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Showing posts from January, 2010

Japan's sovereign credit rating under threat

As some may get the feelilng from my posts, I find Japan a paradox of sorts. So many good things yet so wrong on many fronts. I am curious to see how it will adapt over the next few decades. Older generations may have lived a life experiencing the ascent of Japan. Generation X and younger ones will live a life seeing its descent. But the future is not written in a stone so they have control over their future. All that is a prelude to news that S&P is contemplating cutting Japan's credit rating : Standard & Poor's Ratings Services said Tuesday that it may downgrade Japan's sovereign credit ratings if data don't improve or if the government doesn't get its fiscal and economic house in order. The ratings agency said it's placed a negative outlook on Japan's AA sovereign long-term credit rating, saying it could issue a downgrade to AA- "if economic data remain weak and measures to boost medium-term growth are not forthcoming, given the countr

Sunday Spectacle XXXXV

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(source: The Economist) Yay... Got a job offer :) I'm accepting it... Kind of nervous, as I'm sure everyon is with a new job but a new chapter in my life... funny how life turns out.

Review of my 2009 performance

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As usual, this post will review my investment performance for the year. A bit late this year and I was kind of confused with some calculations but finally wrapped up things. I did a lot of preliminary research and hunting around in 2009 but ended up doing almost nothing. I actually had zero purchases, if you ignore special situations. I likely missed the greatest buy opportunity in 25 years (since 1974 I'm guessing) but oh well. I feel the market was not cheap and many securities survived only due to government support. My concern last year was not so much that the valuations were sky-high but that they may overshoot to the downside. Even now, I have a feeling that the market will decline or go sideways for a while. Given how I did almost nothing, I severely underperformed the markets this year. I'm actually satisfied with the performance. Although posting way-below-market returns is not a good sign of investment skill, I am more dissatisfied with losses. I was more dissapo

Articles for the week ending January 23

hmm... the market is starting to sell off but not sure if it's anyting political (taxes on banking...also some suggest that Ben Bernanke won't be re-appointed but I don't think so; but if he does not get re-appointed, the next best canadidate appears to Lawrence Summers. Some of the "back-benchers" on the Fed also have a shot.) Last year's inflation vs deflation debate—which is not yet resolved—appears to have been sidelined, in favour of the China bubble debate. Here are some articles I found interesting:

Consequences of the subprime mortgage bust

When wokers are laid off, it's very painful but, if you are a capitalist, you should accept it as an important element of capitalism. One of the beauties of a capitalist system is that the free market destroys useless and uneconomic industries and, hopefully, replaces them with more productive ones. This is not limited to uneconomic industries subsidized by short-term factors (such as government spending, fads in clothing, hype over some unknown useless product, and the like); this also means that established industries that used to thrive once may need to be done away with. It's painful for anyone caught in the cross-hairs but that's the reality and society is better off in the long run. A lot of people on the left—I consider myself left-leaning—don't understand this. They see companies laying off people and think it is some greedy executive or owner trying to make more money. Well, in many cases, the capitalists themselves are losing a fortune and it comes down to s

Found a China bear who shares similar thoughts as me

I never heard of Richard Duncan but, after reading this article on MarketWatch , his thinking is quite similar to mine. He is quoted for bearish views on China but the reality is that the scenario is much larger than that. The problems are global in nature and everyone will be affected one way or another. I don't think many will agree with Duncan's outlook but it's worth contemplating. Before someone dismisses him do note that, at least going by what's said in the article, his 2003 "The Dollar Crisis," appears to explain many of the problems we are facing now. I have excerpted some key points from the article. For what's its worth he is far more bearish than me. Also, no one bat 100% so many predictions will turn out to be wrong. The key is to avoid getting blown up by major mistakes.

