Baseball’s legendary Yogi Berra is credited with our headline’s déjà vu quotation. It means: “We’ve seen this before.”
The real estate industry released some great numbers this week. Home sales have increased by 87% over last January’s depressed levels and prices have gone up by 15% to 20%. For homeowners and real estate speculators, this is welcome news. Or is it? Is there more to this story than the collective sigh of relief of two thousand real estate agents? Let’s look more closely.
What’s happened so far?
1. Many investors are fed up with the stock market after the 2008-09 crash when market averages dropped 50% in only nine months. Many fed up investors turned to real estate for something more wholesome, less risky.
2. The stock market crash was followed by a world banking crisis, a crisis in corporate America and the continuation of the US junk mortgage crisis. These crises triggered a massive drop in interest rates, including mortgage rates.
3. These two factors combined to give us the flurry of real estate activity that was reported this week. Volume of sales is up and prices are up.
Has this ever happened before? Remember the late 1980s?
1. After the 1987 stock market crash, many investors became fed up with the stock market. They turned to real estate for something more stable, less risky.
2. The 1987 crash was followed by a US ‘Savings and Loan’ crisis. [In the USA they refer to trust companies as ‘savings and loan’ companies.] And that crisis was followed by a junk bond crisis. Those crises triggered a huge drop in interest rates, including mortgage rates.
3. These two factors caused an increase in both volume of sales and house prices.
4. In late 1988 early 1989, there was an up-tick in interest rates, including mortgage rates. This triggered a rush to buy houses – that rush to buy resulted in an even greater flurry of sales and house price increases.
5. In April 1989 a hush settled over the real estate industry. The top of the cycle was in.
6. House prises dropped and did not start up again until 1996. The world’s biggest real estate company, the Reichmann brothers’ Olympia and York, went broke. Construction was stopped on the monolithic office tower between Bay and Yonge Streets in Toronto [just south of The Bay]: the unfinished building stood there for years. The game was over. It took seven years for the real estate down trend to stabilize.
The Warning Signs.
IF mortgage rates tick up ever so slightly AND this triggers a flood of buying – beware. The real estate market will be in the same condition it was in 1989: a long term top.
Warning #2
Our American cousins are already well into the downward part of their real estate cycle. Both their housing and commercial real estate are in trouble. Remember Pierre Elliott Trudeau’s famous words: “When America sneezes, Canada catches a cold.”
Prudent Action
What should a real estate owner do in the face of all this? Here are some thoughts:
1. Homeowners: don’t do anything. Just keep living in the home you love. If you are thinking of selling your small house and buying a big one because you need more space, do it. But if you are thinking of buying a bigger home to increase your overall investment exposure to real estate, put off your decision until things stabilize. And if you are thinking of selling your large house and buying a smaller one, do it sooner rather than later.
2. Investors in houses: those who buy residential real estate and rent it out. Sell your rental properties when mortgage interest ticks up. You could be selling at the top. And, as the house prices drop, you will be in the perfect position to buy future distress sales.
3. Commercial and industrial. How did you feel when the recession was ON in 2008 and 2009? How did you feel when your tenants were laying off employees and subleasing their space? Imagine how real estate investors feel in the auto manufacturing towns of southern Ontario. Or the oil patch in western Canada. Consider selling your marginal properties and reducing the debt on your higher quality properties. Read more about the pickle our American cousins are in. Re-read the story of what happened to the Olympia and York’s $14 billion real estate empire in the early 1990s. This is not a time for complacency. Try to stay positive: if trouble develops, you want to be the strong one when the others are weak. In order to buy at the bottom of the cycle, you have to sell at the top.
In my book, Beyond the Bull, I discuss the correct attitude for stock market investors to take in a long term bear market. This is the same attitude that real estate investors should have now: the attitude of a fighter. It’s like the Kenny Rogers song: “You got to know when to hold, know when to fold ’em. Know when to walk away, know when to run.” There is a strong possibility that real estate investing is coming into a time like 1989 to 1996 - the down part of the cycle. It’s time to fold ‘em and walk away. The down part of the cycle brings opportunity for those in a strong financial position. Having more cash and/or less debt is strength.
Ken Norquay, CMT
President,
Market Street Investment House
416-253-4629
Here are the links to Beyond the Bull on the three major Amazon sites:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Friday, February 5, 2010
Thursday, January 28, 2010
Swiss cheese: it’s about the holes.
There is a high level meeting in Switzerland between the top bureaucrats and leaders of the biggest economies in the world. These conquering heroes are the same ones whose precedent setting cooperation saved the world’s banking system a year ago. They all lowered interest rates sharply, loaned billions to the banks and stimulated their economies dramatically. And it worked. The system survived.
But two nations will be particularly concerned this year. The Dutch will have noticed a crack in the dike and the British will be dealing with a sticky wicket. Between them they could lose 3.8 billion Euros. These two governments loaned money to the shaky Bank of Iceland. But the bank failed anyway. So, the Icelandic government is now being asked to make good on its loan guarantee. Earlier this month [January 2010] their parliament passed a bill scheduling the repayment of this mega-loan. But the people rebelled. 25% of Icelandic voters signed a petition stating they did not want to repay the loan to Britain and the Netherlands. They felt cheated. In the good times, the banks kept the profits; but when it failed, it’s the population who has to pay back the bank’s debt. Not fair. And, of course, it’s not fair that the citizens of England and Holland lose the 3.8 billion either.
