Friday, October 10. 2008
With a full blown financial armageddon upon us, I pondered to myself, what stocks could possiblely be up after massive drops everyday? It turns out there are stocks that actually move up. Observe the UltraShort S&P500 ProShares (SDS)
This is a fund that makes money whenever the markets go down. This is known as shorting which is where you're betting that the market is going down. If you read the chart, this fund has been doing extremely well this month. Today it was up more than 10%. Looks like the bears are winning big time.
Note: I am not advocating shorting the market or investing in the UltraShort fund. I'm merely highlighting that whether the market is up or down, someone is making money in the market.
Thursday, October 9. 2008
I got this article from Myron entitled, " The party's over for Iceland, the island that tried to buy the world." I was kind of shocked by this article because it was completely off my radar and it's not being covered by any of the mainstream media down here.
Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.
People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.
This North Atlantic volcanic island, which is the size of Cuba, with a population of 320,000 - the size of Coventry's - is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN's 2007 'best country to live in' poll. But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the past eight years have been, for most of them and by their own admission, one long party.
The nation's celebrated rags-to-riches story began in the Nineties when free market reforms, fish quota cash and a stock market based on stable pension funds allowed Icelandic entrepreneurs to go out and sweep up international credit. Britain and Denmark were favourite shopping haunts, and in 2004 alone Icelanders spent £894m on shares in British companies. In just five years, the average Icelandic family saw its wealth increase by 45 per cent. [...]
Outside the city's Hofdahollin car showroom, looking a little rumpled for men trying to sell new and used cars for £35,000 and up, owner Runar Olafsson and his top salesman are sharing a Marlboro. They are not expecting any customers today. 'A few years ago we couldn't get enough top-end cars and we started importing them. We were selling 120, 140, a month. But it turned around so fast,' says Olafsson. 'It's so dramatic, just in one month. We have already seen two dealers go down.
'Customers would come in and we would apply for credit online for them, a 100 per cent loan, and they can drive away in their new Range Rover. It took ten minutes, it was very easy. But 60 to 70 per cent of those loans were in foreign currency, Japanese yen or Swiss francs, and they have gone up 90 per cent as the krona burns. A car worth 5 million krona now has a 9 million loan on it; how are people going to make those payments?'
I think it's quite remarkable how quickly this credit crisis has spread all around the world. The shockwaves are being felt everywhere. If you need proof, anyone see the Toronto Stock Exchange plunging 11% on Monday? In either case, I don't even bother looking at my RRSP/stock account balance anymore, it's too scary.
Bjork! Save your country!
Saturday, October 4. 2008
With the banks imploding all around us, and talks of an $850 billion bailout of the banks, many people have suddenly become interested in the banking system, and why are these awful things happening around us.
There's a short film that's circulating on the internet entitled "Money As Debt" which helps explain some of these things. This film answers questions such as:
- What is the role of the central bank?
- Where does money come from?
- What is a "run on the bank"
- etc.
The documentary is pretty accessible to even people with basic understandings of economics and such. It's also completely animated and not too complicated.
To the Ron Paul fans, you've probably heard the congressmen lament how bad our monetary system is currently. One of his solutions is the return to using the gold standard for our money, but this documentary highlights the problems with the gold system.
The first half of the documentary I enjoyed as it gave the history of how banking was created. However, I can't vouch for the second half of the documentary. It suddenly becomes very conspiracy theorist like. An example of this is when they quote from two American presidents who opposed the money system, and they imply that they were assassinated because of their opposition. In addition, I find the documentary's proposed solution of solving the money system's problem to be a bit naive or impractical. Some of the solutions, they wave their hands and say, oh alternative energy could save us money problems without explaining why.
Some of the solutions are very naive. For example, they suggest that if government had complete control over the money system, that would solve all our problems of evil bankers manipulating the system. However, giving absolute power to government is just replacing one problem with another in my opinion. Do we not remember that government has corruption and scandals as well?
I was debating whether to post this or not due to the duality of my opinion of this film. However, there are some nuggets to be sifted out of this. I'll let you decide which parts of this film is true, and which parts are conspiracy theories.
One interesting tidbit of information, apparently this film was created in Cowichan, British Columbia.
Tuesday, September 16. 2008
Yesterday was an absolutely historic day in the stock markets as two financial titans fell; Lehman Brothers went bankrupt, and Merill Lynch was sold to Bank of America. Panic ensued, and the Dow dropped 500 points. As a recap, this chain of events started with the subprime mortgage meltdown. Greedy banks were basically giving home loans to a lot of people who simply couldn't afford them. Interest rates moved up, and people couldn't keep up with their mortgage payments anymore, so people defaulted on their loans. You multiple this situation a couple million times, and you have this blackhole in the financial markets where a ton of money has disappeared. Now the government is trying to step in and bail out these banks which are failing, which ultimately means the taxpayers are picking up the tab. It's quite a dire situation since America's debt is already huge, and it's only going to get bigger.
There are two main things that really tick me off about this situation.
- It's insanity to give mortgages to people who can't even afford down payments on houses. The outcome is not unpredictable at all, and there were warning signs as early as last year that the financial markets would be in trouble. A lot of this was avoidable.
- People who are financially prudent are being punished for the mistakes of greedy banks, and people who were financially reckless.
This morning I just discovered that one of my stocks in the solar business dropped about 50% in value because they had a business connection to Lehman Brothers, and because Lehman is going bankrupt, the company is going to be losing money. This was quite an unfortunate revelation, and it shows how there's going to be a lot of indirect ways for people to get financially hurt because the large banks are failing.
This morning, Cramer had some dire warnings of other financial organizations that are on the brink of failing as well, such as AIG and Citigroup.
