Aberhound

My neighbour in Vancouver just sold out to a Chinese businessman who bought the $3.5M house as a guest house. Ten years ago it cost $650,000. When it is legal to move capital out of China, which they need to do to be a reserve currency, thousands more will be looking for "guest houses". We are a resort city. My other neighbour is heading to Saudi to a project to build 120 towers. He is just one of many who have been recruited to do the same. Instead of building one tower at a time here they intend to build many at once. The abundance of capital worldwide means that there are many who can afford Vancouver. Why come here? If you visit it is obvious. Crime is low thanks to a school system that teaches tolerance, and, unusual for North America, critical thinking (not all schools unfortunately). Or maybe it is the cheap pot that keeps people mellow. We are currently experiencing the best June weather in Vancouver in my lifetime. Sunny and warm with a cool breeze from the north. California drought means better weather here. Isn't California real estate much riskier than Vancouver? We will never have a drought. Will BC be paid for water exports via NAWAPA? Site C dam makes no sense unless the government intends to build NAWAPA. Property in the interior of BC has risen even more than Vancouver proportionately. People sell in the city then move to the interior. The land I bought in the Kootenays has risen far more than the city because of the lower cost base. I am not selling because old Crown grants like I have have provisions that the government has to pay you reasonable amounts if they take water. I wonder if I will be able to enforce it once water is monetized? BC Hydro now has an entire office floor devoted to software to measure water flows and the government has passed laws to control ground water with a license system. Why measure it when there is so much excess here of little value? I expect they plan to monetize it. When water is monetized Canada will have a water-dollar like US has had a petro-dollar since the 1970s. I suspect it will be a North American currency by that time. So I am not selling, instead I am looking for hedges. Right now I am looking at riverfront land which should fit 90 RV lots, a few hundred miles inland where it is sunny and close to the highway, hospitals and malls in a growing community. My trouble is that I am debt adverse as I believe it is too risky to hold real estate if you can't hold it through the cycles. Selling and trying to time the market rarely works. The dips have been minuscule in the long term trend. In theory if the market turns down the foreclosures and defaults will drive demand to the RV sector and modular homes are getting much better. It seems like a perfect hedge to me. Get a long term mortgage so it cannot be called by the bank then sell lots on a lease to own basis. I have been studying the business and in the US post 2008 it was exceptionally profitable. I suspect both the hedge and the land I hold and want to hedge will rise in value. Rising rents will drive many who do not own property out of Vancouver. You have to own property to stay unless you have skills like my neighbour the builder. Technology drives huge increases in wealth when globalism prevails and Vancouver and other well run beautiful places will prosper so long as the trend continues. It takes decades of good government and prosperity to create the trust which generally prevails here. The high levels of trust and tolerance is the true wealth of Vancouver. Robots should give another decade of gains and by that time then cheap energy should be available driving more gains but the great wealth created will tend to concentrate where there is high levels of trust and tolerance. Send your wives and daughters here and we will send you back well educated and fertile young women. Many of my neighbours are households with women and children and husbands who earn elsewhere. There are plenty of ex-hippy farmers who live by natural law ie the golden rule and the philosophy of reap what you sow to ensure you can buy good food. The newly arrived Chinese who practice Tai Chi in the parks fit in well as do the Japanese mothers and children who have such impeccable manners.

I asked for a suggestion from an owner of a Rare Books store and he suggested The Engineer of Human Souls by Josef Skovorecky. I have enjoyed it partly because it is not my usual choice. It is the author's story of growing up as a young man in Czechoslovakia first under the Nazis then the Communists and then becoming an English Professor in Toronto after 1968. He loves Canada then slowly starts to see similarities to what happened to his country to what is happening here.

I remember after two 1 in 100 year hurricanes in 2004 and 2005 and the loss from 9/11 in 2001 the market placed a large discount on Fairfax. What discount do people place on Fairfax due to exposure to 1) another 9/11 2) greater risks of hurricanes, winter storms and earthquakes during deep solar minimums. All you have to do is read history and you will see we have been living in a benign period.

