Can Turtles Fly?

I find it quite surprising that gasoline in China is slightly more expensive than in America. From a Marketwatch story: At just over $3 a gallon, Chinese motorists will now pay about one-eighth more for a fill-up than Americans, who were paying an average $2.66 a gallon last week, Reuters reported. This is actually quite surprising to me. The gross national income per capita at PPP is 48,850 (in the hypothetical international dollar ) whereas China is listed at 5,370 in Wikipedia. I'm not sure how the Chinese can afford gasoline at a price similar to America. Fuel prices have historically been subsidized in China and the government has been reducing subsidies over the years. It's not clear how much is subsidized or what fuels are subsidized. Gasoline prices in China would likely be much higher without the subsidies. One should keep in mind that there is huge discrepancy in wealth between rural Chinese citizens and urban ones so the incomes would be much higher for the urban dw...

A fairly good interview with Jim Grant was conducted by Bloomberg yesterday. Grant is given time to elaborate on some of his views so it's worth watching the video. I am still not convinced that high inflation is imminent and is the most probable scenario. Yes, you have a lot of prominent investors betting supposedly on the inflation case (although one can never be sure how much they are betting.) But I'm still in the low-inflation/mild-deflation camp (i.e. one that expects a Japan-like scenario more so than a USA-in-the-70's scenario). Jim Grant follows the Austrian Economics school and that school emphasizes total credit when looking at the money supply. I wish he had gone into his thinking on how credit will expand with looming debt destruction all around. He sort of touched on the topic but he didn't compare the money creation of central banks against the credit destruction. His view that the amount of money being pumped is unprecedented in the post-war era is corr...

In what seems like a really bizarre policy, Russia is set to ban gambling from most of Russia. Casinos will be limited to some remote regions and shut down elsewhere. From The New York Times : One of the largest mass layoffs in recent Russian history is to occur on Wednesday, and the Kremlin itself is decreeing it, economic crisis or not. The government is shutting down every last legal casino and slot-machine parlor across the land, under an antivice plan promoted by Vladimir V. Putin that just a few months ago was widely perceived as far-fetched. But the result will be hundreds of thousands of people thrown out of work. And in a move that at times seems to have taken on almost farcical overtones, the Kremlin has offered the gambling industry only one option for survival: relocate to four regions in remote areas of Russia, as many as 4,000 miles from the capital. ... The gambling industry here does not have the loftiest of reputations, and many Russians will not grieve for it. Still, ...

Bernard Madoff at his sentencing Verdict in the biggest scam of all time... The Globe & Mail picks up an AP story: Convicted swindler Bernard Madoff was sentenced to 150 years in prison Monday for fraud so extensive the judge said he needed to send a symbolic message to those who might imitate his fraud and to victims who need relief. Applause broke out in the crowded Manhattan courtroom after U.S. District Judge Denny Chin issued the maximum sentence to the 71-year-old defendant, who said he sought no forgiveness and knew he must live “with this pain, this torment, for the rest of my life.” Speaking after his sentencing, Mr. Madoff acknowledged the betrayal he perpetrated and the suffering he caused his investors and his family. “I cannot offer an excuse for my behaviour,” he said. “How do you excuse betraying the trust of investors who entrusted me with their life savings? How do you excuse lying and deceiving your wife who stood by you for 50 years and still stands by you?”

I see quite a number of individuals comparing the current stock market crash to the one that started in 1929. I feel that many are performing the comparison without even knowing what happened from 1929 to 1932. You may have seen several charts floating around on blogs that plot the current crisis to the crash that started in 1929. I think it's worthwhile to look at that comparison but it is very important to understand what happened in the 1930's as well. I think the current period is quite similar to the early 30's but one needs to understand why the market fell so much back then. It would be a serious mistake to assume the same thing will happen now, unless you believe similar events will unfold. I thought it is worthwhile to analyze a chart of the Dow Jones Industrial Average in that time period. Like many complex events, no one really knows exactly why something happened or what was driving the market so what I say should be taken as my opinion. It's a very long lon...

(source: Doh! The recession has gone pop - Hard times filtering into books, music, movies and TV by Hollie Shaw. Financial Post, June 19, 2009)

Branded consumer goods have had a good run. They have done exceptionally well for the last few decades. In fact, one can argue they have been in a bull market of sorts since the 1950's—basically since the American post-war consumer boom started. Branded consumer goods companies also tend to have high ROE, supposedly strong moats, and are thought to be shareholder-friendly (they pay out a lot of their earnings as dividends.) But are we seeing the beginning of the end of their strong performance? One of the arguments I often have with so-called value investors is their heavy reliance on branded consumer goods companies such as Kraft, P&G, Colgate-Palmolive, and so on. My feeling is that many pick those companies because they are influenced by Warren Buffett. I haven't seen many make any forward-looking bullish macro case for them (but then again, value investors usually don't try to make macro forecasts.) I ran across a story from The Globe & Mail discussing how shop...

