Year after year Canadian drivers experience winter’s fury: ice, snow and wind conspire to make out driving difficult and dangerous. And every year, every storm brings a rash of driving accidents. Somehow, even though we know ice and blowing snow is going to happen, and even though we know how to drive in dangerous conditions, the vast majority of Canadians take unnecessary risk. It’s one of those quirky ironies about being a Canadian. Is it Canadian human nature to be oblivious to danger?
It’s not human nature: it’s the power of advertising. We can be lulled into oblivion or sharpened into “yellow alert” by effective advertising.
Yellow alert
Consider those horrid pictures on cigarette packages. There was a time that they discouraged people from smoking by graphically illustrating how awful the smoking diseases can be. Then there is the campaign to prevent drinking and driving; an effective ad campaign that has saved many lives. Another effective campaign is the awareness advertising that focuses on the prevention of sexually transmitted disease by the use of condoms. These advertising efforts are examples of focused intention causing the population to become more conscious of risk in their lives.
Throw caution to the wind
Then there is the serious effort of the investment industry to persuade small unsophisticated investors to maintain their risky investments. For years financial salesmen have been telling their customers that the stock market goes up about 10% on average, and that they should buy high quality equity mutual funds and hold them no matter how dangerous the investment climate gets. The investment industry is not the only industry that would sacrifice the well being of their customers for their own profit. The beverage industry tells us all to get excited and drink carbonated, flavoured sugar water knowing full well the addictive nature of sugar and the adverse effect it has on our health. Children’s breakfast cereal advertisers float in the same boat.
But, clearly there is no intentional campaign to get Canadian drivers to take to the road no matter what the risk. Is there some unintentional influence that makes us take unnecessary driving risk?
Canadians are hard working people. We have habits that serve our work ethic. Getting to work is one of these habits. Being on time is another. Sticking to the plan is another habit that we Canadians have that enable us to maintain our modern efficient economy and our personal life styles. Our national symbol is the beaver; and the Canadian population has certain habits that epitomise our hard-working nature as a people. Our work ethic is not an intentional campaign, but it is an important part of Canadian culture.
This is where the repetitive winter driving accident problem begins. Our work ethic is fine, but we need to be awake to our habits, even our good habits, when risk increases. When there’s a winter storm, maybe we should take a day off. Maybe we should reschedule that out-of-town trip.
Exercise
In my investment book, Beyond the Bull, i encorage investors to not set their investing aircraft on autopilot. Risk levels in our lives change with time. We have to change too. Breaking old habits and bringing more intention to your life can be a tough process. Here’s an exercise that will help: review the paragraph above entitled “Throw caution to the wind.” These are instances where commercial endeavours hope to make profit from you by distracting you from the risk associated with their products. New Years resolution season is just ahead. I encourage you to reconsider your financial plan and your diet from the point of view of changing your habits to reduce your risk. The holiday season is a good time for pondering our lives. Use December 2010 to ponder the health and wealth risks created by big money advertising.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Wednesday, December 15, 2010
Thursday, December 9, 2010
Financing Santa Claus
It’s no secret: the December holiday season has been commercially exploited in a big way. Every year we hear reports of how much money consumers are spending on this or that product or gift. Those few gentle souls who still value the spiritual aspect of Christmas often express their disapproval, feeling that our spiritual lives are somehow diminished by the crassness of buying and selling. But in the godless world of Santa Claus finance, commercial salvation is all about dollars and cents.
This is the annual pattern:
1. Autumn of each year: consumer buying starts to heat up.
2. December of each year: consumer buying accelerates into Dec 24.
3. December 25: one Day of Rest.
4. December 26: Boxing Day sees the annual climactic fury of commercialism, crowded stores chock full of frenzied shoppers.
5. The shopping action drops off for the remainder of the year and the January sales begin.
6. Shopping activity tapers off as spring draws nearer.
Retail shop keepers know this repetitive annual pattern and try to line up their businesses to take advantage of it. And because it happens every year, we all have the opportunity to do the same thing; to line up our personal spending so as to take advantage of the holiday consumer spending cycle.
This seasonal shopping phenomenon also occurs in the stock market. Analysts like Don Vialoux and Brooke Thackeray have written extensively about the seasonality phenomenon. They co-manage an exchange traded fund using seasonality in the stock market as their profit-generating edge. (Symbol HAC). But there is another way to use seasonality to enhance your stock market success. Do what squirrels do.
They Can’t Count the Days
Squirrels can’t read calendars. Yet, somehow they know when to gather nuts. No one warns them that Christmas is coming, but they somehow gather nuts at the right time. Not a single squirrel has a financial plan that tells them to save nuts for the winter. But, somehow, the nuts get saved.
I’m not suggesting squirrel-worship here. Squirrels are quite stupid. Yet, stupid as they are, somehow they know what to do and when to do it. Let’s try to imagine what causes a squirrel to start harvesting nuts every autumn. Maybe there’s something in the world of nature that can help us collect more financial nuts our human world.
The Acorn Model
Squirrels gather nuts when they see them. No nuts, no gathering. See the nuts: gather the nuts. It’s that simple. When they see nuts, they gather them. Observation - action.
Let’s try the squirrel’s tactics. In the investment world, what are we looking for? And when we find it, what should we do?
In the arena of the stock market, the equivalent of “nuts” is “frenzied buying”. When we see frenzied buying of stocks, we should sell. It’s frenzied buying that we should look for. Squirrels act when they encounter lots of nuts. We should act when we encounter frenzied buying in the stock market.
In shopping malls we easily observe the frenzied buying of consumer goods: we see it every winter. But it’s not so easy to spot in the stock market.
Remember Y2K? In January 2000 the stock market had been going up for years. Every month some hot new high tech stock would jump to a huge premium: they called it the Dot Com Craze. Now bankrupt, Nortel had become the biggest company in Canada, accounting for 1/3 of the capitalization of the Toronto Stock Exchange. Some offices of TD Bank’s discount brokerage subsidiary had to close down for a short period: they were unable to process all the new accounts that novice investors wanted to open. That was frenzied stock market buying. About two years later the stock market had dropped 45%.
Remember 2008? – The price of oil hit $150 a barrel. Gold hit $1000 an ounce. Potash and copper were red hot commodities. That was a resource stock frenzy. After that frenzy, the Toronto Stock Exchange dropped in half in nine short months.
Remember back in 1981 when crazed investors lined up outside the Bank of Nova Scotia to buy silver? That was frenzied buying in precious metals.
Whenever you see investor frenzy, sell your stocks and squirrel away the cash.
It’s just like the shopping frenzy we see every Christmas: both Boxing Day and stock market frenzy mark the end of the cycle, not the beginning.
In my investment book, Beyond the Bull, I encourage independent investors to develop their own investment techniques. An investment technique has two parts: (1) look for a specific economic event, (2) react to it in a pre-planned way. That’s what squirrels do when they hoard nuts. That’s what retailers do as Christmas approaches. And that’s what investors should do too. The specific event investors are looking for is a stock market buying frenzy. And the pre-planned reaction is to sell your stocks and squirrel away the money.
Stealth Frenzy
Should we be gathering our nuts now? Is this a time of frenzied buying? Where are we in the cycle?
The particular cycle we are currently in, featured “frenzy-bordering-on-madness” in the US real estate market. From 2003 to 2006 anxious buyers clamoured after houses, paid for in part by sub prime mortgage loans they couldn’t afford. And in 2008 it all came undone. Real Estate Boxing Day has long since passed: US house prices peaked a long time ago. And in the complex world of finance where everything is connected to everything else, the consumer-driven economies of North America are nearing Financial Ides of March.
Stock Market Boxing Day has long since passed too. Optimistic economists are already forecasting the return another fabulous season of unbridled consumerism. But it’s way too early in the cycle for that. We are still in the down part of the cycle. US real estate, consumer spending and the US stock market are still in the post-frenzy cool down phase.
Secondary Frenzy
In the stock market, the frenzy-generating emotions of fear and greed come in waves. The market moves in zigs and zags, not in smooth gradual transitions. In 2008 and the first few months of 2009, the market zigged down. From March 2009 to now, it has zagged up. We are currently seeing signs of a mini-frenzy in the stock market. There are more bullish investment advisors now than any time since the March 2009 lows. Junior stocks are significantly outperforming blue chip stocks. These sign posts warn of a possible stock market buying frenzy this winter. Those readers who still own lots of stocks should get ready to sell your stocks and squirrel away your money until the down cycle ends.
To order your copy of Beyond the Bull and/or The Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
This is the annual pattern:
1. Autumn of each year: consumer buying starts to heat up.
2. December of each year: consumer buying accelerates into Dec 24.
3. December 25: one Day of Rest.
4. December 26: Boxing Day sees the annual climactic fury of commercialism, crowded stores chock full of frenzied shoppers.
5. The shopping action drops off for the remainder of the year and the January sales begin.
6. Shopping activity tapers off as spring draws nearer.
Retail shop keepers know this repetitive annual pattern and try to line up their businesses to take advantage of it. And because it happens every year, we all have the opportunity to do the same thing; to line up our personal spending so as to take advantage of the holiday consumer spending cycle.
This seasonal shopping phenomenon also occurs in the stock market. Analysts like Don Vialoux and Brooke Thackeray have written extensively about the seasonality phenomenon. They co-manage an exchange traded fund using seasonality in the stock market as their profit-generating edge. (Symbol HAC). But there is another way to use seasonality to enhance your stock market success. Do what squirrels do.
They Can’t Count the Days
Squirrels can’t read calendars. Yet, somehow they know when to gather nuts. No one warns them that Christmas is coming, but they somehow gather nuts at the right time. Not a single squirrel has a financial plan that tells them to save nuts for the winter. But, somehow, the nuts get saved.
I’m not suggesting squirrel-worship here. Squirrels are quite stupid. Yet, stupid as they are, somehow they know what to do and when to do it. Let’s try to imagine what causes a squirrel to start harvesting nuts every autumn. Maybe there’s something in the world of nature that can help us collect more financial nuts our human world.
The Acorn Model
Squirrels gather nuts when they see them. No nuts, no gathering. See the nuts: gather the nuts. It’s that simple. When they see nuts, they gather them. Observation - action.
Let’s try the squirrel’s tactics. In the investment world, what are we looking for? And when we find it, what should we do?
In the arena of the stock market, the equivalent of “nuts” is “frenzied buying”. When we see frenzied buying of stocks, we should sell. It’s frenzied buying that we should look for. Squirrels act when they encounter lots of nuts. We should act when we encounter frenzied buying in the stock market.
In shopping malls we easily observe the frenzied buying of consumer goods: we see it every winter. But it’s not so easy to spot in the stock market.
Remember Y2K? In January 2000 the stock market had been going up for years. Every month some hot new high tech stock would jump to a huge premium: they called it the Dot Com Craze. Now bankrupt, Nortel had become the biggest company in Canada, accounting for 1/3 of the capitalization of the Toronto Stock Exchange. Some offices of TD Bank’s discount brokerage subsidiary had to close down for a short period: they were unable to process all the new accounts that novice investors wanted to open. That was frenzied stock market buying. About two years later the stock market had dropped 45%.
Remember 2008? – The price of oil hit $150 a barrel. Gold hit $1000 an ounce. Potash and copper were red hot commodities. That was a resource stock frenzy. After that frenzy, the Toronto Stock Exchange dropped in half in nine short months.
Remember back in 1981 when crazed investors lined up outside the Bank of Nova Scotia to buy silver? That was frenzied buying in precious metals.
Whenever you see investor frenzy, sell your stocks and squirrel away the cash.
It’s just like the shopping frenzy we see every Christmas: both Boxing Day and stock market frenzy mark the end of the cycle, not the beginning.
In my investment book, Beyond the Bull, I encourage independent investors to develop their own investment techniques. An investment technique has two parts: (1) look for a specific economic event, (2) react to it in a pre-planned way. That’s what squirrels do when they hoard nuts. That’s what retailers do as Christmas approaches. And that’s what investors should do too. The specific event investors are looking for is a stock market buying frenzy. And the pre-planned reaction is to sell your stocks and squirrel away the money.
Stealth Frenzy
Should we be gathering our nuts now? Is this a time of frenzied buying? Where are we in the cycle?
The particular cycle we are currently in, featured “frenzy-bordering-on-madness” in the US real estate market. From 2003 to 2006 anxious buyers clamoured after houses, paid for in part by sub prime mortgage loans they couldn’t afford. And in 2008 it all came undone. Real Estate Boxing Day has long since passed: US house prices peaked a long time ago. And in the complex world of finance where everything is connected to everything else, the consumer-driven economies of North America are nearing Financial Ides of March.
Stock Market Boxing Day has long since passed too. Optimistic economists are already forecasting the return another fabulous season of unbridled consumerism. But it’s way too early in the cycle for that. We are still in the down part of the cycle. US real estate, consumer spending and the US stock market are still in the post-frenzy cool down phase.
Secondary Frenzy
In the stock market, the frenzy-generating emotions of fear and greed come in waves. The market moves in zigs and zags, not in smooth gradual transitions. In 2008 and the first few months of 2009, the market zigged down. From March 2009 to now, it has zagged up. We are currently seeing signs of a mini-frenzy in the stock market. There are more bullish investment advisors now than any time since the March 2009 lows. Junior stocks are significantly outperforming blue chip stocks. These sign posts warn of a possible stock market buying frenzy this winter. Those readers who still own lots of stocks should get ready to sell your stocks and squirrel away your money until the down cycle ends.
To order your copy of Beyond the Bull and/or The Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, November 23, 2010
“Yes, Vir-Gennia, there is a Santa Claus.”
Let’s revisit the old Christmas story about Virginia, the little girl who wrote to the newspaper editor to ask him if there really was a Santa Claus. Only instead of a little girl, our inquisitive child is America’s biggest manufacturing company. General Motors just floated the second largest public issue ever floated; she sold $20 billion of treasury shares so far, and there is a possibility that number could rise to $23 billion because of certain options issued to her investment bankers. Yes, Gennie Motors, there is a Santa Claus – and he came early this year.
I feel like the wide-eyed child on Christmas morning. I am just fascinated by the investing world. Yes, investors tend to be intelligent and well informed. Yes, they tend to be sophisticated and positive. But, my, don’t they have short memories!
Didn’t Toyota sell 600,000 more cars than GM in 2008, to become the world’s biggest auto manufacturer? And didn’t GM, the second biggest car company in the world, go broke anyway? How can a company (GM) sell 8.3 million cars in 2008 and declare bankruptcy in 2009? And then, miracle of all financial miracles, how can they raise $20 billion in new capital in 2010? What’s wrong with this picture?
The only logical course for a typical investor is to revisit his understanding of Santa Claus. When we were seven years old, our beliefs were quite different from when we were only four. But maybe we were wrong when we were seven – maybe our opinions as a four-year-old were closer to reality than when we were seven. What is reality and what is fantasy?
Reality check #1: The governments of Canada and the USA invested billions in GM in 2009.
Reality check #2: GM declared bankruptcy anyway, and her shareholders lost all their money.
Reality check #3: investors just ploughed another $20 billion into GM.
Ordinary investors need to live in the real world, not the illusionary world of high finance. Our world is the world of low finance: this is the world in which we must survive. Our job is to be the guardian of our own personal wealth. Check in on your own reality. It’s not about GM – it’s not about government bail outs. It’s about your financial survival in the real world.
General Motors stock is a great vehicle for day traders: it is newsy, volatile and trades millions of shares per day. But if it starts to drop in price, big American pension funds will jettison it just as fast as they recently bought it. The reality of GM in the twenty first century is stark and Grinchy… not what you want in your stocking on Christmas morning.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
I feel like the wide-eyed child on Christmas morning. I am just fascinated by the investing world. Yes, investors tend to be intelligent and well informed. Yes, they tend to be sophisticated and positive. But, my, don’t they have short memories!
Didn’t Toyota sell 600,000 more cars than GM in 2008, to become the world’s biggest auto manufacturer? And didn’t GM, the second biggest car company in the world, go broke anyway? How can a company (GM) sell 8.3 million cars in 2008 and declare bankruptcy in 2009? And then, miracle of all financial miracles, how can they raise $20 billion in new capital in 2010? What’s wrong with this picture?
The only logical course for a typical investor is to revisit his understanding of Santa Claus. When we were seven years old, our beliefs were quite different from when we were only four. But maybe we were wrong when we were seven – maybe our opinions as a four-year-old were closer to reality than when we were seven. What is reality and what is fantasy?
Reality check #1: The governments of Canada and the USA invested billions in GM in 2009.
Reality check #2: GM declared bankruptcy anyway, and her shareholders lost all their money.
Reality check #3: investors just ploughed another $20 billion into GM.
Ordinary investors need to live in the real world, not the illusionary world of high finance. Our world is the world of low finance: this is the world in which we must survive. Our job is to be the guardian of our own personal wealth. Check in on your own reality. It’s not about GM – it’s not about government bail outs. It’s about your financial survival in the real world.
General Motors stock is a great vehicle for day traders: it is newsy, volatile and trades millions of shares per day. But if it starts to drop in price, big American pension funds will jettison it just as fast as they recently bought it. The reality of GM in the twenty first century is stark and Grinchy… not what you want in your stocking on Christmas morning.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, November 2, 2010
The Election That Doesn’t Matter
Two years ago the Americans elected President Barrack Obama: his job was to save the economic world. And, so far, the economic world has not collapsed. Whatever they did, it worked!
