On the south we have Libya, Tunisia, Egypt and the sequential overthrow of long standing Islamic dictatorships. On the north we have four of the five the PIIGS of Europe, those countries whose governments borrowed too much from the future so they could live high off the hog today: Portugal, Italy, Greece, Spain.
The Mediterranean region contains the roots of western civilization. The Egyptian, Greek and Roman Empires dominated our early history. Similarly, the noble Persian Empire was once the jewel of middle eastern culture. What happened? Today, in 2011, there is chaos where there once was culture.
How could this have happened? What lessons we can learn from the observation that the Mediterranean region is in chaos.
As a financial philosopher I have no trouble understanding the PIIGS of Europe: they pushed their luck too far. The five PIIGS nations borrowed too much money on behalf of the people. (The fifth PIG is Ireland – not a Mediterranean country.) They ran up huge debts and were unable to pay when the time came to pay. As members of the European Common Market, these have-not countries found a way to have. The Mediterranean PIGS’ governments spent way more than they took in and ran up huge debts. Their governments had borrowed their way to prosperity. And, in a democracy, prosperity leads to re-election. The governments of the European Mediterranean countries sunk their countries over their heads in debt so they could win votes and keep power. When those governments couldn’t make their monthly payments, governments had to cut back on spending and refinance. And the people rioted! Easy enough for a financial guy to understand. And easy enough for a political guy to understand too.
But why are the people of Mediterranean south suddenly rioting? Did their governments push their luck too far too? Some blame rising food prices for the north Africans’ uprisings. They argue that the dictatorial governments of these countries were benefiting from rising oil prices and the people were suffering from a punishing rise in food prices. Those dictatorships could have avoided the riots by subsidising food prices using the proceeds of excess oil profits. But the dictators had run up serious deficits and accumulated serious debt. They couldn’t help the people with food subsidies. And the people rioted! This explanation is not so easy for a financial guy to understand because we have no access to the dictators’ national bank books. We can’t verify that they pushed their luck too far. But it does seem possible that over-borrowing may be contributing to the overthrow of the North African dictatorships. We suspect the North African dictatorships borrowed excessively to keep power in their way: by maintaining a huge army and police force.
The Mediterranean theme seems to be corrupt governments borrowing excessively to stay in power. Dictatorship or democracy, the pattern is the same.
What about the people of the USA? Has the American government, in their heroic effort to kick-start house prices and create more jobs, borrowed too much money, just like the Mediterranean nations? We know that the American housing market is in shambles because big mortgage companies loaned billions to new home buyers who could not afford their mortgages. The whole sub prime mortgage financial fiasco came undone in 2008/9, and it’s still unravelling. Has the American government now fallen into the same trap as the yesterday’s over-leveraged home buyers and the Mediterranean nations: borrowing too much?
I have accused the Mediterranean governments of abusing their borrowing power in order to hold onto power. And now it’s payback time. And now it’s coming undone. But we would never accuse the American government of corrupt practices because, to us, they don’t seem corrupt. Canadians support the USA’s noble efforts to re-kindle their failing economy: it seems the right thing to do. But, right or wrong, the results will be the same in America as it is in the Mediterranean: political and economic chaos.
It’s tempting to pontificate about the rise and fall of the world’s economic and political tides. But let’s be practical. There’s nothing an individual Canadian investor can do to stop these tides. Fate will unfold according to its own agenda. We are merely observers.
Our impact will be felt only to the extent that we manage our own financial affairs in the midst of these economic storms. If the world’s economy comes undone again, as it did in 2008/9, we can’t stop it. But we can react to it.
Imagine if you had reacted to the bank crisis of 2008. If you had sold your stock portfolio any time in the last quarter of 2007 or the first half of 2008 and bought it back a year later, your RRSP would be significantly ahead of where it is now. But most investors would rather ponder the economic fate of the world and not react to it.
By now, “buy-and-hold” investors have made back most of what they lost in 2008/9. If the stock markets can rise by another 15%, they’ll break even. But if the market drops in half again, like it did in 2001/2 and 2008/9, they will be behind the 8-ball again.
In my investment book, Beyond the Bull, I wrote about having investment technique. An investment technique has two parts: (i) objectively observe the financial world, and (ii) react to it in a pre-planned way. We have observed that American consumers borrowed too much mortgage money – and this led to a 50% drop in the stock market. We now observe that over-borrowing in certain Mediterranean countries has put those economies at risk. If this Mediterranean Blues phenomenon spreads, there is a risk that the stock market could drop again.
Our advice? Don’t let the Mediterranean Blues catch you off guard. If this economic phenomenon triggers another decline in the stock market, act. In a bear market, whoever sells first wins.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
Wednesday, June 1, 2011
Tuesday, May 17, 2011
Count Down to the G20
World Economic Review
Devil: world banks hold most of their reserves in US$-based investments. A lower dollar hurts these banks and puts the world’s shaky banking system at risk again.