Love: Tesla Hate: Monsanto One makes me feel hope and the other fear. Ironically Monsanto is the stock I picked after reading the Warren Buffett Way in 1998 before I realized what the company was doing when I was trying to think of a company building moat. Good thread idea. My wife and daughter are better people to use this technique with as they picked out things like Jones Soda and Red Robin. They better reflect mass consumer preference than me as I read too much. Unfortunately I usually only notice their great stock picks until after the stock shoots up. So here is my wife's current picks. Love: Starbucks Hate: Samsung

I made the mistake selling Fairfax a few years ago primarily because of the hedges. Also I did not understand his strategy selling Wells Fargo and JNJ which he had described earlier as permanent holdings. I earn Canadian dollars so the price for me is down substantially from the peak. I narrowly missed buying before the run up due to dithering. We are in a government bond bubble so I liked Fairfax due to his track record in bonds. He perfectly timed the bond market repeatedly. Now I believe we are approaching peak government and peak sovereign bonds and I am betting on Martin Armstrong's call that it occurs at the end of September which also matches the end of the Jewish year before Jubilee. Look back in 7 year cycles and there appears to be a correlation where a significant market peaks and falls occurs, not necessarily in the same market. The moves are big, 2015,2008, 2001, 1994 (bonds), 1987 etc.. I intend to buy the common but I am dithering again because I still do not understand the strategy especially when I try to see the logic of his equity holdings. I should ignore them as they equities are mostly hedged so the potential gains in the bonds and deflation bet should dwarf the changes In the equity values. His deflation hedges look appealing to me because if the European sovereign bond market collapses in September, few will buy government debt, many banks collapse and many get nationalized. If you can pick the private survivors the gains will be substantial if governments are then forced to basically copy US and Canada who allow a few big banks to become dominant (in the EU case because only the banks will be willing to buy government bonds after the sovereign bond market collapse). Maybe he has picked Bank of Ireland and Eurobank as survivors? Bureaucrats cannot run banks so the well run private banks should outperform. I hold SAN for this reason. Monetary policy won't work after the sovereign bond market collapse so I expect deflation which in turn means the surviving banks make big gains on their government bond holdings bought after the crash like in the 1930s. I dither because the complexity is way outside my circle of competence. Your encouragement in 2006, especially Ericopoly helped me buy the Fairfax options. Who is buying in expectation of Prem again scoring big due big turns in the markets which few prepare for? I don't see option mis pricing like 2006 so I don't see a way to leverage there. Too bad they no longer trade in New York where the option market is more liquid. Would anyone get leverage by borrowing? I am debt adverse and I agree with Buffet's wisdom never to borrow to speculate. But I can borrow extremely cheaply in Canadian dollars due to Vancouver and rural BC real estate gains (where the gains dwarf any other of my holdings) and I have long looked for a hedge against a decline in my BC real estate. This might be a hedge. My current debt is minuscule. I am bullish on BC real estate. I have been to China so I see why they come here and I can foresee the wealth which will be generated by the 7T project to build the Silk Road (which might make the eastern Med rich again like Syria used the wealthiest part of the Roman Empire). China will generate the wealth as they have a more pure capitalism and that wealth will likely come to BC. Chinese (and Germans) revere nature and that is what we have in excess. When I walk in the nature gardens I love to see the Chinese ladies and gentlemen absorbing the natural forces (that is what it looks like to me as they do their movement exercises by waterfalls etc.). There also is a good chance that the Canadian dollar will depreciate as oil declines when we pass peak storage and peak demand. Is anyone considering Fairfax purchase on leverage? If so in which currency would you borrow? I would not borrow in the reserve currency as big turns cause flight to the safety to the reserve currency. If I lived in US I would go the the TD bank, and give them assets to secure a bank guarantee then use that guarantee from US TD to secure a debt in TD Canada to borrow in Canadian dollars. What I want to do is to buy Fairfax then send him some smart pills. All you Fairfax bulls please help!

Since it looks like cash will soon no longer be allowed why not move from income tax to a resource utilization tax to be more consistent with the rest of the new age beliefs like sustainability? As you spend some amount, say 10% or 20% would be instantly remitted as tax. All spending would be resource utilization whereever in the world it is spent. That way untaxed income like criminal income or money piling up in tax havens would all get taxed as it is spent as would spending outside US be taxed equally with spending in the US. Corporations, free of corporate income tax might keep more money at home and might use less resources as resource utilization incurs the tax expense. We do the reverse now. Many people and corporations spend money wastefully to avoid paying tax by creating expenses. How many corporations and people never pay any tax? The richest guy in my city pays almost no tax as almost all his spending is a taxable deduction and he intentionally grows his business so that he pays little tax. The IRS could be closed down because it no longer matters what people make. The NSA could focus on spies etc. instead of helping the hunt for unreported income. Compliance costs disappear. IRS Blackmail dissappears. All the silly exemptions, tax credits, incentives related to income or expenses should be eliminated at the same time to keep the rates low. For the poor each person would have an exemption of say, 20,000.00 spending before the tax is imposed on the spending. This creates progressiviity. Congress could focus on governing instead of changing the tax laws every two minutes. My job would mostly disappear as there would be little need for tax structures.

