Aberhound

I bought some France Telecom because of the relative low price for the cash flow and on the speculation that bond investors will allocate more funds to stocks. I also believe that the switch to mobile computing will continue creating demand even in a recession. The stock price may dip on crises in Europe and a cheaper Euro so I left room to add. There seemed to be plenty of room to cut costs and a willingness to lower prices to compete. I have a general bias favouring French management.

What moves prices is not reality, but changes in the perception of reality. One year ago Spain was going to leave the euro and become a new Argentina. But now it seems that we just have a few years of near Depression ahead of us. Wonderful news! Between the Rogoff & Reinhardt fallout and the Japanese buying up all the bonds they can find, I am even starting to feel a little optimism about Spain's economic prospects for the first time in 8 years. And in any case, total market cap /GDP is 66%, near all time lows of 63%, and now that includes companies like Santander, BBVA, Telefónica, etc. which make most of their money outside Spain. The Great Depression was made worse by government actions to allow cartels and to encourage unions which prevented the markets from clearing and stagnation. Businesses won't invest unless they think they will profit. How can you invest if you don't know what the exchange rate, regulations and taxes will be let alone the danger of social unrest. Government workers don't fear losing their jobs to the lower bidder so costs stay higher than the market clearing price and labour is left unused. There should be twice the number of teachers at half the rate but young expensively trained teachers can't bid lower to get jobs and remain unemployed. This explains the high prices in the midst of high unemployment and is a signal for more stagnation. For me the central banks buying stocks is a signal to start selling as they are even dumber than the shoe shine boy of Kennedy fame. Eventually the central banks will have to sell all liquid assets to support the bond market which will cause a crash in the stock market. Central banks sell puts and derivatives on the long government bond market so they must prevent a sudden rise in long term government bond rates or suffer massive losses. In a crisis the stocks will be sold to buy the bonds to keep the bond prices down whatever the losses incurred in selling the stocks. On the contrary they would perceive the stock market crash a good thing as it would support the bond prices.

Great work Sanjeev. I admired your options analysis on both the BoA and this stock. You have to have the detailed knowledge of the company and understanding of the industry to be ready to pounce. Let me guess one of your next option plays. BBRY has the same large short interest and upside potential, probably on the next earnings report (although I lack the depth of knowledge you demonstrate your comments for Dell and Overstock that there is scope for plenty of earnings for a smaller player in a niche seem to apply here as well). If so, how would your strategy work in terms of the choice of the option strike price and expiry date and time of purchase?

For years now every time we thought the kids became rude etc. we cancelled the cable TV. We notice a huge difference for the better in the behaviour of our kids. Don't fool yourself and think that TV is good for the family. The reverse is true. You really see the difference in dinner table converstation. My wife is usually the one to relent then reconnect months later so she can watch tennis. Usually this occurs because she gets a call with some amazing cable deal. Interestingly our average cost of TV dropped to $10 to $20 per month or so. Even though we usually cancel at the end of the 6 month $10 period they keep offering the same deal. Internet and phone cost $70/month or so which we always keep. The pattern of signing up and cancelling also breaks the habit so that when the cable is on no one watches much. The kids mostly seem to watch the cooking shows, perhaps because they have realized that when they watch what we think is crap the cable is cancelled soon afterwards. I don't think the Asian families watch much TV either as I overheard one parent telling her kid: "What's this a B (looking at the kids report card)... Do we look like a "Besian" or "Cesian"? No! We are "Asian". (goes on to tell kid to work harder etc.)

Ubuy2wron, I met Mr. Lopehandia and listened to his story. It is a mess of over-lapping claims which you could only sort out with a Chilean mineral claim expert. Here are some questions you might investigate. Who holds title to the Tesoros claims Mr. Lopehandia or Barrick? Has Mr. Lopehandia been the title holder of the Tesoros claims since February 1? Is there prior claims on the same ground subject to a Chilean order since 2001? Who will be the owner of the claims once the issue in that proceeding is determined? Are the prior claims on the same ground acquired by Barrick from Lac Minerals limited to salt or nitrates or do they include the rights to mine gold, silver and copper? Does Mr. Lopehandia own other overlapping claims? Does Barrick? Which take priority? Mr. Lopehandia appears to be an expert on Chilean mineral claims and comes across as a credible witness. I would not want to have a claims dispute with him. I have no idea myself who owns the claims and which take priority. I was upset that the various competing competing claims and lawsuits were difficult to find or were not disclosed in Barrick's securities filings and the CFAs I deal with at my brokerage didn't know anything about the competing claims either. Read the Der Spiegel article published in December 2012. I wondered how Der Spiegel could publish without being libelous. I was upset because it should not be necessary for investors or trustees to be private investigators. I should be able to rely on the CFAs, company filings and securities regulators. I suggest you do some due diligence. I placed it in the too hard pile and sold Barrick at $32.

http://ragingbullshit.com/2013/02/23/economics-101-the-financial-crisis-explained-with-giggles-thrown-in/ British Comedians give lesson in macroeconomics and the markets

ALberta has no recourse mortgages but I don't see a greater propensity to borrow compared to Vancouver. I guess the cultural preference to have a bigger house than your neighbours prevails over the cultural aversion to debt.

