KinAlberta

ASIAN ECONOMY Failing on Inflation, Japan Fudges the Numbers 14 JUL 12, 2015 By William Pesek Excerpt: "The slew of cheerleading reports BOJ officials have started issuing are a tacit admission that Kuroda's efforts at monetary stimulus have failed. The bank has even changed its methodology for measuring inflation so the data fit the BOJ's preferred narrative." http://www.bloombergview.com/articles/2015-07-12/failing-on-inflation-japan-fudges-the-numbers

It's a tough call. When I do things like this I take an extremely short term view, grabbing quick profits and feeling lucky. My view is that, like bubbles eventually popping, some wars are quite predictable, but the battles and outcomes aren't. Once a war starts the unexpected dominates the scene.

As I recall, like Buffett saying in a TV interview in about 2009; 'People saw their neighbours getting rich thinking, gee they aren't as smart as us... why aren't we doing that ...'

Didn't the 1920s Wall Street, etc. see a massive new retail interest in stocks. Seems like China has been a roaring twenties style environment for years now. An unshakable faith in government intervention and markets being able to master all economic problems sort of replaces fear and trepidation and considered second thought. In China I imagine that eventually reality will hit and people will realize that they may be in trouble and that the higher-ups will only be bailing out their friends (strategic alliances) and not the little guys.

If you look at the 1929 to 1931/32 period there was ample opportunity to calm down, but that didn't stop the markets from swinging wildly and plummeting much further over time. So I don't know if these actions will change much. If the market is seen as overvalued when these interventions occur, people will still want to bail asap whenever trading resumes.

So, would this be a recognition of panic selling at the highest levels? Or just an acceptance of the idea that interference in the markets is quite acceptable (on the downside that is. No one ever moves to end the partying on panic buying.)

Goldman Sachs Says There’s No China Stock Bubble, Sees 27% Rally by Cindy Wang, July 7, 2015 http://www.bloomberg.com/news/articles/2015-07-07/goldman-sachs-says-there-s-no-china-stock-bubble-sees-27-rally

There's beliefs in the markets that one: The market is efficient (EMH and all that) and two, that you can not successfully time the market. Hussman is sure entrenching that belief. :-) Well, personally I've never wholly bought the idea that the EMH was wholly true and true all the time. I've also wondered whether or not dogmatically avoiding market timing all the time is also just another way of accepting EMH as wholly true all the time. For instance, friends and I used to joke about a mutual friend that didn't want or need to buy a house, and held off buying into the rising housing market for years and years. We'd say that the day he buys, will be the day to sell. Well, it was, to within about a week of the peak! As someone with a long term focus he's done alright. Buy and hold usually works out fairly well over the long run. However, like not using into the idea that the market is efficient all the time, this experience furthered my suspicion that periodically (very rarely all be it) successful market timing might work. It's all in finding the right contrarian indicators. The last man in and capitulation seem to be areas to watch. Day trading models? I don't know. Still, I now have more respect for the underlying psychology and insight behind our observations and jokes.

Overall, it sounds very typical of many interviews except for the self-promotion and bashing other fund managers. The issue of closet indexing has been around for a couple decade now - and it might be a smart investment strategy actually benefitting the mutual fund unit holders! (It likely would have benefitted Wintergreen unit holders.) Still, there's been an extraordinary growth in indexing so its understandable that the mutual fund floggers are ramping up their hyperbole. They are competing in a smaller and smaller pool and may be looking to consolidate their own offerings or sell out, to get out. There will also be some desperation on their part because, like Hussman's recent doom and gloom letters, the market continues to 'prove' them wrong - for now. In my view on the issue of chasing cap skywards, nothing has changed much with indexing. In the 1970s you had the nifty fifty, then gold. In the 80s, 90s emerging markets. I'm sure that for decades that large institutional funds have chased the same investments, the same sectors and pushed up their valuations as well - long before indexing arrived. Then in the 1990s tech boom we saw mutual funds and banks do the very same thing - the tech boom wasn't all self-directed retail investor driven. Now, ignoring the hyperbole on investing and ETFs, if Winters is eventually correct time will prove him so, and he will come out looking like an all-star. The more the pile-on effect pushes indexed stocks higher, the more they will tumble. Mut-funds will then get a temporary boost and of course, return to losing investors money over the long term. As for his comments about boring railroad companies that everyone is ignoring - what is he talking about? Gates/Cascadia, Allegheny and later mostly Buffett have served to push railroads into the limelight. Everyone is looking at them! Winters is saying that there are load of cheap stocks today and the indexes are overvalued. Hmmm, that may be the case but we all know that when the indexes tumble, cheap non-indexed companies rarely rise, they usually tumble too. Everything drops. A flight to quality doesn't take people out of indexed companies and into non-indexed companies. People may shift to other countries but Winters seems to be implying that indexes everywhere are overvalued.