Perhaps the voters in Alberta are more intelligent than expected. The Tyee.ca had an in depth series comparing Alberta's royalty regime to Norway and others and determined that Norway gets 4 times the yield by using government competition to give them more negotiating power. The Conservative government ineptly announced royalty tax increases two leaders ago but the reality was that it was a large decrease and they have never admitted the current regime was designed poorly. Alberta's massive advantage has been wasted.

I have been reading Martin Armstrong's writings about cycles since 2008 or so. I pay a lot more attention now to capital flows and the fact that everything is connected through thousands of interacting cycles. Last year for instance, his writings convinced me to move heavily into USD investments. The first essay I read is called "Its Just Time" which is a good an intro as any. If his predicted big bang (bond defaults) occurs at the end of September as he has long been predicting cycle theory will likely become more popular. Hayek's papers about cycles are excellent especially the one that describes Ponzi lending which proved useful to me just prior to 2007. When you see rampant Ponzi lending get out!

There is are two trends which are new to me in Vancouver. Both probably will further drive up prices. First, the new model for Condos is for the developer to retain ownership of the land and to sell the units to buyers on 50 year leaseholds. The other trend has come from Hong Kong where landlords owning rental properties separate the land ownership from the building ownership by leasing themselves the building for long terms, then when they go to the bank for financing the only security offered is the assignment of rents and the leasehold interest. I recall the Empire State Building being split into a leasehold so what is new may be the ability to borrow on the lesser security. The structure is an attempt to get around the problem that you risk losing the entire property merely because there is a short term crash in market values.

It is difficult to time this market because the dramatic influence of Chinese purchasers on the margin. As the USD rises Chinese exporters report poor earnings like Yingli solar reported a miss today. What happens if the USD continues to increase? Eventually China will likely end the peg or devalue substantially. Martin Armstrong recently explained why it is inevitable when discussing the end of the Swiss peg. Due to the expectation of the end of the peg it must look attractive for wealthy Chinese to borrow on overvalued real estate in China and buy relatively much cheaper Canadian, US and Australian real estate. (I have never understood the Chinese practice of putting money into leaseholds as you are buying a wasting asset, not a store of value compounded by the common practice of leaving the leasehold empty without cashflow. Panic is the likely ending.) In Canada and Australia real estate prices are down substantially in Chinese currency compared to a year ago due to the fall in the Australian and Canadian currencies. Because the Canadian economy is so closely tied to the US when the Chinese peg is removed or the currency is devalued, the Canadian currency is likely to remain stronger than the Australian or the Chinese currency so long as there is a strong USD. I expect that Canadian and especially Vancouver real estate won't correct much until after the Chinese currency is devalued or the peg is ended. Long term I expect weaker nation states and stronger city states so Vancouver is likely an excellent long term pick because it will be a successful city state. The Griffiths family from England have kept substantial holdings for over 100 years for good reason and the Li family have accumulated substantial holdings since the 1980s.

I have the Passport and love it. The speakerphone is excellent. Reception is solid due to the directional Paratek antenna. Excellent camera. Battery lasts days. I need to read and reply to office emails and documents so I need the thumb keyboard to be efficient. It is faster to reply on the Blackberry than on a regular keyboard becase the word prediction and keyboard are so good.

To your first point, (though this question/issue of banks and derivatives deserves a much longer discussion) - one important point related to this is that the banks you mention are likely the parties who are now requiring collateralization. Thus, the situation is the inverse, to some extent, to the way your question seems to suppose it is. Collateralization reduces risk for these banks - it does not enhance it. They are the parties requiring increased collateral being posted for any alternative assets they transact with. I was wondering if JPM might call up Citi one day and demand some huge amount of collateral be posted to cover some interest rate move on the interest rate swaps. Perhaps I have a misunderstanding because of my second assumption that most of the derivative trades are between the big banks? The reason I think they are mostly bank to bank is that the numbers are so large in the quadrillions and because most private sector bets are likely grouped such as insurance against a rise in interest rates and finally because I believe that banks are involved in the desire to manage market prices most notably, their desire to prevent the free market from setting interest rates. Someone has to write the opposite side of each trade so if an attempt is made to distort the free market then there is an exponential rise in derivatives betting against the direction the free market seeks to go until the market cycle reverses. Basically if you choose to suppress the free market cycle with derivatives the same pressures that would have moved the free market price instead causes the derivatives positions to grow increasingly into one way bets until the free market cycle reverses. We saw this in 2008 when JPM and Goldman Sachs required billions in MBS default insurance to protect their portfolios and AIG was the fall guy selling the paper. AIG became insolvent due to collateral calls. Near the end of cycles the derivative imbalances must get massive so I was wondering how banks could write fully collateralized derivatives near the end of a cycle. Banks already have the borrow short lend long problem so it is not like they will have available cash during a crisis.

