Aberhound

http://www.bis.org/review/r090916b.pdf?frames=0 I thought it might be useful to read some of Stanley Fisher's speeches. Here is on from 2009 about how to deal with the next crisis. He advocates: 1. More power to the central banks as it is important to have all information and tools in one place; 2. take over and wind up over time insolvent banks to prevent Lehman's type problems (change); 3. greater international cooperation through FSB (same but not done); 4. Banks should have risk officer reporting directly to board (change and I bet the Fed informally appoints these officers); 5. Anticipate crises, expect differences and take action before the crisis (change); 6. More focus on financial stability instead of setting inflation targets (no change); 7. Use QE to avoid deflation (no change). Lots of other substantial changes. As the head of Israel's central bank his was the first to drop rates when the last crisis hit, he used QE, including QE to build larger foreign reserves which he favours, and he was the first to increase rates as the crisis abated. An earlier speech about the 1997 Asian crisis favours flexible exchange rates over pegs, bigger reserves, favours allowing devaluation to speed adjustment and raising interest rates ie take the pain now to adjust faster. It looks to me that the EMs are following this advice. Should create opportunities to invest in EMs with weakening currencies as these policies will result in more pain but faster adjustment than 1997. For instance Sberbank (Russia) or Hanjaya Mandala Sampoerna tbk PT (Indonesia) are getting cheaper in USD.

There are a number of companies that now generate electricity from raw gas right at the field. Here is one: http://www.almontinc.com/energy/services-project-development.asphttp://www.almontinc.com/energy/services-project-development.aspx Consider the cost of Site C dam at 1000 Mw for $12B or so in NE BC or the cost of exporting NE BC gas to Asia. It is far more economic to build 35 30 MW distributed plants instead of one plant particularly if you build the generator where the power is needed. It is cheaper to build transmission lines than to build gas pipelines and LNG infrastructure. How long before China uses these instead of coal plants so they can breath again? I was told of one company which had to move production to China after receiving 1000 orders in Alberta and Texas. Oil and gas producers now have a new stream of revenue and way to cut costs.

When my friend was 16 he bought a $5000 waterfront lot in birch bay WA instead of a car on the advice of his grandmother. Now it is worth about $1.8 million. When I first started work I bought a big parcel of land with a lake instead of a car. I was poor so even then I had to bring in partners for a $110,000 purchase. Now it is worth a few million undeveloped. My frugal brother had the cash at the time so he shared my gain equally. For young people with time instead of a car buy an asset which will appreciate instead. It is like Buffet said, he didn't spend $0.25 because he knew it would one day be worth thousands. I still prefer to drive old cars. My current car is an 1998 Acura Tl which cost $4000. It is a beautiful car.

Same problem with another Canadian bank in Barbados plus a new rule prohibiting you from using the Barbados company until you open the bank account. It has been tightening up for years. In the past people had to belong to the right clubs to be accepted in business. Maybe those days are returning. Perhaps we should change this Message Board into a formal club. Just think of the references you would have if you did so! The good news is once you have the set up there will be fewer future competitors.

Read this patent and you might start thinking that older people should be demanding access to pot. Not only are the damage due to aging diminished you get significant protection to the brain from stroke, parkinsons, dementia and alzheimers. The Canadian patent office does not allow claims in patent filings which are not proven. Cannabinoids as antioxidants and neuroprotectants CA 2329626 A1 Abstract Cannabinoids have been found to have antioxidant properties, unrelated to NMDA receptor antagonism. This new found property makes the cannabinoids useful in the treatment and prophylaxis of wide variety of oxidation associated diseases, such as ischemic, age-related, inflammatory and autoimmune diseases. The cannabinoids are found to have particular application as neuroprotectants, for example in limiting neurological damage following ischemic insults, such as stroke and trauma, or in the treatment of neurodegenerative diseases, such as Alzheimer's disease, Parkinson's disease and HIV dementia.

