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Showing posts from 2015

Maybe I should have taken his bet!

Several weeks ago, during a heated discussion on oil prices a good friend told me:  "You believe that oil prices are going down, put your money where you mouth is"
The bet was for oil to hit $30 before it would hit $50.  That bet -- was a sucker bet.  The marginal market is unknowable.  That's simply the truth is that one serious global event and oil prices can jump back to $80.  What is more interesting is where will oil be in 24 or 48 months.  Will it remain as cheap as today.
There are a number of factors at play:
Producers the world over have gotten use to the $80/100 bbl economic windfall; enabling them to buy off their citizen -- from Caracas to  Ryad the plan has been "buy off the natives"US producers of expensive shall gas and oil have used "expensive" debt to fund their development.  Sunk costs are sunk!  Right now they are pumping as much as they can so that they can meet interest payments.  But soon even variable costs will not be covered.N…

Canada's shameful history -- but what are the lessons?

So Canada's Truth and Reconciliation Commission has finally closed its books and the Canadian government has decided to apply all 72 recommendations.  Fine as it stands, the Residential Schools were traumatic.
The issue today is where does Canada go from here?  What is to be done about the Aboriginal problem, because its an C$ 8 billion per annum cost.  What are the solutions?
First, some hard truths, if you are an Amerindian in Canada you have two choices; live a coddled and largely pointless life on a "reservation" pay no taxes and receive benefits.  Education, despite being expensive, is widely seen as completely useless.  Children leave school with little useful knowledge or socially (outside the reservation) useful skills.  If you are smart -- you get out as fast as you can. My experience, at McGil University years ago, where I met a single AmerIndian was telling, smarter than most, engaged and had little time for his tribe.  He was out in the world -- a loss to hi…

$37.60

Oil are now lower than at any time since 2009!  That's going to cause serious trouble in America's oil patch (not that things are going to be that great for Saudi or Venezuela for that matter.  The shift from a few to many (lower oil prices benefit many while high prices benefit the few, is a massive transfer of wealth.
The Saudi royals have been "buying off" their country men with the windfall of expensive energy.  Now they have to liquidate their holdings...that could hurt stock prices.  In america, nearly 50% of all junk bonds (High Yield bonds) are issued by oil & gas companies drilling expensive shall gas and oil.  So far they've been buying time with massive increase in flows, but that cannot keep up.

Interesting times

How can a nation so well armed be so afraid?

Every day another nut-job professes his desire to "kill" Syrian refugee "in Paris" as if that's where they were... The most amazing thing, of course, is that America has seen these kind of commentaries before, many many times in the past -- at the turn of the century it was the Irish and before them the Jews.  Although historically America has welcomed the poor --that have served it so well, today the behavior of most Americans remains appalling.  Obama is proposing bringing 10,000 refugees to America, that compares to nearly 25,000 before Christmas in Canada, and tens of thousands in Europe.  Recent polls show that 72% of Republicans believe that the values of Islam are at odds with American values, for the Democrats the number is 48%.  There are many similarity between the Christian and Islamic faiths; neither are totally comfortable with secular governments, but Christians made (mostly) their peace with the separation of Church and State.  As for the place …

Clown #1 lead widens !

Now that's a great headline.  This morning the latest poll, just 12 weeks ahead of the first primary races in New Hampshire and Iowa (its getting serious now) show that The Donald(TM) is now leading the field with 35% support of primary voters -- in Iowa Carson is still #2, but with the bad press -- he ran as an "honest guy" who turns out has lied about his entire life... is really toast.
Things are unchanged in the Dems field, HC is still well ahead of Sanders.  
The Donald continues "outrageous statements" is a non-stop spin machine.  He now suggest that the US and its friends should "Kill the families of terrorists".  Now I don't condone terrorism in any way shape or form, but history has shown that "Freedom fighter" and "Terrorists" can easily be confused -- depending on your side of the argument.  If you are a surviving member of a Yemeni wedding party that was bombed "in error" by a predator drone -- you may fe…

Are markets primed for a 25% drop -- e.g. the big correction?