Excellent letter. The following quote made me wonder why Buffett thinks banks are such good businesses now that newly-written derivatives have required full collateralization. Doesn't this magnify the risk for banks as well? "Some years ago, we became a party to certain derivative contracts that we believed were significantly mispriced and that had only minor collateral requirements. These have proved to be quite profitable. Recently, however, newly-written derivative contracts have required full collateralization. And that ended our interest in derivatives, regardless of what profit potential they might offer. We have not, for some years, written these contracts, except for a few needed for operational purposes at our utility businesses." I do note the Wells Fargo has far less derivative exposure and BAC shares are held mostly as warrants reducing downside risk. Should those of us who hold BAC, JPM or Citi favour warrants and leaps over common? Or perhaps we should sell the banks and buy Berkshire then let Warran worry about the banks. My second thought is to wonder why Buffett, unlike Prem, doesn't mention India. Berkshire's model should work even better in India where there is more future growth and a relative shortage of capital and capable businessmen compared to the US.

I have been selling. Perversely as the price of oil drops and miners costs drop the price of gold is likely to drop similarly. My thesis is that there are other sources of gold not reported and this gold is sold to manage price down while propaganda like King World News are used to keep demand up with phoney stories that there is a shortage of gold. It is like diamonds. Oppenheimer as a young geologist hired natives to pick up diamonds in baskets in South West Africa in such quantity that after the war, despite being German, he was able to negotiate a deal to become CEO of De Beers. Those diamond are now in London. There is no shortage of diamonds and prices are artificially high. Isn't gold the same? How many military reserves are sited on gold deposits? Has the military built underground bases and tunnels and if so, what gold deposits were discovered? What about sea vents? Aren't black smokers dense with heavy metals? What about transmuting elements in nuclear reactors or otherwise? What about the gold recovered during the war from the Japanese after the Japanese looted Asia? What about remote detection of mines by satellite? How many new mines have been discovered? Are all the new mines publicly disclosed? Is gold recovered while dredging rivers like the Fraser and the Amazon? What about high spin gold. Does it exist? Does it mimic salt and noble elements and if so are places like the Dead Sea massive gold deposits? Are new production methods available to produce gold where the particle size used to be too small? Did someone figure out how to transmute Tantalum (73) to gold (79) in 2011? http://www.infomine.com/ChartsAndData/GraphEngine.ashx?z=f&gf=110539.USD.kg&dr=max Gold pricing is mysterious so I have concluded there are unexplained factors to consider, hence the list. My overall bet is that human ingenuity will drive prices down. Throughout history there have been groups like the Rosicrucians who enjoyed advanced technology. It is the same today but perhaps more so due to more rapidly advancing technology and greater numbers of educated people.

The big bang is predicted to happen Sept 30th so the debt defaults (the "bang") start in the developing world then the contagion spreads. The cause is too much debt in a non-local currency except for the US where the recession is caused by a rise in the USD and the implementation of FATCA. The duration is longer than usual because the bigger the boom the bigger the bust. A new Europe, Japan and China will rise from the ashes with a new monetary system replacing the USD as the reserve currency so the trick will be to get out of USD before confidence in the USD collapses. My bet is we go to 100% reserve banking to continue the trend of the all powerful state.

I took a speed reading course early in university and doubled my reading speed. More importantly comprehension increased significantly. The training focused on reading in word groups with efficient eye movement. Practice tests proved the increase in comprehension. The course also taught to start with a quick review so you knew what to expect and it taught a useful skimming technique focusing on topic sentences and summarizing sentences found at the start and end of most paragraphs in good writing. During law school the increased speed and comprehension saved countless hours. I am glad I took the course while I was young as maybe a young and plastic mind is helpful the same way it is easier to learn a new language as a child.

SoftBank due to its investments in the top internet retailers in China, India and Indonesia. Also, the practice of giving all employees smartphones to boost productivity, if adopted throughout the organization like they did with the Japan cell phone business gives them a productivity per employee advantage which competitors will take a long time to copy. Finally the stock is better priced now than many US stocks, particularly Amazon.

Tim Ferris had a interesting podcast with Tony which discussed the book. He tells the story how he got Ray Dalio to explain to him Ray's allocation model. I read everything I can find about Ray Dalio but I never have read an explanation of the model. Tony took that model to his financial advisors and says that they back-tested it and it produced high rates of returns in all markets. It works by re-allocating to different asset classes according to some formula. The model was not disclosed in the interview but Tony promised it is in the book. When you listen to Tony you can understand how he might get more out of an interview than others. http://fourhourworkweek.com/2014/10/15/money-master-the-game/ I have it on my reading list.