Can anyone remember which year Prem wrote about the Austrian theory which predicts that the bigger the boom the greater the bust due to the long period of mal-investment in capital stock during the boom which causes a long period of adjustment? I think he referred specifically to Carl Menger. I was thinking why cash is my 2014 conviction investment so I want to re-read that letter. I think the malinvestment is a worse problem this time than the over-leverage like we experienced in 2007. There are similarities to 1999 with dramatic overvaluations. Debt problems are similar to 2007 except that now it is a bigger problem for governments, central banks holding treasury puts and banks with interest rate derivatives. I can't think of another time with such a huge capital stock of malinvestment. The malinvestment has been made worse by the illusion of control. The illusion of control is created by massive central bank and government interventions. William White the Canadian who was the former Chief economist for BIS discusses in a recent article how the amount of interventions required to keep things stable grow ever larger. It reminds me of a paper written by an economist from the Nixon White House explaining the problems of implementing wage and price controls. Eventually they become impossible. Better to leave things to the free market because if you choose intervention the situation is far worse when you are forced to stop the interventions.

I find the hardest part is judging when the last bear buys into the bull run. It was not obvious in late 2007 but there was similarly many warnings. Look around you. Are there former bears now joining the bull run late in the game? The wave is powerful at the peak. You see buying strength on top of underlying structural weaknesses. You see buying psychology which could change suddenly as buyers notice the many problems. It is never easy to know when the mass will switch. Read about the Raven of Zurich. How did he know about the Great Depression in the early 1920s and the fall of capitalism in 1951. Look around and you see similar structural problems like Europe in the 20s which led to the debt collapse. Anybody could have listed the hundred problems. Few saw that the strength of the boom in the late 20s and the resultant growth in the debts were important causes. More impressive for me was his warnings from 1951 about the fall of capitalism arising from the wealthy elite refusing to take losses on their risks while enjoying the gains. Read Diary of the Great Depression. The business lawyer concluded that the only way to profit was to sell during the bull run. Read Hayek. He describes well the ponzi lending which results in the crash. This was very obvious in late 2007 where the only hope of being able to service the loans is continued price rise. Now we have just as much debt and inflated asset prices and interest rates are rising. So I have been selling and I plan to delay buying until a correction then plan to participate in the crack up boom. Perhaps I will get caught up in the mass psychology and I will be the last bear to buy. I have not sold BAC yet. It looks too early to buy the S&P puts. The vix products look interesting so I am studying those products which others here mentioned.

1. New fed chief creates uncertainty which usually results in a dip. Yellen might be like the many Supreme Court justices who have acted differently than expected. 2. Currency weakness in India, Brazil, Turkey, Thailand, Egypt shows risk of 1998 Asian type crisis? country bond defaults often caused by currency problems and happen in waves of countries. 3. Bail-in will be more effective if done sooner and unexpectedly. 4. The loss of control of central banks is a logarithmic. The greater the intervention and the longer enduring the greater the fluctuations. No reasonable policy will work is the near future. 5. My thesis is that the central planners accentuate natural cycles. We are at or near the end of solar maximum so the natural cycle is a strong dip within 12 months of the end of solar max. 6. French government seems determined to harm their economy. Why should the prudent Northerners help? My read is that they care more about achieving federalism than prosperity and that they are working with the Germans to achieve that goal. 7. When I did econometric modelling as a summer student for John Helliwell the models suggested that when multiple countries drag, a vicious circle arises where all are dragged down unless there is offsetting stimulus. I see more new drag than new stimulus. Less stimulus is drag. 8. China tends to act prudently. A growing debt problem requires them to halt the growth in lending particularly in shadow banking. I believe the true debts are understated as private loans are illegal but culturally available. I was shocked one day to have a modest Chinese gentleman walk into my office with $250,000 which he held for someone else without any paperwork. 9. Austrian economics predicts well what may be expected. My interpretation is that it predicts a natural downturn then a crack up boom if the more extreme policies are used. Yellen will try taper before more extreme policies. We have yet see the Fed and Congress row in the same direction. If taper is to work Congress needs to help. 10. Each year another libor type scam is exposed. This year I suspect the scam exposed will be the fake interest rate swaps with the fake modelling which allows offsetting risks. It could be another whistle blower or a bank default. Libor is a small scam by comparison. A prosecutor once told me that being a criminal is a great way to make money except that you have to do business with other criminals. On the bright side a downturn is the best time to build wealth. I am thinking of putting in a trailer park for all those people who lose their homes. There is always something good to invest in.

