Mexico has been getting a lot of unwanted publicity because of crimes done to Canadian tourists. Several were killed in a hotel explosion, apparently caused by an illegally installed gas line. A couple was allegedly assaulted by the Mexican police: one claims she was raped by the police. Another was killed in the cross fire of a drug war. Based on these and other news stories, Mexico seems to be more dangerous for Canadian tourists that it was a few years ago.
Americans seem more attuned to this danger than Canadians. The drug war in Mexico has been an important media event in the American press for many months. Americans are avoiding Mexico in droves: tourism statistics reflect the danger that Americans perceive regarding Mexico’s organized crime problems. But Canadian tourists continue to flock to Mexican sunshine in spite of the higher incidence of Canadian vacationers’ problems.
Canadian Mutual Funds Investment Forays
The Canadian mutual funds business has been spared unwanted publicity regarding the long term rates of return on equity mutual funds. The Toronto stock market is up less than 1% per year on average, over the past 10 years. And we are the lucky ones: the US stock market is up even less for the same 10 year period. Both Canadian and US stock markets dropped about 45% in 2001/2002 and again in 2008/2009. It’s hard for equity mutual funds to achieve a good long term rate of return when they lost almost half their value twice in one 10-year period. Based on these statistics, it’s a wonder that anyone still buys mutual funds. Most equity mutual funds managers under perform the averages. For completion, both stocks and equity mutual funds often pay dividends, which would add to the low performance mentioned above. And mutual funds do charge management fees, which detract from long term performance. I wonder if Canadian RRSP savers will continue to buy mutual funds. Will they be like Canadian tourists, visiting Mexico’s sunny shores even though the risk has increased? Right now Canada is in the midst of RRSP season, where people make that decision: where will I invest my money?
For guidance in this area, I recommend that small investors observe what large investors are doing. Large pension funds are in an embarrassing position: they own too much of the lowest performing investments and not enough of the better performing investments. A recent study by the investment firm, Gluskin Sheff, revealed that the worse performing asset class in the USA for the past ten years was the stock market. The best two asset classes were gold and long term bonds. Since pension funds are obliged to be managed in a prudent manner, we can be sure pension fund managers will be quietly selling their excess inventories of stocks and accumulating long term government bonds and precious metals.
Tourist mentality
What should Canadian investors do about the stock market: own a lot to the investments that are going up most strongly and avoid the weaker ones? What should Canadians vacationers do about Mexico? Just how much risk is there? Trusting the Mexican department of tourism seems as unwise as trusting your mutual funds salesman. After all, they both want your money. Both have something for sale and both put their interest ahead of their customers’ interest. And both of their marketing departments use pictures of Canadians drinking cocktails under a palm tree.
Palm tree mentality
Maybe that’s the problem: investors are thinking like intoxicated tourists lounging in the tropical sun when they should be thinking like those Americans who are staying away from Mexico because they perceive it to be unsafe. Or those pension funds managers who realize that having so much exposure to the stock market is not really as prudent since the year 2000 as it was in the 1990s.
In my investment book, Beyond the Bull, I advise investors to refine their investment techniques by borrowing ideas from other investors. In this case, we should look at the actions of the pension funds managers. That’s what I advise ordinary Canadian RRSP investors to do: reduce risk. Sell off some of your stock portfolio and replace it with government bonds and precious metals.
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, January 25, 2011
Wednesday, January 19, 2011
High Risk Mortgages
Bears
If you’re out for a walk in the Canadian bush and you encounter a bear, what should you do? Some say you should make loud noises and make sure the bear knows you are there. Others say you should quietly retreat.
Finance minister Jim Flaherty is quietly retreating.
The Canada Mortgage and Housing Corporation (CMHC) went for a walk in the high risk forest of financial leverage. Only a few years ago, qualified borrowers could buy a home with 0 down payment and pay their mortgage off over 40 years. Our American cousins did much the same thing.
In 2007 and 2008 the Americans came across a bear in their woods: and they got mauled! American house prices were slashed and the banking system almost collapsed. Jim Flaherty is aware that the same bear could show up in Canadian forests. And he is beating a slow intentional retreat.
Last week he announced further retrenchment of CMHC policy. Borrowers would now have only 30 years to repay their mortgages. And home buyers would need a 15% down payment. And CHMC will insure high ratio mortgages for buyers of homes now – they will no longer insure borrowers who are re-financing their homes.
It appears that Canada has learned from the USA’s experience. Financial leverage means financial risk. And now the federal government is attempting to gently de-leverage the real estate market in Canada by quietly retreating from the forest of financial maxi-leverage.