So despite all the BS news over the past few months, if you had bought the S&P500 or the DJ industrial you would have assumed that 2015 was a very quiet year for investors -- the S&P started at 2020 and today is trading around 2100, a 3.9% increase and if you add your dividend (a whole 1.9%) you are looking at total revenues of 5.8% -- before tax not too shabby and certainly better than what a bank deposit will give you.  In a nut shell 2015 has been a good year for investors, at least better than for depositors.
So what about 2016?  One of my very favorite commentators is Bob Janjuah -- an old colleague with tons of street smarts.  He's the voice of reason and a very good macro commentator.  He was long the whole year and told his clients to stay the course -- if not increase position when the market soften. He's now gone full bear told his investors to liquidate their positions in September on the often heard rumor that the feds were going to raise rate -- their last…

Terrorism, the media and the flight for the right (GOP/Conservative etc) A very short post

I hardly ever watch network TV, I don't think I've watched a political gabfest in more than 3, maybe even 5 years.  Its just that pundits the world over have an opinion, it will not change, and its why the are on TV, they're a sure thing for the bookers -- the "hooker" of the TV world -- you get what you pay for!
Anyway, at a loss, in an Ottawa hotel I saw this debate on the confluence of recent Canadian elections, the Liberals' (left of centre) victory and the impact of the Paris terrorist attacks.  Present were a conservative pundit, a token "good looking" muslim women and  a radio host -- my guess is that no smart liberal wanted to be on that show.  BTW I do realize that's probably the beginning of a joke:  So a conservative, a Muslim and a radio guy walk into a bar...  
Back to my story: the conservative pundit (hereafter know by her initial TK) who I vaguely know is asked a leading question:  If the Canadian elections were held the day aft…

Goldman says oil going to $20/bbl -- so it probably will not do that!

This morning GS in a E&P report said that the current glut in oil could easily drive prices to $20.00/bbl. Nine times out of ten whatever GS says doesn't happen!  Take gold, it's rather amazing, although GS has a 2012 US$ 850 target (when it was trading at $1,300), today it's trading at US$1077.00/oz -- so not a very good prediction (it did make the cover of the WSJ).
So why is GS so often wrong?  
The short answer is that GS, like all brokers, is looking at generating "buzz" for their ideas.  The real issues are the following: There is a glut of oil with virtually all storage options fullLots of investors played the yield curve assuming that oil prices would rise -- it didn'tNew production in the US "non-conventional" is dropping fast -- drilling rig count is down 60%Other stuff that's worrying:  overall demand for trade is off, freight rates (ships) is down 70% in a month (that cannot be good) So the signs are not good for oil, but they ar…

Paris!

Friday night the world has changed, again. The multiple attacks in Paris are a stark reminders of what happened in 2001, where several aircraft were directed at various American targets (World Trade Centre, Pentagone and White House).  These attacks are somewhat similar, except they targette the France's youth.  The region of Paris where the attacks occurred are known as the primary "fun spot" of Paris.  
It was horrible!
In Liars Poker, Michael Lewis talked about how his boss would use real (horrible) world events to theorize on how they would impact the world. economy in general and markets in particular. Therefore one question I got asked this weekend was what will be the economic impact of the attacks on the world economy; we have a strange confluence -- whereas last week everyone was "anti-Putin" this week, no so much.  My first guess is that conflict with Russia is now off the table;  The enemy of my enemy is my friends (or something akin to that). We se…

Gold, Automation, Oil and deflation (Revised)

First off, Gold's been off its feed for some months now.  Its not clear what's going on, but in USD gold is off nearly $200 since spring -- where it had been trading around $1,200/$1,250 for nearly 3 years.  Normally, I would blame the strong dollar, but its been more or less unchanged for two years, so that's not it.  My instinct tells me that something else is a foot!  My best guess is inflation expectation are going down the tube.  Not only are primary ressources suffering (e.g. oil prices, steel etc) but the central bank's pumping action seem to achieve little.
This morning a very prominent hedge fund declared that "the floor on oil prices had been reached" within 20 minutes of this pronouncement oil price dropped nearly 8%... goes to show "nobody knows nothing".  But a massive failed auction of used heavy equipment in Australia, CEO of Maersk declaring that trade was far worse than the market assumed all point to further economic slow down. Wh…