For a couple mutual fund holdings, I pretty much never ever check the price and rarely even take note of gains/losses on my statements. For holdings like BRK, and some ETFs, I'll maybe check the price once every few months. Holdings like FFH maybe once a month if that. Then some more numerous but very small, usually microcap, positions I'll just monitor for large percentage price movements*. If something fairly dramatic happens to move some small position significantly, then I'll watch it frequently, likely daily, if it starts to move up in price dramatically as I try to "time the market"/"sell at the top"/"average down" and exit or take enough profits to cover my costs. (On average, this last approach hasn't worked very well for me for the last decade or more - as I've bought too many lottery ticket like companies, held losers and sold too many stocks that later became 10-20 baggers. Essentially, I've "picked the flowers and kept the weeds" as Peter Lynch used to call it). *I have several Google Finance portfolios set up that I use as watch lists (a long list of misc. stocks, closed-end funds, ETFs, compounders, lottery tickets, etc.). These watch lists can easily be sorted by percentage change so I'll click on %+/- to see the big movers for any particular day. So it's very rare for any large company to show the big percentage price movements and so they get ignored. The little, mostly doomed to fail or stagnate, companies regularly bounce around quite dramatically percentage wise. They add excitement to my day but little to my portfolio.

I wonder if their current stakes may give them any leverage to expand their exposure at a further discount.

What I am not sure I understand well about these funds which hold lots of cash and justify their decision by saying their main objective is “to protect capital” is the following: With the exception of a new Great Depression, I am quite positive all investments of mine would grow much faster in a volatile environment than in a muddle through scenario… I actually think a 30%-40% market crash would make the companies I own stronger… not weaker! Of course, in a market crash, as the fundamentals of those business improve, their stock prices might probably go down with the overall market… and would probably go down a lot! But, if the fundamentals of those businesses improve, how can my capital not be sufficiently protected? Even if stock prices go down? Therefore, imo it could be either a) They truly fear a new Great Depression or b) Their true aim is not “to protect capital”, but “to buy assets very cheaply, when they become available”. Cheers, Gio In mid 2008 I went to 80%+ cash (selling 20yr positions in Canadian banks, etc but keeping BRK) and moved some money into some cash rich companies (Appl) and companies that had a history of being opportunistic in bad markets (eg Loews). Everything dropped in the market downturn and most companies did little to be opportunistic. APPl did nothing. Loews funded CNA. I ended up having to double up on APPL at 90 to gain from it. Added to BRK a couple days before it bottomed. (My biggest single purchase ever.) So even though BRK was clearly being opportunistic, its shares still crashed as existing shareholders panicked and dumped BRK. So the lessons are, one, you are on your own, doesn't expect your holdings to grow stronger in a recession, their mgmt may freeze due to their temperament. Two, even the best companies will drop in a recession and you'll see it in your own portfolios plummeting value, and you'll consider selling and not buying.

The question is: Does the market have to reach bubble proportions before it tanks? The tone today seems to be a relatively new way of thinking about market levels and threats of downturns that I don't recall encountering in the late 70s, or the 80s and 90s.

Dr. Lacy Hunt On The Six Characteristics Of Over-Indebted Economies Posted By: VW StaffPosted date: May 29, 2015 07:53:28 AMIn: Videos http://www.valuewalk.com/2015/05/dr-lacy-hunt-on-the-six-characteristics-of-over-indebted-economies/

Seems to be a biased article butprovides some interesting history...

Yes thanks for posting. A good read.

Internationally, is the U.S. better served by having banks of similar or greater size than other countries' largest banks, or many smaller banks? I would guess that the U.S. might prefer smaller but a fear of giant Chinese or other banks somehow dominating international markets would cause the U.S. to look the other way.