Cash. Too frothy for me. if you know the train will crash in the next ten stations when do you get off? I had this same battle in Dec 2007 when the CFA at Royal Bank pressed for a 40% bonds and 40% equity in a new portfolio despite the warnings. Prem had warned of the moral hazard problems in mortgage securitization since 2003. The CFA wanted 1/3rd of the 40% in Sterling bonds and claimed that the top Canadian bond seller could not supply any Swiss bonds? Sterling was soon devalued 1/3rd which seemed likely due to the large financial sector and massive government overspending. We stayed 100% cash and started buying in February 2009 with new CFAs. I never did get those Swiss bonds despite repeated requests which remains a mystery to me.

Charity would be more effective if people found unfunded start ups who have difficulty finding money. 99% of the time the money will not earn a return but the money allows new ideas to emerge. An example was Google when it received its first $100,000 from a hero. I call that investor a hero because I remember what it was like using Alta Vista search. Fast but useless.

The longer I hold it the more I like management. Gains are lumpy but average out well over time. Through Esso they have produced oil at Norman Wells for decades past when the oil was supposed to run out. I wonder how many of their holdings are like that.

What impressed me about this group was the number of you who reported selling not long ago. Whether it was keen observation, luck, or the discipline to take gains when the valuation gets favorable there is a lesson for the rest of us. In hindsight the bond losses were mostly from the 2nd quarter and the losses from the equity hedges were expected given the strong market. Still it is a surprise that the losses were realized. Prem sold mostly Canadian Provincial government bonds and closed s&p hedges while increasing his CPI hedges about 70%. Does he expect a housing market fall in Canada or perhaps a fall in the price of oil causing a weak Canadian dollar and troubled provincial finances? The report says the hedges were closed to match equity sales to rebalance the hedge to 100%. Doing so realized $577 million losses in the quarter. So the hedge is insurance, not speculation, a cost he seeks to minimize. I suspect he must be expecting global QE to end soon or he would not have increased his CPI hedges so much. There has been lots of economics papers (see Hoisington) who have concluded that QE is ineffective causing more harm from distortions than the benefit. Does Prem expect Yellen to be a hawk instead of being the dove as expected? I hope so. Perhaps she thinks there is no point providing easy money to support harmful government economic policies? If it wasn't for these losses the report would have been good because of the improved underwriting results. The stock is now 1/3rd over book so we may enjoy a buying opportunity.

The coins story reminds me of a guy who inherited Tsar Russia gold bonds issued in 1905. Only a two of the 8 or so adult children wanted any when the estate was divided. Within 20 years the bonds paid out in full when the Soviets wanted to borrow. Not many investments made in 1905 paid out so well 80 or so years later. Other investments can be found which are low in price but eventually return to full value. Shut-in gas fields in NE BC are cheap now but will eventually return to full value. The downside is that you have to pay the lowish annual lease payments to the BC government in the interim which probably has made them so cheap.

Thanks for your suggestion ItsaValueTrap the ATPG thread is a real eye opener.

I solved a lower back pain problem caused by my desk job with the exercises explained in "Back Stabilization A New Theory of Back Pain" by Rick Jemmitt. You learn to exercise the stabilization muscles which connect each disk of the spine. It takes 2 to 4 weeks and the pain is gone with 5 to ten minutes per day of tensing and relaxing these muscles. I wonder if back pain would be far less common if people learned to control and to exercise these muscles.

I like the DRIP plan because you get to buy a deeply undervalued stock at a 5% discount without trading costs at an unusually high dividend rate. I found analyzing the financials difficult. One short thesis was that the company puts too much expenses into capital so expenses are understated and gradually accumulate on the balance sheet. I was unable to judge if this were true or not but the exercise brought two points to mind. First, even if it were true that expenses are capitalized you can see a steady improvement in the capital as the infrastructure on the fields improves. The older plays start out cash flow negative and gradually become cash flow positive as the same assets are used more intensely. Second, the argument that expenses are overstated looked false. Over time the economic value of the assets are increasing as improved cash flow increases the value of the plays and as improved techniques increase the reserves from 5% recovery to 15% and hopefully to 25% eventually. The expenses include a substantial expense for depletion as supposedly the purchased reserves are used up which reduces the acquisition costs on the balance sheet over time. But the reserves are growing substantially. The economic reality is that there should be a non-cash accretion to match the non-cash depletion. This argument applies more so to LTS than other oil companies because of the low field recovery and the substantial improvements. We value investors are supposed to care only about intrinsic value and ignore the accounting misstatements. Consider Norman Wells. After 40 years production the field has more oil than "discovered" despite 40 years of depletion expenses. I think the same thing is going on in LTS. I want management to buy as much land as they sell because they seem to be able to acquire land cheaply which is also worth more to them than others. Keep buying new plays so long as you can continue with the present strategy but cut the dividend so you can do it faster. The oil plays will be cheap so long as the juniors have trouble raising capital and you are able to buy plays where you enjoy this accretion effect which is not reflected on the balance sheet but exists to be captured on the financials only when you sell developed plays at a profit.