The first stated purpose to protect the taxpayers is stupid. The reverse will occur. A loss in confidence however caused will now more likely cause a loss of deposits which will cause banks to reduce loans which causes asset values to contract rendering losses to the government owned mortgages held by the CMHC. The new rule does not protect taxpayers, it harms them. Anyone owning preferred shares in the TBTF Canadian banks should reconsider as you are not being paid for systemic risks. A better way to protect the taxpayers and depositors would be to state that shareholders and bondholders get converted to equity before any depositor loses a penny. More deposits would mean that the bonds and shares are less risky meaning that such a rule would be good for bondholders and shareholders. This is the old rule consistent with my favourite legal maxim: "Often it is the new road, not the old one, which deceives the traveler". The Privy Council understands this. There must be some greater reason. The second stated reason, to prevent deposits favouring the TBTF banks, is a good reason as it will help keep the deposits in the smaller banks and credit unions. Canada suffers from a lack of competition in the banking sector so the rule increases competition and helps prevent runs on the small banks and credit unions. This does not seem to be a sufficient problem to be the greater reason so I am mystified.

It is easy to come up with factors which could cause the bull market to continue. It might or might not depending on whether entreprenuers step up to the plate. Times like this when many see the worst are the best time to create new great businesses with enduring moats. There are lots of wealthy people with sufficient capital to start these businesses, one of the benefits of concentration of wealth. With the collectivists in Europe enacting the most stupid economic policies in modern history there is and will continue to be a large movement of people and capital to North America. You could not ask for a better example to instead pursue freedom and individualism instead of state based systems. The strength of the US system with divided powers will prevent the collectivists from spreading their poison to the US. Smart businesses will encourage the movement and hire the discouraged European youth who hopefully have learned their lesson. With the bond market in a massive bubble and there being an order of magnitude more money in the bond market compared to the stock market all the alternatives will be inflated in price as capital looks for a safer home. Capital flees risk before it seeks gain. It is a good time to raise capital if you have a good idea. Innovation comes in waves based on space weather. The US and Canada are the most fertile ground to take advantage of such innovations. Innovations create hope. It will be increasingly difficult to keep the many technologies suppressed on the grounds of national security off the market. This may cause a double strength wave led by cheap energy. Periods of stagnation and cartels both create pent up demand. The growing class of poor people is likely to change to a growing class of rising incomes which becomes self reinforcing. Hiring is triggerred by a rising real estate market. What is needed are entrepreneurs with the guts to break the cartels and unleash the demand. Buffett is on a tear. Maybe he has a reason to be optimistic about the US.

My brother came back a few months ago from helping his friend who purchased a hotel in southwest US. The friend was an experienced hotel operator from Canada. The hotel was purchased for $2M from a bank with 100% financing. The bank would only sell to experienced operators on those terms. The bank was getting a bad deal from their receiver who was operating the hotel. The hotel across the street cost $6M and carried the debt so my guy knew he could out compete him. The rooms were renovated, the furniture replaced and occupancy was good 80% to 90% but the rates were lowish to get the occupancy up from the previous dismal levels. My brother's job was to go through and suggest subtle improvements. He got the driveway lights replaced with coach lights making the property pop which increased revenues 3 percent. He got 20 parking spots or so covered so guests would not sweat while their car cooled down. This made the hotel busy during the day for business meetings. He got the pool changed to put in a covered area in an unused sunny corner with a bar and bbq and pool use climbed dramatically. These changes allow rates to increase from $69 to $89 per night with the same occupancy. The value is now $6M based on cash flow. You can make a lot of money with hotels. A manager runs it but you need to visit way more than 2x per month. Now the guy is looking for another in the same area. He found a nearby lake with fancy homes and bought one so he could spend more time down there. He will probably make good money on that house too. I suggested setting up an Limited Partnership and doing ten in the same area instead of 2. You need the capital to make the hotel better than the nearby hotels who are stuck with way more debt but one guy can oversee multiple hotels. There is a ton of opportunity in the US.

Prem is making a ton of money on Blackberry, most or all of which offset past losses. We should see a big change in his portfolio results. I am particularly impressed in his conviction buying steadily through the decline. He has dramatically reduced his exposure to US banks. He must be expecting a freeze in the credit markets probably caused by events in Europe where he has concentrated his deflation bet. I wonder why his investment in Bank of Ireland does not show up.

