Ian Royle

There is a country song I like by Alabama (incidentally the best country band and ultimately the best band ever!) called Song of the South.  One of the stanzas goes like this;

Well somebody told us wall street fell
But we were so poor that we couldnt tell.
Cotton was short and the weeds were tall
But mr. roosevelts a gonna save us all.

So you see, in this situation news didn’t get to this family, much like how the Great Depression of the thirties really was contained to North America.  News wasn’t instant like today and peoples attitudes couldn’t be corrupted in a few minutes by a steady stream of bad news or good news.  These days though, it’s all bad news.  But when I think about it, the news is reported by people living their lives, some of these reporters writing their stories are embroilled in this fiasco.  Some have houses going into foreclosure.  All of them have to make a living writing interesting pieces that capture the imaginations of the people reading them.  Or they won’t be paid and they won’t make their mortgage payments.  Currently the flavour du jour in journalism is that the sky is falling, depression, or maybe just recession is coming…but it is going to be bad.  People are running scared and more news to scare is just what they WANT.  Yes people want more bad news stories.  But the news reports on what has happened not what is happening.  The credit crunch already happened, it isn’t happening, the recession was built years ago, the effect is today.  Now what is happening is people are becoming more sane.  Spending is reining in.  People didn’t lose their houses today they lost it when they signed loans they couldn’t afford for things they didn’t need.  People lost fortunes in the stock market not when it crashed but when they bought it without paying attention to unrealistic valuations.  It was a game of hot potato with a live grenade and an unknown fuse.  If you are losing now, look hard in the mirror and ask if you played that game.  Speculation is a suckers game, if you look around the table and don’t know who the sucker is, it’s you.  Paul Newman.

But the story of what is happening today is that the markets are back in balance.  Good buys are available and the seeds of a prosperous future are available…TODAY.

That is the news.

This is a very good thing.  It is euphoric Canadian consumer confidence that created this mess we now find ourselves in.  In truth, a recession is a good thing.  recessions aren’t evil things that creep up unannounced on unsuspecting hardworking populations.  Recessions are the result of runaway ambitious greed.  Recessions are the result of peoples expectations going beyond what they are willing to work for.  Economies run at optimal rates.  When stock prices soar outside of normal expectations, when real estate prices leave the common man behind and lenders have no expectations for jobs to cover the payments or any down payment to ensure buyers have a personal interest in the asset, things are gone astray.  This exuberant expulsion of money from the loan accounts of people demanding more and more goods created huge demands on infrastructure, manufacturing, raw materials and retail.  It created huge demands for workers that don’t even exist, the workers that do are run ragged trying to keep up with the work and inflation.  Salaries rise but just as soon so to do costs, it becomes a sprint, rising costs, rising wages racing one another and all for borrowed money and then as soon as one payment is missed more and more are missed and the default trickle quickly becomes a torrent.  All the pretty things people buy are gone, all the mad money is used up and everything falls below the norm as the market sorts out who over-extended themselves and who was more caution in their optimism.  I say more cautious because I have met very few who weren’t caught up in the euphoria.  There were angry contrarians but I say angry, because they were only pissed they got left behind and the contrarian stance in any bubble, rally, bull market if they cry out “THE SKY IS FALLING” long enough will see it come to pass.  And now I will be contrarian to all the cynics and bears in the market.  This too will pass.  Markets will rise and confidence in the future will be restored and the further confidence falls the better for it is in the tightening of fiscal restraints of each and every one of us that the seeds of economic rebirth to the more sane and stalwart growth trends are built.  One other thing that makes me happy.  This happened in eighty-seven, and eighty-two and ninty-nine, it is amazing how fast these cycles happen, next big bubble should be coming around the corner about 2013.   Be ready to sell into it like a madman running against the tides of joe sixpack buying it all up.  But to prepare, start your buying now, while ever joe six pack is running for the exit.

My wife and I are giving our son a head start in the world by investing money into an RESP for his future education.  He’s very cute now and will be 18 years from now, but cute doesn’t usually get a person ahead but brains usually do.  So we are investing by setting up an online trading account, using Q-trade.  Q-trade has some affiliation to the Alberta Treasury Branch.  A Q-trade account runs an annual fee of fifty dollars and each trade is usually around thirty dollars.  As well the governments federal and provincial contribute funds to the RESP in the first year, for us total one thousand five hundred dollars, provided we contribute a thousand.  Total grants for a child will total seven thousand five hundred dollars by the time they are eighteen.  So even if you never do more than contribute the first thousand with a thirty dollar trade fee and nine hundred in annual fees, your child would end up recieving seven thousand five hundred cash for education the day they graduate.  That is one nice Grad present.