But, there is a certain inevitability to America’s demise: and Canada’s demise too. Canada’s financial future is tightly tied to America. Pierre Elliott Trudeau once said: “When the America sneezes, Canada catches a cold.” When America needs to be rescued, Canada could use a hand too.
Why did America’s mortgage melt-down almost blow out the world’s banks a few years ago? What went wrong? And whom should we elect to fix it?
Humble Beginnings
America’s last melt down occurred from 1929 to 1945: sixteen years of depression and war. When it was over, her international competition lie in ruins: European and Asian infrastructure had to be rebuilt. And America was in business to help her former enemies rebuild. When the troops came home from WWII, America had a new beginning. Ordinary soldiers-turned-workers got to reap the rewards of their victory. All those young women who had kept the home fires burning, were looking for husbands and families. That generation’s humble dreams had been shaped by those years of depression and war. They borrowed some money to buy a house – and their dream was to own that house mortgage free. Their goal was to get a steady job and establish financial security. These are the ones who gave birth to the Baby Boom generation.
Bigger dreams
The Baby Boomers wanted more. Raised in times of prosperity, the Boomers expected more than 2.4 children and a small house in suburbia with a late model Chevy in the driveway. Actually, those 2.4 children seemed like a lot of work: if we’re going to work that hard, we deserve a bigger house… even if Mom has to get a part time job to help out with the mortgage payments. Maybe it would be smarter to have 1.8 babies so she can have that part time job. After all, a bigger house and a bigger car means a bigger mortgage and a higher family income. And what’s wrong with a full time job? Women are as good as men! Why shouldn’t women have full time jobs, the same as the men? So what if we have to cut back to 1.4 babies! Why shouldn’t we go on vacation to the same places rich people go to? Why shouldn’t we live in big houses like rich people? In fact, why shouldn’t we all retire rich like Warren Buffet? And whom should we elect to help us with this new expanded version of the American Dream?
Even Bigger Dreams
Young adults today understand leverage: they know how to borrow and buy. They live in a world of monthly payments and plastic money. Student loans? No problem! Max’d out is part of their vocabulary.
In November 2010, the average American owes 128% of his/her annual income. (Incidentally, the average Canadian owes 148% of his/her annual income.) How far can they push The American Dream? And whom will they elect to set the stage for the next generation’s financial ambitions?
I feel like a Yuk Yuk’s comedian telling a joke that’s far too long. America has come a long way since WWII. In order to explain the futility of the American save-me election, I will revert to the comedian’s line: “-but, seriously folks…”
Seriously
How far can they push The American Dream? Over the years America’s bankers have degenerated just as seriously as America’s consumers. In the 1950’s, the financiers of that era worried about banking in depressing war-like times. That’s was their experience. They had learned to be conservative: to lend relatively small amounts of money to consumers. And only those with steady jobs. And good collateral. And a conservative life style. And they would consider only the husband’s income: what if the wife got pregnant and couldn’t work? (Actually, they were reluctant to lend money to single women with good jobs because they might get married and stay at home with the kids… and not be able to pay back the loan.) The March 15, 1958 edition of The Saturday Evening Post featured an article entitled “We Couldn’t Pay Our Bills” written by “An instalment plan slave.” It was a different era. Today’s readers should ponder this for a while. What would it have been like to lend money to consumers in the 1950s? Those consumers had modest dreams, shaped by their experience in the 1930s and 1940s. And the bankers had learned their trade at the same time.
In Canada, the bank act is refreshed every ten years. Parliament amends and re-approves it. Every ten years bank executives lobby for the banks to be allowed to be more aggressive. They are the surging horses, and the government holds the reigns. Ever since WWII, the bank act has become a little more liberal every ten years. Each generation of consumers has become a little more aggressive about borrowing to buy.
And now that game is over. The utter collapse of the American mortgage business and the near collapse of the world’s banking system have made that clear. The collapse of American house prices has changed The Dream. And it won’t be long before the bank act changes yet again.
Whom will Americans elect to change their bank act? What kind of changes will they make? Whom will they elect to re-establish financial prosperity?
Do you see that they have no choice? America is max’d out. It doesn’t matter whom they elect; they have blown it. Collectively, it’s payback time. Democrat or Republican: it’s still payback time.
Enough
Don’t worry about an American Dream based on borrowing and buying. Don’t search the horizon for a White Knight politician who will save us all. Dream the humble dream of those who experienced the depression and the war. And save yourself. Sell off your assets and pay off your debts. And vote your conscience.
Canadian Afterthought
Yes, you read that right: on average, Canadians are further in debt than Americans. It doesn’t matter whom we elect either: it’s payback time in Canada too.
But, there is a certain inevitability to America’s demise: and Canada’s demise too. Canada’s financial future is tightly tied to America. Pierre Elliott Trudeau once said: “When the America sneezes, Canada catches a cold.” When America needs to be rescued, Canada could use a hand too.
Why did America’s mortgage melt-down almost blow out the world’s banks a few years ago? What went wrong? And whom should we elect to fix it?
Humble Beginnings
America’s last melt down occurred from 1929 to 1945: sixteen years of depression and war. When it was over, her international competition lie in ruins: European and Asian infrastructure had to be rebuilt. And America was in business to help her former enemies rebuild. When the troops came home from WWII, America had a new beginning. Ordinary soldiers-turned-workers got to reap the rewards of their victory. All those young women who had kept the home fires burning, were looking for husbands and families. That generation’s humble dreams had been shaped by those years of depression and war. They borrowed some money to buy a house – and their dream was to own that house mortgage free. Their goal was to get a steady job and establish financial security. These are the ones who gave birth to the Baby Boom generation.
Bigger dreams
The Baby Boomers wanted more. Raised in times of prosperity, the Boomers expected more than 2.4 children and a small house in suburbia with a late model Chevy in the driveway. Actually, those 2.4 children seemed like a lot of work: if we’re going to work that hard, we deserve a bigger house… even if Mom has to get a part time job to help out with the mortgage payments. Maybe it would be smarter to have 1.8 babies so she can have that part time job. After all, a bigger house and a bigger car means a bigger mortgage and a higher family income. And what’s wrong with a full time job? Women are as good as men! Why shouldn’t women have full time jobs, the same as the men? So what if we have to cut back to 1.4 babies! Why shouldn’t we go on vacation to the same places rich people go to? Why shouldn’t we live in big houses like rich people? In fact, why shouldn’t we all retire rich like Warren Buffet? And whom should we elect to help us with this new expanded version of the American Dream?
Even Bigger Dreams
Young adults today understand leverage: they know how to borrow and buy. They live in a world of monthly payments and plastic money. Student loans? No problem! Max’d out is part of their vocabulary.
In November 2010, the average American owes 128% of his/her annual income. (Incidentally, the average Canadian owes 148% of his/her annual income.) How far can they push The American Dream? And whom will they elect to set the stage for the next generation’s financial ambitions?
I feel like a Yuk Yuk’s comedian telling a joke that’s far too long. America has come a long way since WWII. In order to explain the futility of the American save-me election, I will revert to the comedian’s line: “-but, seriously folks…”
Seriously
How far can they push The American Dream? Over the years America’s bankers have degenerated just as seriously as America’s consumers. In the 1950’s, the financiers of that era worried about banking in depressing war-like times. That’s was their experience. They had learned to be conservative: to lend relatively small amounts of money to consumers. And only those with steady jobs. And good collateral. And a conservative life style. And they would consider only the husband’s income: what if the wife got pregnant and couldn’t work? (Actually, they were reluctant to lend money to single women with good jobs because they might get married and stay at home with the kids… and not be able to pay back the loan.) The March 15, 1958 edition of The Saturday Evening Post featured an article entitled “We Couldn’t Pay Our Bills” written by “An instalment plan slave.” It was a different era. Today’s readers should ponder this for a while. What would it have been like to lend money to consumers in the 1950s? Those consumers had modest dreams, shaped by their experience in the 1930s and 1940s. And the bankers had learned their trade at the same time.
In Canada, the bank act is refreshed every ten years. Parliament amends and re-approves it. Every ten years bank executives lobby for the banks to be allowed to be more aggressive. They are the surging horses, and the government holds the reigns. Ever since WWII, the bank act has become a little more liberal every ten years. Each generation of consumers has become a little more aggressive about borrowing to buy.
And now that game is over. The utter collapse of the American mortgage business and the near collapse of the world’s banking system have made that clear. The collapse of American house prices has changed The Dream. And it won’t be long before the bank act changes yet again.
Whom will Americans elect to change their bank act? What kind of changes will they make? Whom will they elect to re-establish financial prosperity?
Do you see that they have no choice? America is max’d out. It doesn’t matter whom they elect; they have blown it. Collectively, it’s payback time. Democrat or Republican: it’s still payback time.
Enough
Don’t worry about an American Dream based on borrowing and buying. Don’t search the horizon for a White Knight politician who will save us all. Dream the humble dream of those who experienced the depression and the war. And save yourself. Sell off your assets and pay off your debts. And vote your conscience.
Canadian Afterthought
Yes, you read that right: on average, Canadians are further in debt than Americans. It doesn’t matter whom we elect either: it’s payback time in Canada too.
Thursday, October 14, 2010
The End of the Equity Cult?
Robert Buckland, Citigroup’s global equities strategist, published an article on September 2, 2010, entitled “The End of the Equity Cult?” He was openly bearish on the long-term outlook for global stock markets.
He pointed to the popularity of stocks in US pension funds: “U.S. pension funds allocated just 17 percent to equities in 1952, according to Citigroup. By 2006, those same funds were putting 69 percent in stocks and just 18 percent into fixed income.” He described this 50-year invest-ment style change as an “equities cult.”
Those who follow my Fridge Notes (http://kennorquay.blogspot.com/) will see the similarity between Buckland’s views and my own. There is a big problem in stock market investing: the long-term up-trend is over. More precisely, it was over ten years ago. We are in a different era now. For the past ten years, stocks have not been good long-term buy-and-hold investments. They provide great returns when they go up and big losses when they go down. The Golden Age of Mutual funds is over.
But there’s a big difference between Mr. Buckland and me. He is the chief equities strategist for the biggest bank in the world. I am some obscure financial philosopher in a small investment management firm in Canada. Buckland has credibility ― big credibility.
Hold that thought. Hold the thought that one of Wall Street’s giants has openly discussed the high level of risk associated with the stock market at these levels.
The following quotation is from my article on financial hangovers, which appeared in the June 2010 issue of The MoneyLetter):
“In June 2010, the investment manager Gluskin Sheff released their calculations of the 10-year rates of return of a variety of US investment classes. The 10-year rate of return for the US stock market was -2.3%. Big American pension plans have lost money in the stock market over the past ten years.
“What about the bond market? The ten-year return for US bond portfolios has been 11%.
“Based on the math, it’s clear that the big US pension funds should be heavily invested in the US bond market and only slightly invested in the stock market. On the surface, it seems simple and logical.”
I was warning MoneyLetter readers to lower their expectations toward stock-market investing and to sell a significant percentage of their stocks and replace them with government bonds because that is what America’s big pension funds will be doing until they get their giant portfolios in line. The stock market has a huge overhang of stocks waiting to be sold and replaced with bonds.
Question: When Ken Norquay writes his Fridge Notes, who pays attention?
Answer: His mother, a few clients, and a few followers.
Question: When the global equities strategist for the biggest bank in the world declares the end of the equities cult, who pays attention?
Answer: The biggest financial institutions in the world.
Does Buckland’s pronouncement mean that the bearish case for the stock market is receiving more and more credibility in big-money management circles? Will this result in an acceleration of the pension funds’ desire to reduce exposure to stocks and increase exposure to bonds? Is the jig finally up? Is the next stock-market sell-off imminent?
On August 13, 1979, Business Week published a famous article entitled “The Death of Equities.” It made the point that stocks were no longer a viable investment ― similar to Buckland’s view. Business Week is a credible resource in US investment circles. The Dow Jones Industrial Average closed at 875 that day. Exactly three years later (August 13, 1982), the 16½-year-long bear market finally ended. Long-term bear markets end with a huge wave of selling, moving prices even lower. Pessimism has taken over completely and investors, especially professional fund managers, have finally give up on the stock market. Those who once believed no longer believe.
Is this what’s ahead for today’s stock market? Will the long-term bear market that began in the year 2000 end in three years, now that big-money management can accept the obvious truth about their unfortunate situation? Will the secular bear market end in autumn 2013?
Academics and theoreticians can continue grappling with this interesting conundrum. But what should an ordinary investor do today?
Sell stocks. Buy even more government bonds. Whether you call it an equities cult or an overhang hangover, the game is over. The long-term up-trend in American stocks ended ten years ago. And the long-term bear market isn’t over yet.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
He pointed to the popularity of stocks in US pension funds: “U.S. pension funds allocated just 17 percent to equities in 1952, according to Citigroup. By 2006, those same funds were putting 69 percent in stocks and just 18 percent into fixed income.” He described this 50-year invest-ment style change as an “equities cult.”
Those who follow my Fridge Notes (http://kennorquay.blogspot.com/) will see the similarity between Buckland’s views and my own. There is a big problem in stock market investing: the long-term up-trend is over. More precisely, it was over ten years ago. We are in a different era now. For the past ten years, stocks have not been good long-term buy-and-hold investments. They provide great returns when they go up and big losses when they go down. The Golden Age of Mutual funds is over.
But there’s a big difference between Mr. Buckland and me. He is the chief equities strategist for the biggest bank in the world. I am some obscure financial philosopher in a small investment management firm in Canada. Buckland has credibility ― big credibility.
Hold that thought. Hold the thought that one of Wall Street’s giants has openly discussed the high level of risk associated with the stock market at these levels.
The following quotation is from my article on financial hangovers, which appeared in the June 2010 issue of The MoneyLetter):
“In June 2010, the investment manager Gluskin Sheff released their calculations of the 10-year rates of return of a variety of US investment classes. The 10-year rate of return for the US stock market was -2.3%. Big American pension plans have lost money in the stock market over the past ten years.
“What about the bond market? The ten-year return for US bond portfolios has been 11%.
“Based on the math, it’s clear that the big US pension funds should be heavily invested in the US bond market and only slightly invested in the stock market. On the surface, it seems simple and logical.”
I was warning MoneyLetter readers to lower their expectations toward stock-market investing and to sell a significant percentage of their stocks and replace them with government bonds because that is what America’s big pension funds will be doing until they get their giant portfolios in line. The stock market has a huge overhang of stocks waiting to be sold and replaced with bonds.
Question: When Ken Norquay writes his Fridge Notes, who pays attention?
Answer: His mother, a few clients, and a few followers.
Question: When the global equities strategist for the biggest bank in the world declares the end of the equities cult, who pays attention?
Answer: The biggest financial institutions in the world.
Does Buckland’s pronouncement mean that the bearish case for the stock market is receiving more and more credibility in big-money management circles? Will this result in an acceleration of the pension funds’ desire to reduce exposure to stocks and increase exposure to bonds? Is the jig finally up? Is the next stock-market sell-off imminent?
On August 13, 1979, Business Week published a famous article entitled “The Death of Equities.” It made the point that stocks were no longer a viable investment ― similar to Buckland’s view. Business Week is a credible resource in US investment circles. The Dow Jones Industrial Average closed at 875 that day. Exactly three years later (August 13, 1982), the 16½-year-long bear market finally ended. Long-term bear markets end with a huge wave of selling, moving prices even lower. Pessimism has taken over completely and investors, especially professional fund managers, have finally give up on the stock market. Those who once believed no longer believe.
Is this what’s ahead for today’s stock market? Will the long-term bear market that began in the year 2000 end in three years, now that big-money management can accept the obvious truth about their unfortunate situation? Will the secular bear market end in autumn 2013?
Academics and theoreticians can continue grappling with this interesting conundrum. But what should an ordinary investor do today?
Sell stocks. Buy even more government bonds. Whether you call it an equities cult or an overhang hangover, the game is over. The long-term up-trend in American stocks ended ten years ago. And the long-term bear market isn’t over yet.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Wednesday, October 13, 2010
Talk’s Cheap
When I was the manager of a small office of Merrill Lynch back in the early 1980s, my boss used to say, “Talk’s cheap. It takes money to buy land.” I never really understood the part about buying land, but I came to a true and deep understanding of “talk’s cheap.” As a stock broker in those days, I talked for a living. I would phone investors and offer them trading ideas. The extent to which I could talk them into buying was the extent to which I could earn a living.
It became easy to talk people into buying something. I was taught what to say. I learned the jargon. I became really good at talking people into buying. But I soon realized that cheap talk wasn’t really what counted. What counted was what my clients actually owned.
If my clients owned stocks during up-trends, I could make a really good living using my skilled cheap talk. And if they owned stocks during down-trends, no matter what I said, I couldn’t talk them into anything.
Most of us who invest get a certain satisfaction from talking about economic things. We love to read the financial press and follow the latest theories on what’s happening in the economy. We love the talk. And most of us have a viewpoint: we think we understand the economy and we might even have an opinion about what’s going on in the financial world. Most of us love to participate in the talk.
But here’s what we should be talking about: what investments do you own?
In my investing book, Beyond the Bull, I refer to the cycles in the stock market and how they relate to interest rates and the economy. But the most intriguing discovery I offer readers is how the talk changes through the cycle.
At the bottom of a stock market cycle, the talk is all gloom and doom. At the top, the talk is all optimism and enthusiasm. That’s how we identify the tops and the bottoms: we observe the talk. It’s called the Theory of Contrary Opinion ― and here’s how it works. When the talk is excessively negative, we buy. When the talk is inordinately positive, we sell. So the investments we own should be contrary to the talk about those investments.