Sanjeev was silent when he was loading up on Sears Holdings calls while I and others bought the common. I suspect the reason for secrecy is that it is more call options. I bet he checked out other retailers after the Sears Home run so my guess is JCP as somebody is buying a lot of out of the money calls. A strong USD will help the US retailers as imports get cheaper. Ackman capitulating is a good buy signal. But almost $!B negative cash last quarter is inconsistent with the conviction. My guess is that it is one of the US retailers. Sanjeev I enjoy the guessing game as it makes us all look. Good practice.

Wait, what? What do you mean solar cycles? John Hampson has an excellent site explaining how to invest with solar cycles. Solar cycles coordinate with economic cycles. For instance every solar maximum since 1900 has been followed by a recession within 12 months. Solar maximum was probably last May so the correlation predicts recession by next spring. Generally you buy around solar minimum and sell at solar maximum. Long term trends often last 3 solar cycles. What you do is look at long term demographic peaks and invest about 3 solar cycles previously then average in around solar minimum and average out at solar maximum. The US demographic peak was 1999 so check out the results looking at the chart. I am suggesting to the board to apply the same strategy but with India as it demographic peak is around 2050. So start to average in around solar minimum then average out at solar maximum then repeat for 2 more cycles until the demographic peak in 2050. Some people say that they can't match Buffett's long term returns because Buffett was just lucky to start investing in the 1960s during a long term boom in the right place. I say that anyone who understands the value investing technique applied on this board then uses it in India starting at the next solar minimum has the same opportunity to enjoy the same demographic wind on their backs that Buffett enjoyed investing in the US. http://solarcycles.files.wordpress.com/2012/02/recessions2.png

Since India's demographic peak is not until 2050 and long term bull markets based on solar cycles average 33 years I am looking to invest in India around 2017 then hold for an expected 10 fold gain at least. In the meantime I am keen to learn of the best Buffet type stocks in India so I will pay attention to this thread. Thanks to those who can help identify such stocks. India is fortunate that its citizens hold so much gold so the country suffers less wealth loss which normally makes such depreciations so harmful. The J- curve means that initially the trade deficit will worsen so the currency will over-shoot. I would expect the bounce back to be stronger than most because the wealth effect caused by the gold savings will allow locals to respond quickly as competitiveness improves driving investment which in turn attracts back the capital which fled. The outsourcing industry with few foreign inputs seems a likely beneficiary.

1. white from BIS, Hoisington and others have written papers explaining why QE does not work, that it works less well over time as distortions cause increasingly greater harm and is not effective in lowering long term rates. 2. Banks make more money with a steeper interest rate curve. 3. Long term rates have dropped each time QE ended. 4. Mortgage issuance is much slower as demonstrated by the WFC layoffs. Perhaps banks have a lesser problem with excess MBS supply. 5. We seem to be following Japan's path with continued silly government spending and increasing government control over the allocation of assets by pension funds, banks and insurance funds. 6. EU banks are a mess and little is being done to fix it such as closing banks. So when the theft of deposits starts you can expect capital moving to the US much of which will flow into bonds. Watch out because the theft will cause such a strong emotional revulsion that initially the loss of confidence in the government sector will likely cause government bond rates to rise before the deflationary effects of wealth evaporating causes long term rates to drop. 7. Profits are poor for many sectors so a stock market correction will move more capital into treasuries. I plan to buy long term treasuries when QE ends then watch for trading opportunities arising from bail-in. I expect bail-in will happen next in Greece. the strong reaction likely won't happen until it hits a core country like France as people realize the central banks are losing control. The Fisher deflationary spiral means that once bail-ins start they will spread and can't be stopped until confidence is restored.