Bloomberg suggests China should follow the path of Henry Ford

Henry Ford is a controversial character. He is widely accused of being anti-Semitic and he may even have been a fascist but he did contribute positively in one major way. Although the ultimate impact was never clear, his policy of paying way-above-average wages for his employees radically altered the economic landscape—at least in the North-East, particularly New York and Michigan. It's possible that Henry Ford's compensation policy made Detroit into the powerful and influential city* it was in the early part of the 20th century. It is a well-worn cliche but Bloomberg has a nice article suggesting that China should do what Henry Ford did. Namely, pay higher salaries for its workforce: Higher wages for people like Xie would help resolve China’s biggest economic challenge: shifting away from growth fueled by exports and investment and moving toward an economy driven more by domestic consumers. China’s communist leaders might learn a lesson about how to create a more prosper

Japan Airlines flies into bankruptcy

Not confirmed yet but it looks like Japan will see one of the largest bankruptcies in its history when national airline, Japan Airlines, declares bankruptcy tomorrow. This is a good example of how one shouldn't speculate based on government intervention. Apparently many were expecting the government to intervene but that didn't happen. Bloomberg has the story : “Everyone expected the government to support JAL and now it’s going into bankruptcy,” said Yoshihiro Nakatani, who oversees about 80 billion yen ($882 million) as a senior fund manager at Asahi Life Asset Management Co. in Tokyo. “This could be a turning point for the whole market,” he said, adding he doesn’t own any of JAL’s bonds. A state-affiliated fund will make a final decision on a proposed restructuring for Tokyo-based JAL today after the carrier sought help following a 131 billion yen first-half loss. The plan will probably include the airline, the recipient of four state bailouts since 2001, seeking court

Opinion: Really tough for media companies to work under the Chinese regime

Almost everyone has heard of the controversy over Google's threats to pull out of China. Some always wondered what type of company Google was, and this situation should finally prove that Google is basically a media company. I think the currently unfolding situation goes to show how difficult it is for media companies to work within a totalitarian regime. Other industries can sort of get away with questionable practices but media companies will always be, either under the watch of the state, or culpable in human rights violations of the state. Anyone who knows about politics knows that brainwashing the population is one of the most powerful tools available to governments. In fact, when a crisis unfolds, the first task of many tyrants is to take over the media or to initiate propaganda. I once recall Noam Chomsky pointing out that propaganda was widely used until citizens started resisting it. There was even a book called Propaganda or something like it (don't remember the e

Newbie Thoughts: A bond fund/ETF is very different from a bond

A user, ccyork , at GuruFocus' message board asked if the TIP ETF is the same as owning the TIPS bond. I wrote up a long response and I thought others would find it benefitial (I have edited it slightly here.) Some of you would know far more than me—hell, there are bond professionals reading this blog ;)—so feel free to correct me if I'm incorrect with any of the points. Bonds vs Bond Funds/ETFs Is there a difference between owning a bond itself versus owning a bond fund or ETF? Is the TIP ETF the same as owning individual TIPS bond?

Sunday Spectacle XXXXIV

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Photo by Doug Mills for The New York Times. " Bankers Face Tough Questions at Hearing on Financial Crisis ." January 13, 2010.

New blog template

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Partly because I was bored... partly because it was conflicting with Blogger... partly because it was a good time for change given changes in my life that are unfolding...but whatever it was, I decided to change to a new blog template. The prior theme was a hack of two different ones and I'm going to miss it.

Articles for the week ending January 15th of 2010

Yes, a new year... remains to be seen how the year shapes up... Blogger has a new (beta) editor and it has kind of disrupted my writing. I typically compose in the HTML mode but it doesn't have a picture insert icon in that mode anymore :( Also, I don't like automatic HTML parsing of the regular "rich text" mode since it messes up something on my page :( Having said that, the advantage of sticking with a hosted platform is that you don't pay for any new updates. The platform continuously improves, albeit a bit slowly, and new innovations are seamlessly incorporated into the platform. Since I have a lot of time to kill these days, I'm wondering if I should change the look. I kind of like my current look—it's very unique—but I wonder if I should change it just to freshen up things ??:| I'm still trying to formulate my investment strategies for the year. Nothing looks cheap but then again, I have been saying that for 6 months. My performance last year

Mega Brands attempts to reduce debt

One of the annoying things about continuously researching investments is that you may spend a lot of time on research yet end up with nothing. For me, such a scenario (lots of research but neither a buy nor a sell in the end) is one of the most depressing things about investing. Small investors like me—I suspect this applies to majority of the readers—don't do this as a full-time job so any "wasted" time seems like a mistake. Unlike professionals, I don't get paid to spend hours searching for information or thinking about industries; a hundread hours spent on research with no final investment is always a disapointment. Sometimes, though, what seems like a fruitless pursuit can turn out to be a potential investment years down the road. Such is the case with Mega Brands (TSX: MB). I can't remember if I mentioned this stock on this blog before but I have had it on my watchlist for a while now. Mega Brands is one of the major toy companies in North America. It is