For example, government bonds have gone up about 10% in the past three or four months. And the talk has been about the inevitable bankruptcy of the USA, about the fact that America can never repay her foreign debt, about the possibility of hyperinflation in the US, and about the US dollar being fiat money. As long as this negative talk persists, US bonds will continue in an up-trend. When the talk turns positive, as it inevitably will, bonds will be near a top.
A second example is gold: people love gold these days. An overwhelming majority of investment gurus are talking very positively about how the gold standard may soon return, how the currency wars that are developing will be positive for gold, and how all this talk of economic disaster is really positive for gold. And the more positive the talk is, the harder it is for the price of gold to go up.
The investments we own should reflect these two examples of economic cheap talk: we should own a lot of bonds and little or no gold.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
It became easy to talk people into buying something. I was taught what to say. I learned the jargon. I became really good at talking people into buying. But I soon realized that cheap talk wasn’t really what counted. What counted was what my clients actually owned.
If my clients owned stocks during up-trends, I could make a really good living using my skilled cheap talk. And if they owned stocks during down-trends, no matter what I said, I couldn’t talk them into anything.
Most of us who invest get a certain satisfaction from talking about economic things. We love to read the financial press and follow the latest theories on what’s happening in the economy. We love the talk. And most of us have a viewpoint: we think we understand the economy and we might even have an opinion about what’s going on in the financial world. Most of us love to participate in the talk.
But here’s what we should be talking about: what investments do you own?
In my investing book, Beyond the Bull, I refer to the cycles in the stock market and how they relate to interest rates and the economy. But the most intriguing discovery I offer readers is how the talk changes through the cycle.
At the bottom of a stock market cycle, the talk is all gloom and doom. At the top, the talk is all optimism and enthusiasm. That’s how we identify the tops and the bottoms: we observe the talk. It’s called the Theory of Contrary Opinion ― and here’s how it works. When the talk is excessively negative, we buy. When the talk is inordinately positive, we sell. So the investments we own should be contrary to the talk about those investments.
For example, government bonds have gone up about 10% in the past three or four months. And the talk has been about the inevitable bankruptcy of the USA, about the fact that America can never repay her foreign debt, about the possibility of hyperinflation in the US, and about the US dollar being fiat money. As long as this negative talk persists, US bonds will continue in an up-trend. When the talk turns positive, as it inevitably will, bonds will be near a top.
A second example is gold: people love gold these days. An overwhelming majority of investment gurus are talking very positively about how the gold standard may soon return, how the currency wars that are developing will be positive for gold, and how all this talk of economic disaster is really positive for gold. And the more positive the talk is, the harder it is for the price of gold to go up.
The investments we own should reflect these two examples of economic cheap talk: we should own a lot of bonds and little or no gold.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Friday, September 17, 2010
American Alzheimer Investors
I have been living temporarily with an older lady who is afflicted with dementia. She forgets a lot and repeats herself a lot. A lot! She lives in her own little fantasy world.
But for me, it’s easy to live with someone who lives in her own little world, who forgets and who repeats herself over and over. After all, I’ve been in the investment business since 1975.
David Rosenberg of Gluskin Sheff observed that the S&P 500 index is currently at 1,109 and reminds us that it first hit 1,109 on April 1, 1998.
During the whole 12 years and five months since April 1998, our friends in the financial planning business have been telling us the market goes up on average about 9% a year and we should buy high-quality stocks and hold them for the long term. When the stock market went up, they were happy; their buy-and-hold slogan could be repeated like a meditation mantra. And the followers of these dollar-store gurus were lulled into a mindless paradise, dreaming of financial security. No worries: soon we’ll all be rich like Warren Buffet. And when the market went down, they repeated the same mantra. Eventually, they were right: the market did bounce back up.
But they seem to have forgotten the part about the market going up 9% a year. All those planned projections of financial well-being based on a 9% return seem to have disappeared like a sweet dream in the morning.
Human nature is an amazing thing. In my investment book Beyond the Bull, I discuss the ways in which investors can be their own worst enemy. Our minds naturally try to avoid pain. It’s a painful experience when US stock market investors realize that they have had no growth for 12 years. Our minds seek to avoid these painful messages. Sometimes it’s less painful to slip into a state of voluntary Alzheimer’s and forget about investing ― to repeat the ‘buy and hold for the long term’ slogan over and over. And to fantasize about a recovering economy.
I am enjoying the opportunity to teach my mother. Medical professionals say Alzheimer’s patients can’t learn, that they are, in fact, un-learning what they once knew. And, to a certain extent, the professionals are right. But I have been successful in teaching her how to breathe in a certain way. My years in the martial arts have taught me that deep, controlled breathing relaxes the body and eases muscular tension. Breathing in that way relaxes the body and helps us avoid physical pain. My mother has been able to learn to use my breathing technique to help ease her headaches. I wish I could teach the voluntary Alzheimer’s investors some techniques to ease their financial headaches.
American stock market investors need to learn about selling their stocks. Buy and sell ― not just buy. It’s a little like breathing. We buy stocks at certain times (breathe in) and sell them at other times (breathe out). Holding your stocks when they are going down is like holding your breath. If you do it long enough, you will not like the results.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
But for me, it’s easy to live with someone who lives in her own little world, who forgets and who repeats herself over and over. After all, I’ve been in the investment business since 1975.
David Rosenberg of Gluskin Sheff observed that the S&P 500 index is currently at 1,109 and reminds us that it first hit 1,109 on April 1, 1998.
During the whole 12 years and five months since April 1998, our friends in the financial planning business have been telling us the market goes up on average about 9% a year and we should buy high-quality stocks and hold them for the long term. When the stock market went up, they were happy; their buy-and-hold slogan could be repeated like a meditation mantra. And the followers of these dollar-store gurus were lulled into a mindless paradise, dreaming of financial security. No worries: soon we’ll all be rich like Warren Buffet. And when the market went down, they repeated the same mantra. Eventually, they were right: the market did bounce back up.
But they seem to have forgotten the part about the market going up 9% a year. All those planned projections of financial well-being based on a 9% return seem to have disappeared like a sweet dream in the morning.
Human nature is an amazing thing. In my investment book Beyond the Bull, I discuss the ways in which investors can be their own worst enemy. Our minds naturally try to avoid pain. It’s a painful experience when US stock market investors realize that they have had no growth for 12 years. Our minds seek to avoid these painful messages. Sometimes it’s less painful to slip into a state of voluntary Alzheimer’s and forget about investing ― to repeat the ‘buy and hold for the long term’ slogan over and over. And to fantasize about a recovering economy.
I am enjoying the opportunity to teach my mother. Medical professionals say Alzheimer’s patients can’t learn, that they are, in fact, un-learning what they once knew. And, to a certain extent, the professionals are right. But I have been successful in teaching her how to breathe in a certain way. My years in the martial arts have taught me that deep, controlled breathing relaxes the body and eases muscular tension. Breathing in that way relaxes the body and helps us avoid physical pain. My mother has been able to learn to use my breathing technique to help ease her headaches. I wish I could teach the voluntary Alzheimer’s investors some techniques to ease their financial headaches.
American stock market investors need to learn about selling their stocks. Buy and sell ― not just buy. It’s a little like breathing. We buy stocks at certain times (breathe in) and sell them at other times (breathe out). Holding your stocks when they are going down is like holding your breath. If you do it long enough, you will not like the results.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, September 14, 2010
Rebirth of a Philosophy of Life
My father died last month.
His generation was quite different from ours. He was born in the 1920s, was an impressionable teenager in the late 1930s, and fought in a war in the 1940s. His generation experienced the ups and downs of life much more intensely than our generation. In his day, the economy heated up for short periods and cooled off for long periods. The attitude of his contemporaries was: we will survive. We baby boomers experienced long periods of economic prosperity interrupted once in a while by short, inconvenient cool-downs. Our attitude: we want it all. The dark side of my father’s generation was the fear they’d lose it all. The dark side of ours is entitlement: we think we deserve it all.
My father crossed over in his 88th year, leaving his soul mate behind. My mother was his dependent. She, as did the other women of her generation, relied on her man to provide for her; her job was to keep the home. Women of her generation accepted their roles as mothers and keepers of the hearth. (She had her brief career when he was off trying to win a war.) My mother is deep into her adventure with Alzheimer’s now. Now she truly is dependent. But my father continues to provide for her, even after his death. He has left me to look after her and he has left her some money. The combination of a steady job at the steel mill and the lessons he learned in the 1930s allowed them to save a sufficient amount of money. He had learned that you never risk your capital and you live a frugal life.
His son was of a different generation; he learned different lessons. His teenage years were the 1960s. What economic lessons did the 1960s teach? Nothing compared to the 1930s. What survival lessons did the 1970s teach? Nothing compared to the 1940s. The baby-boom generation was raised in a time when my father’s dreams were all coming true. Our generation was the dream-come-true generation. My father’s son, and all the other so-called baby boomers, learned that dreams can and do come true. And his son, unfettered by threats to his survival or the fear of losing everything, set out to make his dreams come true.
My father’s dream was to have a steady job, own his own home, and retire to financial security. His dreams came true. Initially, baby boomers had similar dreams, but expected them to come true. And why would we be content with just one home? Surely we could assemble a few rental properties too. And what about our RRSPs? Why settle for financial security when we can have prosperity? That famous financial-planning book of the 1990s was called The Wealthy Barber, not The Financially Secure Barber.
The boomers were raised by the Depression generation. Boomer values were once the same as my father’s values. But all that changed in the 1990s. As boomers’ attitudes shifted in those years from security to wealth, they ploughed billions into the stock market. Billions and billions! It was a change of social mood. It was a generational shift. It was the abandonment of my father’s “we will survive” attitude and the embracing of the “we want it all” approach. And it was the final chapter in the story of the Golden Age of the American Stock Market.
In my book Beyond the Bull, I discuss the mechanics of the stock market. It is important to understand the details of exactly what makes the stock market go up and down. In the 1990s, it was baby boomers buying billions and billions of dollars of mutual funds that made the stock markets of the world rise in unison. Money moved from seeking security to seeking growth. The actual flow of money into the stock markets is what made the market go up. And that change of attitude was complete at the end of the 20th century as the stock market ripened into the dot-com high-tech craze. The inevitable “correction” occurred in 2001/2002, when the blue-chip stock market averages dropped in half. Then the swan song finale occurred when the market surged into the oil-and-gold resource craze of 2005 to 2008. The “inevitable correction” knocked the stock market in half in 2008.
Will there be another stock market craze that will take the stock market up yet again? Where will the money come from? What fuel will fire the big bull market that the wealthy barber needs to break even?
The boomer dream of buying the stock market and holding it until you become wealthy is over.
I invite you to share my father’s dream instead. Learn what he learned about frugality in the 1930s. Learn what he learned about survival in the 1940s. His dream was to have a steady income and a modest life ― and not to take inordinate financial risk. Frank Alfred Norquay (1922 – 2010): may you rest in peace and may your dream be reborn in this generation.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
His generation was quite different from ours. He was born in the 1920s, was an impressionable teenager in the late 1930s, and fought in a war in the 1940s. His generation experienced the ups and downs of life much more intensely than our generation. In his day, the economy heated up for short periods and cooled off for long periods. The attitude of his contemporaries was: we will survive. We baby boomers experienced long periods of economic prosperity interrupted once in a while by short, inconvenient cool-downs. Our attitude: we want it all. The dark side of my father’s generation was the fear they’d lose it all. The dark side of ours is entitlement: we think we deserve it all.
My father crossed over in his 88th year, leaving his soul mate behind. My mother was his dependent. She, as did the other women of her generation, relied on her man to provide for her; her job was to keep the home. Women of her generation accepted their roles as mothers and keepers of the hearth. (She had her brief career when he was off trying to win a war.) My mother is deep into her adventure with Alzheimer’s now. Now she truly is dependent. But my father continues to provide for her, even after his death. He has left me to look after her and he has left her some money. The combination of a steady job at the steel mill and the lessons he learned in the 1930s allowed them to save a sufficient amount of money. He had learned that you never risk your capital and you live a frugal life.
His son was of a different generation; he learned different lessons. His teenage years were the 1960s. What economic lessons did the 1960s teach? Nothing compared to the 1930s. What survival lessons did the 1970s teach? Nothing compared to the 1940s. The baby-boom generation was raised in a time when my father’s dreams were all coming true. Our generation was the dream-come-true generation. My father’s son, and all the other so-called baby boomers, learned that dreams can and do come true. And his son, unfettered by threats to his survival or the fear of losing everything, set out to make his dreams come true.
My father’s dream was to have a steady job, own his own home, and retire to financial security. His dreams came true. Initially, baby boomers had similar dreams, but expected them to come true. And why would we be content with just one home? Surely we could assemble a few rental properties too. And what about our RRSPs? Why settle for financial security when we can have prosperity? That famous financial-planning book of the 1990s was called The Wealthy Barber, not The Financially Secure Barber.
The boomers were raised by the Depression generation. Boomer values were once the same as my father’s values. But all that changed in the 1990s. As boomers’ attitudes shifted in those years from security to wealth, they ploughed billions into the stock market. Billions and billions! It was a change of social mood. It was a generational shift. It was the abandonment of my father’s “we will survive” attitude and the embracing of the “we want it all” approach. And it was the final chapter in the story of the Golden Age of the American Stock Market.
In my book Beyond the Bull, I discuss the mechanics of the stock market. It is important to understand the details of exactly what makes the stock market go up and down. In the 1990s, it was baby boomers buying billions and billions of dollars of mutual funds that made the stock markets of the world rise in unison. Money moved from seeking security to seeking growth. The actual flow of money into the stock markets is what made the market go up. And that change of attitude was complete at the end of the 20th century as the stock market ripened into the dot-com high-tech craze. The inevitable “correction” occurred in 2001/2002, when the blue-chip stock market averages dropped in half. Then the swan song finale occurred when the market surged into the oil-and-gold resource craze of 2005 to 2008. The “inevitable correction” knocked the stock market in half in 2008.
Will there be another stock market craze that will take the stock market up yet again? Where will the money come from? What fuel will fire the big bull market that the wealthy barber needs to break even?
The boomer dream of buying the stock market and holding it until you become wealthy is over.
I invite you to share my father’s dream instead. Learn what he learned about frugality in the 1930s. Learn what he learned about survival in the 1940s. His dream was to have a steady income and a modest life ― and not to take inordinate financial risk. Frank Alfred Norquay (1922 – 2010): may you rest in peace and may your dream be reborn in this generation.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Thursday, August 12, 2010
Shooting Star Month
Each summer we get a special treat. In mid-August, the earth’s orbit passes near the asteroid belt, resulting in the season of shooting stars. We see far more shooting stars in August than any other month. Shooting stars are really meteors that enter the earth’s atmosphere and burst into flames. All we have to do to see this annual show is gaze at the night sky in mid August: the odds are we will eventually see one. If we stay long enough, we will see several. It’s a seasonal thing, tied to the orbit of our earth around the sun.
But, in order to see it, we have to look up. And most of us spend our busy lives attending to our earthly affairs; we rarely have time to gaze upward at the night sky.
I wonder who first discovered Shooting Star Month. Ancient literature has many references to the heavens. The Greeks seemed to have particular wisdom in this area: was Shooting Star Month discovered by an ancient Greek who spent a lot time looking up? In order to notice the August shooting star phenomenon, he would have had to look up all year long. Only then could he notice the increase in shooting star activity in August. And he would have to verify his work by looking up over several years. Discovering nature’s patterns is difficult work.
But, once some noble hard working Greek discovered the phenomenon, it becomes easy for the rest of us to participate in his genius and enjoy August’s shooting star show. All we have to do is read about it somewhere, wait for mid August and look up at night. The hard work had been done long ago.
In my investment book, Beyond the Bull, I discuss the phenomenon of using other people’s knowledge for our own financial benefit. Is there a financial pattern that someone may have observed long ago, that we might be able to use for our own well-being. Is there a Shooting Star Month in the financial world?
It turns out there are many examples of such occurrences in the money world. The most relevant right now is known as secular alternation. Secular alternation refers to the tendency of the stock market to alternate between long term secular bull markets and long term secular bear markets. This financial gem is the key to planning our investment futures. Here are examples of how secular alternation has worked for the past 100 years or so:
1. In the late 1800s, there was a rail road boom in North America. This rail road boom gave rise to a stock market boom that ended in 1906 when that secular bull market ended.
2. 1906 to 1921: this secular bear market included World War 1 and hyper-inflation in Germany. [15 years]
3. 1921 to 1929: the roaring 20s produced a short powerful secular bull market. [8 years]
4. 1929 to 1942: the US stock market experienced a secular bear market accompanied by a depression and a world war. [13 years]
5. 1942 to 1966. Secular bull market. [24 years]
6. 1966 to 1982. Secular bear. [16 years]
7. 1982 to 2000. Secular bull. [18 years]
8. 2000 to now. Secular bear. [10 years so far…]
During the secular bull markets, the stock markets went up a long way. Those who bought stocks and simply held them as long term investments did well during these times. The secular bear markets either took stocks down a long way or took them sideways for a long time. Simply buying stocks and holding them resulted in either severe or minor losses. In the long term secular bull markets, investing in equity mutual funds was profitable. In the secular bear markets, it was not. Secular alternation dictates which investment strategies make sense at any given time.
