Category Archives: Year written

Very amateur investing, yellow-tinted glasses edition

(originally written Oct 2, 2011.  Part of Great Upload of 2013.)

I find it amusing that, while many of my fellow Vancouverites are attending places of worship this Sunday morning, I’m taking a break from work to muse about money, that root of all kinds of evil.  :)

Right now, the stock market is a relatively cheery (I said relatively) topic for me, since I’ve fared so badly in my first few attempts at Fate of the World, a computer game in the “Civilization” genre where you, at the head of a UN-like agency, attempt to prevent catastrophic global warming.

Designed in conjunction with climate researchers, you need to shrewdly manage your budget by enacting effective climate legislation, while appeasing locals on each continent just enough that they don’t kick you out and pursue their own path.  :)

In addition to the well-known options like cap-and-trade, renewables, biofuels, nuclear and efficiency policies, you can do more exotic things like legislate organic farming, enforce a vegetarian diet (cows burp a lot), spray aerosols to reflect sunlight, or use a Tobin Tax on financial speculation to raise funds.

Meanwhile, back in Reality…

While the planet (or at least, Texas) burns, stock markets hit an important milestone recently, with dividend yields from American blue-chip companies surpassing the yields on US gov’t bonds.  This hasn’t happened for a very long time, and is a signal that in several years, the price of most stocks (relative to earnings) will reach the point where even your financial advisor can invest your money for a decent rate-of-return.  ;)

This is due to the fact that — for whatever reason — stock market prices tend to cycle between too-optimistic (1929, 1966) and too-pessimistic (1947, 1980).  We came off a too-optimistic high around 2000, so one would reasonably expect that after about five more years of investment purgatory, stock price trends will slant upwards again.

In the absence of catastrophic global warming, that is.  :P

Gold

Gold feeds off stock market pessimism, so one would expect that maybe sometime between the next two Winter Olympics, it will spike upwards in a manner that dwarfs the frenzy that happened in August.  I guess I’ll insert yesterday’s Dilbert cartoon here:

Dilbert Oct 1 2011

Gold has properly dropped for the past month, but past precedent has such hangovers lasting two.  Too many enthusiasts are still humming “don’t stop believing”.  ;)

The corporate locusts known as gold mining stocks didn’t go up much earlier this year, and as such are likely to enjoy a big run-up through next spring.  [note from 2013: this totally didn’t happen.  By which I mean, the absolute opposite happened.]  The main reason is that companies’ profit margins have now gone through the roof, which means they’ll increase dividends, which in turn will attract pension funds and other big money pools.

It’s worth wondering why the stocks would rise with the metal in winter but not in summer.  The most plausible explanation I’ve encountered, is that when a commodity price rises to unprecedented levels (as gold did in the summer) no one thinks they’ll stay there for long.  After all, it’s unprecedented…!

A Tim Thomas tangent

Taking a hockey example, goalie Tim Thomas had a great year in 2008-2009.  But since he was 35 at the time, and had never really shone before, a lot of people thought it was a fluke.  Especially since he had a ho-hum year in 2009-2010, even losing the starting goalie position to Tukka Rask.

But if a commodity starts creeping upwards a second time to hitherto-unprecedented levels, stock analysts start revising their price assumptions upwards; companies get valued much more richly; and thanks to stock options, mediocre executives get valued most richly of all.  ;)

Back to hockey, Tim Thomas did the impossible and put up better-than-Dominik-Hasek numbers in 2010-2011; what with his 2008-2009 performance, everyone now expects him to the best goalie in the league, and he was probably the first goalie picked in every hockey pool this fall.  This, despite the fact that at 38, he can’t have that many good years left in him.  Such are our human foibles.

On Expert Foxes and Hedgehogs

We recently covered a book (Future Babble) in our work book club about the uselessness of expert predictions for the future.  The author argued that experts who present themselves (over)confidently — that is to say, expert “hedgehogs” — are more likely to be wrong than the ones who hedge their predictions (expert “foxes”).  A good pairing here would be that of Dennis Gartman and Richard Russell.  …and the argument holds!