Last year, the G-8 solved the banking crisis. Will the World Economic Forum be able to solve this year’s loss-of-faith crisis? How can they prevent Icelandic cynicism from spreading to England and Holland?
Will loss-of-faith spread to America? 140 US banks failed in 2009. Eight more failed on January 26, 2010! Over one third of American houses have mortgages that are bigger than the value of the house. Americans are ticked off with the president and with the Democrats. Are Americans losing faith too?
These are good times to be Canadian. Our economy never got as weak as most other modern economies. And our recovery seems stronger than most. And our banks are widely recognized as the safest in the world. No loss-of-faith in Canada.
This is my Economic Faith Metre for the Swiss Cheese World Economic Forum:
Iceland -lost faith
Britain and Holland -worried
USA -losing faith
Canada -full faith
Faith is important in modern economies. The whole concept of making loans in full expectation that those loans will be repaid is a matter of faith. No faith, no loans. No loans, no economy. It is very important that the G-8 leaders make great efforts to insure that people keep their faith in the system.
Now let’s talk about your faith: will the Swiss Cheese World Economic Forum affect your faith? How does your faith in the Canadian economy affect your retirement plans? In 2008 the stock markets of the world all crashed simultaneously. Citizens of all countries who kept the faith lost their shirts! In 2009, the world’s stock markets recovered some of the 2008 losses. Those who hung in there and kept the faith made back some of their retirement nest eggs. And what should we expect for 2010?
Our expectations are more a matter of faith than facts. Bankers don’t hang out their dirty laundry. They hide the facts so we’ll keep the faith. Here’s my assessment of the faith that Canadians have in the financial world: most investors have noticed that their investments have not fully recovered from the 2008 stock market crash. Most plan to sell out of the stock market if it ever goes back to the 2008 highs.
This is not faith: it’s hope. They are hoping it will go back up – and if it does go back up, they’ll sell and invest in something safer. The 2008 stock market crash broke investors’ hearts: they no longer love the market. And now they’re hoping to break even.
In my book, Beyond the Bull I discuss how the stock market reflects our human emotions. At stock market tops, investors love the markets. At bottoms, they hate the markets. And on the way down, they keep hoping it will go back up. Traders sometimes sarcastically refer to a bear market as “the slope of hope.” Where does faith fit into all this?
It’s faith in the world’s banking system that is at risk right now. It’s about ordinary people like Icelanders, Europeans and Americans keeping their faith in the banking system. And it’s about your faith too. It’s your investments that are surfing on this wave of human emotions. Will the financial waves recover or will they crash like they did in 2008 and early 2009?
We know what the attendees at the World Economic Forum will do. They will wheel and deal and do whatever they can to help us all keep the faith. But what will we do. Most investors are not economic leaders, they’re economic followers. They love the markets when it peaks, hate it when it bottoms and on the way down, they hope it will go back up. They feel love or hate or hope, but they seldom do anything.
What should investors do?
Let me re-phrase that question: the stock market has rallied over 50% in 10 months and another banking crisis seems to be emerging in Europe. Do you think investors should stop hoping the market will go higher and move into something safer now?
The TSX composite index has been drifting since September. Do you think the economic leaders attending the World Economic Forum will help this market go higher? Or will they trigger another 2008 sell-off?
It’s your portfolio: it’s your retirement nest egg that is at risk. Your financial future is a function of what you own, not what you think or what you feel.
The Swiss Cheese World Economic Forum is about what you think and feel: it’s about keeping the faith. Your financial future is about what investments you own and what you do with them. You may love or hate of hope whatever you want in the financial world. But the key to investment success is to own securities that are going up and sell them when they start to go down.
Your investments are the Swiss cheese: your feelings and thoughts are the holes.
Ken Norquay, CMT Jan 28, 2010.
Chief Market Strategist,
CastleMoore Inc
905-847-8511
These are the links to Amazon for those interested in my book:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
But two nations will be particularly concerned this year. The Dutch will have noticed a crack in the dike and the British will be dealing with a sticky wicket. Between them they could lose 3.8 billion Euros. These two governments loaned money to the shaky Bank of Iceland. But the bank failed anyway. So, the Icelandic government is now being asked to make good on its loan guarantee. Earlier this month [January 2010] their parliament passed a bill scheduling the repayment of this mega-loan. But the people rebelled. 25% of Icelandic voters signed a petition stating they did not want to repay the loan to Britain and the Netherlands. They felt cheated. In the good times, the banks kept the profits; but when it failed, it’s the population who has to pay back the bank’s debt. Not fair. And, of course, it’s not fair that the citizens of England and Holland lose the 3.8 billion either.
Last year, the G-8 solved the banking crisis. Will the World Economic Forum be able to solve this year’s loss-of-faith crisis? How can they prevent Icelandic cynicism from spreading to England and Holland?