What makes sense in a Secular Bull Market? Ordinary stock market investors can buy reasonable stocks and hold them for extended periods. In a rising market, that strategy works. “Buy and Hold for the Long Term.”
What makes sense in a Secular Bear Market? Ordinary stock market investors have to buy reasonable stocks when they are depressed in price and sell them when they are reasonably priced. “Buy Low, Sell High.”
What makes sense today? We have been in a secular bear market for ten years. If stock market investors have been buying low and selling high, they have had great opportunities to earn solid investment returns. If investors had been holding stocks for the whole ten years, they have been disappointed. They feel like the sky gazer who looks for shooting stars in January.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
But, in order to see it, we have to look up. And most of us spend our busy lives attending to our earthly affairs; we rarely have time to gaze upward at the night sky.
I wonder who first discovered Shooting Star Month. Ancient literature has many references to the heavens. The Greeks seemed to have particular wisdom in this area: was Shooting Star Month discovered by an ancient Greek who spent a lot time looking up? In order to notice the August shooting star phenomenon, he would have had to look up all year long. Only then could he notice the increase in shooting star activity in August. And he would have to verify his work by looking up over several years. Discovering nature’s patterns is difficult work.
But, once some noble hard working Greek discovered the phenomenon, it becomes easy for the rest of us to participate in his genius and enjoy August’s shooting star show. All we have to do is read about it somewhere, wait for mid August and look up at night. The hard work had been done long ago.
In my investment book, Beyond the Bull, I discuss the phenomenon of using other people’s knowledge for our own financial benefit. Is there a financial pattern that someone may have observed long ago, that we might be able to use for our own well-being. Is there a Shooting Star Month in the financial world?
It turns out there are many examples of such occurrences in the money world. The most relevant right now is known as secular alternation. Secular alternation refers to the tendency of the stock market to alternate between long term secular bull markets and long term secular bear markets. This financial gem is the key to planning our investment futures. Here are examples of how secular alternation has worked for the past 100 years or so:
1. In the late 1800s, there was a rail road boom in North America. This rail road boom gave rise to a stock market boom that ended in 1906 when that secular bull market ended.
2. 1906 to 1921: this secular bear market included World War 1 and hyper-inflation in Germany. [15 years]
3. 1921 to 1929: the roaring 20s produced a short powerful secular bull market. [8 years]
4. 1929 to 1942: the US stock market experienced a secular bear market accompanied by a depression and a world war. [13 years]
5. 1942 to 1966. Secular bull market. [24 years]
6. 1966 to 1982. Secular bear. [16 years]
7. 1982 to 2000. Secular bull. [18 years]
8. 2000 to now. Secular bear. [10 years so far…]
During the secular bull markets, the stock markets went up a long way. Those who bought stocks and simply held them as long term investments did well during these times. The secular bear markets either took stocks down a long way or took them sideways for a long time. Simply buying stocks and holding them resulted in either severe or minor losses. In the long term secular bull markets, investing in equity mutual funds was profitable. In the secular bear markets, it was not. Secular alternation dictates which investment strategies make sense at any given time.
What makes sense in a Secular Bull Market? Ordinary stock market investors can buy reasonable stocks and hold them for extended periods. In a rising market, that strategy works. “Buy and Hold for the Long Term.”
What makes sense in a Secular Bear Market? Ordinary stock market investors have to buy reasonable stocks when they are depressed in price and sell them when they are reasonably priced. “Buy Low, Sell High.”
What makes sense today? We have been in a secular bear market for ten years. If stock market investors have been buying low and selling high, they have had great opportunities to earn solid investment returns. If investors had been holding stocks for the whole ten years, they have been disappointed. They feel like the sky gazer who looks for shooting stars in January.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Friday, August 6, 2010
Cold War: yellow alert.
Do you remember Barry McGuire’s 1965 hit, Eve of Destruction? “If the button is pushed, there’s no runnin’ away… Can’t you see the fears that I’m feeling today?” His protest song reflected the wide-spread belief that we lived in a time of danger.
In the 1950s, The Saturday Evening Post featured articles like: Will A-bombs Fall? – and College Communists. The underlying sentiment was the same as McGuire’s protest song: we live in a time of danger and we need to stay alert and protect ourselves.
That sentiment was a big part of life in the 1950s and 60s: two generations had been involved in world wars. The widely recognized baby boomers had parents and grandparents who were directly involved in massive world wars. War had become part of their personal psyche. Danger was part of their up-bringing. For them, world politics involved constant vigilance: in order to protect ourselves, we need to see danger way earlier and respond way earlier. They lived their lives on yellow alert.
But 60 or 70 years of relative peace have lulled their baby boomer children and grandchildren into complacency. Bobby McFerrin’s reggae song, Don’t Worry, Be Happy reflects their rosy optimistic state of un-alertness.
We see the same phenomenon in the financial world. The 1929 to 1932 collapse of the stock market and the 1930s depression impacted our parents and grandparents: they handled their investments with caution, constantly maintaining monetary yellow alert.
In my investment book, Beyond the Bull, I discuss the concept of yellow alert as it applies to investing. In my CD, The Five Levels of Investor Consciousness, I site modern day examples of a variety of financial disasters and how they destroyed investors wealth. My goal is to help people do their investing in the mindset of yellow alert.
But so far, it’s not working. It seems the impact of the 1982 to 2000 bull market has lulled investors into complacency. In the 1990s mutual funds boom we were told we could become rich like Warren Buffet by buying mutual funds and holding them for the long term. But when the bear market began in the year 2000, the rules changed. And now, ten years later, Warren Buffet is even richer, but investors in typical equity mutual funds are not. After ten years of poor performance, stock market investors should be getting back to the yellow alert attitude of the previous generation. But that’s not happening. Stock market investors are still complacent.
What will it take to wake people up?
That’s the problem. We know from studying the alertness of the population for 100 years that it takes a disaster to wake people up. Two world wars put our parents and grandparents on “international politics yellow alert.” A stock market crash and a depression put the same generations on “financial yellow alert.” Will it take another mega-war to alert this generation to the notion of international self defense? Will it take the another stock market crash to alert us to the notion of financial self defense? What will it take?
Here’s how it looks so far:
1. Yellow Alert International Politics Observation: A dictator in North Korea has openly threatened nuclear war. He is intentionally provoking a war with South Korea and with The West. Rosy Complacency Response: This dictator no longer has the unfailing support of The People’s Republic of China and is not going to start a war without it.
2. Yellow Alert Observation: The government of Iran is developing a program designed to give them nuclear weapons. The Iranian president is openly denying it, but Iran’s nuclear program just keeps rolling along. Rosy Complacency Response: When Iraq tried to do the same thing decades ago, the Israeli Air Force bombed the nuclear installation. No problem. If worse comes to worse and Iran doesn’t stop their nuclear program, the Israelis will stop it for us.
3. Yellow Alert Financial Observation: America’s biggest bank, insurance company, auto manufacturer, stock broker and mortgage company all had to be bailed out in the last two years. Certain sovereign states are unable to pay their debts and are being bailed out by the European Common Market. This indicates that the decline of corporate America may not be over. Rosy Complacency Response: the stock market climbs a wall of worry. The early stages of all long term bull markets are accompanied by unfavourable economic news (the so-called wall of worry).
4. Yellow Alert Observation: Americans are currently debating re-stimulating their economy because some are worried that a second wave of recession could start at any time. Such an occurrence could trigger another dramatic 2008-style sell-off in the stock market. Rosy Complacency Response: same as above - the stock market climbs a wall of worry. The early stages of all long term bull markets are accompanied by unfavourable economic news.
Advice for those who have achieved yellow alert status: reduce risk in your portfolios. For most people, this means investing less in the stock market and more in the bond market. Change your asset mix and become more safety oriented, less growth oriented.
Advice for those who are continuing with their original plan of buying and holding for the long term: listen more to your own instincts; less to your financial planner, mutual funds salesman or stock broker.
In the 1950s, The Saturday Evening Post featured articles like: Will A-bombs Fall? – and College Communists. The underlying sentiment was the same as McGuire’s protest song: we live in a time of danger and we need to stay alert and protect ourselves.
That sentiment was a big part of life in the 1950s and 60s: two generations had been involved in world wars. The widely recognized baby boomers had parents and grandparents who were directly involved in massive world wars. War had become part of their personal psyche. Danger was part of their up-bringing. For them, world politics involved constant vigilance: in order to protect ourselves, we need to see danger way earlier and respond way earlier. They lived their lives on yellow alert.
But 60 or 70 years of relative peace have lulled their baby boomer children and grandchildren into complacency. Bobby McFerrin’s reggae song, Don’t Worry, Be Happy reflects their rosy optimistic state of un-alertness.
We see the same phenomenon in the financial world. The 1929 to 1932 collapse of the stock market and the 1930s depression impacted our parents and grandparents: they handled their investments with caution, constantly maintaining monetary yellow alert.
In my investment book, Beyond the Bull, I discuss the concept of yellow alert as it applies to investing. In my CD, The Five Levels of Investor Consciousness, I site modern day examples of a variety of financial disasters and how they destroyed investors wealth. My goal is to help people do their investing in the mindset of yellow alert.
But so far, it’s not working. It seems the impact of the 1982 to 2000 bull market has lulled investors into complacency. In the 1990s mutual funds boom we were told we could become rich like Warren Buffet by buying mutual funds and holding them for the long term. But when the bear market began in the year 2000, the rules changed. And now, ten years later, Warren Buffet is even richer, but investors in typical equity mutual funds are not. After ten years of poor performance, stock market investors should be getting back to the yellow alert attitude of the previous generation. But that’s not happening. Stock market investors are still complacent.
What will it take to wake people up?
That’s the problem. We know from studying the alertness of the population for 100 years that it takes a disaster to wake people up. Two world wars put our parents and grandparents on “international politics yellow alert.” A stock market crash and a depression put the same generations on “financial yellow alert.” Will it take another mega-war to alert this generation to the notion of international self defense? Will it take the another stock market crash to alert us to the notion of financial self defense? What will it take?
Here’s how it looks so far:
1. Yellow Alert International Politics Observation: A dictator in North Korea has openly threatened nuclear war. He is intentionally provoking a war with South Korea and with The West. Rosy Complacency Response: This dictator no longer has the unfailing support of The People’s Republic of China and is not going to start a war without it.
2. Yellow Alert Observation: The government of Iran is developing a program designed to give them nuclear weapons. The Iranian president is openly denying it, but Iran’s nuclear program just keeps rolling along. Rosy Complacency Response: When Iraq tried to do the same thing decades ago, the Israeli Air Force bombed the nuclear installation. No problem. If worse comes to worse and Iran doesn’t stop their nuclear program, the Israelis will stop it for us.
3. Yellow Alert Financial Observation: America’s biggest bank, insurance company, auto manufacturer, stock broker and mortgage company all had to be bailed out in the last two years. Certain sovereign states are unable to pay their debts and are being bailed out by the European Common Market. This indicates that the decline of corporate America may not be over. Rosy Complacency Response: the stock market climbs a wall of worry. The early stages of all long term bull markets are accompanied by unfavourable economic news (the so-called wall of worry).
4. Yellow Alert Observation: Americans are currently debating re-stimulating their economy because some are worried that a second wave of recession could start at any time. Such an occurrence could trigger another dramatic 2008-style sell-off in the stock market. Rosy Complacency Response: same as above - the stock market climbs a wall of worry. The early stages of all long term bull markets are accompanied by unfavourable economic news.
Advice for those who have achieved yellow alert status: reduce risk in your portfolios. For most people, this means investing less in the stock market and more in the bond market. Change your asset mix and become more safety oriented, less growth oriented.
Advice for those who are continuing with their original plan of buying and holding for the long term: listen more to your own instincts; less to your financial planner, mutual funds salesman or stock broker.
Friday, July 23, 2010
Conrad Black
Conrad Black is still a star. The media still love him. Newspapers and electronic media report everything that happens to him with great enthusiasm and in great detail. But let’s face it: Lord Black is a has-been. His days of power and influence are over. We don’t see sports reporters following the lives of Bobby Orr or Wayne Gretzky. We don’t see Parliamentary reporters telling us detailed stories of Brian Mulroney or Jean Chrétien. So why do editors and journalist still love to tell us about Conrad Black?
Perhaps it’s because he was once a media baron; he’s one of them. He’s a member of the club ― their club. Maybe that’s why they love to tell us every little thing about his Lordship’s up-and-down career. Maybe they actually do have a sincere affection for this man, even though he has been convicted of several serious criminal offenses. They are experts on Conrad Black. But I wonder what good their expertise can do. Just because they know him and love him and report all the details of his life, are we obliged to pay attention? Or would our time be better spent following the story of someone we love, someone who is interesting to us, someone who is a member of our club.
In Beyond the Bull, my book on investing, I discuss the importance of paying attention to the news. In the investment world, we need to pay attention to news that affects our investments ― and to ignore news that is irrelevant. Part of learning to become a better investor is learning what’s important for us and what’s important for someone else. The endless stories about Lord Black’s adventures in crime and their consequences seem to be important for someone else.
I wish investing were always this simple. But the financial world is a perverse place. Sometimes what seems important is useless and what seems useless is important. In a way, stock market news is a bit like Conrad Black news: interesting, but not important to investors.
The investment firm Gluskin Sheff released a study on the long-term profitability to Americans of certain investments over the past ten years. Of the asset classes they studied, the US stock market was the poorest performer at -2.3% (annual return for 10 years). The best performing asset class over the past ten years was gold at +33%. US government bonds rang in at +11%. You’d think that prudent investors would naturally have their investment in the better-performing bonds and gold, and not in the poorer-performing stock market.
Yet day after day, we see an endless stream of news about the stock market ― and hardly ever do we see news about gold or bonds. The financial media seems hooked on the under performing but glamorous stock market and uninterested in bonds and gold: the investments that are leading the pack. It’s like sports writers filling the dailies with Orr and Gretzky ― or Parliamentary writers following Mulroney and Chrétien . . . or Conrad, Lord Black. Interesting, but not important.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Perhaps it’s because he was once a media baron; he’s one of them. He’s a member of the club ― their club. Maybe that’s why they love to tell us every little thing about his Lordship’s up-and-down career. Maybe they actually do have a sincere affection for this man, even though he has been convicted of several serious criminal offenses. They are experts on Conrad Black. But I wonder what good their expertise can do. Just because they know him and love him and report all the details of his life, are we obliged to pay attention? Or would our time be better spent following the story of someone we love, someone who is interesting to us, someone who is a member of our club.
In Beyond the Bull, my book on investing, I discuss the importance of paying attention to the news. In the investment world, we need to pay attention to news that affects our investments ― and to ignore news that is irrelevant. Part of learning to become a better investor is learning what’s important for us and what’s important for someone else. The endless stories about Lord Black’s adventures in crime and their consequences seem to be important for someone else.
I wish investing were always this simple. But the financial world is a perverse place. Sometimes what seems important is useless and what seems useless is important. In a way, stock market news is a bit like Conrad Black news: interesting, but not important to investors.
The investment firm Gluskin Sheff released a study on the long-term profitability to Americans of certain investments over the past ten years. Of the asset classes they studied, the US stock market was the poorest performer at -2.3% (annual return for 10 years). The best performing asset class over the past ten years was gold at +33%. US government bonds rang in at +11%. You’d think that prudent investors would naturally have their investment in the better-performing bonds and gold, and not in the poorer-performing stock market.
Yet day after day, we see an endless stream of news about the stock market ― and hardly ever do we see news about gold or bonds. The financial media seems hooked on the under performing but glamorous stock market and uninterested in bonds and gold: the investments that are leading the pack. It’s like sports writers filling the dailies with Orr and Gretzky ― or Parliamentary writers following Mulroney and Chrétien . . . or Conrad, Lord Black. Interesting, but not important.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, July 20, 2010
The Zen of Real Estate
Some of the most hard working and well-paid realtors in Canada sincerely believe that real estate prices can only go up over the years. It’s the safest investment in Canada. Until only a few years ago, American realtors felt the same. They talk about bricks and mortar and say it’s “real.” They’ll say things like: “Land – they’re not making any more of it!” The inference is that land, bricks, and mortar are somehow “real” and stock market investments are not.
In the 1970s I was a real estate appraiser. Since I became a stock broker, I have met many real estate agents who smugly compared real estate investing to stock market investing. They always conclude that real estate is safer and more profitable. The vagaries of market psychology and economic turmoil can move stock prices up and down wildly. Canada’s biggest bluest chip company, The Royal Bank, for example, went from $60 a share in 2007 to $26 in 2009 and back over $62 in 2010. They claim that real estate is much more stable: you can bank on your real estate investment being there when you retire – whereas you don’t know what to expect from your stock market investments. And that’s because real estate is real and the stock market is not so real.
Half of that statement is true: “the stock market is not so real.” The only part of the stock market that’s real is your month-end statement of your portfolio’s value; that’s what you could have sold your portfolio for on that date. And if they printed another statement the next day, the value would be different. That’s the real part. All that opinion about what the market will do in the future, all that analysis, all that economic information – that’s just bull. That’s the part that’s not so real.
In my book, Beyond the Bull, I explain how investors should behave in the “not so real” world of the stock market. We can succeed in stock market investing because we understand it’s not real. We know it changes every day. We know about unforeseen events and we understand risk. That’s what stock market investing is all about. And that’s the Canadian realtors’ blind spot.