(Illustration by unknown artist. Blowing Up by Malcolm Gladwell. The New Yorker, April 22 & 29.) Nassim Nicholas Taleb is a controversial man these days. Some of it probably comes from the envy of others, but some of the criticisms are quite valid. For those not familiar, he is, without a doubt, Mr. Black Swan. He successfully profitted off the stock market crash, and has suggested that investors understate risk. Not just once or twice, but almost perpetually. I haven't linked to any of his works or commentary because his investing style isn't suited to me—he is essentially a trader and I am not—and I don't think his views can be successfully executed in the long run, at least when it comes to small investors. Some traders may profit from his strategies but it is a painful strategy. From what little I know of Taleb's work, I think most of it is useful for academics, risk officers, executives, policymakers, and the like. I was writing this post a few days ago and Blo...

“I have no shorts for one of the first times in my life,” Rogers, a co-founder with George Soros of the Quantum Fund, told Reuters TV in Singapore. “On the other hand I don't see much to buy.” The above quote from a Reuters story picked up by the Globe & Mail sort of shows the current state of the market. I don't follow Rogers closely but I can't recall him not buying, or shorting, something over the last 5 years. I think this is a sign that the market is neither overvalued nor undervalued.

But you know, people say, 'greed has suddenly increased.' But it isn't that greed's increased. What's increased is the realization that you've got a free field to reach out for what you'd like to do. Everybody would still like to retire with a satisfactory nest egg in real terms. And the tragedy of this unnecessary eight-year interlude is that much of what has been accumulated is gone and gone forever. And no amount of pumping is going to bring back into reality what were ill-advised overextensions of bridges to nowhere and housing developments for which there was no effective demand. — Paul Samuelson On the Current Crisis Unless you are an economist or were around for several decades, you may not be familiar with Paul Samuelson. Anyone left-leaning will probably know him more than the general population since he may be the most influential Keynesian economist outside John Keynes. Certainly I am not that familiar with him and, since his dominant influence wa...

The excuse given for the market sell off yesterday was the bearish World Bank economic outlook . Media is always looking to pin any market movements on some story so one can never be sure what the real cause may have been. One might be tempted to lump the World Bank analysts into the group containing IEA and EIA (two energy agencies) as official members of the 'late to the party' club. Yet, I noticed two things that are quite surprising to me. The first thing that stands out is how badly the developing world is forecast to be doing: Developing countries are expected to grow by only 1.2% this year, after 8.1% growth in 2007 and 5.9% growth in 2008. When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6%, causing continued job losses and throwing more people into poverty. The 1.2% GDP growth for developing countries is terrible. The developing world tends to have higher population growth so these are the types of numbers that can...

One of the key elements that will dictate the outcome in the inflation vs deflation debate will be employee wages. For those outside North America, it should be noted that wages really haven't grown much in the last decade (in contrast, wages have been growing fairly strong in most of the undeveloped and developing world—I'm not too sure about Europe.) This is one of the reasons inflation in America and Canada has been quite low even with big increases in commodity prices, healthcare costs, and so forth. I'm just bringing this up because it shows that there is already a default deflationary force. The real question is whether this outlook has changed more towards inflation or deflation. Notwitstanding the strike by municipal workers in Toronto and the potential worker boycott of Ontario's liquor board (both of them likely to increase wages when resolved), the current climate is starting to exert a downward force on wages in Canada. The following story from The Globe ...

The above chart of Verenex Energy (TSX: VNX) shows how M&A arbitrageurs need to carefully consider political risk. This was an M&A deal I was tracking closely and was thinking of investing in it if the return was 20% or more (it never hit my required level.) The stock is off around 20% right now and was down as much as 30% on news that Libyan authorities are investigating it. Verenex is a small oil & gas exploration company operating in Libya. China National Petroleum Corporation offered to buy the company. The Libyan national oil company had right to match any offer and Verenex was waiting for approval from them. Well, taking a page out of the Russian government playbook, Libyan authorities are investigating the legality of Verenex's qualification for the field it purchased about four years ago: Collectively, the two letters advise that legal authorities in Libya are investigating allegations that Verenex was improperly pre-qualified to bid in the EPSA IV first bid r...

I came across a post by Howard Silverblatt at the Investing Insights blog at BusinessWeek talking about companies that are cutting dividends. Not surprisingly, Howard points out that companies are cutting dividends or cancelling them. He also refers to some interesting data from S&P that I analyze below. I thought I would take a look at the dividend announcements that are being made; and how the present situation compares to the past. I wish I had access to a longer history but, alas, I have to go with what I can find freely. Unfortunately, the numbers I could find at the S&P site are quite limited and misses the results from the 1974 bear market, which is probably closer to the current bear market in terms of severity (actually, I would like to compare to the 30's but that is too far back and there isn't much (free) information available from that period, let alone anything about dividend announcements.) I don't generally care about dividends—my ideal company is...

(Illustration by Raffi Anderian for The Toronto Star . "California Nightmare" by David Olive, June 20 2009)

Some articles one may find interesting... as usual, not in any order... Business of movies (The Globe & Mail): A note about the present state of movies...also has an interesting note about movieds financed about private equity and hedge funds (I wonder if they are actually making money.) An opinion on why USA remains the leader (The Globe & Mail): Historian Freedman says, the reason USA hasn't faltered while many others have come down to "...two features which distinguish it from the dominant great powers of the past. American power is based on alliances rather than colonies. And it is associated with an ideology that is flexible, potentially universal and inherently subversive of alternative ideologies." The author, interpreting Freedman's views, says "Democracy itself is the first explanation for American flexibility. Capitalism is the second. Liberal democracies make for flexibility by allowing discontent to be expressed, channelled and absorbed. Ca...