Interesting... THE EXCHANGE WITH AMANDA LANG | May 7, 2015 | 18:40 The case against Bank of Canada Rocco Galati is one of the country's leading lawyers with a taste for quixotic cases http://www.cbc.ca/player/News/Business/ID/2666703865/

The way Prem talks about The Great Depression, about being cautious in 1925 and waiting through 1932, suggests he is going to wait a whole lot longer than 2 or 3 years. So I think he is going to stick to deflation camp for a very long time. A couple of years of inflation would seem similar to the way he had to wait for CDS bets to come through. Vinod You'd have to consider that 2-3 years on top of the years we've already been waiting which would be closer to 6-8 years at that point. The real "problem" is that the last 4-5 years have largely validated Prem's concerns. *Commodities have been eviscerated *Trillions in global stimulus still can't buy growth above 2% for the Western World *Inflation has trended lower and lower and lower until it went negative for much of the developed world last quarter. *Bond yields are significantly lower than they were 4-5 years ago and there are negative yields in Europe. *The velocity of money continues to hit new lows every quarter. *Wage growth has been totally stagnant If you had a 2-3 years where inflation picked up, wage growth picked up, GDP prints at 3+%, and bonds yields begin rising then I think you have significantly more pressure to forget the deflationary thesis than you've had over the last 4-5 years where everything he was concerned about has generally occurred - and within his time-frame too as he's constantly mentioning that it took a few years for deflation to set-in during Japan's crisis. I don't think that last 4-5 years of resilience and commentary in the face of confirming economic data can be used to predict how he would or wouldn't behave if that data was no longer confirming his concern. I don't think Watsa was soundly in the deflationary camp. He saw it as a distinct possibility and so hedged for it. I'd say that is a wise move - though generally costly. Similarly holding a cash under certain market conditions is also a prudent move - though generally costly. The economic conditions have indeed seemed to have revealed a deflationary bias. Central bankers are in a big fight to offset it - though it would be very interesting to see how their books would revalue should they loose the battle.

He says: "So next time you hear anything about margin debt... ignore it." Incredible. That may be like the "Roaring Twenties" talk would have been. It also rather ignores many of the lessons learned less than 10 years ago during the debt crisis. Or as the old bankers quip goes: "There's no such thing as a bad loan, just good loans that go bad."

Any thoughts on how these can turn out for issuers and investors? Some trivia: Canada once issued perps. in the 1930s. I 'inherited' one 1937 3.75% perpetual in the early 1980s. It was in a small trust fund that my grandfather had set up for each of the grandkids. The trust was managed by a trust company! Did I mention that it was a small trust fund I received.

Buffett once talked about the cost of a bottle coke or pepsi in terms of pennies. Not sure where to find that but as in looking at the costs of Wells Fargo's deposits, looking at a product or service in this way may be more insightful in some ways than looking at reported corporate numbers and ratios. "And that’s it. There simply are no other ways to increase returns on common equity." - Warren Buffett

Does anyone see the glass as refillable? Refillable doesn't necessarily mean it will ever be filled past the half way mark, but the entrepreneur would certainly see it as an opportunity to sell the owner more to drink. Good ones!!! As I've said before, the cup is actually full, as it contains air as well. Under the right circumstances the air we breath can be quite valuable. ;-) I'm sure the airlines are trying right now how to figure out a fee for the air we take onboard. So it would seem that there's pessimists, optimists, engineers - and then there's us value investors. I would also hope the engineer would see it as nearing its design limit and not that it is twice the size it needs to be. “When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 trucks across it. And the same principle works in investing.” - Warren Buffett

Hey, look what I found. A link to Buffett's Laguna Beach house with pictures!!! :-) Buyers Selling Laguna Beach Warren Buffett House at a Loss - PriceChopper - Curbed LA http://la.curbed.com/archives/2011/10/laguna_beach_buyers_selling_warren_buffett_house_at_a_loss.php#emeraldbay-13

What's the old banker saying? There's no such thing as a bad loan, just good loans that go bad. (something like that.) So maybe we should adopt the attitude that: there's no such thing as a bad thread, just good threads that go bad.