Self driving cars and the market

Earlier this summer I was having a conversation with my father, the topic was self driving cars.  I though that within a few years self driving cars would begin as a solution to gridlock and the complete absence of parking spaces in large cities.  My estimate that "in the next 10 years" experiments would start.  My dad was far more pessimistic, he thought that the Americans would never be able to get around the liability issues (then again 30,000 people die from guns and that doesn't appear to be a problem, but I digress).  
Imagine our surprise when Tesla unveiled its latest software update which allows limited automatic driving on motorway.  Furthermore two guys drove across the country with a Tesla; 99% of motorway driving was automatic driving.  It gets better, last week I learned that machine learning was involved!   That every time an American (because the software is so far only available in the US) takes his tesla on the road and activate the automatic driving, …

Its been a while....

Honestly, I find myself hard pressed to get exited about any of the recent political developments.  Everyone agrees that the Greece tragedy is over, well maybe not over, but swept under the carpet, shovelled forward -- use any analogy, but there the reality of Greece's tragedy is there for all to see, the country has more debt today than it did 6 months ago, the economy is still not recovering.  We shall see -- I am still confident that I will eventually win my bet (that Greece will be forced out).

On the American side things are unchanged, Canada had election and the conservative government was defeated by the left of center Liberals.  Mostly untested, but already some positive actions have occurred -- such as cancelling the F35 -- a ridiculous acquisition by the previous government of a poorly suited aircraft for Canada's usual border defence mission at a cost that is simply unacceptable, nearly $200 million per aircraft!

The American long long winded electoral process grind…

Eximbank: The fall out has begun

Well that was unexpected (NOT), GE today announced that its new $300 million engine plant, where all the new engines will be built (next generation) will be located in Canada!  People still cannot believe that US Export Import Bank has closed its doors, but GE has decided that it can no longer wait for the US government to figure out reality.

For Canada this is massive, because engines production line have a very very long life cycle; first the engines are developed for a new type, these are built for a number of years (eg the 777 was built for 15 years) but then new engines are required for the fleet going forward for another 25 years.  Moreover, once "one plant" has been moved, others will follow -- mainly because the specialised skills are there.  On the long run this is all good for Canada.  Granted we are only talking 350 jobs, but in reality there are a lot more jobs involved; GE does the final assembly, but a great deal of sub assembly is done by risk participants, th…

Were any markets not rigged?

Its beginning to sound insane, but this weeks's UBS "gold" scandal is just adding insult to injury. Turns out that for giving up its co-conspirators UBS will be given a "lighter sentence" on its manipulation of the gold market.
Now first off, I don't know what gold market they are talking about -- is it physical gold how did they cheat, I just don't know -- and don't want to give any excuse to the goldbugs to say"  See we were right".  
The list of markets that were rigged by the big banks -- we are not talking 2007 here, but 2015 is getting long (rather the number of market that were not rigged -- against customers is getting short):  So far the LIBOR market was rigged (interest rates), the Foreign exchange market was rigged, the treasury market was rigged [the VW diesel market was rigged...oops wrong industry -- they will go to jail for ever], and now the gold market (and I would venture the entire precious metal market) has been rigged…

Maybe not Bush, but Walker is a gonner!

So I think we are back to 2012 at the time of the last Presidential primary when a "cycle" of bozo and unprepared circulated as the "candidate of choice" as the GOP crowd favorite "Republican candidate to the presidency".  It seems that Mrs Fiorina has jumped from around 3% to 15%, ahead of "I am falling asleep" Carson who is just ahead of Rubio.

Now Mr Trump seems to have sunk from 32% support last week to 24% this week -- could this be the sign that the GOP establishment has been hoping for; the end of the Trump nightmare?  At the last CNN 3 hours marathon debate she was poling around 3% -- so she's now #2 in the race at 15%.   Mr. Bush the favorite of the neo-con wing (also favorite of the Roosevelt Republicans) is nowhere to be seen (sitting around 9%) in 5th place.  He's apparently sitting on more than $100 million -- so he will not rush for the exit, but its got to be somewhat dispiriting to be with the also ran.

It also brings hop…

The primaries is all bullshit?