Gartman, a bombastic investment newsletter writer, made the mistake of enabling skeptics (such as me) to follow his performance, by allowing an exchange-traded fund to follow his instructions.  It was outperformed by 98% of mutual funds in 2009, and 82% of funds in 2010.  I’m looking for a three-peat come December.  :)  [note from 2013: I think Gartman actually did above-average in 2011 among mutual funds.  But not compared to the index, of course.  :)  ]

Richard Russell has been writing his financial newsletter writer almost as long as Elizabeth II has been the Queen of England.  Apart from beating his drum about decadal trends, he doesn’t claim to know much about where things are going.  But he takes subscribers’ money anyways.  ;)

He’s credited with recommending buying stocks at the bottom in 1974, switching from gold to stocks in 1980, and then switching back in 1999, all of which were prescient.  I remember reading something he wrote around 2003, suggesting that by the time gold finished rising, one ounce would almost buy the Dow.  Emphasizing his reluctance to predict the number, he suggested that if absolutely forced to guess he’d say $3000, but that he wasn’t confident in it.  (It was about $300/oz at the time.)

At the time I thought, “must be nice to have rich-person problems”.  Actually, come to think of it, I still do… :)

The Black Swan’s Thanksgiving Turkey

(originally written Nov 24, 2011.  Part of Great Upload of 2013.)

It came to my attention that Naseem Nicholas Taleb, who authored The Black Swan (surprisingly, not about a ballet dancer, but about financial crises) discussed other avians in his book, among them the Thanksgiving turkey.  Per the Wikipedia page, he seems to’ve co-opted the idea from a turkey anecdote by philosopher Bertrand Russell, whose atheism doubtless led antagonists to brand him cuckoo.  ;)

The abrupt change in the turkey’s situation is part of an argument that it’s ridiculous to project present trends very far into the future, because, well, things change.  Hockey-wise, the Gretzky-led Edmonton Oilers of the 1980’s inspired a high-scoring decade for the NHL.  This was followed by a low-scoring decade inflicted on fans by the New Jersey Devils’ success with the neutral-zone trap in 1994-1995.  (As per the viral video most of you’ve doubtless seen, the Tampa Bay Lightning are going retro with their 1-3-1 system.  Lightning GM Steve Yzerman was part of the Red Wings team the Devils upset in the 1995 Stanley Cup Finals.)

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The world (of investing) according to Dante

(originally written Oct 21, 2011.  Part of Great Upload of 2013.)

It seems like the financial markets will have an “upwards bias” for the next few months, despite the circling-the-drain quality of the macroeconomic picture, which inspired this magazine cover from the Oct 1 issue of The Economist magazine.

20111001_CNA400[1]

If there’s anything I’ve learned over my years watching stocks (and, to be perfectly honest, there isn’t  ;) )  it’s to do the opposite of what The Economist says on its cover, a phenomenon known as the magazine cover indicator:

  • you’d’ve tripled your money in Ford in about two years by buying them after the July 2009 “Detroitosaurus Rex” issue
  • a couple months prior to that, the cover story “The Jobs Crisis” coincided with the bottom of the stock markets
  • of course, their timing is occasionally off; they did an oil-barrel cover in May 2008, and the price increased several percent into July before plummeting.

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Dinner with the Overclass (“Great Upload of 2013”)

(originally written Nov 17, 2010.  Part of the Great Upload of 2013.)