US court freezes Argentinian central bank assets

A potentially minor issue that could turn into a crisis in Argentina : An American judge has frozen all property held in the U.S. by Argentina's central bank, saying some or maybe all of that money rightfully belongs to corporations that are owed billions of dollars by that country's government. U.S. District Court Judge Thomas Griesa signed the order Monday in New York. The court made the order public Wednesday. The amount of money involved still isn't clear because lawyers in the case have yet to tally how much money the bank has deposited in the U.S., but the court has authorized the creditors to attach as much as $3.1-billion (U.S.) in Argentina's assets. Judge Griesa issued the order at the request of two investment firms, EM Ltd. and NML Capital Ltd., which were among the creditors owed billions of dollars from Argentina's default on $95-billion in bonds in 2001. ... In the past, they have argued that Argentina's central bank is an independ

Investing in India through some Japanese companies

I ran across a MarketWatch article that highlighted two Japanese companies that are set to profit if India does well . I'm always wary of these indirect strategies suggested by analysts but it's something to consider if one is looking to invest in India without paying the historical premium for US-listed Indian stocks: Investors looking for an easy way to invest in India's fast-growing market can get it via the shares of select companies in the developed market of Japan, analysts say. "For the last decade, India has been associated, in the minds of Japanese investors, with motorcycles and small cars," said Macquarie Securities analysts Shih-Han Huang and Peter Eadon-Clarke in a recent report. "The last 18 months, however, have seen major strategic acquisitions in the pharmaceuticals, telecom and steel sectors." Their two principal India-related Japanese recommendations are pharmaceutical giant Daiichi-Sankyo Co. (TSE: 4568; OTC: DSKYF) because of

Google threatens to pull out of China

Wow, The New York Times is reporting that Google is considering pulling out of China if an amicable agreement cannot be reached between it and the Chinese government: Since arriving here in 2006 under an arrangement with the government that purged its Chinese search results of banned topics, Google has come under fire for abetting a system that increasingly restricts what citizens can read online. Google linked its decision to sophisticated cyberattacks on its computer systems that it suspects originated in China and that were aimed, at least in part, at the Gmail user accounts of Chinese human rights activists. Those attacks, which Google said took place last week, were directed at some 34 companies or entities, most of them in Silicon Valley, California, according to people with knowledge of Google’s investigation into the matter. The attackers may have succeeded in penetrating elaborate computer security systems and obtaining crucial corporate data and software source codes,

Marc Faber's thoughts for 2010

I always like to check out what people are saying early in the year and here is a Bloomberg interview with Marc Faber . No major actionable idea in this interview—at least for small investors. Faber seems cautious and thinks the market may decline when least expected. He hedges his thoughts a bit too much for my liking. Being an inflationist, I'm not really sure whether he sees a collapse in various assets (particularly in China.) His stance is that the US government will intervene if the American stock market declines but that remains to be seen. A lot of what was politically acceptable two years ago is not so now.

Outlook from a bear, Gary Shilling

Gary Shilling must have had a very bad year in 2009. I think 8 or 9 of his calls were wrong. Nevertheless, going into 2010, he maintains most of his calls. I don't agree with all his views but I do share his thinking for the most part. Writing for MarketWatch, Paul Farrel summarizes Shilling's 17 picks for the year . Six of the seventeen are buys while the rest are sells. I think there is a typo with the numbering and I have corrected it below. For some of the points, I have chosen not to excerpt the detailed text. You can read the original article at MarketWatch if you are interested. I decided to do this to maintain fair-use (don't want to quote almost the whole article) and to avoid repeating the same points I have quoted in the recent past.