When I heard Sara Palin refer to Native Americans as people who should go back to Nativia I suddenly realised that the objective was not to say anything smart, in fact saying something stupid made sure that you were in the news.  It seems that the new game plan for Republicans is to say stuff that is so dumb that it will bring notoriety to the person saying it, and coverage.  Scott Walker's Canadian Wall was a case of very stupid idea -- this is a country that cannot find money to maintain its bridges and overpasses and would spent 10 of billion building a wall.  It got Walker press for 24 hours -- granted unlike Teflon Trump (TT for short) it didn't work out as intended.  There use to be a saying good or bad press it doesn't matter as long as they talk about you!  It seems that the 16, 1737 36 candidates to the GOP presidential primaries are now taking this strategy to heart.  Don't know if it will work -- it worked for TT and for Carson because they were the only on…

So what's really changed and why the panic

Its like the movie Airplane, when the overhead seat belt signs in the aircraft indicates:  Okay Panic. Being honest for a few minutes with ultra low interest rates, and weak(ish) world economy (US seems to be doing OK, but Europe and Japan are not) and a slowing China (maybe not slowing as much as growing less quickly), the world is not really floundering, its just not performing.
So what has really changed is volatility -- it could be a sign of something else, as it could be just a bout of volatility because there are changes afoot:

Oil prices are falling again -- accelerating the shift of ressources from producers (of oil) to consumers; a far more diffused group than the oil producers.Fed Chairman has indicated that interest rate hike(s) are on the way, that makes bonds "one way bet for the past 20 years" done and gone.China -- well the government seems to have lost control ; and has decided that the stock market was a proof of economic virility!  What they do next is anyo…

Why cant Canadian elections be like in America?

I mean that's a justifiable question!  We get Harper, Trudeau and Mulcair, three reasonable guys who rarely say anything outrageous, Where are our Donald Trump, and our Scott Walker -- who today on Meet the Press indicated that building an almost 9,000 km wall (even across the great lakes) between America and Canada was "an idea that should be considered".  Personally I am all for it especially if its the American paying for the thing, after all how are we going to keep the zombie armies out of Canada, and when President Trump is elected and decides that Canada's oil is really America's oil and takes over Alberta a wall will help in slowing things down a bit, right?
America's crazies (aka the Tea party, and the Far far right) are absolutely certain that all crimes are committed by these Mexicans Canadians crossing the border illegally -- I mean look at the Ted Cruz, a prefect example of a Canadian gone South.
But back to our subject why are Canadian election…

Electric cars, the sharing economy and the slow decline of the car manufacturing industry

I've been thinking about this post for a while, it strikes me that we are seeing some very interesting and potentially fundamental economic changes in one of the key component of our nation's economic activity; namely the car industry.

The arrival of the Tesla changed to the electric car landscape, it went from a hippy Prius owner to the rich guy considering a BMW or a Tesla and picking a Tesla.  The reality of the electric car business remains a rich people issue; to date you need a garage(s) (in which to store your battery charger) and long distance driving can be anxiety inducing that still make electric cars a luxury item. However, my guts are that over the next 5 years this will change -- and the sharing economy will be a major part of the solution.

Musk & friends are working on replaceable battery packs here and self connecting battery system here.  Google is working on self driving cars and Drivy is "driving" the shared personal vehicle space (the Airbnb o…

Is this the end? Stocks down 3% on Friday, 6% in 48 hours

Although I know little about the dynamics of stock prices I can read a chart as well as anyone else. The real truth is that over the past year stock prices have been static (some up and downs).  On August 22, 2014 the S&P 500 closed at 1,988, last night the market closed at 1970 a 0.1% drop over 12 months!  Hardly what I would call a massive correction -- lets not forget that "smart" investors are suppose to invest and forget for a few months -- churn is the enemy of the successful investor (ask Buffet).  Sill there is the past 48 hours and the breathless comments and worries -- is this the big one?
Yes Thursday and Friday were bad, but aside from weak oil prices, China going crazy trying to maintain an artificial market up (for no apparent good reasons) the place is more or less unchanged. There's always talks of war in Ukrain, Iran Syria... the usual trouble spots but nothing over the past few weeks justifies a 6% correction.  There is a certain uneasiness in the …