All the food companies using Monsanto products in their supply chain. Is this part of the reason for the poor results with Coke and McDonalds? It can't be a good business model to include neurotoxins in your products. (See the citations in this paper The Lancet Neurology, Volume 13, Issue 3, Pages 330 - 338, March 2014).Wrigley's for instance is likely to report poor results. Poor management can damage strong brands, but like new Coke, it is a slow and painful slow bleed process for shareholders which can be reversed by better management, but if left unfixed can get suddenly worse as awareness moves up the S curve. Check out Whole Foods product classification system. This is an example of better management. Consumers are increasingly aware and management responded sensibly.

I liked the video with the young skunkworks scientist talking about the project. Part of the US establishment realizes they need to create new excitement with a new Space Program to get people like Musk motivated. You can't suddenly start flying their antigravity spacecraft unless there is some explanation of why now. So perhaps they release the fusion reactor to the military so they can plausibly say it made the new antigravity spacecraft possible. Even if it does not work it is worth pursuing as you can use the plasma for a fusion torch. Larouchepac has a cool video on the implications of the fusion torch. They explain how it can be used for metal processing because each element has its own resonance frequency while in plasma. So you can get rare metals economically and you can process low grade ores. The video also discusses productivity improvement in steel using plasma. http://larouchepac.com/node/28755

Is it time to invest in natural gas because of declining oil prices? Oil shale production has high decline so that lower oil prices should quickly cause a decline in production as oil prices drop below break-even. Producers are better off to leave the oil in the ground to be produced later when prices are more favourable. In contrast oil sands, a big user of natural gas, has high fixed costs so even if oil prices decline, production won't stop until the oil prices drop below the marginal cost of production. Consequently a sustained drop in oil prices below $80 should cause natural gas prices to rise. I suspect Exxon is the safest bet to benefit from this trend. Any guesses how long oil prices would have to remain below $80 before the high oil shale decline rate drops gas production sufficiently to raise natural gas prices?

US is likely to allow crude exports soon which should help eliminate all the irrational price differentials. Maybe the reason for the cheap shares is that investors rationally know that the free market is not being allowed to reallocate resources efficiently. For instance in BC there is a stupid policy not to allow private sector generators above 20MW except where subsidies are allocated like we are part of some Soviet 5 year plan. The policy causes stupidity like a pulp mill shutting down and the 40MW generator being sold to Korea instead of continuing to burn the massive pile of wood waste with an Aluminum smelter next door. Meanwhile operating pulp mills get grants and lucrative power contracts so they now burn pine trees. Instead let the oil producers install the new raw gas generators and sell power. Build a new grid using the new aluminum - carbon nanotube transmission wires from NE BC and across the north from the BC coast to The oil sands and sell power cheap then watch the new industries come in. Mining, including oil sands is massively cheaper with electricity vs. diesel. At night use the cheap power to pump water and sell it instead of wasting it all by letting it flow into the ocean. Why aren't super-tankers moving water from BC to California? Or use the night power to pump water up into the existing hydro dams to convert night power to day power. Revelstoke dam has 5 massive generators with capacity for eight and Ericopoly is paying 47 cents per KWH for peak power. That way the US gets the pumped water for free down the river. BC already exports electricity to California. There is no free market so we are stuck with price distortions including Canadian oil and gas shares. Maybe investors expect more Soviet 5 year plans instead of more free markets?

What proportion of agricultural use comes back as rain from evaporation as compared to home use? These numbers are probably extremely misleading. My guess is more of the home use goes down the drain and out to sea compared to agriculture where most probably falls as rain to the east. Scarcity is also likely a myth. I visited Portland and wondering why part of the Columbia flow is not used for California considering the claims made at the tourist sites that 10% of the flow of the Columbia is as much water as all the world's 14,600 or so desalination plants. So the problem seems to be lack of pricing so it is not economic to transport water from places where there is abundance.

He brought in a Sikh manager (female) he had used previously and used a combination of existing and new staff. He said the key is finding a manager you can trust. I will mention the Patel method to him which he uses without knowing the name by hiring Sikh architects, builders etc..

Premfan's idea 2 but slightly different worked for my friend. He started buying in 2009 in Arizona and got 100% bank financing from banks who were suffering from receiver's high billings. His cost was half his competitors across the street so his rates are permanently better. A few simple changes like paint and furniture and 20 shady canopy parking spots resulted in the value tripling. The bank soon sold a second nearby and now he is building a third.