Will loss-of-faith spread to America? 140 US banks failed in 2009. Eight more failed on January 26, 2010! Over one third of American houses have mortgages that are bigger than the value of the house. Americans are ticked off with the president and with the Democrats. Are Americans losing faith too?
These are good times to be Canadian. Our economy never got as weak as most other modern economies. And our recovery seems stronger than most. And our banks are widely recognized as the safest in the world. No loss-of-faith in Canada.
This is my Economic Faith Metre for the Swiss Cheese World Economic Forum:
Iceland -lost faith
Britain and Holland -worried
USA -losing faith
Canada -full faith
Faith is important in modern economies. The whole concept of making loans in full expectation that those loans will be repaid is a matter of faith. No faith, no loans. No loans, no economy. It is very important that the G-8 leaders make great efforts to insure that people keep their faith in the system.
Now let’s talk about your faith: will the Swiss Cheese World Economic Forum affect your faith? How does your faith in the Canadian economy affect your retirement plans? In 2008 the stock markets of the world all crashed simultaneously. Citizens of all countries who kept the faith lost their shirts! In 2009, the world’s stock markets recovered some of the 2008 losses. Those who hung in there and kept the faith made back some of their retirement nest eggs. And what should we expect for 2010?
Our expectations are more a matter of faith than facts. Bankers don’t hang out their dirty laundry. They hide the facts so we’ll keep the faith. Here’s my assessment of the faith that Canadians have in the financial world: most investors have noticed that their investments have not fully recovered from the 2008 stock market crash. Most plan to sell out of the stock market if it ever goes back to the 2008 highs.
This is not faith: it’s hope. They are hoping it will go back up – and if it does go back up, they’ll sell and invest in something safer. The 2008 stock market crash broke investors’ hearts: they no longer love the market. And now they’re hoping to break even.
In my book, Beyond the Bull I discuss how the stock market reflects our human emotions. At stock market tops, investors love the markets. At bottoms, they hate the markets. And on the way down, they keep hoping it will go back up. Traders sometimes sarcastically refer to a bear market as “the slope of hope.” Where does faith fit into all this?
It’s faith in the world’s banking system that is at risk right now. It’s about ordinary people like Icelanders, Europeans and Americans keeping their faith in the banking system. And it’s about your faith too. It’s your investments that are surfing on this wave of human emotions. Will the financial waves recover or will they crash like they did in 2008 and early 2009?
We know what the attendees at the World Economic Forum will do. They will wheel and deal and do whatever they can to help us all keep the faith. But what will we do. Most investors are not economic leaders, they’re economic followers. They love the markets when it peaks, hate it when it bottoms and on the way down, they hope it will go back up. They feel love or hate or hope, but they seldom do anything.
What should investors do?
Let me re-phrase that question: the stock market has rallied over 50% in 10 months and another banking crisis seems to be emerging in Europe. Do you think investors should stop hoping the market will go higher and move into something safer now?
The TSX composite index has been drifting since September. Do you think the economic leaders attending the World Economic Forum will help this market go higher? Or will they trigger another 2008 sell-off?
It’s your portfolio: it’s your retirement nest egg that is at risk. Your financial future is a function of what you own, not what you think or what you feel.
The Swiss Cheese World Economic Forum is about what you think and feel: it’s about keeping the faith. Your financial future is about what investments you own and what you do with them. You may love or hate of hope whatever you want in the financial world. But the key to investment success is to own securities that are going up and sell them when they start to go down.
Your investments are the Swiss cheese: your feelings and thoughts are the holes.
Ken Norquay, CMT Jan 28, 2010.
Chief Market Strategist,
CastleMoore Inc
905-847-8511
These are the links to Amazon for those interested in my book:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Wednesday, January 27, 2010
The President’s Problems
Mr. Obama has a big job: saving the world is not easy. Last year he took command of America in the middle of a financial crisis. And today, the problem seems to have disappeared. The recession is over and the banking system has survived. His plan seems to have worked. Even General Motors seems to have survived.
Like all other US presidents, Mr. Obama, is a great speaker. And tonight when he gives his state-of-the-union address, he will be most eloquent in explaining how effective his government has been since they took command in the middle of a financial crisis.
If he did such a good job, why is he losing ground in the popularity polls and why did the Democrats recently lose a senate seat in Massachusetts? [The January 2010 bi-election to replace the late Senator Ted Kennedy was won by the Republican candidate.] What’s wrong? Why is the President behind the 8-ball?
The answer lies in a mysterious place: the tiny European island nation, Iceland. Iceland is home to the particularly aggressive Bank of Iceland. The bank has failed and the government of Iceland is being asked to repay 3.8 billion Euros to the British and Netherlands governments. These two governments loaned the money to the Bank of Iceland in an attempt to save it in the dark days of last year’s banking crisis. The Icelandic government guaranteed the loan and now it’s pay-back time. But now it appears the people of Iceland are rebelling. 25% of the voters signed a petition: they don’t want to repay the loan. The president vetoed a bill that outlined the repayment schedule. And now they will have a referendum. On March 6 the people of Iceland will decide whether or not they are responsible for the big bank’s blunders.