Japanese realtors can see what North American realtors cannot. In Japan they understand the concepts of Ken and Zen. In Japanese culture, Ken is the concrete world of atoms and molecules, logic, science, cause and effect. In real estate, the world of Ken refers to the bricks and mortar, lot size, location, the physical attributes of a property. Then there’s the world of Zen, the mysteries of your mind. The Zen of Real Estate refers to the trendy-ness of a neighbourhood; the kind of people who are moving in; the best way to generate a bidding war; the credit-worthiness of the buyers; the willingness of banks to mortgage a property; all those mysterious human forces that blend together to create the value of a home. In Canada, we understand The Ken of Real Estate; but we are babes in the woods in the world of Zen. The only Real Estate Zen Canadians ever think of is how much money we’re going to make and how high mortgage rates could go.
Our American cousins are much more sophisticated about the nebulous nature of Zen Real Estate. Their home prices have fallen in a steaming heap of sub prime mortgages and unconscious credit underwriting. They’ve seen home-owners dropping off the keys to their houses at the mortgage company and driving off. They’ve seen the dark side of Real Estate Zen.
The interesting part of the Zen-Ken Japanese approach to real estate is how they turn Zen into Ken.
Imagine that you bought a house for $250,000 in the year 2000. You put $100,000 down and took a mortgage of $150,000. And now someone tells you your house worth $350,000. The Ken of Real Estate is the actual house and land you bought. In addition, it’s the new roof you installed, the shrubs you planted and the new sink in the bathroom. It’s the real part of real estate. The Zen of your Real Estate is the $350,000 someone told you your house was worth. It’s the floating rate mortgage you put on it when you bought it and the secured line of credit you picked up 5 years ago. It’s the re-zoning application for those vacant lots on the next block. Our question is: “How can we turn mysterious imaginary Real Estate Zen into concrete Real Estate Ken?” Here’s one way: sell your house for $350,000 and redeploy your equity by buying two “fixer-upper” houses for $300,000 each, with $100,000 down and a $200,000 mortgage on each. Now you have two houses, one for your family and one for rent: Ken Real Estate. The real part of real estate.
But the part that most Canadian real estate fans do not really understand is: when you change the Ken of Real Estate, you change the Zen too. The Zen of Real Estate is inseparable from the Ken.
Imagine that you were able to do it again: you sold your two houses and reinvested and re-mortgaged again. Now you would have four properties in the concrete world of Ken Real Estate. And, of course, you have the accompanying Zen Real Estate risks – more mortgage debt and more rental vacancy risk. Let’s let our imaginations continue until your inevitable death. Now your heirs own those properties. You have physically left the Ken part of your world. You are 100% Zen now. But your Ken Real Estate still exists. AND the Zen of those houses still exists too: the mortgage risk, the trendy-ness of the neighbourhood, the willingness or ability of the banks to mortgage it. The Ken and the Zen of those houses still exits, even though you have personally moved into the world of Zen. (That’s the estate part of real estate.)
Because of Zen, real estate has more in common with the stock market than Canadian realtors would like to admit. Because of Zen, house prices don’t always go up. Because of Zen, real estate investors have to manage risk too.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
In the 1970s I was a real estate appraiser. Since I became a stock broker, I have met many real estate agents who smugly compared real estate investing to stock market investing. They always conclude that real estate is safer and more profitable. The vagaries of market psychology and economic turmoil can move stock prices up and down wildly. Canada’s biggest bluest chip company, The Royal Bank, for example, went from $60 a share in 2007 to $26 in 2009 and back over $62 in 2010. They claim that real estate is much more stable: you can bank on your real estate investment being there when you retire – whereas you don’t know what to expect from your stock market investments. And that’s because real estate is real and the stock market is not so real.
Half of that statement is true: “the stock market is not so real.” The only part of the stock market that’s real is your month-end statement of your portfolio’s value; that’s what you could have sold your portfolio for on that date. And if they printed another statement the next day, the value would be different. That’s the real part. All that opinion about what the market will do in the future, all that analysis, all that economic information – that’s just bull. That’s the part that’s not so real.
In my book, Beyond the Bull, I explain how investors should behave in the “not so real” world of the stock market. We can succeed in stock market investing because we understand it’s not real. We know it changes every day. We know about unforeseen events and we understand risk. That’s what stock market investing is all about. And that’s the Canadian realtors’ blind spot.
Japanese realtors can see what North American realtors cannot. In Japan they understand the concepts of Ken and Zen. In Japanese culture, Ken is the concrete world of atoms and molecules, logic, science, cause and effect. In real estate, the world of Ken refers to the bricks and mortar, lot size, location, the physical attributes of a property. Then there’s the world of Zen, the mysteries of your mind. The Zen of Real Estate refers to the trendy-ness of a neighbourhood; the kind of people who are moving in; the best way to generate a bidding war; the credit-worthiness of the buyers; the willingness of banks to mortgage a property; all those mysterious human forces that blend together to create the value of a home. In Canada, we understand The Ken of Real Estate; but we are babes in the woods in the world of Zen. The only Real Estate Zen Canadians ever think of is how much money we’re going to make and how high mortgage rates could go.
Our American cousins are much more sophisticated about the nebulous nature of Zen Real Estate. Their home prices have fallen in a steaming heap of sub prime mortgages and unconscious credit underwriting. They’ve seen home-owners dropping off the keys to their houses at the mortgage company and driving off. They’ve seen the dark side of Real Estate Zen.
The interesting part of the Zen-Ken Japanese approach to real estate is how they turn Zen into Ken.
Imagine that you bought a house for $250,000 in the year 2000. You put $100,000 down and took a mortgage of $150,000. And now someone tells you your house worth $350,000. The Ken of Real Estate is the actual house and land you bought. In addition, it’s the new roof you installed, the shrubs you planted and the new sink in the bathroom. It’s the real part of real estate. The Zen of your Real Estate is the $350,000 someone told you your house was worth. It’s the floating rate mortgage you put on it when you bought it and the secured line of credit you picked up 5 years ago. It’s the re-zoning application for those vacant lots on the next block. Our question is: “How can we turn mysterious imaginary Real Estate Zen into concrete Real Estate Ken?” Here’s one way: sell your house for $350,000 and redeploy your equity by buying two “fixer-upper” houses for $300,000 each, with $100,000 down and a $200,000 mortgage on each. Now you have two houses, one for your family and one for rent: Ken Real Estate. The real part of real estate.
But the part that most Canadian real estate fans do not really understand is: when you change the Ken of Real Estate, you change the Zen too. The Zen of Real Estate is inseparable from the Ken.
Imagine that you were able to do it again: you sold your two houses and reinvested and re-mortgaged again. Now you would have four properties in the concrete world of Ken Real Estate. And, of course, you have the accompanying Zen Real Estate risks – more mortgage debt and more rental vacancy risk. Let’s let our imaginations continue until your inevitable death. Now your heirs own those properties. You have physically left the Ken part of your world. You are 100% Zen now. But your Ken Real Estate still exists. AND the Zen of those houses still exists too: the mortgage risk, the trendy-ness of the neighbourhood, the willingness or ability of the banks to mortgage it. The Ken and the Zen of those houses still exits, even though you have personally moved into the world of Zen. (That’s the estate part of real estate.)
Because of Zen, real estate has more in common with the stock market than Canadian realtors would like to admit. Because of Zen, house prices don’t always go up. Because of Zen, real estate investors have to manage risk too.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, July 13, 2010
Prophets of Doom, Prophets of Profits
July 7, 2010
The stock market can be confusing at times.
For example, eminent market timer and financial astrologer, Arch Crawford, has been writing about a catastrophic event that will occur at the end of this month. Before you balk at the notion of a financial astrologer, understand that Crawford is one of the few investment advisers who correctly predicted the 1987 stock market crash and has received the prestigious stock market Timer of the Year award on several occasions. He is warning of an historic tragic event at the end of July, beginning of August 2010.
On the other hand, we see our G8 economic leaders cautiously, optimistically telling us everything is OK… the 2008-9 banking crises are over and the economy is struggling ahead. The danger has passed.
Arch Crawford is using objective planetary alignment as the basis of his advice. But, other astrologers are observing the same data and coming to other conclusions. Because of his stellar track record, many of Crawford’s followers have sold all their stocks.
And, of course, the G8 economic leaders are using objective economic data to formulate their Don’t Worry, Be Happy hypothesis. And because of the prestige and authority accorded to theses elite officials, many business owners and managers are forging ahead with their investments.
What should we do?
In my investment book, Beyond the Bull, I warn investors not to be bamboozled by economic bullmanship. Don’t react to some salesman’s persuasive economic forecast. By its very nature, investment advice is biased. The giver of the advice is always trying to persuade you to do something. Arch Crawford is urging his subscribers to sell out of the stock market. The G8 leaders are telling us it’s OK to borrow and spend again. And because it’s persuasive, financial advice can never be totally objective. This truth is at the very core of what the stock market is: it’s about thousands of salesmen trying to persuade millions of customers to buy or sell something. Stock market advice is never objective data: it’s all persuasive.
This fact, once thoroughly understood, will make the difference between your long term success or failure as an investor.
Most investors like to stay informed about the financial world and formulate a plan based on the advice of those they trust. This is not a correct way for you to manage your financial affairs. It results in confusion and low long term financial returns.
There are good investment advisers and there are bad ones. Even the best don’t get it right every time. It’s a percentage business: a certain percentage of the advice will work and a certain percentage will not work. Our problem as individual investors is knowing whose advice to follow and when to follow it.
Question: How can we obtain objective investment advice?
Answer: Look for it.
Most investors are not looking for investment information. Most are passively tuned in to the never-ending stories of profit and doom in the financial world. Most are simply being entertained by the financial press. If only we would exchange our love of financial news stories for a need for objective data; we would change our investment world. We would go from the world of salesman’s stories to the world of the financial survivor.
It’s like the difference between the mother who listens to all the breakfast cereal ads on kids’ television and buys a box of brightly colored candy-cereal and the health-conscious mother who studies nutrition and helps her children make their breakfast from scratch. It’s a different way of looking at your world. It takes work to live in a different world.
What world do you want to live in? A recently published study was released by the Canadian investment firm, Gluskin Sheff: it ranked the best and worst performing American investment assets over the past 10 years. Gold was the best performer at 33%. Bonds were 11%. The American stock market lost money over the past ten years; -2.3%. The higher the percentage of gold in your portfolio, the better your ten year performance. The higher the percentage of stocks, the worse ten year performance. The study also ranked investment real estate, corporate debentures and cash. Most of us would have wanted to own the top performers and not the bottom. Why didn’t we? Because we chose the entertaining world of the stock market. Because we have a trusting relationship with someone who also lives in the world of the stock market. We mimicked the mother who watched kids-TV and bought the candy-cereal.
Even if there is no catastrophic event this summer, we should follow Arch Crawford’s advice anyway. Maybe we should just sell our stocks and re-plan our approach to the investment paradigm. Maybe it’s time to look for another way to think about investing.
And to those readers who have good exposure to the bond market and to gold, congratulations: welcome to my world.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
The stock market can be confusing at times.
For example, eminent market timer and financial astrologer, Arch Crawford, has been writing about a catastrophic event that will occur at the end of this month. Before you balk at the notion of a financial astrologer, understand that Crawford is one of the few investment advisers who correctly predicted the 1987 stock market crash and has received the prestigious stock market Timer of the Year award on several occasions. He is warning of an historic tragic event at the end of July, beginning of August 2010.
On the other hand, we see our G8 economic leaders cautiously, optimistically telling us everything is OK… the 2008-9 banking crises are over and the economy is struggling ahead. The danger has passed.
Arch Crawford is using objective planetary alignment as the basis of his advice. But, other astrologers are observing the same data and coming to other conclusions. Because of his stellar track record, many of Crawford’s followers have sold all their stocks.
And, of course, the G8 economic leaders are using objective economic data to formulate their Don’t Worry, Be Happy hypothesis. And because of the prestige and authority accorded to theses elite officials, many business owners and managers are forging ahead with their investments.
What should we do?
In my investment book, Beyond the Bull, I warn investors not to be bamboozled by economic bullmanship. Don’t react to some salesman’s persuasive economic forecast. By its very nature, investment advice is biased. The giver of the advice is always trying to persuade you to do something. Arch Crawford is urging his subscribers to sell out of the stock market. The G8 leaders are telling us it’s OK to borrow and spend again. And because it’s persuasive, financial advice can never be totally objective. This truth is at the very core of what the stock market is: it’s about thousands of salesmen trying to persuade millions of customers to buy or sell something. Stock market advice is never objective data: it’s all persuasive.
This fact, once thoroughly understood, will make the difference between your long term success or failure as an investor.
Most investors like to stay informed about the financial world and formulate a plan based on the advice of those they trust. This is not a correct way for you to manage your financial affairs. It results in confusion and low long term financial returns.
There are good investment advisers and there are bad ones. Even the best don’t get it right every time. It’s a percentage business: a certain percentage of the advice will work and a certain percentage will not work. Our problem as individual investors is knowing whose advice to follow and when to follow it.
Question: How can we obtain objective investment advice?
Answer: Look for it.
Most investors are not looking for investment information. Most are passively tuned in to the never-ending stories of profit and doom in the financial world. Most are simply being entertained by the financial press. If only we would exchange our love of financial news stories for a need for objective data; we would change our investment world. We would go from the world of salesman’s stories to the world of the financial survivor.
It’s like the difference between the mother who listens to all the breakfast cereal ads on kids’ television and buys a box of brightly colored candy-cereal and the health-conscious mother who studies nutrition and helps her children make their breakfast from scratch. It’s a different way of looking at your world. It takes work to live in a different world.
What world do you want to live in? A recently published study was released by the Canadian investment firm, Gluskin Sheff: it ranked the best and worst performing American investment assets over the past 10 years. Gold was the best performer at 33%. Bonds were 11%. The American stock market lost money over the past ten years; -2.3%. The higher the percentage of gold in your portfolio, the better your ten year performance. The higher the percentage of stocks, the worse ten year performance. The study also ranked investment real estate, corporate debentures and cash. Most of us would have wanted to own the top performers and not the bottom. Why didn’t we? Because we chose the entertaining world of the stock market. Because we have a trusting relationship with someone who also lives in the world of the stock market. We mimicked the mother who watched kids-TV and bought the candy-cereal.
Even if there is no catastrophic event this summer, we should follow Arch Crawford’s advice anyway. Maybe we should just sell our stocks and re-plan our approach to the investment paradigm. Maybe it’s time to look for another way to think about investing.
And to those readers who have good exposure to the bond market and to gold, congratulations: welcome to my world.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
G8 Mop-up
July 2, 2010
It’s all over but the whining. The super expensive security program that commanded the media’s focus before last week’s world economic summit continues to command their attention. Notwithstanding the criticism, it did work. The international leaders who visited Canada for those few days all returned home safely. Congratulations to the security forces who succeeded in keeping our visitors safe.
Those visiting dignitaries all issued their summary statements at the end of the conference, as they usually do: reassuring words designed to give us the impression that the worlds banking and economic system is still safe. We are economically safe – that’s been the continuing theme of the G8 conferences since the crisis of 2008.
Pretty boring stuff. No wonder the media focused on the one-day riot where so-called protesters got violent, vandalized police vehicles and smashed windows. It was the only juicy bit in the whole conference.
And now the media has taken the usual tack: the police over-did it. I saw a photo in the Toronto Sun: police had seized a quiver of arrows with huge cloth-filled bags on the tips. Apparently these arrows looked like they were designed to be soaked in gasoline and lit on fire. Imagine the effect of flaming arrows coming down on police lines? Naturally, those carrying these potential weapons were arrested and held for questioning. After the conference was over and peace returned, the Robin-Hood protester claimed the arrows were part of some theatrical group’s props. In other words, Robin Hood came up with a great alibi. I’m sure the guys they caught with tire irons were merely going to help people who had flat tires. And the ones they caught with baseball bats were only trying to help out by trying to organize a friendly game of softball. Why would those mean old police arrest people who were only trying to help out?
In my investment book, Beyond the Bull, I wrote about what it takes to become a successful investor. One of the keys is to not be distracted by the juicy stories. Last week’s conference was a total bore except for the juicy security stories. But it’s the boring part that’s interesting to investors. Those of us who are planning our retirement or managing our family’s finances need to know those boring bits. Two years ago the Canadian and US stock markets dropped in half in nine months. People’s savings were devastated. Can this happen again? The lesson we all learned was that we can be punished for other people’s crimes. In the time leading up to 2007-8, certain bankers became outrageously reckless: when their greed–crazed lending practices blew up, it was our RRSPs that lost 30%+. Governments rushed in to bail out these monster failures and the system survived. Did the governments bail out your RRSP? Will the government bail you out if another wave of bank failures starts? Not a chance! We have to bail ourselves out.
For investors, the G8 conference was not a “bread and circuses” entertainment event: we really need to know whether another 2008-9 stock market crash is possible. We really would like to know so we can make adjustments to our investments to protect ourselves from further loss. And we don’t want to hear the governments’ “Don’t Worry – Be Happy” rhetoric. [Bobby McFerrin’s 1988 reggae song]. We need to know about risk: did this G8 economic summit increase or decrease the risk of my losing my shirt in the stock market again? The real G8 security story is – did all those important politicians and economists make my world safer? Or do I have to make my own financial world safer?