http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/137627.pdf Bail in preference. Management causing the failure gets priority over depositors. I note that it does not set out the preference between the non bail in creditors. Why would there be enough for even non bail in creditors? The wealth evaporates when the lending ends and asset prices drop. How will there be lending as depositors flee? With 7 day interbank bank lending amongst the non bail in it looks like most interbank lending will change to overnight lending. I thought that in 2008 it was concluded that overnight lending caused the instability? The prevalence and vast amounts of overnight lending made it impossible to know in advance who was solvent or not. Senior bank debt and cash are likely to get more popular as people sell the bail in classes like equity, preference shares, junior debt, unsecured debt and deposits.

I tried to by IPL.UN in the first flash crash in Canada I have seen after it dropped by 1/3rd. it looks like a algo triggered a cascade of stop loss orders as the selling came from many dealers. the TSX halted trading 10 min after opening and when it reopened almost all the drop reversed. it may no longer be safe to use stop loss orders in Canada. And it demonstrates why banks should not be able to both own the exchanges and conduct algo trading. So now if a computer makes a mistake stocks are halted. instead of protecting computers the regulators should let value investors repair the mistakes of others by providing price discovery.

http://translate.googleusercontent.com/translate_c?depth=1&hl=en&ie=UTF8&prev=_t&rurl=translate.google.com&sl=de&tl=en&u=http://ec.europa.eu/internal_market/bank/docs/crisis-management/2012_eu_framework/COM_2012_280_en.pdf&usg=ALkJrhijJIDWnuLAt5vIozXX1RtxAfHvlw If you want to understand why EU is in trouble read this. When these type of people come to your country telling you that your country and your neighbouring countries should form unions together read this again. My summary: 1. Governments will create authorities who can be central banks or finance ministers or bureaucrats as they see fit. 2. The authorities will have powers to depart from normal insolvency rules with only general rules to follow always with gudance from the central EU bureaucrats. 3. The authorities will have the power to treat members of the same classes differently or to depart from the normal order of losses born by each class on insolvency subject to the difficult to interpret rules to protect the secured creditors but with the discretion to impose losses on derivative claims. 4. The assets will be valued based on current market value or long term economic value with the possibility to quickly assign values and have experts determine them later. 5. The authorities will be able to transfer assets or liabilities to new banks or to sell them to others as they see fit. 6. Access to courts will be limited. Authorities will be given 14 days to transfer assets and the courts will not be able to undo transfers. Those sufferring losses will be able to claim losses with the suggestion that they would be calculated by taking the difference between what would have been received under normal insolvency and what occurs. No mention as to who pays the damages. 7. Authorites willo have the discretion to impose losses on the deposit guarantee scheme. Reminds me of the US where companies in bankruptcy lay off their pension losses on the government guarantee scheme. Any German government agreeing to a common deposit guarantee scheme should be tarred and feathered. 8. Claims coming due in less than 30 days are supposed to be left alone. Is this a foreign bank escape clause to give them time to pull their deposits. 9. The same rules apply to investment banks. So in practice after the claims of the ECB, public entities are paid out and foreign banks and billionaires who are tipped off pull their money what will be left? Why would you allow the spendthrifts who caused the government overspending which caused the bank failures through government bond write down discretion on how to wind up the banks and impose losses? Their track record is to benefit themselves and their class while impose the cost on the taxpayer. Why would we expect a different result? The claim that this is to protect the taxpayer is false as the losses will be imposed on the deposit guarantee system, the junior debt classes, the shareholders and the depositors. It makes no difference if the money comes from your left or right pocket. The end result is that almost all the money ends up in the hands of the political and bureaucratic classes and those who control them. The rules will cause the collapse of the banks. The first collapses will start in countries where depositors distrust the political class then spreading to the rest with the survivors likely only where the political and bureaucratic classes enjoy the greatest level of trust. A clear set of rules, the bankruptcy and insolvency laws, are replaced with bureaucratic discretion and uncertainty. Businesses usually require a local bank to function while most other depositors have the discretion to move the bulk of their money to safer locations. So businesses will suffer most of the losses. People with deposits in Europe should review the statistics from New York as to which UN officials pay their parking tickets. On that theory you deposit the money in the Scandanavian countries and Canada. Are the Canadian banks are getting ready for a collapse in Europe? I note that the Canadian banks are tightening up their rules as to who can open bank accounts. The stated reason is to prevent terrorism. No one believes this but the rules are accepted because the overriding government rule is "peace, order and good government". I can't think of any terrorist event in Canada except for 1857 in Ontario involving some freemasons, 1869 in Manitoba with some half Indians protecting their lands and 1970 in Quebec by some who wished to "liberate" Quebec. HSBC now refuses to open corporate accounts for companies less than 3 years old. The Royal Bank now requires all shareholders over 10% to disclose and to attend the bank to sign. It used to be just the directors had to attend at the bank. Now if you have one director or shareholder in the bush or overseas and the other in Canada you can't have one sign and then switch places and then have the other come in to sign. You both have to attend so who can run the remote business? All banks used to allow the directors to attend branches of the same bank overseas. No longer. Now you have to fly to Canada. Lawyers used to be able to open bank accounts for clients. Now clients have to open the bank account themselves unless you set up a trust with the lawyer as trustee and then the lawyer can open up the bank account. BC allows non-resident directors and you can open a corporation within a few days then visit later to open your corporate bank account. Tax filing is simple and inexpensive if you keep the company simple. I suggest all Europeans plan to vacation in Canada this summer, bring lots of ID and proof of residence like utility bills and open a bank account while you are here. Tell them you need it to pay local rent or to start a local business etc.. There are lots of foreigners living here so it is normal for foreign persons to open bank accounts. As banks get tighter you might have to figure out how to get a local address but so far you can avoid this. If you have to rent an apartment or suite in a house and get a utility bill in your name. This can be done in days. Transfer in Cdn$100,000 per account so it is CDIC insured. People with money in tax havens might do the same. Canada has the government owned natural resources to back up CDIC claims and most mortgage liabilities are held by the federal taxpayers through the CMHC. The Canadian banks are given extraordinary advantages so are more profitable than most banks. The ultimate protection in Canada is that we remain a democracy with paper ballots. As a student I worded for Elections Canada during elections and the process is honest. Any politician who departed from the ordinary bankruptcy or insolvency rule like the EU proposes would never be elected again, nor would their party and they would be shunned socially. There is a Supreme Court of Canada case setting out clear rules how any province can leave confederation. None have chosen to do so.