The people feel cheated. They feel that the bank got to keep the profits in the good times, but in the bad times, the people pay for the losses. Icelanders are in a bad mood.
Maybe Icelanders are not the only ones who feel cheated and who are in a bad mood. Maybe Americans feel the same about US bankers’ blunders as Icelanders feel about theirs. Maybe Americans are losing faith in the banking system like their Icelandic counterparts. And maybe that’s why they’re ticked off with president Obama. Obama saved the bankers by putting the American people in debt. Are Americans looking for a better way?
According to the US Federal Deposit Insurance Corporation’s website, 140 US banks failed in 2009. 8 more closed their doors yesterday! [Jan. 26, 2010] Yes, there is a problem. Something is not working. There is a distinct possibility that the people are losing faith in the banking system and in their government’s ability to save it.
Remember Jimmy Stewart’s movie It’s a Wonderful Life? When the people lose faith in a bank, that loss of faith causes the bank to fail. If the Icelanders vote NO, their banking system will fail. They’ll likely be bounced out of the European common market too. Iceland could become the banana republic of the north. It’s like It’s a Wonderful Life: they need a local hero to persuade the people that they should keep the faith. And if they don’t get an eloquent local financial hero, Iceland will become a ghost town.
President Obama is the eloquent local hero for the American people. Somehow he has to persuade the people to keep the faith in big American institutions. Otherwise, America will go the way of the old USSR: she will collapse and have to be rebuilt. Good luck, Mr. President.
Ken Norquay, CMT, Jan 27, 2010.
Partner
CastleMoore Inc.
www.castlemoore.com
Like all other US presidents, Mr. Obama, is a great speaker. And tonight when he gives his state-of-the-union address, he will be most eloquent in explaining how effective his government has been since they took command in the middle of a financial crisis.
If he did such a good job, why is he losing ground in the popularity polls and why did the Democrats recently lose a senate seat in Massachusetts? [The January 2010 bi-election to replace the late Senator Ted Kennedy was won by the Republican candidate.] What’s wrong? Why is the President behind the 8-ball?
The answer lies in a mysterious place: the tiny European island nation, Iceland. Iceland is home to the particularly aggressive Bank of Iceland. The bank has failed and the government of Iceland is being asked to repay 3.8 billion Euros to the British and Netherlands governments. These two governments loaned the money to the Bank of Iceland in an attempt to save it in the dark days of last year’s banking crisis. The Icelandic government guaranteed the loan and now it’s pay-back time. But now it appears the people of Iceland are rebelling. 25% of the voters signed a petition: they don’t want to repay the loan. The president vetoed a bill that outlined the repayment schedule. And now they will have a referendum. On March 6 the people of Iceland will decide whether or not they are responsible for the big bank’s blunders.
The people feel cheated. They feel that the bank got to keep the profits in the good times, but in the bad times, the people pay for the losses. Icelanders are in a bad mood.
Maybe Icelanders are not the only ones who feel cheated and who are in a bad mood. Maybe Americans feel the same about US bankers’ blunders as Icelanders feel about theirs. Maybe Americans are losing faith in the banking system like their Icelandic counterparts. And maybe that’s why they’re ticked off with president Obama. Obama saved the bankers by putting the American people in debt. Are Americans looking for a better way?
According to the US Federal Deposit Insurance Corporation’s website, 140 US banks failed in 2009. 8 more closed their doors yesterday! [Jan. 26, 2010] Yes, there is a problem. Something is not working. There is a distinct possibility that the people are losing faith in the banking system and in their government’s ability to save it.
Remember Jimmy Stewart’s movie It’s a Wonderful Life? When the people lose faith in a bank, that loss of faith causes the bank to fail. If the Icelanders vote NO, their banking system will fail. They’ll likely be bounced out of the European common market too. Iceland could become the banana republic of the north. It’s like It’s a Wonderful Life: they need a local hero to persuade the people that they should keep the faith. And if they don’t get an eloquent local financial hero, Iceland will become a ghost town.
President Obama is the eloquent local hero for the American people. Somehow he has to persuade the people to keep the faith in big American institutions. Otherwise, America will go the way of the old USSR: she will collapse and have to be rebuilt. Good luck, Mr. President.
Ken Norquay, CMT, Jan 27, 2010.
Partner
CastleMoore Inc.
www.castlemoore.com
Friday, December 18, 2009
Copenhagen Cop-out.
The Copenhagen climate change conference was a show case for human nature. The conference was rife with blow-hard politicians and self-righteous protesters. The human ego is an amazing thing. And now that they’ve all gone home, what did we learn from this spectacle?
Modern human beings have a strange focus on the grandiose. We love the billion dollar international deals where rich nations give to the poor. We love the massive national targets for emission reduction, the idea of all nations cooperating in a globally united effort. We love this focus on bigness.
But, in problems like this, the devil is in the details. Greenhouse gas problems seem easy to solve.