But I’m wondering about those unfortunate Canadians who got in at the point of maximum leverage. We know what happened to the Americans. What about our Canadian neighbours who borrowed the maximum on their homes and bought into the old mutual funds leverage game.
Double Bears
2006 and 2007 were the days when you could refinance up to 100% of the value of your home and repay the mortgage over 40 years. And in 2006 and 2007 the stock market seemed like a good investment. Hundreds of Canadian Financial Planners (FPs) used high pressure sales tactics to persuade thousands of Canadian home owners to borrow millions of dollars against their homes and buy equity mutual funds. The sales pitch was: over the 40 years it will take you to pay off your new mortgage, the stock market will go up about 10% a year on average. At the end, you will own your home free and clear AND you will have a multimillion dollar portfolio of mutual funds. Average Canadians could retire wealthy, like that legendary barber we all read about.
Then the equities markets dropped in half from May 2008 to March 2009. “Not to worry!” said the FPs: “You still have 37 years left!” Now (January 2011), 2 1/2 years later, some of those high leverage mutual funds speculators are almost breaking even. And they still have 34 1/2 years left! Well, they are almost breaking even on the value of their mutual funds – but they’ve been making mortgage payments for 5 or 6 years: I’m not sure how long it will take them to break even on that part of the equation. And I hope their house values continue to hold up.
I am pleased that our government is returning Canada to mortgage normalcy. And I am pleased that the opposition agrees. It gives over-leveraged Canadians a chance to hold off the bear for a while. Restrictions on CMHC mortgage insurance are welcome.
But, what’s really required is some restriction on the high pressure high risk sales tactics that many mutual funds salesmen / financial planners use to persuade people to “max-out” on their capacity to borrow money to buy mutual funds. Investment dealers are regulated in this area, but mutual funds salesmen are not. Ordinary homeowners are being told that high risk leverage is low risk investing. It’s not. Our American cousins have taught us that high leverage means high risk.
When you walk in the woods, you need to keep your eyes open for bears. Mr. Flaherty has a good eye on the forest of high leverage borrowing. Now, I hope he’ll shift his focus to the bears in the stock market/mutual funds jungle too. It’s time to stop the leverage game there 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.
If you’re out for a walk in the Canadian bush and you encounter a bear, what should you do? Some say you should make loud noises and make sure the bear knows you are there. Others say you should quietly retreat.
Finance minister Jim Flaherty is quietly retreating.
The Canada Mortgage and Housing Corporation (CMHC) went for a walk in the high risk forest of financial leverage. Only a few years ago, qualified borrowers could buy a home with 0 down payment and pay their mortgage off over 40 years. Our American cousins did much the same thing.
In 2007 and 2008 the Americans came across a bear in their woods: and they got mauled! American house prices were slashed and the banking system almost collapsed. Jim Flaherty is aware that the same bear could show up in Canadian forests. And he is beating a slow intentional retreat.
Last week he announced further retrenchment of CMHC policy. Borrowers would now have only 30 years to repay their mortgages. And home buyers would need a 15% down payment. And CHMC will insure high ratio mortgages for buyers of homes now – they will no longer insure borrowers who are re-financing their homes.
It appears that Canada has learned from the USA’s experience. Financial leverage means financial risk. And now the federal government is attempting to gently de-leverage the real estate market in Canada by quietly retreating from the forest of financial maxi-leverage.
But I’m wondering about those unfortunate Canadians who got in at the point of maximum leverage. We know what happened to the Americans. What about our Canadian neighbours who borrowed the maximum on their homes and bought into the old mutual funds leverage game.
Double Bears
2006 and 2007 were the days when you could refinance up to 100% of the value of your home and repay the mortgage over 40 years. And in 2006 and 2007 the stock market seemed like a good investment. Hundreds of Canadian Financial Planners (FPs) used high pressure sales tactics to persuade thousands of Canadian home owners to borrow millions of dollars against their homes and buy equity mutual funds. The sales pitch was: over the 40 years it will take you to pay off your new mortgage, the stock market will go up about 10% a year on average. At the end, you will own your home free and clear AND you will have a multimillion dollar portfolio of mutual funds. Average Canadians could retire wealthy, like that legendary barber we all read about.
Then the equities markets dropped in half from May 2008 to March 2009. “Not to worry!” said the FPs: “You still have 37 years left!” Now (January 2011), 2 1/2 years later, some of those high leverage mutual funds speculators are almost breaking even. And they still have 34 1/2 years left! Well, they are almost breaking even on the value of their mutual funds – but they’ve been making mortgage payments for 5 or 6 years: I’m not sure how long it will take them to break even on that part of the equation. And I hope their house values continue to hold up.