You buy machines to insert herbs and spices into pills and offer a service to the chinese community etc. to take their herbs and encapsulate them. You then source high quality organic tumeric etc. a bring it in by the container and sell it by the bottle find out what formulations increase absorption and mix them in. Once you find out the top products that can be grown here you arrange contract organic growers and buy the output and sell it by the bottle. People are starting to realize pharmaceuticals often cause more harm than good.

I would have guessed that politicians would be #1 on the list. There is a professor at University of British Columbia that has developed a brain scan which detects psychopaths. Company boards should consider hiring the professor in CEO reviews to avoid potential shareholder pain. Now if I could figure out how voters could have an opportunity to screen politicians before voting...

I don't move monies to Canada or US to speculate on currencies. Many stocks trade in both US and Canada so when I buy or add, buy in the currency that I think will weaken and sell in the currency I think will strenghten. Currently I think the Canadian dollar will strengthen short term then weaken. There are many factors to consider. Competitiveness matters in the long term. Almost everything from houses to clothes to wages (except for government sector) are way cheaper in the US so the Canadian currency will eventually weaken. Capital flows determine currency in short term. Central banks and sovereign wealth funds have major problems which now cause them to diversify into Canadian dollar holdings. This is the main factor I believe which is causing our currency to rise. This trend will continue. The currency also rises because of massive proportional inflow of rich immigrants, which inflows appear grossly understated based on the number of housing developments. Part of that could be the practice of sending children to our excellent public schools then buying a condo for the child and parent while they attend school. Public schools like foreign pupils as they get something like triple the cash per pupil. The Canadian dollar will also weaken when the market wakes up to the fact that we suffer from a 25% or so fall in the export price of oil due to the lack of pipelines and domestic regulatory obstacles preventing cheap domestic refining.

Rather than debate the gun control issue as a result of this tragedy I suggest we all consider what has changed which caused the killer or killers to be willing to murder children. If there was any significant risk of children being killed my parents would not have let me play outdoors without adult supervision. What has changed to remove the basic human instinct of all adults to protect children? If this event is repeated I suggest we ban violence in TV, films and video games. It would save far more children than banning guns. If children continue to be harmed I would arm all parents and teachers. I think of an old photo of my Scottish ancestors in Ontario in the 1800s. The men all carries rifles as there were no police in rural areas. Children were rarely harmed except for a sore backside when they misbehaved.

My job is to worry so here are 3 more. Nonetheless the current price of FFH looks attractive to me. - Worsening winter storms if Piers Corbyn is right about little ice age. Storms used to be brutal. If you haven't read it look for the weather history pdf found at breadandbutterscience.com. We have been living in a benign period which might change. We saw the same effect in May 2006 before the Hurricane season after the two savage hurricane years in 2004 and 2005. - ECB looks like it will print more money ruining Prem's deflation bet - negative interest rates are bad for insurers with large bond portfolios - globalization creates more fat-tail risks which could be devastating to financial markets due to excessive leverage. I am glad Prem is 100% hedged in equities but what about bonds and will the hedges work? - Insurers rely on rule of law which is declining. FFH may suffer from ad hoc decisions against rich foreigners.

I thought Wrigleys had a moat that would last forever until I tried to find a pack of gum for myself and my kids. There was nothing with sugar so we went searching. Eventually we bought Bubblicious. I see it is now owned by Kraft along with Dentyne and others which are also made with sugar. Maybe Kraft has a better moat? Unfortunately the world is not so simple. My wife lost weight and stopped needing stomach and gut pills once she copies me and stopped eating wheat. Modern wheat is no good for us Scots and now I see that applies to the Dutch as well. I don't see much moat in a company like Kraft which sells so much wheat. It can't be good for a brand to be associated with obesity, pain and gas.

http://dailybail.com/home/raw-video-coned-power-station-explodes-in-nyc.html Video of ConEd power station explosions.

Since we expect to have negative real interest rates for an extended period the idea is good. My goal would be to match the risk profile of the investment. Accordingly most equities are too risky. Many believe the market is overvalued so such an investment could result in a permanent loss of capital. Fairfax borrows at 6-7%. One day Prem might think it is too hard to find investments earning more than this hurdle and choose to repurchase the debt. Perhaps holding Fairfax bonds has a sufficiently low risk profile? You should also lower the risk further by diversifying to hold other bonds as well. You might also include a few dividend paying stocks which are effectively as safe as bonds because of a strong moat. The key is to earn income from the investment to ensure there will always be sufficient income to pay the mortgage. Excess income should be used to pay down the mortgage. While you hold this debt you should lower your risk profile by not holding any other debt until the mortgage is paid off.