For starters, an automotive engineer friend tells me that diesel engines use half the fuel that gasoline engines use. It’s easy for a nation like Canada to introduce limits on the numbers of gasoline engines produced in Canada: then the manufacturers would simply build cars with diesel engines instead. The government could easily limit the number of 8 cylinder engines in passenger cars. They’d simply build cars with 6 or 4 cylinder engines. The government could easily regulate the weight of passenger cars: they’d simply manufacture lighter cars. In other words, our government could easily force Canadians to drive the same kind of cars people currently drive in Europe. And the auto manufacturers could easily produce them.
Why won’t elected politicians do these obvious things? Because they are focussed on the grandiose. They are not interested in the boring details of simply getting the job done. It’s human nature.
It’s so easy to see the futility of human nature in others; not so easy to see it in ourselves.
Consider the financial world; are we all focussed on the banking system, the world economy, the automotive bail out? Are we overlooking the obvious simple things we can do to save our own personal financial worlds?
What about your budget? Do you spend responsibly? Do you save money? Are you too far in debt? These things are easy to sort out.
And what about your investments? Are you making money? Or are you losing? Is your investment advisor worth the money you pay them? Do you remember how you felt last year when the stock market dropped 45% in 6 months? Did you wish you had sold out long before? Have you sold out now?
For advice in this matter, I turn to country singer, Kenny Rogers. In his song, The Gambler, he offers this simple advice: “You’ve got to know when to fold ‘em, know when to hold ‘em, know when to walk away, know when to run.”
But most of us have caught the Copenhagen flu: we focus on the grandiose problems of the world and forget all about the simple things we can all do to defend ourselves from future financial loss.
In my book, Beyond the Bull, I write about how your human nature impacts your investing. I encourage readers to focus on their own investment accounts, not on the grandiose world financial markets. Media coverage of the big and the bad can distract us and prevent us from quietly living our lives in a responsible way.
Focus on yourself first.
Ken Norquay, CMT
Financial Philosopher
Links to beyond the Bull:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Modern human beings have a strange focus on the grandiose. We love the billion dollar international deals where rich nations give to the poor. We love the massive national targets for emission reduction, the idea of all nations cooperating in a globally united effort. We love this focus on bigness.
But, in problems like this, the devil is in the details. Greenhouse gas problems seem easy to solve.
For starters, an automotive engineer friend tells me that diesel engines use half the fuel that gasoline engines use. It’s easy for a nation like Canada to introduce limits on the numbers of gasoline engines produced in Canada: then the manufacturers would simply build cars with diesel engines instead. The government could easily limit the number of 8 cylinder engines in passenger cars. They’d simply build cars with 6 or 4 cylinder engines. The government could easily regulate the weight of passenger cars: they’d simply manufacture lighter cars. In other words, our government could easily force Canadians to drive the same kind of cars people currently drive in Europe. And the auto manufacturers could easily produce them.
Why won’t elected politicians do these obvious things? Because they are focussed on the grandiose. They are not interested in the boring details of simply getting the job done. It’s human nature.
It’s so easy to see the futility of human nature in others; not so easy to see it in ourselves.
Consider the financial world; are we all focussed on the banking system, the world economy, the automotive bail out? Are we overlooking the obvious simple things we can do to save our own personal financial worlds?
What about your budget? Do you spend responsibly? Do you save money? Are you too far in debt? These things are easy to sort out.
And what about your investments? Are you making money? Or are you losing? Is your investment advisor worth the money you pay them? Do you remember how you felt last year when the stock market dropped 45% in 6 months? Did you wish you had sold out long before? Have you sold out now?
For advice in this matter, I turn to country singer, Kenny Rogers. In his song, The Gambler, he offers this simple advice: “You’ve got to know when to fold ‘em, know when to hold ‘em, know when to walk away, know when to run.”
But most of us have caught the Copenhagen flu: we focus on the grandiose problems of the world and forget all about the simple things we can all do to defend ourselves from future financial loss.
In my book, Beyond the Bull, I write about how your human nature impacts your investing. I encourage readers to focus on their own investment accounts, not on the grandiose world financial markets. Media coverage of the big and the bad can distract us and prevent us from quietly living our lives in a responsible way.
Focus on yourself first.
Ken Norquay, CMT
Financial Philosopher
Links to beyond the Bull:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Tuesday, December 8, 2009
Country and Folk songs: Financial Wisdom in Disguise.
It’s early December and the days are getting really short. Our native ancestors called this time of year The Season of Dreams: the time of thinking and remembering. In the stock market, we can turn thinking and remembering into money. For this reason, in my book, Beyond the Bull, I encourage investors to be objective in their thinking and objective in their remembrance.
Critics would say, “That’s crazy: we remember what we remember. There’s no ‘objective remembering’ or ‘subjective remembering.’ There’s only remembering and forgetting.”
This is not true. The human brain is not wired that way. We are creatures who seek pleasure and avoid pain. I suggest that your memory is like this. Sometimes we forget those painful times.
Do you remember what the stock market was doing in early December 2008, one year ago? Investors were afraid to open their monthly account statements. There was blood in the financial streets. People’s retirement plans needed to be re-written.