Deep Blue Sea: the US economy is the engine that powers the world’s economy. It’s sputtering and coughing right now because of the collapse of the American real estate market. A lower US$ would help the American economy recover because it makes US exports more competitive in other countries.
The May 26 G20 meeting will face this devil-deep dilemma. Let’s see what we can glean from the trend of the US dollar vs. the basket of international currencies. In late April and early May it looked like the banking system was going to be sacrificed to help the US economy because the US dollar kept going down. It was sinking toward the ultra low level it hit when the banking collapse was in full bloom in 2008. Then, seemingly out of no-where, on May 5, 2011, the US dollar rose dramatically and began a zigzagged up trend. Are the economic powers that be trying to control the word’s currencies as May 26 draws near? Will they try to hold the US dollar where it is for the next few weeks?
Let’s review this devil-deep scenario from the Canadian perspective. Canada gets economic enjoyment when America has a modest amount of inflation. Our resource based economy thrives on other nations’ inflation. The 17% decline of the US dollar in the past 50 weeks has been accompanied by a rise in commodities such as grain prices, fuel prices and metals prices. This has been good for Canada. But, some analysts look at the recent collapse of gold and silver prices as a sign that this game is over. And they suggest that the current blow off in gasoline prices will be the final blow-off in the current inflation game. If the commodities inflation game really is over, that would not be a favourable development for Canada. Toronto stock market investors would want to sell their natural resource investments and stock up on health care or consumer staples investments. Yesterday’s leaders, the Canadian resource stocks, would become tomorrow’s trailers, if the US dollar starts to rise and American inflation cools off.
And it’s your portfolio of investments that hangs in the balance. That part of your RRSP or pension fund that is invested in the Canadian stock market depends on the price of the US dollar. In my investment book, Beyond the Bull, I explain the importance of getting experience in the investment world. Getting experience means taking action based on your knowledge of changes in the world’s economic situation. The devil-deep scenario outlined above has been with us for quite a few years now, following the 6-year devaluation of the US dollar from 2002 to 2008. And it’s still with us. But it seems easier to express an opinion about the market than to take action. It’s easy to think about economic things; it’s not so easy to do something in reaction to economic things.
When the financial press starts to report the important news that will flow from the G20 meeting a few weeks, remember how important it is for them to find balance among the various currencies. And remember how important it is for you to take action to protect your own investments in response to G20 currency policy.
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.
Devil: world banks hold most of their reserves in US$-based investments. A lower dollar hurts these banks and puts the world’s shaky banking system at risk again.
Deep Blue Sea: the US economy is the engine that powers the world’s economy. It’s sputtering and coughing right now because of the collapse of the American real estate market. A lower US$ would help the American economy recover because it makes US exports more competitive in other countries.
The May 26 G20 meeting will face this devil-deep dilemma. Let’s see what we can glean from the trend of the US dollar vs. the basket of international currencies. In late April and early May it looked like the banking system was going to be sacrificed to help the US economy because the US dollar kept going down. It was sinking toward the ultra low level it hit when the banking collapse was in full bloom in 2008. Then, seemingly out of no-where, on May 5, 2011, the US dollar rose dramatically and began a zigzagged up trend. Are the economic powers that be trying to control the word’s currencies as May 26 draws near? Will they try to hold the US dollar where it is for the next few weeks?
Let’s review this devil-deep scenario from the Canadian perspective. Canada gets economic enjoyment when America has a modest amount of inflation. Our resource based economy thrives on other nations’ inflation. The 17% decline of the US dollar in the past 50 weeks has been accompanied by a rise in commodities such as grain prices, fuel prices and metals prices. This has been good for Canada. But, some analysts look at the recent collapse of gold and silver prices as a sign that this game is over. And they suggest that the current blow off in gasoline prices will be the final blow-off in the current inflation game. If the commodities inflation game really is over, that would not be a favourable development for Canada. Toronto stock market investors would want to sell their natural resource investments and stock up on health care or consumer staples investments. Yesterday’s leaders, the Canadian resource stocks, would become tomorrow’s trailers, if the US dollar starts to rise and American inflation cools off.
And it’s your portfolio of investments that hangs in the balance. That part of your RRSP or pension fund that is invested in the Canadian stock market depends on the price of the US dollar. In my investment book, Beyond the Bull, I explain the importance of getting experience in the investment world. Getting experience means taking action based on your knowledge of changes in the world’s economic situation. The devil-deep scenario outlined above has been with us for quite a few years now, following the 6-year devaluation of the US dollar from 2002 to 2008. And it’s still with us. But it seems easier to express an opinion about the market than to take action. It’s easy to think about economic things; it’s not so easy to do something in reaction to economic things.
When the financial press starts to report the important news that will flow from the G20 meeting a few weeks, remember how important it is for them to find balance among the various currencies. And remember how important it is for you to take action to protect your own investments in response to G20 currency policy.
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.