Thanks to Vox I finally understand why Trump is so popular

For weeks now I've been mystified as to the enduring popularity of Donald Trump as the GOP's leading candidate.  You assume that they (GOP members) can't really all be that dumb...but weeks later you are forced to concluded that yes maybe they are that dumb.  However, this rejection of a large percentage of the population as 'functioning imbeciles" never sat well with me.  Vox here explained what's going on.  
First off, Trump is a "nativist" which is fine -- its a label of course, and not that kind either, but its a true reflection of the man and his message; America can be great, Immigration is bad and causes 100% of all the crimes.  So far Trump has not spoken of the Non-latino population -- but I'm virtually certain that over the next few weeks that will change -- the words "lazy" and "stupid" and "welfare queens" will somehow emerge. All republicans candidates are nativists; maybe not in such harsh terms as tho…

So Eximbank is on holidays -- for ever!

Believe it or not, the GOP (Congress and the Senate) in their eternal wisdom have decided that the U.S. Import Export Bank is a luxury that America can no longer afford, and so on June 30th it was shut down as its mandate expired without being renewed !  
As a whole the US economy will not be impacted -- at least until Boeing and its buddies decide to move operations elsewhere, because international trade is such a small percentage of the US economy (less than 25% of GDP; compared to more than 50% in Canada).  However, some high paying high tech job (the kind the Republicans clearly hate) could well be in jeopardy.  If Boeing decided that more of its aircraft can be built outside the US, and gain access to other credit agencies.  Until now, Boeing has been very careful that at least 51% of the value added in its new aircraft are "American" just so that it can qualify for Eximbank's loan guarantee program.  Now that the loan guarantee or "off the table for the fores…

China's stock market

Having been away from the news (mainly because the internet was down) for a few days, I missed the latest and greatest about the Chinese stock market.  The news is not good, granted the panic seems to have ebbed but it remains that the past few weeks have been painful for investors (who are very leveraged).

Rumours are that there is an implicit price target of 4,500 for the Shanghai Composite index (the S&P 500 for China's main market) that today closed at around 3,600 off from its high of 5,100 (or about 35% lower -- which is bad).  The Chinese government has been working hard (and I mean really hard) at convincing the market that the market will go up, it has "encouraged" brokers to take large positions, ended the ability to IPO, it has made many stock "un-tradable" thereby reducing the volume of shares available.  In fact, the Chinese government has dubbed sellers as traitors!

If these rumours are true, and the Government can make the market calm down an…

Export Import bank of the United States of America -- Now that's intersting

The tea party has won, this fight anyway, it looks like US Eximbank's  may end up in the dustbin. The long term impact is minimal, the US can work to remove the other export import banks.  For companies the short term is more serious.  Exim Bank provided credit support to many many companies from confirmation of letters of credit to loan guarantees to Boeing.  For some reason America's far right has real issues with Boeing and the aerospace and defence sector, as a Canadian I can only say -- bring it on, because Canada would be a natural home for a lot of Boeing's non-defence work, these are very high paying jobs that require lots of skills and once the jobs are gone, they tend not to come back.

Canada has an export import bank called EDC, they too use Canada's credit rating to provide Canadian exporters with long term finance, letters of credit etc.  the cost to the Canadian tax payer has been nil for several years, in fact, EDC has only used Canada's borrowing ca…

Greece -- what now

Will they or wont they?

One thing is clear the process is far from being over, aside from that absence of debt forgiveness -- only extension of maturity they ECB seems to be kicking the ball down the lane even further.  However, Greece has just discovered the limits to its sovereignty, when the President announced the re-opening of the country's stock market to be told by the ECB, that non, Monday was not a good day after all!  The limits of sovereignty explored by the people (and government) of Greece.

So what now, well barter is back in a big way!  People no longer having access to the government's payment system (e.g. Euros) are resorting to plain and simple barter.  That usually increases transaction costs, removes the power of taxation -- no "stinkin" 20% VAT, and inefficiency.  On the other hand it allows people to eat, so that's something right.