We’d rather remember that, one year ago in December ‘08, the S&P 500 index was around 900 and now it’s around 1100. We’d rather forget that two years ago, in December ‘07 it was around 1500. And we definitely want to forget that ten years ago it was around 1500 in the year 2000.
The days are getting shorter and shorter for those who would have us buy and hold for the long term. It’s just not working any more.
For guidance in this area, I recommend some simple philosophy from country singer Kenny Rogers. In his song, The Gambler, Kenny received the following advice from an old man on a train:
"If you're gonna play the game, boy, ya gotta learn to play it right.
You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done.
Ev'ry gambler knows that the secret to survivin'
Is knowin' what to throw away and knowing what to keep.
'Cause ev'ry hand's a winner and ev'ry hand's a loser,
And the best that you can hope for is to die in your sleep."
The problem with today’s investors is they don’t know when to fold ‘em. They think they should always hold ‘em.
Further advice on this topic comes from folk singer Bob Dylan, who sang: “The Times, they are a-changin’.” It appears that the times have changed: buying and holding no longer works. Now we have to know when to fold ‘em too.
As you ponder your dreams in the next few weeks, remember. Your financial dreams are woven in this world of harsh reality: in this world of survival of the fittest. If your dreams of easy wealth in your retirement have vanished, remember that. Remember it objectively. For, when the Season of Dreams ends, it will be time to wake up.
There is real risk in the stock market. It requires offence and defence. It’s not a cake-walk to riches: “You got to know when to hold 'em, know when to fold 'em.”
Ken Norquay, CMT
Chief Market Strategist and Partner
CastleMoore Inc
“Buy, hold and know when to sell.”
Links to Beyond the Bull:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Critics would say, “That’s crazy: we remember what we remember. There’s no ‘objective remembering’ or ‘subjective remembering.’ There’s only remembering and forgetting.”
This is not true. The human brain is not wired that way. We are creatures who seek pleasure and avoid pain. I suggest that your memory is like this. Sometimes we forget those painful times.
Do you remember what the stock market was doing in early December 2008, one year ago? Investors were afraid to open their monthly account statements. There was blood in the financial streets. People’s retirement plans needed to be re-written.
We’d rather remember that, one year ago in December ‘08, the S&P 500 index was around 900 and now it’s around 1100. We’d rather forget that two years ago, in December ‘07 it was around 1500. And we definitely want to forget that ten years ago it was around 1500 in the year 2000.
The days are getting shorter and shorter for those who would have us buy and hold for the long term. It’s just not working any more.
For guidance in this area, I recommend some simple philosophy from country singer Kenny Rogers. In his song, The Gambler, Kenny received the following advice from an old man on a train:
"If you're gonna play the game, boy, ya gotta learn to play it right.
You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done.
Ev'ry gambler knows that the secret to survivin'
Is knowin' what to throw away and knowing what to keep.
'Cause ev'ry hand's a winner and ev'ry hand's a loser,
And the best that you can hope for is to die in your sleep."
The problem with today’s investors is they don’t know when to fold ‘em. They think they should always hold ‘em.
Further advice on this topic comes from folk singer Bob Dylan, who sang: “The Times, they are a-changin’.” It appears that the times have changed: buying and holding no longer works. Now we have to know when to fold ‘em too.
As you ponder your dreams in the next few weeks, remember. Your financial dreams are woven in this world of harsh reality: in this world of survival of the fittest. If your dreams of easy wealth in your retirement have vanished, remember that. Remember it objectively. For, when the Season of Dreams ends, it will be time to wake up.
There is real risk in the stock market. It requires offence and defence. It’s not a cake-walk to riches: “You got to know when to hold 'em, know when to fold 'em.”
Ken Norquay, CMT
Chief Market Strategist and Partner
CastleMoore Inc
“Buy, hold and know when to sell.”
Links to Beyond the Bull:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Monday, November 30, 2009
Stock market farming
Big news: It didn’t snow
Never in recorded history: that’s the last time the City of Toronto had a November without a trace of snow. 2009 will be the first snow-less November ever.
Whenever we talk about the weather, we habitually refer to weather’s history: “We haven’t had a storm like this since 1967…” We human beings live with weather day to day and we seldom have unique weather experiences. This November was unique.
In a way, the human experience with weather is a bit like our experience with the stock market. Each day is seldom interesting on its own; not really. Most days are more or less like many other stock market days – up a little, down a little. But let’s face it; these are non-events - like day to day changes in the weather. And now we have a November record of something that didn’t happen: it didn’t snow.
Day to day weather is like day to day stock market activity: boring.
But, when we string together enough non-event weather days, we notice something very interesting: the change of the seasons. Each day may be insignificant; but when we string 90 days together, real change happens. The same is true for the stock market. If we string together enough of the stock market’s non-event days, we can see the up trends and the down trends. And we can see the transitions between them. Now it’s getting interesting. Now investors can act like farmers. Farmers plant their crops when the weather turns from cold to hot. And they harvest when the weather turns from hot to cold.