Monday, May 2, 2011
The DARK ART of Election Forecasting
A week before the election, I made the following wild and crazy forecast:
1. The Liberals will get trounced.
2. The NDP will make huge gains.
3. The Conservatives will get their majority.
4. The PQ will shrink.
5. Mr. Ignatieff will resign as Liberal leader; the Liberals will elect Bob Rae as their new leader.
6. Mr. Rae will negotiate a merger of the NDP and Liberals – let’s call the new party the Liberal Democrats.
7. The Liberal Democrats will be the opposition, when the recession/depression sets in, in 2012. The PCs will be blamed for the nation’s economic problems and when the next election comes in 2016, the New Liberal Democrats will form the government with the biggest lop-sided victory since Chrétien smoked Kim Campbell.
8. Scenario B is where the PCs get a minority again – under this scenario, the Liberal Democrats, along with the remains of the PQ, will defeat the
government and form the dreaded coalition. The coalition will form the government and lead Canada into the 2012 recession/depression. When the coalition breaks up and the election comes, Mr. Harper will win the most lop sided election since John Diefenbaker’s 1960s victory.
As you can see, in my view it is irrelevant who wins this election: a recession or depression is coming. Canadian politics can’t trump world economics.
And, as you can see, my naivety in politics has lead me to predict the formation of a new left-leaning party in the same way that a new right-leaning party was formed in the 1990s. Liberal and NDP supporters may urge me to stick to what I know best: the investment world. And keep my crazy political views to myself. And I would do that, were it not for one important concept: bullmanship.
In my investment book, Beyond the Bull, I talk about the different kind of lies found in the investment industry. My venture into political commentary sets me up for the creation of “the advertising lie.” In the investment world, we all present ourselves as qualified to help people make investment decisions – and we advertise that premise. Having made a starry eyed prediction about a Canadian political mega-merger, I can now wait… if my long-shot prediction does not come true, I will simply never mention it again. But if it does come true, I can quote myself time and time again as a political visionary who saw into the future. I will set myself up as a wise and insightful commentator who can truly see what lies ahead in Canadian politics. But I’m really a long-shot observer with a big imagination.
This is how the stock market’s advertising lie works.
Here’s what I mean. In Atlanta, USA, there are many people who have inherited shares of Coca Cola from the original inventor of Coke. Or from those local investors who bought into Coke 100 years ago and are still holding today. And today they are millionaires today because of their forefathers’ original wisdom in buying Coke shares when it was a small time local enterprise. This story is used time and time again by the investment industry to illustrate the wisdom of buying great companies and holding them for the long term.
It’s a true story: why am I referring to is as a lie? Easy: because the securities salesmen could have told the same story about General Motors a few years ago. Those who owned GM when it first became a company would also be millionaires today, except for one tiny detail: GM went bankrupt in 2010 and all the shareholders wound up with nothing. The reason the stock brokers tell the bullish Coke story is to persuade you to buy what they are selling. And the GM story does not support that goal. If you were a real estate agent trying to persuade an investor to sell his stocks and buy a commercial property, you might tell the GM story – or the Nortel story – or any other “they went broke” story. The stories are all bullmanship, designed to persuade you to buy whatever they are selling.
Now that I have boldly predicted the merger of the Liberals and the NDP under Bob Rae’s leadership, I just have to wait. If it does not come true, I will simple never talk about it again. If a merger does materialize, I will quote myself extensively and sell my services as a political visionary. I can’t lose.
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.
1. The Liberals will get trounced.
2. The NDP will make huge gains.
3. The Conservatives will get their majority.
4. The PQ will shrink.
5. Mr. Ignatieff will resign as Liberal leader; the Liberals will elect Bob Rae as their new leader.
6. Mr. Rae will negotiate a merger of the NDP and Liberals – let’s call the new party the Liberal Democrats.
7. The Liberal Democrats will be the opposition, when the recession/depression sets in, in 2012. The PCs will be blamed for the nation’s economic problems and when the next election comes in 2016, the New Liberal Democrats will form the government with the biggest lop-sided victory since Chrétien smoked Kim Campbell.
8. Scenario B is where the PCs get a minority again – under this scenario, the Liberal Democrats, along with the remains of the PQ, will defeat the
government and form the dreaded coalition. The coalition will form the government and lead Canada into the 2012 recession/depression. When the coalition breaks up and the election comes, Mr. Harper will win the most lop sided election since John Diefenbaker’s 1960s victory.
As you can see, in my view it is irrelevant who wins this election: a recession or depression is coming. Canadian politics can’t trump world economics.
And, as you can see, my naivety in politics has lead me to predict the formation of a new left-leaning party in the same way that a new right-leaning party was formed in the 1990s. Liberal and NDP supporters may urge me to stick to what I know best: the investment world. And keep my crazy political views to myself. And I would do that, were it not for one important concept: bullmanship.