Outlook from a bull, Bill Miller

The Globe & Mail paints Bill Miller's stance as somewhat bearish but I think he is firmly in the bull camp: But in the midst of a bitter cold snap, we prefer the warmth and good cheer of a true optimist. Which has drawn us to famed U.S. fund manager Bill Miller, who may be the most unreservedly bullish person we know when it comes to the U.S. economy, big-capitalization stocks and even the tattered greenback. And he has plenty of affection left over for Canada, too. "The outlook for both the stock market and the economy is considerably better than the consensus forecasts. There ought to be strong returns in U.S. equities this year," says the chairman and chief investment honcho of Legg Mason Capital Management. "I don't think that the risks ... are anywhere near as great as what the consensus believes." In making his case for a robust V-shaped rebound, the erudite market pro cites part of a well-worn comment about the nature of business cycles fr

Canadian accused of terrorist plot apparently was trying to blow up the TSX

Apparently the ringleader accused of a terrorist plot in Toronto was trying to blow up the Toronto Stock Exchange , among other buildings. According to The Globe & Mail, he is also said to have contemplated a plan to short-sell stocks before blowing up the exchange: It's alleged that Mr. Abdelhaleem was a key player, and was particularly fixated with blowing up the Toronto Stock Exchange building in a bid “to affect the economy, to make it lose half a trillion dollars,” according to Crown allegations. The case against him, according to police, includes a recording of him describing the al-Qaeda-inspired plot. This included detonating a two-tonne fertilizer bomb that was to be built in hopes of destroying the TSE building and the three blocks around it. Mr. Abdelhaleem allegedly said he would short-sell stocks ahead of the bombing, to reap a windfall that could be used to fund more terror attacks in cities like Chicago and New York. I just wanted to highlight this story

Could be a critical year for China

UPDATE: The Dec 15 CNBC video doesn't show up properly for some reason :( Click here to go to the relevant CNBC page and check out the video on the left, in the article. I thought China was going to be a big issue in 2009. I was wrong. Nothing happened. But I am maintaing my stance. Is it still vulnerable to an implosion? Mike Shedlock links to two China bears , Doug Noland and Jim Chanos, who think China may be reaching dangerous territory. Mike Shedlock has also written in the past about his bearish views of China. I'm not a fan of Doug Noland (too perma-bearish for my likes) but I do pay attention to Jim Chanos. As you may know, Jim Chanos is perhaps the most successful short-seller in the last 30 years. There are others, like Jim Paulson, who profitted off short-selling mortgage bonds but they are not short-selling specialists; they go back to a long-only portfolio afterwards. Chanos, in contrast, is a specialist and very good at detective work. But his techniques

Sunday Spectacle XXXXIII

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Tablets vs E-Readers

Where are we?

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I ran across a great article in The Economist summarizing the current state of asset markets . Nothing earth-shattering in the article but it does summarize various issues and examines potential bubbles. As the year just started, investors are probably thinking about the same issues so I thought I would quote some key points from that article. THE opening of the Burj Khalifa, the world’s tallest building, in Dubai on January 4th had symbolic as well as architectural significance. Skyscrapers have long been associated with the ends of financial booms. The Empire State Building opened in 1931, two years after the Wall Street crash. The Petronas towers in Kuala Lumpur were unveiled in 1998, in the depths of the Asian crisis. Such towers are commissioned when money is cheap and optimism about economic growth is at its height; they are often finished when the champagne has gone flat. The past three decades have been good for skyscraper-building. The cost of borrowing money, in nominal t

A newbie question for you: can you show me how to compute some returns?

This is going to show my total newbieness but if you, as the reader, have some time to kill, can you compute the returns outlined below and leave a comment with your answer or e-mail me. As usual, I am trying to compute my performance for the year—all I know is, it's not good this year :|—and am getting confused. I'm starting to doubt the calculation I have performed in the past. If you have time, can you compute the returns for the following scenario: Start: You start with $100 Year 1: At the end of year 1, you have $150. You add $100 so the starting value for year 2 is $250. Year 2: At the end of year 2, you have $200. You remove $50 from your portfolio so the starting value for year 3 is $150. Year 3: At the end of year 3, you have $100. What is/are the: (i) Yearly (annual) returns (for year1, year 2, and year3)? (ii) Overall total (aggregate) return over the 3 years? (iii) Annualized return over the 3 years? This is elemental stuff and I can't believe

