the market and economic recovery was definitely stalled as both the TIPS and gold rolled over. “Technically” speaking the breaks were not confirmed on the weekly MACD, but gave pause for concern that we could be finally starting the next down leg that market pundits have been warning about. With gold recovering it appears this was less inflation driven and mostly a USD strength move. All the same, I like the look of the VIX call options for portfolio insurance in the event that markets do melt down into the new year.

Junior stocks on the move – Coolbrands (COB.T) – management states the usual, “not aware why the stock is moving” and Talon Metals (TLO.T) on the announcement of permit acquisition from Lara Exploration. Natural gas also on the move, up 8% today.

Disclosure: No positions.

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Next Stop: TSX 12,000!

2009-12-01T13:11:00.003-05:00

I realize that I risk embarrassing myself by putting a forecast like that out there, but the momentum today is frankly unbelievable. That's the funny thing about momentum, after all the negative news in recent days about Dubai and fears that the rally was coming undone, a day like today comes along and reverses much of the sentiment in one fell swoop. It is useful to remind oneself on a day like today that 2 to 3 months worth of gains can still be wiped out in less than a week. Having said all that, the mood here in Toronto is definitely "up" and therefore the shorts need to get out of the way. What makes it all the more unusual is that most portfolio managers (PMs) are sitting on their hands after a good year and they don't want to tinker for fear of blowing the gains already in the books. Strange times indeed.

Returning for a moment to the inflation/deflation argument, I had the opportunity recently to go through some of Robert Prechters' recent works arguing for strong deflation in the near term. While I have the utmost of respect for Robert Prechter and think that he is both a genius and an astute contrarian, I have a hard time believing that the markets haven't already priced in some of the coming defaults in the debt markets. In other words, while I believe in a lot of his reasoning, I think the exact cause of a coming downfall may not be the debt markets at all but some unknown factor that we can't even see today (ie. Dubai). The markets too are struggling with a new concept. After fears of deflation followed by inflation arose in late 2008, we now have a situation where we could see inflation followed by deflation. For now the usual indicators (namely the TIPS, gold, and oil futures curve) suggest only the former situation (inflation) coming to bear. Interesting as well to see the VIX index taming, suggesting that as far as the markets believe volatility is relatively benign.

On a different note, the strength of the yen is potential cause for concern. With years of deflation already underway and massive debt-to-GDP levels, it leaves the government few policy options available to reign in the yen. Unless of course the government engages in competitive devaluation, which would not be good for anyone.

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