In my investment book, Beyond the Bull, I talk about the different kind of lies found in the investment industry. My venture into political commentary sets me up for the creation of “the advertising lie.” In the investment world, we all present ourselves as qualified to help people make investment decisions – and we advertise that premise. Having made a starry eyed prediction about a Canadian political mega-merger, I can now wait… if my long-shot prediction does not come true, I will simply never mention it again. But if it does come true, I can quote myself time and time again as a political visionary who saw into the future. I will set myself up as a wise and insightful commentator who can truly see what lies ahead in Canadian politics. But I’m really a long-shot observer with a big imagination.
This is how the stock market’s advertising lie works.
Here’s what I mean. In Atlanta, USA, there are many people who have inherited shares of Coca Cola from the original inventor of Coke. Or from those local investors who bought into Coke 100 years ago and are still holding today. And today they are millionaires today because of their forefathers’ original wisdom in buying Coke shares when it was a small time local enterprise. This story is used time and time again by the investment industry to illustrate the wisdom of buying great companies and holding them for the long term.
It’s a true story: why am I referring to is as a lie? Easy: because the securities salesmen could have told the same story about General Motors a few years ago. Those who owned GM when it first became a company would also be millionaires today, except for one tiny detail: GM went bankrupt in 2010 and all the shareholders wound up with nothing. The reason the stock brokers tell the bullish Coke story is to persuade you to buy what they are selling. And the GM story does not support that goal. If you were a real estate agent trying to persuade an investor to sell his stocks and buy a commercial property, you might tell the GM story – or the Nortel story – or any other “they went broke” story. The stories are all bullmanship, designed to persuade you to buy whatever they are selling.
Now that I have boldly predicted the merger of the Liberals and the NDP under Bob Rae’s leadership, I just have to wait. If it does not come true, I will simple never talk about it again. If a merger does materialize, I will quote myself extensively and sell my services as a political visionary. I can’t lose.
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.
Sunday, May 1, 2011
Royal Numbers
The royal wedding is over and the royal honey moon has begun. CBC carried a story that Great Britain lost 5 billion pounds because of the wedding. Who could know how much theoretical revenue the British people lost because they stayed home to watch the wedding on the telly. They also reported that security cost the British people 20 million pounds: that’s $31.6 million Canadian. That’s interesting for Canadians: in June 2010, we spent $1,000 million (that’s $1 billion) on security for the G20 conference. Who would possibly believe that the Canadian government spent over 30 times the money on security for a one-week conference than the British paid for a one day event?
Who comes up with these crazy numbers? And who believes them?
In my investment book, Beyond the Bull, I warn about believing financial data. If a writer is trying to persuade his audience, the data he uses is suspect. If that British reporter was one who believes the British monarchy should be abolished, he might exaggerate the wedding’s expense as a way to support his anti-monarchist views. He might be inclined to inflate the expense of the royal wedding and understate the increased revenue it generated. His personal bias about royalty would be expressed in his economic estimate.
Financial estimates most often reflect the personal bias of the estimator, not economic reality.
The same can be said for official government statements: their economic “data” might be skewed to make a situation look and feel better than it really is. This is the irony of a free economy. The health of an economy depends on the spending habits of the people. When the down part of the cycle arrives, official government spokesmen act like some British newspaper reporters: they report in terms of official government bias. They try to make the economic situation look safer than it is so people will spend freely. And if their deception succeeds, the economy actually could recover. But if their bias and exaggeration is not believed, the people might curb their spending and make the economy worse! It’s one of those rare occasions when lies, biased reporting and intentional exaggeration is good.
How does this affect your investing?
Whenever you hear financial data, be suspicious. If that data comes from a salesman who is trying to persuade you to buy his product, it is suspect. In my chapter on the different types of lies that permeate the world of the stock market, I recommend that you don’t believe any of the data. Certainly some of the data might be accurate and certainly some is just persuasive bull. But the average investor is not in a position to sort the true information from the persuasive bull. My advice? It’s all suspect because it’s all persuasive. Once a novice investor accepts this premise, he enters a more realistic world: he learns do be an effective investor in the world of the unknown. His suspicion makes him cautious. Cautious investors do better than faithful unsuspecting investors.
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.
Who comes up with these crazy numbers? And who believes them?
In my investment book, Beyond the Bull, I warn about believing financial data. If a writer is trying to persuade his audience, the data he uses is suspect. If that British reporter was one who believes the British monarchy should be abolished, he might exaggerate the wedding’s expense as a way to support his anti-monarchist views. He might be inclined to inflate the expense of the royal wedding and understate the increased revenue it generated. His personal bias about royalty would be expressed in his economic estimate.
Financial estimates most often reflect the personal bias of the estimator, not economic reality.
The same can be said for official government statements: their economic “data” might be skewed to make a situation look and feel better than it really is. This is the irony of a free economy. The health of an economy depends on the spending habits of the people. When the down part of the cycle arrives, official government spokesmen act like some British newspaper reporters: they report in terms of official government bias. They try to make the economic situation look safer than it is so people will spend freely. And if their deception succeeds, the economy actually could recover. But if their bias and exaggeration is not believed, the people might curb their spending and make the economy worse! It’s one of those rare occasions when lies, biased reporting and intentional exaggeration is good.