I am pleased that our government is returning Canada to mortgage normalcy. And I am pleased that the opposition agrees. It gives over-leveraged Canadians a chance to hold off the bear for a while. Restrictions on CMHC mortgage insurance are welcome.
But, what’s really required is some restriction on the high pressure high risk sales tactics that many mutual funds salesmen / financial planners use to persuade people to “max-out” on their capacity to borrow money to buy mutual funds. Investment dealers are regulated in this area, but mutual funds salesmen are not. Ordinary homeowners are being told that high risk leverage is low risk investing. It’s not. Our American cousins have taught us that high leverage means high risk.
When you walk in the woods, you need to keep your eyes open for bears. Mr. Flaherty has a good eye on the forest of high leverage borrowing. Now, I hope he’ll shift his focus to the bears in the stock market/mutual funds jungle too. It’s time to stop the leverage game there 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, January 4, 2011
Too much borrowing
Mr. Carney, the governor of The Bank of Canada, seems concerned about the high level of consumer debt being carried by the Canadian people. And so he should be. Expansion of the Canadian economy is directly related to expansion of Canadians’ debt.
The way money is created in Canada is directly related to Canadian banks lending money to the Canadian people. A healthy economy creates money through the mechanism of bank loans. When we borrow $20,000 to buy a car, the money supply grows by $20,000. When we pay off our bank loan, the money supply shrinks by $20,000. If we stop borrowing, the Canadian economy stops growing. If the citizens’ debt level is too high, it means someone else will have to do the borrowing that causes economic growth; someone other than Canadian consumers. If consumers are overburdened with debt, who will borrow?
Will the resource industry step up to the plate and borrow more money? Will oil companies or mining companies finance their expansion by borrowing from Canadian banks? Is this where future growth will come from?
What about manufacturing companies. Will they heat up our economy by expanding their operations with borrowed money? If you were a banker, how much money would you lend to GM, Ford and Chrysler?
What about the retail sector? How much wisdom is there in lending money to yet another developer to build yet another box store shopping mall?
This is the governor of the Bank of Canada’s dilemma: who will finance Canada’s future economic expansion now that consumers have borrowed too much?
Classical Keynesian economic theory has an answer: the government should be borrowing now. Under this theory, when the economy is healthy and expanding, consumers and industry borrow and expand the money supply. And when the economy is shrinking, the government borrows – they call it deficit financing. In this way, according to the theory, economic expansions would be numerous and long: economic slow-downs would be infrequent and short. It’s time for the government to expand our infrastructure with borrowed money. It’s time to regenerate those make-work projects from the 1970s. But, somehow, governments seem reluctant to do so. Politicians seem more concerned about controlling deficits that creating them. Politicians are out of step with the system’s financial needs.
No wonder Mr. Carney is concerned. He’s caught between over-burdened consumers who can’t borrow and reluctant politicians who won’t borrow.
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 way money is created in Canada is directly related to Canadian banks lending money to the Canadian people. A healthy economy creates money through the mechanism of bank loans. When we borrow $20,000 to buy a car, the money supply grows by $20,000. When we pay off our bank loan, the money supply shrinks by $20,000. If we stop borrowing, the Canadian economy stops growing. If the citizens’ debt level is too high, it means someone else will have to do the borrowing that causes economic growth; someone other than Canadian consumers. If consumers are overburdened with debt, who will borrow?
Will the resource industry step up to the plate and borrow more money? Will oil companies or mining companies finance their expansion by borrowing from Canadian banks? Is this where future growth will come from?
What about manufacturing companies. Will they heat up our economy by expanding their operations with borrowed money? If you were a banker, how much money would you lend to GM, Ford and Chrysler?
What about the retail sector? How much wisdom is there in lending money to yet another developer to build yet another box store shopping mall?
This is the governor of the Bank of Canada’s dilemma: who will finance Canada’s future economic expansion now that consumers have borrowed too much?
Classical Keynesian economic theory has an answer: the government should be borrowing now. Under this theory, when the economy is healthy and expanding, consumers and industry borrow and expand the money supply. And when the economy is shrinking, the government borrows – they call it deficit financing. In this way, according to the theory, economic expansions would be numerous and long: economic slow-downs would be infrequent and short. It’s time for the government to expand our infrastructure with borrowed money. It’s time to regenerate those make-work projects from the 1970s. But, somehow, governments seem reluctant to do so. Politicians seem more concerned about controlling deficits that creating them. Politicians are out of step with the system’s financial needs.
No wonder Mr. Carney is concerned. He’s caught between over-burdened consumers who can’t borrow and reluctant politicians who won’t borrow.
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
Seasonal Risk
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.
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.
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.
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