This evening, it looks like the government is bailing out AIG by giving it an $85 billion loan.
You may be asking, why do banks fail? Well, generally this is how it works. You and I deposit our money into the bank, and we assume that money is going to be safe. The bank makes money by loaning that money out to people. Typically a bank might take all of their money, and loan out somewhere between 80-90% of the money it has. They try to loan out as much money as they can because money sitting in their vaults isn't going to generate as much money. This works well in theory, as long as the people you're careful in who you loan money to. There will always be the possibility of bad loans, where someone can't pay back, but you weigh your risks. The problem arises when you have way too many bad loans, and you've basically lost your money. Now when you and I go to the bank to withdraw cash, the bank says, uhhh..... we don't have your money, we lost it. Epic fail for the bank.
There's an excellent 45 frame comic called " The Subprime Primer," that explains exactly how subprime mortgages got us into the mess. Very entertaining to read, and very informative. (Caution: some foul language).
Sunday, August 3. 2008
Last year I served as a volunteer in kids and preteen ministries at my church. Being completely fashion agnostic, I always paused to reflect whenever I saw some kid wearing some ludicrous piece of attire. I must be getting old because I openly wondered what passed for clothing these days. On top of that, I think I hated kids fashion even more, because the stuff was expensive, and you know that they're going to outgrow the clothes, or hate the fad in a very short time.
This leads me to two fads that I thought were absurd. Crocs and Heelys. Crocs are those ridiculous plastic shoes which claim to be the most comfortable shoes in the world, while Heelys are those shoes with a wheel on the bottom of them. What could possible go wrong with a wheel on the bottom of your shoe??
In either case, I tend to stay far away retail/clothing stocks because they're momentum stocks that have meteoric rises in stock prices, but also epic downfalls. May I present to you two stock charts:
Crocs ( CROX)
Heelys ( HLYS)
These stock charts tell me that the trend is dying off. I know Crocs has been having problems with other companies making cheap knockoffs, so it's hard for them to continue selling them at a premium price.
Anyone know if the trend is truly dead yet for these two shoe companies? Or are they staging a turn around? At the time of this post, CROX stock price is $4.44/share, while HLYS is $4.40/share. Any guesses who will win the race to $0.00/share?
Thursday, May 15. 2008
Just when you thought the Yahoo/Microsoft merger was over, a new menace has emerged. Activist/Corproate Raider Carl Icahn has thrown his hat into the ring, and is declaring war on the Yahoo board of directors. For those unfamiliar with Icahn, he's a billionaire investor who buys up shares of struggling companies, and install directors to do his bidding. Recently he installed a puppet regime in BEA Systems (who didn't want to merge with Oracle), and steered the company towards the merger.
Here's an article from TheStreet.com entitled, " Icahn Targets Yahoo! Board of Directors."
Carl Icahn is treading over familiar ground, formally launching a proxy fight in a move to replace 10 seats on Yahoo!'s board of directors.
In a letter to Yahoo!'s Chairman Roy Bostock Thursday, Icahn said the Internet search giant "acted irrationally" and has lost the faith of shareholders and Microsoft, which tried to acquire the company at a price of $33 a share, an offer that Yahoo!'s management said was too low.
Icahn said that many investors have expressed dissatisfaction with Yahoo! for failing to reach a merger agreement with Microsoft, pushing him to lead a proxy battle against the company's board. Microsoft has given no indication that it would be interested in reviving talks with Yahoo!, as many shareholders have been hoping. Still, a vote to oust the Internet giant's current board could at least get the conversation going again.
"It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis," Icahn wrote to Bostock. "I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer."
Basically how this works is, he'll propose his directors, and if shareholders hold his view, they'll elect his directors onto the board. The more of them he has on the Yahoo! board of directors, the bigger the pain in the butt he can be. Some of the things he can do can include forcing Yahoo! to reopen talks to Microsoft, or even get the CEO/Founder fired.
More coverage at Silicon Alley Insider.
Saturday, April 19. 2008
The National Post is running an article entitled, " Canada's Housing Boom Is Officially Over."
The Canadian housing boom was declared officially over Thursday.
A slide in existing home sales that started in the West late last year spread to Toronto in the first quarter of 2008, taking the heat out of prices nationwide and driving the ratio of new listings to sales to a nine-year high, figures released Thursday showed.
"Canada's six-year housing market boom is officially over," said Douglas Porter, deputy chief economist at BMO Capital Markets. "There's no question the numbers were probably distorted by a few feet of snow in the first quarter of the year, but I think there's some very real underlying cooling underway here."
The Canadian Real Estate Association reported 75,476 homes changed hands in the first quarter of 2008, down 13% from the first quarter of 2007. In March, sales dropped 18.7% from the same month the year before, including a 39.7% slide in Calgary, a 34% drop in Edmonton and a 22.2% drop in Toronto.
Average prices rose just 5.5% to $327,620 in the first quarter over the first quarter of 2007, the smallest price increase since the fourth quarter of 2001. Prices rose 11% last year and 10% on average in each of the prior five years.
I am quite happy about this news, and it further lends ammunition to us who don't believe the lies that real estate people say, like housing prices will keep going up. In this report, price rises are decelerating, and it's only a matter of time before they start declining.
People looking for houses, stay strong, it will be a buyer's market soon. Lets hope we return to a time where housing is actually affordable.
Down here in California, the real estate market is a slaughter. One of my friends who bought a house as an investment, way the heck in the middle of no where, has already seen the bank foreclose on three of her neighbours. Forests of "For Sale" signs are cropping up all over the place.
Check out this map of foreclosed properties in California.
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