How does this affect your investing?
Whenever you hear financial data, be suspicious. If that data comes from a salesman who is trying to persuade you to buy his product, it is suspect. In my chapter on the different types of lies that permeate the world of the stock market, I recommend that you don’t believe any of the data. Certainly some of the data might be accurate and certainly some is just persuasive bull. But the average investor is not in a position to sort the true information from the persuasive bull. My advice? It’s all suspect because it’s all persuasive. Once a novice investor accepts this premise, he enters a more realistic world: he learns do be an effective investor in the world of the unknown. His suspicion makes him cautious. Cautious investors do better than faithful unsuspecting investors.
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, April 20, 2011
Redefining 'Blue Chip'
The sales slogan most widely used by the financial planning industry in the 1990s was simple. We could all become wealthy if we simply bought a portfolio of blue chip stocks and held them indefinitely. And, in the period from 1991 to 2000, it worked. But it hasn’t been working lately, has it? Why not? What has gone wrong? Blue chip used to mean “big.” Somehow the safety of owning a big widely recognized company seemed a reasonable thing to do. “Small” was held out as risky or speculative, not so reasonable. Big was good in the old days.
But the twenty first century has seen that idea deteriorate badly. The biggest manufacturing company in the world went bankrupt in 2010. The biggest bank, brokerage firm, insurance company and mortgage company all needed bail outs in 2008/09. Between 2001 and 2008, the currency of the biggest country in the world dropped over 40% against the basket of smaller world currencies. We can no longer consider General Motors, Citibank, Merrill Lynch, AIG, Federal National Mortgage Assn, and the US dollar to be blue chip investments.
And now the credit rating company, Standard and Poor, has issued a warning that it could consider downgrading its AAA credit rating for the biggest and bluest of all: the sovereign debt of the USA herself! In the 1960s, folk singer Bob Dylan crooned: “You mothers and fathers throughout the whole land, don’t criticise what you can’t understand… The times, they are a-changin’”
My mother and father were teenagers in the 1930s. Imagine what they thought about the stock market and the economy. When the times changed in the 1950s, they were reluctant to participate in the investment world at all. For them, the stock market was speculating. It was more important to have a good job, spend only what you earn, and salt away your savings for a rainy day. They knew all about rainy days.
Those who were teenagers in the 1990s learned a whole different set of values. Buying and holding blue chip investments was one of their truest lessons.
I wonder what the teenagers of 2000 to 2010 learned about the stock market. They saw the market drop in half twice – the 2001/02 bear market and the 2008/09 decline.
I hope they learned that Bob Dylan was right. And when the times change, we had better change with them.
Now we see that the concept of “blue chip” has changed. Bigger no longer means better. How should the typical investor change in reaction to this new fact?
Big blue chip Microsoft stock is approximately the same price it was 10 years ago. The smaller Apple has gone up by 30X! Yes, there’s money to be made in the stock market. But blue chip is not the ticket.
In my investing book, Beyond the Bull, I suggest investors take stock of themselves. Know yourself. What was the stock market doing when you learned about it? Did you learn in the roaring 1990s bull? Or the swing-up-swing-down market of the 2000s? How was the market’s performance when you first began your investment adventure. If your first investments were made in the 1990’s you might believe in buying blue chip stocks and holding them for the long term: that’s what was working in the 1990s. If you learned to invest in the 2000s, you learned that buying low and selling high was a proper way to invest.
I learned to invest in the 1970s. It was one of those buy low, sell high eras. But, I worked for Merrill Lynch: their main focus was on blue chip American stocks. So, that’s what I learned. But, because I have had to earn a living in the financial markets these past 36 years, I have had to change my style as the times changed. Bob Dylan was right.
My advice? Leave yesterday’s blue chip dinosaurs to their financial fate. Stay light on your investment feet: we are in a buy-low-sell-high market.
Sometimes the hardest thing to change is your mind.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
Contact Ken directly at ken@castlemoore.com.
But the twenty first century has seen that idea deteriorate badly. The biggest manufacturing company in the world went bankrupt in 2010. The biggest bank, brokerage firm, insurance company and mortgage company all needed bail outs in 2008/09. Between 2001 and 2008, the currency of the biggest country in the world dropped over 40% against the basket of smaller world currencies. We can no longer consider General Motors, Citibank, Merrill Lynch, AIG, Federal National Mortgage Assn, and the US dollar to be blue chip investments.
And now the credit rating company, Standard and Poor, has issued a warning that it could consider downgrading its AAA credit rating for the biggest and bluest of all: the sovereign debt of the USA herself! In the 1960s, folk singer Bob Dylan crooned: “You mothers and fathers throughout the whole land, don’t criticise what you can’t understand… The times, they are a-changin’”
My mother and father were teenagers in the 1930s. Imagine what they thought about the stock market and the economy. When the times changed in the 1950s, they were reluctant to participate in the investment world at all. For them, the stock market was speculating. It was more important to have a good job, spend only what you earn, and salt away your savings for a rainy day. They knew all about rainy days.