Our Advice: make your own world safer. Reduce your exposure to risky assets and increase your holdings of safe investments. This is a time to focus on not losing your money. There are no super expensive security forces keeping your investments safe. You have to do that yourself.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
It’s all over but the whining. The super expensive security program that commanded the media’s focus before last week’s world economic summit continues to command their attention. Notwithstanding the criticism, it did work. The international leaders who visited Canada for those few days all returned home safely. Congratulations to the security forces who succeeded in keeping our visitors safe.
Those visiting dignitaries all issued their summary statements at the end of the conference, as they usually do: reassuring words designed to give us the impression that the worlds banking and economic system is still safe. We are economically safe – that’s been the continuing theme of the G8 conferences since the crisis of 2008.
Pretty boring stuff. No wonder the media focused on the one-day riot where so-called protesters got violent, vandalized police vehicles and smashed windows. It was the only juicy bit in the whole conference.
And now the media has taken the usual tack: the police over-did it. I saw a photo in the Toronto Sun: police had seized a quiver of arrows with huge cloth-filled bags on the tips. Apparently these arrows looked like they were designed to be soaked in gasoline and lit on fire. Imagine the effect of flaming arrows coming down on police lines? Naturally, those carrying these potential weapons were arrested and held for questioning. After the conference was over and peace returned, the Robin-Hood protester claimed the arrows were part of some theatrical group’s props. In other words, Robin Hood came up with a great alibi. I’m sure the guys they caught with tire irons were merely going to help people who had flat tires. And the ones they caught with baseball bats were only trying to help out by trying to organize a friendly game of softball. Why would those mean old police arrest people who were only trying to help out?
In my investment book, Beyond the Bull, I wrote about what it takes to become a successful investor. One of the keys is to not be distracted by the juicy stories. Last week’s conference was a total bore except for the juicy security stories. But it’s the boring part that’s interesting to investors. Those of us who are planning our retirement or managing our family’s finances need to know those boring bits. Two years ago the Canadian and US stock markets dropped in half in nine months. People’s savings were devastated. Can this happen again? The lesson we all learned was that we can be punished for other people’s crimes. In the time leading up to 2007-8, certain bankers became outrageously reckless: when their greed–crazed lending practices blew up, it was our RRSPs that lost 30%+. Governments rushed in to bail out these monster failures and the system survived. Did the governments bail out your RRSP? Will the government bail you out if another wave of bank failures starts? Not a chance! We have to bail ourselves out.
For investors, the G8 conference was not a “bread and circuses” entertainment event: we really need to know whether another 2008-9 stock market crash is possible. We really would like to know so we can make adjustments to our investments to protect ourselves from further loss. And we don’t want to hear the governments’ “Don’t Worry – Be Happy” rhetoric. [Bobby McFerrin’s 1988 reggae song]. We need to know about risk: did this G8 economic summit increase or decrease the risk of my losing my shirt in the stock market again? The real G8 security story is – did all those important politicians and economists make my world safer? Or do I have to make my own financial world safer?
Our Advice: make your own world safer. Reduce your exposure to risky assets and increase your holdings of safe investments. This is a time to focus on not losing your money. There are no super expensive security forces keeping your investments safe. You have to do that yourself.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, June 22, 2010
Seasonally adjusted thinking
Farmers know how things work: they plant in spring and harvest in fall. Their business is in sync with nature’s cycles. If modern central bankers could do the same, we wouldn’t need to have G8 or G20 Economic Summits to save the world.
Modern economies work in cycles, just like nature’s seasons. There are times of expansion, when economies run smoothly; and there are times of economic contraction, when financial things get rough. Classic theory calls for governments to stimulate economies when things are rough in hopes of smoothing them out. And we all know that stimulating an economy costs money. Governments are supposed to recoup those costs in the good times. They are supposed to sow (stimulate the economy by lowering interest rates and increasing government spending) in weak economic times and harvest in the good times. (Harvest means increase taxes and pay off government debt.) And if they consistently did this, there would be no need for a massive meeting in Toronto this week.
Why can’t they get it right? Why were crazy European bankers and American mortgage companies allowed to blow up the world’s economies in 2007 and 2008? Why did the world’s taxpayers get bagged for billions of bail-out bucks in 2008-9? And why will this G8 – G20 meeting resolve to recoup those billions now, before the world’s economies move from the rough times to the smooth times? Why can’t they be like farmers and line up their G8 – G20 business with the natural cycles of the economy?
It’s because of the law of cause and effect.
In nature, the interaction between the earth and the sun causes the seasons. We human beings found nature’s cycle and lined up our agricultural activities with hers. Human beings have been doing this for millennia because we can objectively observe nature’s cycle.
The economic seasons are not as easy for us to objectively observe. That’s because we human beings are both the cause and the effect of economic cycles. It is our collective activity that makes up the economic cycle. When masses of people borrow money and buy things, that causes economic expansion. And when we all stop buying and pay off our loans, that causes a recession. We cause the cycles. What makes people borrow money and buy things? Desire for nice things the confidence that we can pay back the loans. And what makes us stop buying things and pay off our loans? Fear that we can’t pay off our debts and will lose what we have. Confidence and fear: desire to have things and fear of losing what we have. It’s difficult for most of us to be objective about our own desires and fears.
That’s what went wrong in the earlier part of this century: normal desire turned into greed. Bankers and mortgage lenders wanted bigger and bigger bonus’s. The sellers and manufacturers of things kept up the advertising pressure. Consumers became addicted to buying nice things. (Remember the slogan: shop ‘til you drop?) The western world went into a consumers’ feeding frenzy and the business world kept right on feeding it. Normal desire for a reasonable life became greed for more and more. Look in your basement and in your garage. Are they full of “stuff” you no longer use? Check your neighbour’s basement and garage. More stuff? That’s what went wrong. Collectively we bought too much stuff and borrowed too much money.
And this week the G8 – G20 Economic Summit will try to sort all that out. In order to create economic spring time, they’ll need to inspire confidence in ordinary working people. Can they persuade the public it’s safe to keep on buying and keep on borrowing, but within reason? Tough job.
What’s emerging from the series of G8 – G20 meetings since 2008 is this:
1. Blaming the banks. Increased regulation and taxes for the banks
2. Preserving the status quo: even though the big financial corporations have failed, we must preserve the system in its current form.
3. Bail outs are OK. Shifting of economic risk from the big institutions to the citizens/governments is OK.
4. Ordinary citizens can trust the G8 – G20 to do the right thing and it will all work out.
What should we expect form the June 2010 World Economic Summit?
1. Regulation and taxation of the banks.
2. Assurance that the current system still works.
3. Austerity measures to help governments recoup what they lost in the bail-outs and stimulus deficits.
4. Statements by our leaders that everything is fine and they’ve reached a satisfactory compromise.
Farming wisdom is not part of the G8 – G20 mentality. Their job is to take credit when things go well, and to take credit for fixing things when they go wrong. The closest they ever come to farming is closing the barn door after the horse has left.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Modern economies work in cycles, just like nature’s seasons. There are times of expansion, when economies run smoothly; and there are times of economic contraction, when financial things get rough. Classic theory calls for governments to stimulate economies when things are rough in hopes of smoothing them out. And we all know that stimulating an economy costs money. Governments are supposed to recoup those costs in the good times. They are supposed to sow (stimulate the economy by lowering interest rates and increasing government spending) in weak economic times and harvest in the good times. (Harvest means increase taxes and pay off government debt.) And if they consistently did this, there would be no need for a massive meeting in Toronto this week.
Why can’t they get it right? Why were crazy European bankers and American mortgage companies allowed to blow up the world’s economies in 2007 and 2008? Why did the world’s taxpayers get bagged for billions of bail-out bucks in 2008-9? And why will this G8 – G20 meeting resolve to recoup those billions now, before the world’s economies move from the rough times to the smooth times? Why can’t they be like farmers and line up their G8 – G20 business with the natural cycles of the economy?
It’s because of the law of cause and effect.
In nature, the interaction between the earth and the sun causes the seasons. We human beings found nature’s cycle and lined up our agricultural activities with hers. Human beings have been doing this for millennia because we can objectively observe nature’s cycle.
The economic seasons are not as easy for us to objectively observe. That’s because we human beings are both the cause and the effect of economic cycles. It is our collective activity that makes up the economic cycle. When masses of people borrow money and buy things, that causes economic expansion. And when we all stop buying and pay off our loans, that causes a recession. We cause the cycles. What makes people borrow money and buy things? Desire for nice things the confidence that we can pay back the loans. And what makes us stop buying things and pay off our loans? Fear that we can’t pay off our debts and will lose what we have. Confidence and fear: desire to have things and fear of losing what we have. It’s difficult for most of us to be objective about our own desires and fears.
That’s what went wrong in the earlier part of this century: normal desire turned into greed. Bankers and mortgage lenders wanted bigger and bigger bonus’s. The sellers and manufacturers of things kept up the advertising pressure. Consumers became addicted to buying nice things. (Remember the slogan: shop ‘til you drop?) The western world went into a consumers’ feeding frenzy and the business world kept right on feeding it. Normal desire for a reasonable life became greed for more and more. Look in your basement and in your garage. Are they full of “stuff” you no longer use? Check your neighbour’s basement and garage. More stuff? That’s what went wrong. Collectively we bought too much stuff and borrowed too much money.
And this week the G8 – G20 Economic Summit will try to sort all that out. In order to create economic spring time, they’ll need to inspire confidence in ordinary working people. Can they persuade the public it’s safe to keep on buying and keep on borrowing, but within reason? Tough job.
What’s emerging from the series of G8 – G20 meetings since 2008 is this:
1. Blaming the banks. Increased regulation and taxes for the banks
2. Preserving the status quo: even though the big financial corporations have failed, we must preserve the system in its current form.
3. Bail outs are OK. Shifting of economic risk from the big institutions to the citizens/governments is OK.
4. Ordinary citizens can trust the G8 – G20 to do the right thing and it will all work out.
What should we expect form the June 2010 World Economic Summit?
1. Regulation and taxation of the banks.
2. Assurance that the current system still works.
3. Austerity measures to help governments recoup what they lost in the bail-outs and stimulus deficits.
4. Statements by our leaders that everything is fine and they’ve reached a satisfactory compromise.
Farming wisdom is not part of the G8 – G20 mentality. Their job is to take credit when things go well, and to take credit for fixing things when they go wrong. The closest they ever come to farming is closing the barn door after the horse has left.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, June 15, 2010
Group Think and Disastrous Leaks
British Petroleum’s disastrous oil leak in the Gulf is giving us a sinister example of how futile American group-think can be. George Orwell coined the phrase ‘group think’ in his classic book 1984. It was his sarcastic word for those times when we all think the same way, and we all get it wrong.
This horrible oil-rig accident is very serious: it’s a huge eco-disaster and it’s running out of control. There is no controversy about that. There is unanimity about getting it under control and stopping further damage.
What’s interesting is the American people’s group-think reaction. Somehow the people’s focus is turning toward President Obama; somehow the people seem to blame him. His popularity is dropping on the opinion poles for his failure to act. Or is it his failure to react? Or is it his failure to . . . to . . . ― “Well, we’re not quite sure what he should do, but he sure isn’t doing a very good job!” Isn’t it interesting how they seem to be blaming Mr. Obama for the oil-rig disaster?
And isn’t it interesting how President Obama feels the pressure of public group-think and has engaged BP’s management publicly, demanding that they do what they are already trying to do: namely, stop the disaster. And now, before the disaster is even under control, they’re talking about BP’s liability for the clean-up.
I am fascinated by the American public’s focus on the politicians. Surely they don’t really believe the President or the Senators and Congressmen can help. Or maybe they do. When Mr. Obama took control of the White House, the world was in the middle of a banking crisis. And by simply following the advice of his experts, he participated in saving the world from a banking calamity. Then, in the role of White Knight, he went on to chastise those banking leaders who caused the problem. And then he took several deep bows for his cool thinking under fire. He was so popular he was given the Nobel Peace Prize before he actually did anything.
Now the Gulf eco-disaster has placed his White Knight image in jeopardy: the president who can fix anything can’t fix this one. Nobody can fix it. Just as he took the credit for fixing the banking crisis, he is taking the blame for not fixing the oil-leak crisis. Group-think, American style: the president gets the credit for everything that goes well and gets blamed for everything that goes wrong. What interesting people our American cousins are. They love their heroes. And they love to despise their heroes when they disappoint.
Perhaps we Canadians can learn a lesson from them. In my book on investing Beyond the Bull, I put forth the idea of learning from others. Can we become better investors by learning from Americans’ impatience with their former heroes?
Remember the hero of the investment world in the 1990s? (Warren Buffet was only the icon.) The hero was your personal financial planner who became a financial White Knight leading us all on a crusade for personal wealth. All we had to do was buy the mutual funds he championed and hold them steadfastly until the End of Time. In financial Camelot, we would all retire rich and live happily ever after. I’m sure several Certified Wizards of Retirement Planning (CWRP) felt they should be nominated for a Nobel Prize.
But now it’s our stock market mutual fund investments that have blown up and are leaking our retirement savings. Have you noticed how equity mutual funds no longer advertise their ten-year returns? The stock market has become a retirement disaster for yesterday’s steadfast financial planners. Yesterday’s investment heroes have disappointed.
But we Canadians are different from Americans. They get disillusioned fast! We are slow to blame. They expect problems to be solved now! We will wait patiently and hope for things to get better. Americans criticize their president or fire their financial planners. We politely look the other way.
But my analogy doesn’t really work, does it? That oil well really is spewing black gunk into the Gulf’s rich waters and no White Knight has yet stopped it. But to stop the financial leak in our retirement plans, all we have to do is sell our stock market investments. It’s so easy. But financial group-think is hard to shake off when you’re part of the group. Maybe that’s why we Canadians are so patient with our investment disasters: we have no one to blame but ourselves.
Our advice? Invest in stock market mutual funds when the stock market is moving up. And when it’s not moving up, invest in something that is.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com
(Bullmanship code SS32)
Contact Ken directly at ken@castlemoore.com.
This horrible oil-rig accident is very serious: it’s a huge eco-disaster and it’s running out of control. There is no controversy about that. There is unanimity about getting it under control and stopping further damage.
What’s interesting is the American people’s group-think reaction. Somehow the people’s focus is turning toward President Obama; somehow the people seem to blame him. His popularity is dropping on the opinion poles for his failure to act. Or is it his failure to react? Or is it his failure to . . . to . . . ― “Well, we’re not quite sure what he should do, but he sure isn’t doing a very good job!” Isn’t it interesting how they seem to be blaming Mr. Obama for the oil-rig disaster?
And isn’t it interesting how President Obama feels the pressure of public group-think and has engaged BP’s management publicly, demanding that they do what they are already trying to do: namely, stop the disaster. And now, before the disaster is even under control, they’re talking about BP’s liability for the clean-up.
I am fascinated by the American public’s focus on the politicians. Surely they don’t really believe the President or the Senators and Congressmen can help. Or maybe they do. When Mr. Obama took control of the White House, the world was in the middle of a banking crisis. And by simply following the advice of his experts, he participated in saving the world from a banking calamity. Then, in the role of White Knight, he went on to chastise those banking leaders who caused the problem. And then he took several deep bows for his cool thinking under fire. He was so popular he was given the Nobel Peace Prize before he actually did anything.
Now the Gulf eco-disaster has placed his White Knight image in jeopardy: the president who can fix anything can’t fix this one. Nobody can fix it. Just as he took the credit for fixing the banking crisis, he is taking the blame for not fixing the oil-leak crisis. Group-think, American style: the president gets the credit for everything that goes well and gets blamed for everything that goes wrong. What interesting people our American cousins are. They love their heroes. And they love to despise their heroes when they disappoint.
Perhaps we Canadians can learn a lesson from them. In my book on investing Beyond the Bull, I put forth the idea of learning from others. Can we become better investors by learning from Americans’ impatience with their former heroes?
Remember the hero of the investment world in the 1990s? (Warren Buffet was only the icon.) The hero was your personal financial planner who became a financial White Knight leading us all on a crusade for personal wealth. All we had to do was buy the mutual funds he championed and hold them steadfastly until the End of Time. In financial Camelot, we would all retire rich and live happily ever after. I’m sure several Certified Wizards of Retirement Planning (CWRP) felt they should be nominated for a Nobel Prize.
But now it’s our stock market mutual fund investments that have blown up and are leaking our retirement savings. Have you noticed how equity mutual funds no longer advertise their ten-year returns? The stock market has become a retirement disaster for yesterday’s steadfast financial planners. Yesterday’s investment heroes have disappointed.
But we Canadians are different from Americans. They get disillusioned fast! We are slow to blame. They expect problems to be solved now! We will wait patiently and hope for things to get better. Americans criticize their president or fire their financial planners. We politely look the other way.
But my analogy doesn’t really work, does it? That oil well really is spewing black gunk into the Gulf’s rich waters and no White Knight has yet stopped it. But to stop the financial leak in our retirement plans, all we have to do is sell our stock market investments. It’s so easy. But financial group-think is hard to shake off when you’re part of the group. Maybe that’s why we Canadians are so patient with our investment disasters: we have no one to blame but ourselves.
Our advice? Invest in stock market mutual funds when the stock market is moving up. And when it’s not moving up, invest in something that is.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com
(Bullmanship code SS32)
Contact Ken directly at ken@castlemoore.com.
Wednesday, June 9, 2010
Invest like an Israeli
Looks like Iran will be getting nuclear weapons. Today’s UN resolution levies sanctions against Iran unless they stop their relentless drive to become a nuclear power. Experts tell us the sanctions will not stop them: it’s just a matter of time until Iran’s Islamic fundamentalist government gets the bomb.