It is late and I am going to be tired for work.  But I need to get this done before the clock rolls over.  Today at the militia nothing happened, rarely ever does. But congratulations to Big Roger Luard on becoming Chief Warrant Officer.  I probably won’t be able to be there much longer so I thought I’d try to think about the best thing to come out of being in the militia.  And bar none it is the friendships.  Not everyone there is my friend, I’m not a friendly guy.  But these are people who I really like and who I think are some of the best non-pretentious people around. To join the milita in Canada is to join with really good, civic minded, self-sacrificing people.  The pay sucks, the hours are difficult but the friends there make it all worthwhile.

Chimo

You know, when people ask me about voting what I always say is that elections are like police line-ups…except you are picking out the one who is going to rob you!  That said, I kind of like the current line up of Tories in a minority government position, very little happens and life goes very well.  What we need now is a set election date, written in stone that can only be change through the human sacrifice of the leaders of whatever political party can do it.  That way, the nation would be garanteed 5 years, ever year of ineffective government since the only good government is an ineffective one.  Ever time these morons put their heads together the populace gets it in the ass.  The only thing they can agree on is to raise their salaries and raise our taxes.  I am so happy that we have managed to shut out the liberals again.  Though I am disappointed in Newfoundlands left swing.  Oh well, whatever.  Happy to hear Elizabeth May can be swept into a closet til the next election with her broom…witch!  Happy day Canada, looks like another few years of minority government, they’ll be squabbling with each other instead of steaming into us, taxes a flying.  We should set our elections in October ever five years.  Yes, yes and yes!

Oh and if ever there is a candidate that takes up the cause to outlaw all landfills and replace them with recycling facilities they have my vote.

The juxtaposition of those two things left me smiling.  Today, it is Thanksgiving Day in Canada.  Thanksgiving day is a day when everyone gets together and eats ham and turkey and stuffing and potatos and complains about other family members, politicians and the ecomomy.  Lately there has been more complaining about the economy.  But wait, no that is what it is, that is not what it is supposed to be.  We in Canada live in a great nation, full of opportunities and potential.  Thanksgiving is a day that we should be counting our blessings and be thankful that our election ballots are paper and not bullets, that we don’t vote about the status of our government with our feet as refugees or rebels with guns.  We should be thankful that in Canada hunger is for the most part unheard of.  That social systems exist to at least try to help people in crushing poverty, instead of the slums of other nations in the world where those in places of poverty are doomed to continue it until they die.  We should be thankful that our police, while a little too eager to pull the trigger on their tazers, are still the first people we call when we are in trouble.  We should be thankful that while wait times are long in the hospital at least we know that the staff are competent, that medicine is available and that ambulances will get us there on safe streets.

One other thing about being thankful for what you have, even if it is only the breath in your body…it is the first account of your resources.  And you cannot move ahead if you are pessimistic about what you have because you cannot be at the same time optimistic about your prospects.  A line from the movie Fight Club pops into my mind right now, “It’s only after you’ve lost everything, that you’re free to do anything”.  I don’t read that pessimistically, but along side the Bible, “naked we came and naked we shall return.”  The things we have are nice, but our personal worth is not found in the things we have.  That is external, that is fleeting, that is based on what other people say.  I say, if you have just suffered a crushing defeat, and hind sight is always twenty-twenty, then now you have within you wisdom and knowledge that was not there before.  Within you is something more valuable than what surrounded you.  Get up, be thankful you are still alive and get going again.  Your personal worth is in yourself, you accumulated once and you will do it again.