Those who were teenagers in the 1990s learned a whole different set of values. Buying and holding blue chip investments was one of their truest lessons.
I wonder what the teenagers of 2000 to 2010 learned about the stock market. They saw the market drop in half twice – the 2001/02 bear market and the 2008/09 decline.
I hope they learned that Bob Dylan was right. And when the times change, we had better change with them.
Now we see that the concept of “blue chip” has changed. Bigger no longer means better. How should the typical investor change in reaction to this new fact?
Big blue chip Microsoft stock is approximately the same price it was 10 years ago. The smaller Apple has gone up by 30X! Yes, there’s money to be made in the stock market. But blue chip is not the ticket.
In my investing book, Beyond the Bull, I suggest investors take stock of themselves. Know yourself. What was the stock market doing when you learned about it? Did you learn in the roaring 1990s bull? Or the swing-up-swing-down market of the 2000s? How was the market’s performance when you first began your investment adventure. If your first investments were made in the 1990’s you might believe in buying blue chip stocks and holding them for the long term: that’s what was working in the 1990s. If you learned to invest in the 2000s, you learned that buying low and selling high was a proper way to invest.
I learned to invest in the 1970s. It was one of those buy low, sell high eras. But, I worked for Merrill Lynch: their main focus was on blue chip American stocks. So, that’s what I learned. But, because I have had to earn a living in the financial markets these past 36 years, I have had to change my style as the times changed. Bob Dylan was right.
My advice? Leave yesterday’s blue chip dinosaurs to their financial fate. Stay light on your investment feet: we are in a buy-low-sell-high market.
Sometimes the hardest thing to change is your mind.
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, April 5, 2011
Voting Chevy
With a federal election campaign in full swing, we keep hearing that the electorate have short memories. Let’s test those memories.
Remember the General Motors bail out of 2009? Most of us recall the irony of the super-supportive NDP, with six sitting Members of Parliament elected by the people of Oshawa, Windsor and Hamilton backing the Conservative government’s multi-billion dollar tax-payer loans to GM in order to preserve manufacturing and steel making jobs in those three cities.
But do you know the hidden story?
My father tried to bail out GM single-handedly: at the age of 85 he bought a brand new Chevy. He believed in the North American auto industry: those cars were made of Canadian steel and he had worked as a machinist for the Steel Company of Canada for 30 years. In my father’s day, GM was the pride of American manufacturing and Stelco was the pride of Hamilton. For him, buying a Chevy was an act of patriotism. His purchase was helping his neighbours keep their jobs. But, in spite of his heroic octogenarian effort, both GM and Stelco declared bankruptcy. His sincere effort had been wasted.
Just before GM declared bankruptcy, the governments of Canada, Ontario and the USA had promised them bail-out loans totaling thirty-three billion dollars. Buying a Chevy had not been enough. Now my father, along with all the rest of us tax-payers, had loaned GM a very large sum. We all hoped the Conservative government, with the support of the NDP, working on behalf of my father, would somehow spin this straw into gold.
But even the big bail out loan didn’t prevent the inevitable. On June 1, 2009 General Motors declared bankruptcy. The common stock went to zero and was de-listed. I wonder how many pension plans owned GM stock. It seems logical that the pension plan of a company who sells steel would own shares of its biggest customer. If it did, then GM had declared yet another “gotcha!” on my father by stinging his pension plan.
The following year, the new streamlined stripped down General Motors issued new stock: over $20 billion in new stock! The various governments had recouped part of their loans!
Why is it important for readers to remember this ironic corporate fiasco? In my investment book, Beyond the Bull, I encourage investors to be objective: try to see economic situations for what they really are. Try to learn from the way other people behave in the economic world. That’s how you can become a better investor. But it’s not easy.
Now that Canadians are in an election campaign, political parties are aggressively trying to persuade us to see the situation the way they see it – and to vote for them. The Beatles once sang: “Try to see it my way…” There’s no objective thinking in an election campaign!
And what about my father? He passed away last summer, leaving me to drive his new Chevy. With gasoline prices flying through the roof, I’ll probably trade it for a small car with better fuel efficiency.
And what about you? Are you objective in your economic thinking? When your RRSP dropped 30% in the 2008/9 stock market crash, were you able to stay objective? Are you able to objectively look at the various candidates in this election? Or is it easier to slip back into your old familiar patterns of seeing the world the way you’ve always seen it?
Most investors are like my father, still thinking in the old ways. Most investors think that big blue chip companies are safe investments. But GM was once the biggest. Stelco was once the biggest. Buying and holding big blue chip companies no longer works. It’s time to be objective; it’s time to re-think the old ways.
The first step in becoming objective is to remember. Remember what happened in the past and learn from your mistakes.