I bought today. Demand for desktops, laptops and servers will not end because of the IPhone and IPad. We decided to stay with a central server at our small office. Desktops will be replaced with thin clients as they get upgraded. We looked at Wyse which Dell recently bought last upgrade round 2 years ago but we felt it was not simple enough yet. Eventually I am sure we will all access your virtual computer in the cloud from any thin client but we will wait until it is simple. For now that choice seems insecure. If anything computers are so cheap and useful now we have ended up buying more computers as laptops have become so inexpensive. The cash flow you get buying Dell stock for the price you pay looks compelling. Computers are so powerful now that buying Dell is easier and they do the hard work for us of negotiating cheaper licensing deals from the software providers then loading the programs on the computer. We hate Microsoft products but we are forced to buy them every round to allow us to share documents with other firms and customers. Dell indirectly enjoys some of Microsoft moat by making it cheaper and easier to get the licenses. For us the Dell moat is that purchase is fast, trusted and easy. It no longer pays to shop around.

This has recovered from the 50% dip with the Diageo announcement. The Rupee has dropped reducing the gain somewhat. Ironically the prospect of the opening of the Indian liquor market seems to be the driving force. Probably United Spirits will become like the Indonesian clove cigaret maker in Indonesia which went on a decade long 20% plus per year tear after Reynolds took over management of the operation. I find it hard to get over my North-American focus and actually buy these cash flow machines. There are plenty of reasons to drink if you live in India. http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/9566512/King-of-the-Good-Times-wants-to-raise-a-glass-to-propping-up-his-ailing-airline.html

Since I see the cult of authority as the core problem I agree mostly with the libertarians. Where you have authority and no oversight or consequences for wrongdoing problems appear. I see little effort to correct this well known weakness in human nature. From Wall Street to police to prison guards to priests to regulatory organizations, to schools, to generals etc. the same problems appear. People granted "authority" falsely believe that the "authority" is an excuse to ignore their morals, compassion and empathy while the rest, trained from a young age at school, obey when instructed by "authority" while wrongly believing that they would never do something contrary to their own morals. Humans need personal freedom and dominion to reach their potential.

Corning (GLW) is on the list. 1. I would expect lots of special glass for screens. Someone posted the concept video showing glass computer screens everywhere. 2. Fibre optic cables design has changed substantially since the dot com boom. How long before the original fibre has to be replaced with the new designs? How long before the fibre is extended to homes and offices. With all the mobile devices won't the replacement and build-out both have to start soon? No position.

http://www.econtalk.org/archives/2012/08/ohanian_on_the.html Ohanian's research on the labour market of the great depression shows that policies that made the labour market more rigid caused the great depression to be worse than the free market result. Ironically most people blamed private greed instead of blaming Hoover's and Roosevelt cartel and price support policies. Sound's very similar to the pigs. If they are going for internal deflation you have to introduce a free labour market first. If they leave the Euro (same as gold standard) they will adjust faster if the free market is introduced first. The best choice for the citizens is the free market. They are unlikely to enjoy a free market until they leave the EU. A free market means that debts are cleared through bankruptcy. The biggest problems for the piigs is that the banks are not allowed to go bankrupt so the debt remains then is transferred to the innocent taxpayers leaving the taxpayers in debt tutelage. This destroys the illusion of legitimacy causing systemic breakdown. Solve that problem and the rest is much easier. Hong Kong was able to deal with a 30% plus internal devaluation because of their free market and common law courts even though they had fixed exchange rates.

http://www.indiavision.com/news/article/business/339477/china-launching-gold-backed-worldwide-currency--now-the-americans-will-have-to-find-a-reason-to-go-to-war-against-china-/#ixzz25Lmk36Ci The US used to have the trade dollar backed by silver to facilitate trade. It looks like we are heading back to that world. The pre-WW1 world was the golden age of international trade and investment so maybe the return to that world is not a bad idea. When the British put the Pound back on the gold standard after the Napoleonic war their interest rates dropped. Most other nations joined the system to enjoy the benefit of lower interest rates. This transition will create lots of opportunities for value investors. The relative values of gold, silver, platinum and the mining companies become silly. For instance I put 25% of my portfolio into Goldcorp when it recently dropped to $32 upon reporting poor short term results. Super cheap juniors that can't get financing is the best environment for majors like Goldcorp and some quarters will have bad results based on poor grades etc. so why does the share price fall? When you have a big buyer like China putting the floor under a price like Fairfax put a floor under the price of Odyssey Re you can invest on dips and enjoy the background of upwards price momentum. Look at the price of platinum miners and the gold/platinum price ratio. When car demand picks up again platinum will do well. The collapse of the platinum miner prices demonstrate the dirth of long term investors. Mining is extremely diffiuclt and risky so only a few companies will do it successfully so it is likely safe to invest in the top quality mining companies for the long term where the management invests their capital sensibly. As the recession spreads mining costs should start to fall again due to excess capacity so the margins should improve, especially when oil plummets after the Iran scare is over. Margins should also improve because of improved technology.