http://www.theamazonpost.com/wp-content/uploads/Yaiguaje-et-al-v.-Chevron-Corporation-et-al.pdf? The $19B Ecudorian judgment creditors tried to collect on their Ecudorian judgment in Ontario. The Ontario court decided they have no jurisdiction as Chevron Corporation in Delaware has no substantial connection with Chevron Canada which is a wholly owned subsidiary 7 corporate levels below. I agree as there was no asset in Ontario to seize. Generally you seize shares by registering your foreign judgment in the correct jurisdiction then send a sheriff or bailiff from that jurisdiction to the registered office where there is a share certificate owned by Chevron Corporation is recorded on the share register. You don't have to track down the share certificate. The sheriff simply serves the writ of seizure at the registered office and proceeds with a judicial auction of the shares. Such judicial auctions are generally advertised at the Court house. Anyone can bid for the shares. Chevron Corporation gave evidence that all their assets are in the US except two Bermuda corporations. Bermuda has excellent common law courts so the plaintiffs should now go to Bermuda to try to seize the shares of Chevron Corporation in these two Bermudian subsidiaries. There are some defences to registering foreign judgments like fraud or improper legal process but the burden is on the judgement debtor but in many cases the remedy is to re-try the case in Bermuda.. I wonder if any of the loss is insured?

Market skeptics has a blog showing that interest rate policy correlates better with the Treasury secretary rather than with who leads the Fed. Treasury controls the ESF and the stock market support operations. Treasury has been buying stocks and likely influence government pension fund holdings. How big a proportion they now represent is the big question. Government accounting does a poor job reporting capital assets and gains and losses on those assets. If they had to report consolidated holdings and earnings like the private sector it might entirely change our opinions about the government financial position.