The breakdown of government has to be near, clearly the efforts to get all the ECB inspired legislation is hitti…

Canada and Australia

Two resource rich countries nearly identical stories -- I wrote about this risk years ago; Canada and Australia are second derivative countries, largely open what happens to these economies is largely driven by what happens elsewhere.  In the case of Canada and Australia that elsewhere is China -- Australia more directly than Canada but the end results are the same.

Case and point, both currencies flirted with US dollar parity (CAD even reached 0.95 at one point), now both are trading in the 1.30/1.35 range.  Usually, for manufacturing companies in country this would be very helpful, but the reality is that both countries manufacturers have sought over the years to insulate themselves from currency fluctuation (trust me its possible), although a 37% drop from its peak is hard to plan for...

Bottom line both economies are now suffering because their customer (China) is having a bit of a hard time.  The question then becomes how long will this situation persist?  The question then becom…

Greece -- an deal has been stuck, but will it stick?

One clause of the Greek/EU/ECB/IMF agreement felt wrong; Sunday trading -- this was considered an essential change that Greece has to enact.  Greece had to allow, even promote Sunday trading, this was an essential demand from Germany.  And yet if you ever travel to Germany (or France) you will notice that everything is shut! If this was so essential to the economic health of Greece, well then you would expect other European nations to enact/have similar laws, but this is not the case.  
The Greeks have just bought themselves a lot of money (necessary) to repay their lenders (German/British and American financial institutions -- and the providers of credit protection (CDS) must be breathing in relief).  Greece just got $90 billion that should keep them going until early 2016 -- their repayment/refinancing obligations run at around Euro 10 billion a month.  I've not seen/heard about any debt forgiveness or loan extension. 
There is no doubt that massive changes are about to occur i…

Did you know how many people are running for the president of the United States!

First off, I knew there were a few Republicans in the run, but I didn't know that the total was 14 with two more probables.  On the democrats there are five declared -- but realistically that race is done, Ms Clinton is well ahead in all the polls -- Sanders/Chaffe and Webb are all there to make sure that the left is well represented.

On the Republican side you've got the Christians:  Huckabee/Santorum.  On the far right you've got Cruz/Paul/Walker/Jindal and the crazies:  Trump/Carson  the funnies you've got Trump,Trump and I forget the third one (e.g Perry).  Then the corporatists:  Bush/Christie/Fiorina/Pataki/Graham probably forgetting someone.

On thing for sure, while the GOP was hoping for a more serious primary than last time -- they didn't get their wish.  Trump is certain to be a nightmare as is Cruz he is trying to prove that he's to the right of Gengis Kan!

Why are so many people running this time, why has the GOP been unable to get things under con…

The real action is where?

So while the world has been focusing on Greece, a small country that accounts for less than 1% of Europe GDP (Yes I know they are people too), the real "global" risk issue is taking place the other side of the world (rather literally!).  The Chinese markets have been having a terrible time, you see over the past 12 months the the CSI 300 [China's equivalent to the FTSE100] has been on a tear -- its up more than 100%, the index has doubled.  Just so that we are clear, profitability has not changed, what has changed is the p/e -- its gone from an expensive 15x to a eye watering 31x.  That's more expensive than anything in the world.  This is a prime example of irrational exuberance (and just a bit of greed too).  What China's investment public has realised is that what's important is not what the intrinsic value of a company is a generator of wealth, but rather what other shmuck is ready to pay for it.  The Chinese stock market became the equivalent of a "…

F-35 cannot outfly a 25 year old CF18c...a $180 million disaster?

Years ago I wrote about the debacle that has become the F35 strike fighter aircraft, and its failure as a replacement for the F18-C that the Canadian Air Forces uses today (a very very old fighter aircraft).
I wrote a blog here about the problems and shortfall that the F35 represented for the Canadian Royal Air Force that said all that needed to be said in terms of mission capability, single engine design and weapons load.
The "killer" was last week when the F35 went head-to-head against a American F18C -- the "last" and most modern variant of the type.  In a nutshell the overall comment about the F35 was:  can’t turn, can’t climb, can’t run.  Bottom line the aircraft is underpowered and easily outmanoeuvred which is really bad.  There's a National Post article here.
Now, lets be honest the days of manned fighter aircraft are coming to  a close.  Not that the "drone wars" are a cake walk either.  There have been many reports how poorly designed the f…