S&P: Dividend rebound to be slow

I took a deep look at dividends about an year ago and the situation didn't look too good back then. The economies of the world have been rebounding since then but S&P is projecting a slow recovery for dividends. From The Globe & Mail : Last year marked the worst on record for stock dividends, but this year is expected to show steady improvement, Standard & Poor's said today. Howard Silverblatt, the senior index analyst at S&P Indices, said in a statement today that 2009 saw the fewest dividend increases and most decreases since S&P began tracking the data in 1955... “Standard & Poor's believes that the dividend recovery will be slow, and that it will take until 2012 to 2013 to return to where we were in 2007 and 200.” Since companies are very conservative with their dividend schemes, I think S&P's projection seems reasonable. Dividends shouldn't have much difficulty reaching the 2007 levels in 2 or 3 years from now. Overall, divide

2009 Asset Performance

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How did various assets perform last year? Here is my regular run down of key assets I like to watch. New for this year, residential real estate will be tracked from now on. I came to the conclusion that home prices are important because it is a large opportunity cost for most people. Whether one ties up capital in their home or not, will likely have a major immpact on the final investment performance over their life. For America, I'm planning to track the widely known S&P Case-Shiller Home Price Index (I'm going with the broader one with the most cities.) For Canada I'm planning to track the GTA (Greater Toronto) home price that is reported by the Toronto Real Estate Board. Barring a move, I suspect I'll live in Toronto for the rest of my life so that's what I chose to track. Looking at the final numbers is kind of like looking at the ending of a movie without knowing how the movie played out. This year, especially, is one where the plot mattered a great deal

Worst non-leveraged ETF of the year: UNG

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Commodity investors may know UNG as the ETF that tracks natural gas. Well, it apparently posted the worst return of any non-leveraged ETF last year. MarketWatch reports: United States Natural Gas Fund lost almost 60% in 2009, but its difficulties went beyond falling prices for natural gas due to the poor economy and oversupply issues. U.S. Natural Gas Fund, with assets of about $5 billion, was the worst-performing ETF in 2009 that doesn't use leverage. The natural-gas exchange-traded fund was off 56.5% for the year, while the SPDR S&P 500 ETF, which tracks U.S. large-cap stocks, gained 23.4%, according to FactSet Research. Aside from the decline in natural-gas prices in 2009, the fund was also hit by a condition in futures markets known as "contango," in which the price of longer-dated futures contracts is higher than the spot price. "Investors should be mindful that this fund invests in natural-gas futures and not the spot price of natural gas," w

Burj Khalifa opens for business...with spectacular opening ceremony

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(source: Toronto Sun ) Yes, for those following this blog and this story, the Burj Dubai has been renamed to Burj Khalifa, in order to appease the rulers of neighbouring sheikdom, Abu Dhabi, who came to Dubai's aid. Dubai is often attacked for using, what amounts to, modern-day slave labour—if you are not familiar check out this opinion piece by Johann Hari in The Telegraph earlier this year—but let's leave that aside for a moment. Let's also ignore the fact that this building, like many built during booms, will be major loss for the original financiers. Let's, for the moment, reflect on this spectacular accomplishment. Rises During Tough Times Regardless of what one thinks of the circumstances surrounding Dubai, Burj Khalifa is one of the greatest architectural achievements in the last century. It is on par with the Chrysler Building and the Empire State Building in New York, which were completed under a similar economic cloud right after the stock market crash

Sunday Spectacle XXXXII

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World Map by German Cartographer, Johann Baptist Homann (Published in Nürnberg, 1707) (source: Ancient World Maps ) What's the chance of a boom in space exploration within my life? I wonder...

Top 10 Investment Stories of the Decade - 2000-2009

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Every decade seems wild; at least that's what old timers always say ;) But I don't think anyone quite expected the first decade of this millenium to be as crazy as it ended up being. Politically, I think the decade was actually pretty calm and uneventful. Even with the 9/11 terrorist attacks in America, the decade wasn't as bad as some of the past ones. I would say the 90's was even more volatile with horrible genocides, collapse of various former Soviet countries, and so on. However, the situation was completely different when it came to investing. Depending on the measures you use, the first decade of this millenium will go down as the worst investment decade for investors—it's worse than the 1970's or the 1930's (but note that the 1929 crash happened before the start of the 1930's decade.) I like lists so I thought I would mark down what I feel are the top 10 investment stories of the decade. Hope you guys & gals enjoy it. I only started inves