The United States has been adamant that Iran should not become a nuclear nation. But it appears the United Nations was less adamant, and the recent watered down UN sanctions against Iran reflect that lack of conviction. Iran will soon be a nuclear power. The Ayatollah will have the bomb. The concept of the car bomb takes on a whole new meaning.
How would you feel if you were an Israeli?
Most of us have no power in world politics. We are pawns. Collectively, the United Nations has made her move. And we pawns will learn to live with it. But the Israelis have a real problem. They can’t afford to be pawns and live with the build up of nuclear arms in the Arab world. They have to have attitude or they won’t survive. And as we see from last week’s news of potential arms smugglers trying to run the Israeli naval blockade of Palestine, they do have attitude. Israel is aggressive in the defense of her territory.
What can we learn from the Israelis? - Attitude!
Let me explain how attitude affects our investing.
Most of us have no power in world economics. In a few days the G-8 and G-20 nations will meet and take some sort of joint economic action. And we pawns will learn to live with whatever they collectively decide. And what will we learn? Does it really matter what they decide? We will have to live with it, no matter what. You see, nuclear war has already broken out in the financial world. In 2008 it was the banks that blew up. In 2009 it was the US auto manufacturers. In 2010 it’s several of Europe’s sovereign nations. G-8 governmental financiers are trying to repair the monetary world after the economic nukes have done their destructive work. And most of us are content to sit and watch.
In my book, Beyond the Bull, I urge investors to adapt the attitude of the financial warrior and abandon the sugar and spice world of bullish optimism.
Let’s not be like the naïve 1930s British Prime Minister Neville Chamberlain who tried to negotiate “peace in our time” with Adolph Hitler. Or the modern day pundits who advise dealing with Iran after she gets the bomb. Or today’s die-hard investors who have bought their equity mutual funds and will hold them no matter what.
It’s about attitude. Do I fight my own battles or do I simply follow the views of some economic guru or financial planner? When there’s danger, act decisively. We are not pawns in our own financial affairs. We do have power in our own worlds. Our opinions and decisions do make a difference in our own RRSPs and our own investment accounts. That’s where we can benefit from a little of that Israeli attitude. How should we act when our personal financial world is threatened by economic instability? Like the Israelis, we need to be aggressive in the defence of our territory.
Our advice is simple: sell your riskier investments and replace them with safer investments. We live in dangerous times.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
The United States has been adamant that Iran should not become a nuclear nation. But it appears the United Nations was less adamant, and the recent watered down UN sanctions against Iran reflect that lack of conviction. Iran will soon be a nuclear power. The Ayatollah will have the bomb. The concept of the car bomb takes on a whole new meaning.
How would you feel if you were an Israeli?
Most of us have no power in world politics. We are pawns. Collectively, the United Nations has made her move. And we pawns will learn to live with it. But the Israelis have a real problem. They can’t afford to be pawns and live with the build up of nuclear arms in the Arab world. They have to have attitude or they won’t survive. And as we see from last week’s news of potential arms smugglers trying to run the Israeli naval blockade of Palestine, they do have attitude. Israel is aggressive in the defense of her territory.
What can we learn from the Israelis? - Attitude!
Let me explain how attitude affects our investing.
Most of us have no power in world economics. In a few days the G-8 and G-20 nations will meet and take some sort of joint economic action. And we pawns will learn to live with whatever they collectively decide. And what will we learn? Does it really matter what they decide? We will have to live with it, no matter what. You see, nuclear war has already broken out in the financial world. In 2008 it was the banks that blew up. In 2009 it was the US auto manufacturers. In 2010 it’s several of Europe’s sovereign nations. G-8 governmental financiers are trying to repair the monetary world after the economic nukes have done their destructive work. And most of us are content to sit and watch.
In my book, Beyond the Bull, I urge investors to adapt the attitude of the financial warrior and abandon the sugar and spice world of bullish optimism.
Let’s not be like the naïve 1930s British Prime Minister Neville Chamberlain who tried to negotiate “peace in our time” with Adolph Hitler. Or the modern day pundits who advise dealing with Iran after she gets the bomb. Or today’s die-hard investors who have bought their equity mutual funds and will hold them no matter what.
It’s about attitude. Do I fight my own battles or do I simply follow the views of some economic guru or financial planner? When there’s danger, act decisively. We are not pawns in our own financial affairs. We do have power in our own worlds. Our opinions and decisions do make a difference in our own RRSPs and our own investment accounts. That’s where we can benefit from a little of that Israeli attitude. How should we act when our personal financial world is threatened by economic instability? Like the Israelis, we need to be aggressive in the defence of our territory.
Our advice is simple: sell your riskier investments and replace them with safer investments. We live in dangerous times.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, June 8, 2010
Safety First: The June Economic Conference
Protection
The media is full of interesting articles about Canada’s preparations for the big G-8 economic summit we will be hosting later this month. Their angle zero’s in on the physical protection of VIP participants from attack by protesters and terrorists. The focus has been on the amount of money and inconvenience that security problems are causing. Some Toronto residents are upset because they will have to show passes to get in or out of the secure area. Others are amazed at the high cost of security for the few days of this conference. The police and military will cost a lot of money and they will cause some inconvenience to those who live in the area. But they will protect the G-8 participants from external attack by protesters or terrorists. Security is expensive and it’s inconvenient: and unfortunately, we need it.
But importance of G-8 security runs much deeper than its price tag. The whole purpose of this conference is to deal with another kind of security: economic security. The real story of the G-8 summit is a world economic system that needs protection. It has been shelled by an economic turn down and a banking system melt down. G-8 VIPs are all acting as if those problems have passed – but ordinary people know better. General Motors has not been saved because a few thousand people borrowed money and bought a new Chevy. And the financial system has not been saved because the taxpayers of the world poured a few billion into banking’s black hole. The world’s economic whiz kids will be meeting in Toronto to concoct new rules that will prevent the bank’s big bonus boys from blasting another hole in your retirement plans. They are hoping to protect us from a recession/depression and more big 2008-style losses in the stock market.
“Two out of Three Ain’t Bad”
So far we’ve talked about two levels of security: second line security is the G-8 conference participants trying to protect us. Third line is the police and military trying to protect the G-8 conference participants. What’s missing? What is first line security?
First line security is us trying to protect ourselves. And this is where the financial security system breaks down.
How do ordinary citizens protect themselves from economic danger? We act conservatively. We save our money. We live will within our means. We don’t take investment risk. We pay off our debt. This is where the today’s economic safety system breaks down. If everyone becomes more economically responsible, who will borrow from the banks we just saved? If we make our old car last another year, who will buy that new Chevy and save GM from bankruptcy? If we pay off our mortgages, how will the Royal Bank set yet another new record in profitability? It’s dangerous for ordinary people to protect ourselves from economic danger. The system needs us to be the risk takers. Modern economic theory requires we consumers to keep on consuming – to keep on borrowing and keep on buying. And if we stop spending, the economic music will stop and everyone will have to rush to find a chair. First line security in the economic world is actually the opposite of security: when consumers stop consuming, they collectively pull the trigger that ends the whole game.
The Dilemma
First line financial security is us ordinary people NOT protecting ourselves economically – continuing to spend as if there were no danger. Second line security is the G-8 leaders giving us the confidence to keep right on spending. Third line security, the only real security, is offered by the police and military who are trying to protect G-8 participants from protesters and terrorists.
The music has already stopped. It stopped when America’s biggest blue chip financial companies and manufacturers needed to be bailed out. That sound you hear is not the music of a thriving economy: it’s politicians, bankers and economists whistling as they walk by the palliative care ward of America’s and Europe’s biggest baddest banks. It’s time for typical investors to find a chair.
What Should We Do?
In my book, Beyond the Bull, I encourage investors to act like financial warriors and leave behind the bullmanship of the economists’ and the politicians’ worlds. The June G-8 conference will feature the bull – optimistic talk and reassuring rhetoric. But in the background there will be hard working police and soldiers trying to protect people. Those are the real protectors: they have discipline and they do their work methodically. In the financial world, that’s how we all should act.
Protect yourself. Spend prudently. Save your money. Invest more conservatively than you ever have before. Pay off debt. Live well within your means.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
The media is full of interesting articles about Canada’s preparations for the big G-8 economic summit we will be hosting later this month. Their angle zero’s in on the physical protection of VIP participants from attack by protesters and terrorists. The focus has been on the amount of money and inconvenience that security problems are causing. Some Toronto residents are upset because they will have to show passes to get in or out of the secure area. Others are amazed at the high cost of security for the few days of this conference. The police and military will cost a lot of money and they will cause some inconvenience to those who live in the area. But they will protect the G-8 participants from external attack by protesters or terrorists. Security is expensive and it’s inconvenient: and unfortunately, we need it.
But importance of G-8 security runs much deeper than its price tag. The whole purpose of this conference is to deal with another kind of security: economic security. The real story of the G-8 summit is a world economic system that needs protection. It has been shelled by an economic turn down and a banking system melt down. G-8 VIPs are all acting as if those problems have passed – but ordinary people know better. General Motors has not been saved because a few thousand people borrowed money and bought a new Chevy. And the financial system has not been saved because the taxpayers of the world poured a few billion into banking’s black hole. The world’s economic whiz kids will be meeting in Toronto to concoct new rules that will prevent the bank’s big bonus boys from blasting another hole in your retirement plans. They are hoping to protect us from a recession/depression and more big 2008-style losses in the stock market.
“Two out of Three Ain’t Bad”
So far we’ve talked about two levels of security: second line security is the G-8 conference participants trying to protect us. Third line is the police and military trying to protect the G-8 conference participants. What’s missing? What is first line security?
First line security is us trying to protect ourselves. And this is where the financial security system breaks down.
How do ordinary citizens protect themselves from economic danger? We act conservatively. We save our money. We live will within our means. We don’t take investment risk. We pay off our debt. This is where the today’s economic safety system breaks down. If everyone becomes more economically responsible, who will borrow from the banks we just saved? If we make our old car last another year, who will buy that new Chevy and save GM from bankruptcy? If we pay off our mortgages, how will the Royal Bank set yet another new record in profitability? It’s dangerous for ordinary people to protect ourselves from economic danger. The system needs us to be the risk takers. Modern economic theory requires we consumers to keep on consuming – to keep on borrowing and keep on buying. And if we stop spending, the economic music will stop and everyone will have to rush to find a chair. First line security in the economic world is actually the opposite of security: when consumers stop consuming, they collectively pull the trigger that ends the whole game.
The Dilemma
First line financial security is us ordinary people NOT protecting ourselves economically – continuing to spend as if there were no danger. Second line security is the G-8 leaders giving us the confidence to keep right on spending. Third line security, the only real security, is offered by the police and military who are trying to protect G-8 participants from protesters and terrorists.
The music has already stopped. It stopped when America’s biggest blue chip financial companies and manufacturers needed to be bailed out. That sound you hear is not the music of a thriving economy: it’s politicians, bankers and economists whistling as they walk by the palliative care ward of America’s and Europe’s biggest baddest banks. It’s time for typical investors to find a chair.
What Should We Do?
In my book, Beyond the Bull, I encourage investors to act like financial warriors and leave behind the bullmanship of the economists’ and the politicians’ worlds. The June G-8 conference will feature the bull – optimistic talk and reassuring rhetoric. But in the background there will be hard working police and soldiers trying to protect people. Those are the real protectors: they have discipline and they do their work methodically. In the financial world, that’s how we all should act.
Protect yourself. Spend prudently. Save your money. Invest more conservatively than you ever have before. Pay off debt. Live well within your means.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Tuesday, June 1, 2010
Two Steps and a Stumble
Do American rules work in the Canadian Economy? 20th century market technician, Edson Gould, devised a rule about interest rate increases: they call it Two Steps and a Stumble. In Gould’s day, if the US Federal Reserve Board raised interest rates twice (two steps), the stock market would fall (“stumble”).
Today the Bank of Canada raised interest rates: that was step one. I wonder if Gould’s guideline applies to the Canadian Stock Market now. In my book, Beyond the Bull, I observe that the rules of the stock market seem to change over time. What worked in the 1990s might not work now. Gould was a market technician from the 1920s to the 1970s. This quotation will give readers some flavour for his era: “The Dow Jones Industrial Average came down from 120 in the summer of 1931 to 40 in the summer of 1932, doubled to 81 in September, kicked back to 50 in February, 1933 and doubled again to 110 by July, 1933.” - Edson Gould. What a time that must have been! Today’s stock market volatility seems tame compared to the 1930s.
Will the rules or guidelines of a bygone era help investors today? If the Bank of Canada (B of C) raises its rate again (step two) will it trigger a decline in the stock market?
The B of C raised interest rates to protect us from inflation. If house prices go up, that’s inflation. If food prices go up, that too is inflation. When energy prices, consumer prices, metals prices – when prices go up, that’s inflation. The Bank of Canada just raised interest rates to protect us from rising prices.
When the stock market goes up – is that inflation? If your RRSP is invested in stocks or equity mutual funds, and they go up in price, is that inflation? Maybe inflation is not all that bad.
If Gould was right, two increases in interest rates triggers a decline in the stock market. That means your stock market investments are at risk. Is it correct for the B of C to raise interest rates knowing that it puts RRSPs and pension plans at risk?
Running the Bank of Canada is a tough job. When you mess with interest rates, it helps here and hurts there. Damned if you do and damned if you don’t.
But most readers are not running the Bank of Canada. You’re running your own personal finances. What will you do?
Most readers will do nothing. Most did not learn from the 2008 – 9 stock market slam-dunk. Most Canadian investors would rather ponder the strategies of the Bank of Canada rather than ponder their own strategies. And if the stock market does stumble, most investors will suffer their losses and blame someone else for their demise. And most will say: “Don’t worry, it’ll come back some day.” To the “Don’t Worry Be Happy” crowd, we say: read the second paragraph above, the excerpt from Edson Gould’s article about the stock market in the early 1930s.
Our advice? Reduce risk. Own fewer equities than you normally own. These are dangerous times for stock market investors.
Today the Bank of Canada raised interest rates: that was step one. I wonder if Gould’s guideline applies to the Canadian Stock Market now. In my book, Beyond the Bull, I observe that the rules of the stock market seem to change over time. What worked in the 1990s might not work now. Gould was a market technician from the 1920s to the 1970s. This quotation will give readers some flavour for his era: “The Dow Jones Industrial Average came down from 120 in the summer of 1931 to 40 in the summer of 1932, doubled to 81 in September, kicked back to 50 in February, 1933 and doubled again to 110 by July, 1933.” - Edson Gould. What a time that must have been! Today’s stock market volatility seems tame compared to the 1930s.
Will the rules or guidelines of a bygone era help investors today? If the Bank of Canada (B of C) raises its rate again (step two) will it trigger a decline in the stock market?
The B of C raised interest rates to protect us from inflation. If house prices go up, that’s inflation. If food prices go up, that too is inflation. When energy prices, consumer prices, metals prices – when prices go up, that’s inflation. The Bank of Canada just raised interest rates to protect us from rising prices.
When the stock market goes up – is that inflation? If your RRSP is invested in stocks or equity mutual funds, and they go up in price, is that inflation? Maybe inflation is not all that bad.
If Gould was right, two increases in interest rates triggers a decline in the stock market. That means your stock market investments are at risk. Is it correct for the B of C to raise interest rates knowing that it puts RRSPs and pension plans at risk?
Running the Bank of Canada is a tough job. When you mess with interest rates, it helps here and hurts there. Damned if you do and damned if you don’t.
But most readers are not running the Bank of Canada. You’re running your own personal finances. What will you do?
Most readers will do nothing. Most did not learn from the 2008 – 9 stock market slam-dunk. Most Canadian investors would rather ponder the strategies of the Bank of Canada rather than ponder their own strategies. And if the stock market does stumble, most investors will suffer their losses and blame someone else for their demise. And most will say: “Don’t worry, it’ll come back some day.” To the “Don’t Worry Be Happy” crowd, we say: read the second paragraph above, the excerpt from Edson Gould’s article about the stock market in the early 1930s.
Our advice? Reduce risk. Own fewer equities than you normally own. These are dangerous times for stock market investors.
Thursday, May 27, 2010
Welcome to Jamaica, Mon
State of Confusion
Kingston Jamaica is in a state of emergency: the police are attempting to arrest an alleged leader of a drug and guns dealer. There have been gun battles off and on for a week. But here seems to be some confusion about who are the good guys and who are the bad guys. Some Jamaican immigrants claim the Jamaican police are corrupt, sometimes using their power to extort money from ordinary citizens. And most accept bribes from organized crime. The press is hinting that some Jamaicans portray this alleged gang leader as a modern day Robin Hood, selling drugs and guns to rich Americans and giving some of the money to poor people who live in his home neighbourhood.
In Canada we automatically assume the police are the good guys and the alleged gang leaders are the bad guys. We assume the establishment has integrity. No so in Jamaica. They live in a different world.
Spectrum of Trust
We Canadians trust our institutions implicitly: we believe what the authorities tell us. Jamaicans implicitly distrust authority figures. If there were some way to measure the trust inherent in a society, Canadians would rank very high – we just trust people – it’s our nature. And Jamaicans would be at the other end of the spectrum – their society doesn’t trust anyone: its their nature.
