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 (Bullmanship Code = SS32).

Contact Ken directly at

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.

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?

I have written several articles hoping to alert people to the dangers of investing in these times of financial change. Check this site: (

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.

Thursday, May 13, 2010

Financial First Frost – in May?

First frost is a warning of things to come. Summer ends, winter approaches, and the seasons change once again. Time to put away your shorts and get out your woollies.

The action in the financial markets last week was should be viewed in the same way: a first-frost warning of change in the financial seasons.

Last week’s stock market mini-crash seemed to come out of nowhere. The story of Greek’s financial downgrading and rescue package was well know by May 6. Isn’t the stock market supposed to discount this type of news? Market technicians love to remind us that the stock market moves ahead of the news. Their theory is that the buyers and sellers somehow adjust their investment positions to take previously unknown risk into account. In this case, portfolio managers would have bought or sold currencies, stocks, gold, bonds, or t-bills to adjust for the new risk that Greece’s problems created.

But that’s not what happened here, is it? So far this month, every time new news about Greece appeared, the markets went down. And when the Europeans announced their bail out program, the markets recovered. The markets did not anticipate or discount anything: they reacted (over-reacted?) to every news announcement. And this week, the markets seem to have stabilized in reaction to the rescue package.

What does all this wild up-and-down action mean? Was last week’s volatility a first-frost warning of a change in the financial seasons, or was it just a freak spring snowstorm?

Last week’s significance is not in the news about Greece. Their financial fate will be determined by governments, big unions, and the gods of Mount Olympus. What’s important to ordinary investors is the volatility ― the explosion of wild swings in a variety of financial markets. In the months before the discovery of financial abuse in Greece, the markets had been quite boring. From day to day, they’d go up a little or down a little, but there was no real action. Then suddenly, just after 2:00 p.m. on Thursday, May 6, the Dow Jones Industrial Index dropped like a stone. At first, they blamed it on a trading glitch ― some trader added too many zeros to his sell order. Next thing you knew, the stock markets went wild, currencies went ballistic, commodities went crazy, and financial volatility spiked up. (Volatility is a measure of how far prices fluctuate in a short time.) It was last week’s volatility that is significant, not the news about Greece.

Times of low volatility, like the winter of 2009/2010, are sometimes referred to as the calm before the storm. The rule of thumb is: when volatility returns, the direction of the market will be in the direction of the volatility. Eruptions of volatility usually occur in two ways.
1. For the overall stock market, long-term tops often occur in times of low volatility and the increase in volatility triggers the markets’ new down trend.
2. For individual stocks, long-term bases often occur with low volatility. The stock goes nowhere, in a sideways trading range for a long time. When the stock moves out of that ‘base’ into an up-trend, it will be happen on increased volatility and volume of trade.

Thursday, May 6, 2010, (now called ‘fat-finger day’ because of the story that some trader accidentally sent in a sell order with too many zeros) witnessed a huge increase in volatility in many different financial markets. The direction of that volatility created first-frost warnings in the following new trends:
New Down Trends New Up Trends
1. Stocks 1. Bonds
2. Crude oil 2. U.S. dollar
3. Base metals (esp. copper) 3. Japanese yen
4. Canadian dollar 4. Gold

It’s time to test the old market technician’s notion that the stock market discounts the news. Fat-finger day gave us a clear warning that we are investing in high-risk times. Prices can change really fast. It’s time for ordinary investors to reassess the risk in their portfolios. It’s time to make those adjustments that will protect your investments from a possible repeat of the 2008 stock market decline. By doing the buying and selling now, you will be anticipating the next ugly financial news surprise and will not need to react to it. Bring in your harvest before first frost. Will you do it? Or will you react (or over-react?) to the next fast-breaking news story?


To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, both by Ken Norquay, visit (Bullmanship Code = SS32).

To sign up for Ken’s free monthly webinar, visit

Contact Ken directly at

Thursday, May 6, 2010

Helen’s Greek Restaurant

The chief cook and owner of Helen’s Restaurant visits Greece, her homeland, whenever she gets a chance. She knows the people. She’s one of the people. And she doesn’t understand why there is so much trouble in Greece these days.

I explained to her that the Greek government borrowed billions of Euros and now they have to pay it back and can’t. And now, the other nations of Europe and the International Monetary Fund (IMF) are refinancing them, but they are insisting that the Greeks make changes so they will be able to pay back the loans. And the people (especially the unions) do not want to make these changes.

The financial press has featured story after story about the very high percentage of Greeks who work for the government and the very low percentage who pay income tax. The press is acting as if we should have seen this default coming.

But Helen is the colour commentator. She knows the up-close-and-dirty bits.

At first was hard to get her to stop bluffing. She kept saying: “It’s only politics,” and dismissing it. But I would not be thrown off: “No, it’s not politics. They borrowed billions and now they have to pay it back.” Once she realized that I understood the real problem, she shifted her attitude. She started to tell me some of the socialist scams that have been going on in Greece.

She talked about the farm subsidies. Let’s say some bureaucrat decided that the Greek government would pay a five Euro subsidy for each sheep that a farmer had. When the civil servant asked the farmer how many sheep he had, the farmer simply made up a great big number. And no-one from the government ever went out into the pasture and counted the sheep.

She talked about holiday pay: how Greek civil servants received double pay when they took certain holidays.

She talked about Greek citizens notoriety for tax evasion.

I could just see it in her eye. She had known all along that the Greek people had been scamming their government. When she discovered that I understood it too, she stopped trying to deny it and revealed just how deep the scamming was.

This is the process that is going on in Greece today at the national level. The unions are very well aware that the jig is up. The gravy train has stopped. The feeding trough is empty. The game is over. But they are in denial. Greek citizens think the IMF and the other European nations don’t REALLY know they’ve been scammed; and with a little bluffing, they will be able to play the game a little longer. The current demonstrations are Greek workers pretending they are entitled to scam the Germans even more. (Helen pointed out that some Greeks still harbour resentment against the Germans from the Second World War.)

The Continuing Saga
The Greeks conned Europe in the same way the US sub prime mortgage deal-makers conned the banks. Massive loans were made to people who could not pay back the money. The Bank of Iceland did the same thing (refer to my previous blogs on this topic.
Western economies are built on people borrowing and paying back. Borrowing and defaulting doesn’t work. Based on the articles in the financial press, we currently live in the world full of defaults:
1. US sub-prime mortgages
2. Bank of Iceland
3. Dubai
4. Greece
5. Coming soon to a theatre near you: Ireland, Spain, Portugal, and Italy.

And don’t forget the 2008-9 bail outs for the world’s biggest auto manufacturer, bank, stock broker, insurance company and mortgage company. They defaulted too, but got by with a little help from their governments.

Helen is the chief cook and owner of her own financial entity in Canada. She sees we live in risky times. Is she financially safe here in Canada? Will people keep coming to her restaurant in tough times? Will her RRSP survive? In her quiet way she did know the Greeks are in trouble: the nation can no longer live by spending more than it earns. Yet, somehow, she thinks she’s safe here in Canada. Surely it could never happen here.

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 (Bullmanship Code = SS32).

Contact Ken directly at