Does the stock market have seasons? Are bull markets and bear markets like summer and winter seasons? Is there a time to plant and a time to harvest? You bet there is! Remember May and June 2008? That was stock market autumn: time to pull in the harvest. Remember late 2002 to early 2003? That was stock market spring: time to plant. Unfortunately for investors, the financial seasons are not mechanical and predictable like the agricultural seasons. We are forced to act like squirrels who can’t read the calendar: we have to watch for the signs to determine when we should gather our nuts.
What are the signs of financial autumn? Can history teach us anything about those times when the up trends turn down, when the bull markets give way and the bear markets emerge? In my book, Beyond the Bull, I review stock market cycles. It seems the secret lies in the attitude of investors. At long term stock market tops, investors are very optimistic. At bottoms, investors are overly pessimistic. It’s all about investor attitude.
As always in the stock market, the question is: what season are we in now? Should I be buying or selling? The answer? Look around. Are investors too optimistic or are they too pessimistic?
The statisticians who measure investor attitude report that investors are quite optimistic; and less pessimistic than they have been since 2007. This statistic is telling us to start up the combine and start bringing in the crops. It’s time to do what we wish we had done in May and June of 2008. Sell some stocks.
Ken Norquay, CMT
Financial Philosopher
Links to Beyond the Bull:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Never in recorded history: that’s the last time the City of Toronto had a November without a trace of snow. 2009 will be the first snow-less November ever.
Whenever we talk about the weather, we habitually refer to weather’s history: “We haven’t had a storm like this since 1967…” We human beings live with weather day to day and we seldom have unique weather experiences. This November was unique.
In a way, the human experience with weather is a bit like our experience with the stock market. Each day is seldom interesting on its own; not really. Most days are more or less like many other stock market days – up a little, down a little. But let’s face it; these are non-events - like day to day changes in the weather. And now we have a November record of something that didn’t happen: it didn’t snow.
Day to day weather is like day to day stock market activity: boring.
But, when we string together enough non-event weather days, we notice something very interesting: the change of the seasons. Each day may be insignificant; but when we string 90 days together, real change happens. The same is true for the stock market. If we string together enough of the stock market’s non-event days, we can see the up trends and the down trends. And we can see the transitions between them. Now it’s getting interesting. Now investors can act like farmers. Farmers plant their crops when the weather turns from cold to hot. And they harvest when the weather turns from hot to cold.
Does the stock market have seasons? Are bull markets and bear markets like summer and winter seasons? Is there a time to plant and a time to harvest? You bet there is! Remember May and June 2008? That was stock market autumn: time to pull in the harvest. Remember late 2002 to early 2003? That was stock market spring: time to plant. Unfortunately for investors, the financial seasons are not mechanical and predictable like the agricultural seasons. We are forced to act like squirrels who can’t read the calendar: we have to watch for the signs to determine when we should gather our nuts.
What are the signs of financial autumn? Can history teach us anything about those times when the up trends turn down, when the bull markets give way and the bear markets emerge? In my book, Beyond the Bull, I review stock market cycles. It seems the secret lies in the attitude of investors. At long term stock market tops, investors are very optimistic. At bottoms, investors are overly pessimistic. It’s all about investor attitude.
As always in the stock market, the question is: what season are we in now? Should I be buying or selling? The answer? Look around. Are investors too optimistic or are they too pessimistic?
The statisticians who measure investor attitude report that investors are quite optimistic; and less pessimistic than they have been since 2007. This statistic is telling us to start up the combine and start bringing in the crops. It’s time to do what we wish we had done in May and June of 2008. Sell some stocks.
Ken Norquay, CMT
Financial Philosopher
Links to Beyond the Bull:
Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1
Friday, November 27, 2009
Good Bye Dubai
It seems yet another multibillion dollar bubble-enterprise has popped. The tiny but rich little city state of Dubai has blown its wad. This week they announced that they cannot make their loan payments. They need to postpone them for another six months.
Dubai’s early claim to fame was she pumps a lot of oil: around 240,000 barrels a day. Then they decided to diversify into tourism. They hired a group of high powered western MBAs, put together a great business plan and gave birth to a spectacular modern city, an architect’s dream come true.
But there’s a catch. They borrowed the money to build their Oz-city. Let’s calculate Dubai’s gross income if oil sells at $100 per barrel; then we’ll re-calculate at $50 a barrel. I apologize for this painstakingly obvious exercise, but I’m sure you see the point. Dubai’s most important source of income is totally dependent on the price of crude oil, which can rise and fall dramatically. So, when the government of Dubai borrowed the $59 billion to finance their dream city, the lenders would have known that their ability to repay those billions would depend on the price of crude.
But, it’s not that simple. Oil is a depleting asset. One day Dubai will run out. [Current estimates give them about 20 years.] Dubai’s ability to repay its debt is tied to fluctuations in crude oil prices and then they will run out. So, when calculating how much money they should lend this ambitious little city, the banks know all this. What bank on earth would ever lend Dubai so much money that she would be unable to pay the money back?