Can we be objective about this election? When all the votes are tallied, will the NDP be re-elected to those six union-town seats in the House of Commons?
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).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
Remember the General Motors bail out of 2009? Most of us recall the irony of the super-supportive NDP, with six sitting Members of Parliament elected by the people of Oshawa, Windsor and Hamilton backing the Conservative government’s multi-billion dollar tax-payer loans to GM in order to preserve manufacturing and steel making jobs in those three cities.
But do you know the hidden story?
My father tried to bail out GM single-handedly: at the age of 85 he bought a brand new Chevy. He believed in the North American auto industry: those cars were made of Canadian steel and he had worked as a machinist for the Steel Company of Canada for 30 years. In my father’s day, GM was the pride of American manufacturing and Stelco was the pride of Hamilton. For him, buying a Chevy was an act of patriotism. His purchase was helping his neighbours keep their jobs. But, in spite of his heroic octogenarian effort, both GM and Stelco declared bankruptcy. His sincere effort had been wasted.
Just before GM declared bankruptcy, the governments of Canada, Ontario and the USA had promised them bail-out loans totaling thirty-three billion dollars. Buying a Chevy had not been enough. Now my father, along with all the rest of us tax-payers, had loaned GM a very large sum. We all hoped the Conservative government, with the support of the NDP, working on behalf of my father, would somehow spin this straw into gold.
But even the big bail out loan didn’t prevent the inevitable. On June 1, 2009 General Motors declared bankruptcy. The common stock went to zero and was de-listed. I wonder how many pension plans owned GM stock. It seems logical that the pension plan of a company who sells steel would own shares of its biggest customer. If it did, then GM had declared yet another “gotcha!” on my father by stinging his pension plan.
The following year, the new streamlined stripped down General Motors issued new stock: over $20 billion in new stock! The various governments had recouped part of their loans!
Why is it important for readers to remember this ironic corporate fiasco? In my investment book, Beyond the Bull, I encourage investors to be objective: try to see economic situations for what they really are. Try to learn from the way other people behave in the economic world. That’s how you can become a better investor. But it’s not easy.
Now that Canadians are in an election campaign, political parties are aggressively trying to persuade us to see the situation the way they see it – and to vote for them. The Beatles once sang: “Try to see it my way…” There’s no objective thinking in an election campaign!
And what about my father? He passed away last summer, leaving me to drive his new Chevy. With gasoline prices flying through the roof, I’ll probably trade it for a small car with better fuel efficiency.
And what about you? Are you objective in your economic thinking? When your RRSP dropped 30% in the 2008/9 stock market crash, were you able to stay objective? Are you able to objectively look at the various candidates in this election? Or is it easier to slip back into your old familiar patterns of seeing the world the way you’ve always seen it?
Most investors are like my father, still thinking in the old ways. Most investors think that big blue chip companies are safe investments. But GM was once the biggest. Stelco was once the biggest. Buying and holding big blue chip companies no longer works. It’s time to be objective; it’s time to re-think the old ways.
The first step in becoming objective is to remember. Remember what happened in the past and learn from your mistakes.
Can we be objective about this election? When all the votes are tallied, will the NDP be re-elected to those six union-town seats in the House of Commons?
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).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
Thursday, March 3, 2011
Revenge of the Sub Prime Mortgage Nerds.
My apologies go to Twentieth Century Fox for my paraphrasing their 1984 movie, Revenge of the Nerds. The story line featured nerdy good guys outfoxing their tormentors, the jocks and socialites; the movie ended happily with the nerds getting the girls. Classic 1980s Hollywood comedy.
A rather comedic development occurred in the USA’s real estate collapse and world banking neo-failure: it looks like the nerdy homeowners are getting revenge on the big banks. It seems there are a significant number of foreclosures where the mortgage documentation wasn’t quite right. A computer signed the mortgage document instead of a human being. And the computer notarized the fake signature: they call it robo-signing. Judges have been throwing them out of court. Assembly line mortgage documentation didn’t hold up in court. One American mortgage officer was able to crank out 5000 mortgages per day using robotic mortgage underwriting. And now the banks are having trouble enforcing their foreclosures.
What a miracle is the human mind. In my investment book, Beyond the Bull, I postulate that there is no mind more crafty, more imaginative, more persuasive than that of a good stock broker. But maybe I was wrong. A good mortgage lender who is out on a limb is pretty good too. Let me ask you this: if you were stupid enough to hold a portfolio of mortgages with faulty supporting documentation and if your foreclosure actions were regularly being thrown out of court, what would you do? Here’s what they did: they pretended to be noble. In a gesture of humanitarian kindness, they offered to let the defaulting homeowners pay a reduced affordable monthly payment and allowed them to stay in their houses. Ah, the milk of human kindness! This, they rationalized, would keep millions of houses from being sold on the open market at fire-sale prices, and would actually help both the banks AND the home-owning public. All those forced sales were depressing the housing market, and if we just keep those houses occupied, well maintained and off the market, eventually, we will all muddle through this crisis.