We had the pleasure of dining with the overclass on Monday, at an event put on by the wealth-services branch of a mutual fund company.  I’d charmed our way into that club earlier in the year, despite falling well short of the minimum asset requirements, using those charismatic powers that my wife seems curiously oblivious to. ;)  What clinched the deal for me, was the lure of a free dinner every time those guys swung through town — finally, someone giving us something for letting them gamble with our money! ;)

While there were a few of us pre-retirees there, the crowd leaned well-dressed and geriatric. No doubt some were keen wanting to move from merely ostentatious to fully obscene wealth — the kind of folks who might have forgotten (or never known?) the more immediate financial concerns of the bottom 98% of their fellow citizens, even in a well-to-do country like Canada. I believe I was the only person wearing sneakers. :)

A lot of people looked like they could’ve been from (exclusive Vancouver private boys’ school) St. George’s class of 1960. Or maybe 1950. But ex-Ballard colleagues were there — which was pretty cool. If anyone wants to get in touch with them, let me know.

The Eur-“uh-oh”-zone

The evening consisted of free (I wish I was a drinker!) cocktails followed by a dinner lecture during which each money manager discussed their economic outlook — which generally fell somewhere in the ominous-to-apocalyptic spectrum. (“The market giveth, and the market taketh away…”) Mainly for the reasons described in this deservedly-viral YouTube video.

With catastrophic irony, though the US Federal Reserve is trying to weaken the dollar with “quantitative easing” (to improve their economy through exports) it seems more probable (60/40?) that the US dollar will rise from here. (It’s notable that the Japanese government has been trying on and off to weaken the yen for, oh, half my life, but their currency recently hit all-time highs against the US dollar.) As bad as things are in the US, they’re even worse in Western Europe. It’s as if the US has halted its horse on the racetrack… but the EU’s horse is moving backwards.

Ireland is going to need a bailout; they’ll probably get one, because Germany leads the Euro bloc, and German banks are acutely exposed to Irish debt. Portugal’s also looking “sinking ship”-shape, and Spain — whose economy is roughly the size of Canada’s — is listing badly. Back in the day the US used “domino theory” to justify propping up governments in south-east Asia to prevent communism from spreading (“if Vietnam falls, Cambodia will fall, then Laos, and then … eventually, India”).

Right now, Eurozone governments are using similar logic, trying vainly to contain the financial contagion. Political problems are inevitably going to emerge from German bankers imposing austerity on Ireland, French citizens subsidizing Greek ones, and so forth. At least in the US, while “red states” might be irritated at having to bail out California, they share a national identity and mythos.

Siiiiiiilver

The speakers spent a bunch of time talking about silver, which has gotten a bit of attention with its sharp ascent (and descent) lately. While falling industrial consumption can negatively impact prices during tougher times, it would seem that in upcoming years it should continue to do well. This is mainly because, over the years, the “geniuses” at certain investment banks placed highly-leveraged bets on the commodity’s price… never imagined that anyone would actually be paranoid enough to take delivery of the actual metal, instead of booking paper profits. So they’re actually on the hook for a lot more silver than is readily available for purchase on the market.

Smelling blood, their deep-pocketed rivals have been hoovering up all available silver, in a successful-thus-far attempt to create scarcity and gouge the investment banks. As an example, the Sprott folks recently started up an exchange-traded fund whose business plan is… to store silver bars in a vault. They had to cut their IPO back from $750 million, though, because they could ‘only’ find about $600 million worth of silver on the open market. One of those ‘rich people problems’…

Mind you, I largely ignore the silver market. Because it’s so small, it’s insanely volatile — relatively small flows of money (by global standards) can completely distort the market, upwards or downwards. Most developing countries which successfully navigated their way to reasonable prosperity restricted capital flows for this same reason: too much money suddenly coming into a small economy can quickly create a bubble, and too much money suddenly leaving can exacerbate misery, neither of which are particularly beneficial.

517 – 1 !!  Awwwright!

One bright side for the global south did come out of the Overclass Night, though — it was the firm’s assessment that after centuries of colonization, mercantilism and marginalization, developing countries are generally in much better financial shape than their First World counterparts. Stagnation in the West for the next several years, should contrast with relative health in the majority world. Score one for the underdogs! :)

By my scorecard that makes it — let’s see, Columbus was 1492, right? — oh, about 517-1. ;)