Maybe the bankers were in dream land too. Maybe they had seen the 1989 movie Field of Dreams and believed the slogan: “build it and he will come.” In Field of Dreams, some entrepreneur built a baseball diamond in the middle of a corn field. And, sure enough, by the end of the movie, there were people playing baseball on it. It’s the Las Vegas story: they built a city in the middle of the Nevada desert, and sure enough, people came. Maybe that’s what Dubai’s lenders were thinking. But last week’s neo-bankruptcy puts that dream in doubt.
We can’t blame the ambitious leaders of Dubai for going for broke. They took a mega-risk, in hopes that their little desert nation could emerge into a modern economy. And it looks like they will lose. It’s the bankers that worry me.
All an honest banker could ever have expected to make on the Dubai Dream Field loans was interest on their money. Why would they make such long shot loans? Our guess is there was something more in this deal than boring bank real estate financing. There was something sexy, some sizzle, something not cut from a conservative banker’s cloth. The Dubai deal smacks of some secret, yet unspoken. In the mean time, the Dubai default shock ripples around the world’s banking system and the world’s financial markets. It’s not a huge default. American billionaires Bill Gates and Warren Buffet were once worth more than this whole Dubai default. No doubt the world’s banking system will weather this little desert storm.
Now it seems it would have been better for the citizens of Dubai if their leaders had had more conservative business plans. And it would have been better for all of us if world bankers had been less aggressive. What about you?
Are you a high roller? Are you betting on a long shot high roller’s dream? After seeing what happened to the stock market in 2008, are you still over-exposed? In 2001-2 the stock markets dropped about 45%. In 2008 it happened again. The stock market has become a high roller’s game. In 2008 corporate America came undone. In 2008-09 world banking came undone. And the Dubai default is showing us that we still live in risky times because of yesterday’s high roller bankers. Is it time to become conservative again? Is it time to quietly re-think your personal financial plan and make adjustments for the high risk times we live in? It seems we can’t trust big banks or big corporations to provide a financially stable world. We have to provide our own financial stability. It’s time to become more conservative in our personal finances.
Ken Norquay, CMT
Financial Philosopher.
Dubai’s early claim to fame was she pumps a lot of oil: around 240,000 barrels a day. Then they decided to diversify into tourism. They hired a group of high powered western MBAs, put together a great business plan and gave birth to a spectacular modern city, an architect’s dream come true.
But there’s a catch. They borrowed the money to build their Oz-city. Let’s calculate Dubai’s gross income if oil sells at $100 per barrel; then we’ll re-calculate at $50 a barrel. I apologize for this painstakingly obvious exercise, but I’m sure you see the point. Dubai’s most important source of income is totally dependent on the price of crude oil, which can rise and fall dramatically. So, when the government of Dubai borrowed the $59 billion to finance their dream city, the lenders would have known that their ability to repay those billions would depend on the price of crude.
But, it’s not that simple. Oil is a depleting asset. One day Dubai will run out. [Current estimates give them about 20 years.] Dubai’s ability to repay its debt is tied to fluctuations in crude oil prices and then they will run out. So, when calculating how much money they should lend this ambitious little city, the banks know all this. What bank on earth would ever lend Dubai so much money that she would be unable to pay the money back?
Maybe the bankers were in dream land too. Maybe they had seen the 1989 movie Field of Dreams and believed the slogan: “build it and he will come.” In Field of Dreams, some entrepreneur built a baseball diamond in the middle of a corn field. And, sure enough, by the end of the movie, there were people playing baseball on it. It’s the Las Vegas story: they built a city in the middle of the Nevada desert, and sure enough, people came. Maybe that’s what Dubai’s lenders were thinking. But last week’s neo-bankruptcy puts that dream in doubt.
We can’t blame the ambitious leaders of Dubai for going for broke. They took a mega-risk, in hopes that their little desert nation could emerge into a modern economy. And it looks like they will lose. It’s the bankers that worry me.
All an honest banker could ever have expected to make on the Dubai Dream Field loans was interest on their money. Why would they make such long shot loans? Our guess is there was something more in this deal than boring bank real estate financing. There was something sexy, some sizzle, something not cut from a conservative banker’s cloth. The Dubai deal smacks of some secret, yet unspoken. In the mean time, the Dubai default shock ripples around the world’s banking system and the world’s financial markets. It’s not a huge default. American billionaires Bill Gates and Warren Buffet were once worth more than this whole Dubai default. No doubt the world’s banking system will weather this little desert storm.
Now it seems it would have been better for the citizens of Dubai if their leaders had had more conservative business plans. And it would have been better for all of us if world bankers had been less aggressive. What about you?
Are you a high roller? Are you betting on a long shot high roller’s dream? After seeing what happened to the stock market in 2008, are you still over-exposed? In 2001-2 the stock markets dropped about 45%. In 2008 it happened again. The stock market has become a high roller’s game. In 2008 corporate America came undone. In 2008-09 world banking came undone. And the Dubai default is showing us that we still live in risky times because of yesterday’s high roller bankers. Is it time to become conservative again? Is it time to quietly re-think your personal financial plan and make adjustments for the high risk times we live in? It seems we can’t trust big banks or big corporations to provide a financially stable world. We have to provide our own financial stability. It’s time to become more conservative in our personal finances.
Ken Norquay, CMT
Financial Philosopher.
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