This illusion, as all other illusions, has its flaws. What’s a $300,000 mortgage on a $250,000 house really worth? And if the monthly payments are so low that the $300,000 loan actually increases over the years, what’s it really worth? And if the banks reported the true value of that loan (and the millions of others just like it), what would the banks be worth? That’s the beauty of being noble. Everyone else tries to be noble too. The bank regulators don’t want another crisis; they don’t want to force the banks to be more accurate in reporting the value of their mortgage portfolios because, after all, the banks are being so kind to those poor folks who are unable to pay. Maybe this is the way banking will be conducted in the future – instead of having faith that people will pay their debts, maybe we can all have faith that it doesn’t really matter if people pay or not. Banking in the Age of Aquarius.
In early 2009 when American tax-payers bailed out their biggest banks, homeowners complained that it wasn’t fair. It was banker’s greed that pushed the mortgage business to ridiculous extremes, endangering the banking system, pushing the economy into recession and forcing millions of homeowners into foreclosure. President Obama’s bank bail out scheme was making those tax payer/homeowners responsible for the banks self-inflicted problems! It didn’t seem fair. But so extreme was the banks’ greed that they even screwed themselves! The homeowners who could least afford their mortgages are now getting their revenge. They are getting to stay in their homes at much reduced monthly payments. Sweet!
So, when all’s said and done, who really got screwed? People who moved into houses they couldn’t afford seem to be emerging from their debacle in reasonable shape. The banks and mortgage companies whose greed squeezed the system so hard, got bailed out. So, who got screwed?
It’s the responsible Americans who still need justice. They bought houses they could afford and dutifully made their mortgage payments. But their houses have dropped 30% on average anyway. There’s no revenge for them.
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.
A rather comedic development occurred in the USA’s real estate collapse and world banking neo-failure: it looks like the nerdy homeowners are getting revenge on the big banks. It seems there are a significant number of foreclosures where the mortgage documentation wasn’t quite right. A computer signed the mortgage document instead of a human being. And the computer notarized the fake signature: they call it robo-signing. Judges have been throwing them out of court. Assembly line mortgage documentation didn’t hold up in court. One American mortgage officer was able to crank out 5000 mortgages per day using robotic mortgage underwriting. And now the banks are having trouble enforcing their foreclosures.
What a miracle is the human mind. In my investment book, Beyond the Bull, I postulate that there is no mind more crafty, more imaginative, more persuasive than that of a good stock broker. But maybe I was wrong. A good mortgage lender who is out on a limb is pretty good too. Let me ask you this: if you were stupid enough to hold a portfolio of mortgages with faulty supporting documentation and if your foreclosure actions were regularly being thrown out of court, what would you do? Here’s what they did: they pretended to be noble. In a gesture of humanitarian kindness, they offered to let the defaulting homeowners pay a reduced affordable monthly payment and allowed them to stay in their houses. Ah, the milk of human kindness! This, they rationalized, would keep millions of houses from being sold on the open market at fire-sale prices, and would actually help both the banks AND the home-owning public. All those forced sales were depressing the housing market, and if we just keep those houses occupied, well maintained and off the market, eventually, we will all muddle through this crisis.
This illusion, as all other illusions, has its flaws. What’s a $300,000 mortgage on a $250,000 house really worth? And if the monthly payments are so low that the $300,000 loan actually increases over the years, what’s it really worth? And if the banks reported the true value of that loan (and the millions of others just like it), what would the banks be worth? That’s the beauty of being noble. Everyone else tries to be noble too. The bank regulators don’t want another crisis; they don’t want to force the banks to be more accurate in reporting the value of their mortgage portfolios because, after all, the banks are being so kind to those poor folks who are unable to pay. Maybe this is the way banking will be conducted in the future – instead of having faith that people will pay their debts, maybe we can all have faith that it doesn’t really matter if people pay or not. Banking in the Age of Aquarius.
In early 2009 when American tax-payers bailed out their biggest banks, homeowners complained that it wasn’t fair. It was banker’s greed that pushed the mortgage business to ridiculous extremes, endangering the banking system, pushing the economy into recession and forcing millions of homeowners into foreclosure. President Obama’s bank bail out scheme was making those tax payer/homeowners responsible for the banks self-inflicted problems! It didn’t seem fair. But so extreme was the banks’ greed that they even screwed themselves! The homeowners who could least afford their mortgages are now getting their revenge. They are getting to stay in their homes at much reduced monthly payments. Sweet!
So, when all’s said and done, who really got screwed? People who moved into houses they couldn’t afford seem to be emerging from their debacle in reasonable shape. The banks and mortgage companies whose greed squeezed the system so hard, got bailed out. So, who got screwed?
It’s the responsible Americans who still need justice. They bought houses they could afford and dutifully made their mortgage payments. But their houses have dropped 30% on average anyway. There’s no revenge for them.
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.
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