In my book, Beyond the Bull, I discuss how our human nature helps us or hinders us in the investment world. Which is more useful: trusting the system or distrusting the system? – acting “Canadian” or acting “Jamaican?”
Let’s look more closely at Canadians’ propensity to trust the system. The danger is the we trust too much. Too much trust becomes naiveté. The famous 19th century American showman P.T. Barnum had a saying about those who trust too much: “There’s a sucker born every day.” Are we suckers in the investment world if we trust too much in the establishment?
Do we trust our government too much? When they bail out the banks and auto makers with our money, will it work? When they introduce a new tax, will that work?
Do we trust economists and bankers too much? When they tell us it’s safe to borrow money and buy a bigger house or a new car, should we believe them? When they tell us mortgage interest rates will go up, is it true?
Do we trust our investment advisors too much? When they tell us it’s safe to invest in the stock market, is it really safe? When they tell us stocks are better investments than bonds, is that accurate?
Too much of a good thing
Regular readers will know this writer’s view: every Canadian investor needs a little Jamaican spark in them. We would all benefit from a little disbelief in the system. The American system broke down in 2008-9 when the biggest blue chip bank, insurance company, mortgage company, stock broker and car manufacturer in the USA needed to be rescued by the government. This year the European common market is breaking down because they trusted the Greeks, the Spaniards, the Portuguese, the Irish and the Italians too much. One reason the world’s economies are breaking down is that we all trusted too much. The hallmark of twenty first century investing is naiveté. Naïve investors, from the most sophisticated banks and institutions right down to ordinary individuals trying to save for their retirement – all trusted too much.
The cure
What’s the cure for naiveté? Should we all take a lesson from down trodden Jamaicans who are trying to protect their modern day Robin Hood? Or are those poor souls just as naïve as yesterday’s bankrupt bankers?
The “cure” for naiveté is responsibility. Trust yourself. Take responsibility for yourself. Keep yourself in a state of alertness about what can go wrong in your world and react to it. The cure for naïve Canadian investors and unbelieving Jamaicans is the same: “to thine own self be true.”
In a few weeks or months, peace will return to the poor side of Kingston Jamaica. The police will still be the police and the drug business will still be the drug business. And the poor will still be poor.
Over the next few weeks or months (or years), the financial markets will do whatever they do. But for millions of investors things could be quite different. If the stock market goes down like it did in 2008, their retirement could be less comfortable than they had expected. The key for Canadian and American investors is to preserve capital in risky times. Poor Jamaicans have little hope of escaping poverty. But Canadian and American investors do have hope of holding on to their life styles. We must take responsibility, figure out who are the good guys and who are the bad guys and protect what we have.
In economic terms, we live in high risk times. Dinosaur capitalism is dying. Don’t trust big government or big business: those who used to be good guys are no longer so good. Sell your higher risk investments and keep your capital safe. To thine own self be true.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Kingston Jamaica is in a state of emergency: the police are attempting to arrest an alleged leader of a drug and guns dealer. There have been gun battles off and on for a week. But here seems to be some confusion about who are the good guys and who are the bad guys. Some Jamaican immigrants claim the Jamaican police are corrupt, sometimes using their power to extort money from ordinary citizens. And most accept bribes from organized crime. The press is hinting that some Jamaicans portray this alleged gang leader as a modern day Robin Hood, selling drugs and guns to rich Americans and giving some of the money to poor people who live in his home neighbourhood.
In Canada we automatically assume the police are the good guys and the alleged gang leaders are the bad guys. We assume the establishment has integrity. No so in Jamaica. They live in a different world.
Spectrum of Trust
We Canadians trust our institutions implicitly: we believe what the authorities tell us. Jamaicans implicitly distrust authority figures. If there were some way to measure the trust inherent in a society, Canadians would rank very high – we just trust people – it’s our nature. And Jamaicans would be at the other end of the spectrum – their society doesn’t trust anyone: its their nature.
In my book, Beyond the Bull, I discuss how our human nature helps us or hinders us in the investment world. Which is more useful: trusting the system or distrusting the system? – acting “Canadian” or acting “Jamaican?”
Let’s look more closely at Canadians’ propensity to trust the system. The danger is the we trust too much. Too much trust becomes naiveté. The famous 19th century American showman P.T. Barnum had a saying about those who trust too much: “There’s a sucker born every day.” Are we suckers in the investment world if we trust too much in the establishment?
Do we trust our government too much? When they bail out the banks and auto makers with our money, will it work? When they introduce a new tax, will that work?
Do we trust economists and bankers too much? When they tell us it’s safe to borrow money and buy a bigger house or a new car, should we believe them? When they tell us mortgage interest rates will go up, is it true?
Do we trust our investment advisors too much? When they tell us it’s safe to invest in the stock market, is it really safe? When they tell us stocks are better investments than bonds, is that accurate?
Too much of a good thing
Regular readers will know this writer’s view: every Canadian investor needs a little Jamaican spark in them. We would all benefit from a little disbelief in the system. The American system broke down in 2008-9 when the biggest blue chip bank, insurance company, mortgage company, stock broker and car manufacturer in the USA needed to be rescued by the government. This year the European common market is breaking down because they trusted the Greeks, the Spaniards, the Portuguese, the Irish and the Italians too much. One reason the world’s economies are breaking down is that we all trusted too much. The hallmark of twenty first century investing is naiveté. Naïve investors, from the most sophisticated banks and institutions right down to ordinary individuals trying to save for their retirement – all trusted too much.
The cure
What’s the cure for naiveté? Should we all take a lesson from down trodden Jamaicans who are trying to protect their modern day Robin Hood? Or are those poor souls just as naïve as yesterday’s bankrupt bankers?
The “cure” for naiveté is responsibility. Trust yourself. Take responsibility for yourself. Keep yourself in a state of alertness about what can go wrong in your world and react to it. The cure for naïve Canadian investors and unbelieving Jamaicans is the same: “to thine own self be true.”
In a few weeks or months, peace will return to the poor side of Kingston Jamaica. The police will still be the police and the drug business will still be the drug business. And the poor will still be poor.
Over the next few weeks or months (or years), the financial markets will do whatever they do. But for millions of investors things could be quite different. If the stock market goes down like it did in 2008, their retirement could be less comfortable than they had expected. The key for Canadian and American investors is to preserve capital in risky times. Poor Jamaicans have little hope of escaping poverty. But Canadian and American investors do have hope of holding on to their life styles. We must take responsibility, figure out who are the good guys and who are the bad guys and protect what we have.
In economic terms, we live in high risk times. Dinosaur capitalism is dying. Don’t trust big government or big business: those who used to be good guys are no longer so good. Sell your higher risk investments and keep your capital safe. To thine own self be true.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Friday, May 21, 2010
Focus Too Narrow
The financial press has missed the boat. In its coverage of May’s extreme volatility in the stock market, they have focused on European debt problems. Reporters worry that the economic problems of Iceland and Greece will spread to Italy, Portugal and Spain. They blame the stock market’s wild ride on economic problems. But they may have overlooked the real story.
The North Koreans did not miss the boat. Apparently, earlier this year, a North Korean submarine fired a torpedo at a South Korean naval vessel and sunk it, killing 45 sailors. And when the United Nations called them on it this week, the North Korean dictator threatened all out war on South Korea. North Korea believes that China is her ally. South Korea believes that modern G8 nations are her ally. Did North Korea’s navy commit this act to intentionally start a war? Have they been preparing for war for years? Was the sinking of the South Korean vessel supposed to trigger war? Didn’t George Bush include North Korea in his Access of Evil speech when he was preparing America’s response to the 9 – 11 terrorist act? The financial press has missed the boat on this long-storming sea of trouble.
On May 6, 2010 the Dow Jones Industrials dropped 900 points in the twinkling of an eye. Is it possible that Fat Finger Day happened because of a leak in naval news? Did someone find out the results of the UN study before it was released and those fat fingers pushed panic button, selling stocks in anticipation of renewed conflict in Korea?
Or maybe the real story is a cold war – an icy stand off between China and the west. That would certainly end the rosy glow of China – American trade relations. That would certainly change the investment world.
The heads of state of various countries will continue to posture and position themselves economically and militarily. And financial press will continue to report whatever they feel is important. What will you do?
Don’t you miss the boat. Remember what happened to the stock market in late 2008 and early 2009? It dropped in half. Remember what happened to your RRSP? Were you one of the millions of investors afraid to open their 2008 year end investment account statements? The stories about European debt indicate an increased level of risk in the economic world. The threat of war, cold or hot, also indicates an increase in the level of risk in the economic world. It’s time for ordinary investors to DECREASE the risk in their own personal economic worlds. It’s time to sell your risky securities and buy safer ones. Don’t allow your portfolio to be torpedoed again.
The North Koreans did not miss the boat. Apparently, earlier this year, a North Korean submarine fired a torpedo at a South Korean naval vessel and sunk it, killing 45 sailors. And when the United Nations called them on it this week, the North Korean dictator threatened all out war on South Korea. North Korea believes that China is her ally. South Korea believes that modern G8 nations are her ally. Did North Korea’s navy commit this act to intentionally start a war? Have they been preparing for war for years? Was the sinking of the South Korean vessel supposed to trigger war? Didn’t George Bush include North Korea in his Access of Evil speech when he was preparing America’s response to the 9 – 11 terrorist act? The financial press has missed the boat on this long-storming sea of trouble.
On May 6, 2010 the Dow Jones Industrials dropped 900 points in the twinkling of an eye. Is it possible that Fat Finger Day happened because of a leak in naval news? Did someone find out the results of the UN study before it was released and those fat fingers pushed panic button, selling stocks in anticipation of renewed conflict in Korea?
Or maybe the real story is a cold war – an icy stand off between China and the west. That would certainly end the rosy glow of China – American trade relations. That would certainly change the investment world.
The heads of state of various countries will continue to posture and position themselves economically and militarily. And financial press will continue to report whatever they feel is important. What will you do?
Don’t you miss the boat. Remember what happened to the stock market in late 2008 and early 2009? It dropped in half. Remember what happened to your RRSP? Were you one of the millions of investors afraid to open their 2008 year end investment account statements? The stories about European debt indicate an increased level of risk in the economic world. The threat of war, cold or hot, also indicates an increase in the level of risk in the economic world. It’s time for ordinary investors to DECREASE the risk in their own personal economic worlds. It’s time to sell your risky securities and buy safer ones. Don’t allow your portfolio to be torpedoed again.
Thursday, May 20, 2010
Financial Addiction
Have you ever tried to quit smoking? All the education in the world doesn’t help. They can tell you about diseases and show you graphic photographs of cigarette sickness; they can make laws about where you may or may not smoke – but that’s not what it takes to quit. In order to shake that addiction, you have to suffer through the withdrawal symptoms. You have to feel those urges and not satisfy them. It’s your will against the addiction: and you have to win.
In my book about investing, Beyond the Bull, I discuss the concept of financial technique… the opposite of addiction. A financial technique involves scanning the economic world for certain events, and react to them by buying or selling our investments in a preplanned way. And it’s about learning from our experience. It’s a way of using ration and reason in our investing. But, that doesn’t work for some people. For some people, no matter what the economic world does, they keep right on doing what they’ve always done. Are they addicted? Are “buy-and-hold” investors and their advisers addicted to the stock market? Is it some perverse form of gambling addiction?
Education
I have written several articles hoping to alert people to the dangers of investing in these times of financial change. Check this site: (http://kennorquay.blogspot.com/)
On May 13, Financial Frost – in May pointed to the dangerous and dramatic increase in volatility in the markets. On May 6, Helen’s Greek Restaurant highlighted the twenty first century phenomenon of millions of people borrowing way more than they could ever hope to repay. On April 30, Brain Feel vs. Gut Feel reviewed another indication that the stock market is topping: the excess optimism of stock market investors. April 22’s Price Tag on a Viking Curse highlighted the Icelandic people’s defiance of their own government when they voted to default on their government’s loan guarantees. In Trudeau was Right on April 14 I told how the old rules of investing had become obsolete, and new rules were emerging. The game has changed. On April 14, Consequence of Error showed that there are times to take risk and times to avoid risk. On March 31, I discussed why house prices will fall in the last half of 2010.
The common theme in these articles is investor education: if investors know more about risk, they can protect themselves by selling out of a falling stock market. But logic and reason won’t work for those who are addicted to the stock markets. Like the alcoholic, they’ll have to hit rock bottom before they’ll change their habits.
What’s it like for a stock market junkie to “hit rock bottom?” When an alcoholic or drug addict sees his life ruined, or when a smoker gets his first heart attack, he becomes open to change. Is it the same for buy-and-hold believers? How much money will they have to lose before they see the problem?
Alcoholics anonymous is a sophisticated program to help alcoholics overcome their addiction. Step one is admitting you have a problem. Maybe those who are frozen in investment paralysis don’t realize they have a problem. Is that possible?
Not only is it possible, it’s intentional. Sophisticated financial salesmen continually tell us everything will be OK and it’s fine to hold your stocks and even buy more at any time. Any down turn of the stock market is merely “a correction” – it went up too far too fast and is correcting down to a normal level. They command an array of skilfully crafted charts and statistics to intentionally portray the stock market as safer than it is. No wonder the investing public is hooked on stocks.
My book, Beyond the Bull, takes a cold look at monetary reality: the financial world is rife with sophisticated intelligent salesmen who influence people owning billions of dollars in investments. We are not merely talking about fast-talking hucksters conning unsophisticated small investors. The big American investment firm Goldman Sacks has been accused of conning the most sophisticated institutional investors in the world. Large and small alike, these are the investors from whom the salesmen make their living.
This is where the addition occurs. Those who rely too heavily on one adviser/salesman should ask themselves if they are somehow hooked on the charm and the intelligence of that financial salesman.
Our advice is simple: check your monthly statements. How have you been doing over the past ten years? Most Canadian stock market investors will be disappointed when they realize how poorly they’ve done. Most American investors will be angry – they’ve lost money, on average. Once people realize the buy-and-hold approach no longer works, it is easier to sever their relationship with the charming and intelligent salesman to whom they are addicted.
Those readers who have both quit smoking AND ended a long term relationship will tell you it’s sometimes easier to quit smoking.
In my book about investing, Beyond the Bull, I discuss the concept of financial technique… the opposite of addiction. A financial technique involves scanning the economic world for certain events, and react to them by buying or selling our investments in a preplanned way. And it’s about learning from our experience. It’s a way of using ration and reason in our investing. But, that doesn’t work for some people. For some people, no matter what the economic world does, they keep right on doing what they’ve always done. Are they addicted? Are “buy-and-hold” investors and their advisers addicted to the stock market? Is it some perverse form of gambling addiction?
Education
I have written several articles hoping to alert people to the dangers of investing in these times of financial change. Check this site: (http://kennorquay.blogspot.com/)
On May 13, Financial Frost – in May pointed to the dangerous and dramatic increase in volatility in the markets. On May 6, Helen’s Greek Restaurant highlighted the twenty first century phenomenon of millions of people borrowing way more than they could ever hope to repay. On April 30, Brain Feel vs. Gut Feel reviewed another indication that the stock market is topping: the excess optimism of stock market investors. April 22’s Price Tag on a Viking Curse highlighted the Icelandic people’s defiance of their own government when they voted to default on their government’s loan guarantees. In Trudeau was Right on April 14 I told how the old rules of investing had become obsolete, and new rules were emerging. The game has changed. On April 14, Consequence of Error showed that there are times to take risk and times to avoid risk. On March 31, I discussed why house prices will fall in the last half of 2010.
The common theme in these articles is investor education: if investors know more about risk, they can protect themselves by selling out of a falling stock market. But logic and reason won’t work for those who are addicted to the stock markets. Like the alcoholic, they’ll have to hit rock bottom before they’ll change their habits.
What’s it like for a stock market junkie to “hit rock bottom?” When an alcoholic or drug addict sees his life ruined, or when a smoker gets his first heart attack, he becomes open to change. Is it the same for buy-and-hold believers? How much money will they have to lose before they see the problem?
Alcoholics anonymous is a sophisticated program to help alcoholics overcome their addiction. Step one is admitting you have a problem. Maybe those who are frozen in investment paralysis don’t realize they have a problem. Is that possible?
Not only is it possible, it’s intentional. Sophisticated financial salesmen continually tell us everything will be OK and it’s fine to hold your stocks and even buy more at any time. Any down turn of the stock market is merely “a correction” – it went up too far too fast and is correcting down to a normal level. They command an array of skilfully crafted charts and statistics to intentionally portray the stock market as safer than it is. No wonder the investing public is hooked on stocks.
My book, Beyond the Bull, takes a cold look at monetary reality: the financial world is rife with sophisticated intelligent salesmen who influence people owning billions of dollars in investments. We are not merely talking about fast-talking hucksters conning unsophisticated small investors. The big American investment firm Goldman Sacks has been accused of conning the most sophisticated institutional investors in the world. Large and small alike, these are the investors from whom the salesmen make their living.
This is where the addition occurs. Those who rely too heavily on one adviser/salesman should ask themselves if they are somehow hooked on the charm and the intelligence of that financial salesman.
Our advice is simple: check your monthly statements. How have you been doing over the past ten years? Most Canadian stock market investors will be disappointed when they realize how poorly they’ve done. Most American investors will be angry – they’ve lost money, on average. Once people realize the buy-and-hold approach no longer works, it is easier to sever their relationship with the charming and intelligent salesman to whom they are addicted.
Those readers who have both quit smoking AND ended a long term relationship will tell you it’s sometimes easier to quit smoking.
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