I want to be clear I am not an expert, I am a carpenter who has invested in real estate, financial stocks, energy stocks, pharma stocks, mining stocks, manufacturing stocks and service industry stocks.  I still have investments totalling in the 7 figures.  I have taken a hair cut in the last couple of years and I still work 44 hours a week in the commercial construction industry.  That said…the trend in the market is definately downward, but market timing is what get a lot of people in trouble.  No one can predict the future, so no one knows the news to come and markets gyrate wildly on the news.  Trouble brews in the Niger delta and oil shoots up, people begin defaulting on loans in California and financials world wide fall, Maple Leaf Foods is sued over a (hopefully) single tragic event and the stock falls.  I remember this with RIM, they were sued and when the dust settled in court those who could see future earnings and sales did well.  I certainly will not predict a bottom in these turbulent times, but no one can.  The market WILL emerge and those who have carefully made plans during these times will emerge from it with renewed strength and wealth.  Two years ago everyone was grumbling because everything in the market was overpriced from the homes we purchased to the gasoline we put in our cars to the insane P/E ratios people were purchasing stocks at.  It all didn’t make sense.  It was the effect of people having money they didn’t earn.  And if you haven’t bled for it you can’t shed a tear when you lose it.  No I won’t call a bottom, and yes the stocks can go down.  But at this point I would suggest that with gasoline prices falling that at least will leave some extra money in your pocket at the end of each week.  Find something in your budget, open an online trading account and start researching stocks that have healthy book values, earnings records, and good P/E ratios.  All this information is available online.  Start picking though the stocks and find good ones with long histories of solid performance, that are selling at good prices now.  And then act.  Stocks sectors I am personally looking at are as follows.  Railways, since decreasing fuel cost will translate into lower costs even if this only offsets lower freight volumns they should be okay.  Cheap restaurants.  Tim Hortons will not suffer under these times.  I think they will do better.  People will always buy their double-doubles and since Tim’s model is now to bake in one location and ship by truck frozen food to it’s retail outlets, lower fuel prices will mean higher net profits.  Other potential buys for me include McDonalds, Harveys and other fast food restaurants, Wendy’s still has internal issues and I will avoid them.  Some of you people out there will be opposed to this investment but alchohol should also be a good by in times like these.  I cringe saying that but the cynic in me says it’s true.  Molson Coors, Inbev come to mind.  As well I think this recession will be okay for big box renovation stores, Rona, Home Depot, Lowes etc. since maintanance is still required and kitchen and baths are an emotional buy.  One other non-discressionary type stock I am looking at is Saputo.  In a previous post I mentioned Agrium.  Know this I am not authorized to give any advice regarding stocks and what you are seeing here is my personal thoughts on the market and my own investment strategies.  I could be extremely wrong.  Do not follow me.  Feel free to track how I am doing and laugh if I do really terribly but do not make any purchases based on what I say here.  Maybe you should do the opposite.  Three years from now though I think any one who sees this time for what it is, a time of opportunity, these people will be happy.  The recession of the eighties didn’t last forever, nor did that in the nineties.  I kick myself for not having purchased some very good stocks in the energy sector during those lean years.  I had the extra money since I had a good job in the Alberta oil patch, but without mentors my money slipped through my hands.  This time around I have no plans to let this slip through my fingers and will begin buying stocks now, that have good value, even though I know they may and likely will go lower.  I am openning an RESP online in Q-trade for my infant son and plan to use about one thousand dollars of extra money I have a month to give him his start.  I hope everyone out there will realize this financial crisis isn’t ushering in the end of the world.  Games like this are zero sum, sort of.  The wealth didn’t vanish, it moved.  And it will continue to move.  As Proverbs 22:13 says:

The sluggard says, “There is a lion outside!”
       or, “I will be murdered in the streets!”

In todays world we could say The speculator says, “There is a bear in the market!”

I’ll temper that exuberance with one more Proverb, 22:3;

A prudent man sees danger and takes refuge,
       but the simple keep going and suffer for it.

Take the above as you will maybe it is wise to sell everything like everyone else and wait with whatever you can get out of the market.  I am always suspicious of the crowd, after all it was the crowd that was cheering the rocket ride up and now it is the crowd that is rushing like a mob for the loan exit, or is it more like lemmings to the sea.  We shoudl be prudent and wise, have no anxiety since it is the fear of the future, and the past should have taught us by now this too will pass.  All anxiety does is robs us of the ability to function optimally in todays reality because of pessimism of the future.  To everyone out there be blessed.

Rich and poor have this in common:
       The LORD is the Maker of them all. (Proverbs 22:9)

It has gotten pretty late today before I started writing this post.  I thought I’d talk about budgeting.  Budgeting is absolutely imperative to surviving at anytime.  Resources only go so far and the flowing in of resources should always exceed the flowing out except, EXCEPT during extreme times of stress, such as injury, job loss or a tragic event such as a death.  But if you have been budgeting previous to such events you should have a cushion to see you through.  My wife and I have a budget that we try to hold to.  We use Excel to create a column of all sources of income, another column shows all expenses related to investments (we own houses) and another column shows personal expenses.  Each personal expense slot has an allowance attached to it.  We try not to exceed any of the slots.  Should one be exceeded we try to find the money in another slot, such as entertainment.  And we always like to have our largest slot as debt repayment.  That slot currently sits at two thousand dollars.  So each month, two grand plus goes to debt repayment currently.  The plus comes from any of the allowances for each personal expense slot not used.  For example, we budget one hundred and fifty dollars for fuel which is about right.  However lately I haven’t been needing to go far to work, I’m a carpenter so work is everywhere.  Right now I work right around the corner from home.  That means substantial saving for fuel.  But those extra savings barring unexpected overruns in groceries or such in another slot are then applied to debt repayment.  The longer you have a budget, the more refined it becomes and the better you and possibly your family will function as well.

This is something that just occured to me today.  Like any margin account, a meltdown in any asset class will trigger sell-offs of any and all stocks to bring the account back in balance.  Estimates for the total losses on bad loans in the US real estate market seem to be around 1 trillion dollars.  That seems like a lot doesn’t it.  Except that in the last 5 days, the TSX has given back the entire gains of the last 4 years with losses since ONLY August amounting to 440 billion dollars or, .44 trillion dollars (http://www.financialpost.com/news/story.html?id=873340).  The Dow though is even more insane, from http://ap.google.com/article/ALeqM5gHs5OM3gFG_DytQQZFbWfgPT08MAD93NTHUG0

Investors suffered a paper loss for the day of about $100 billion, as measured by the Dow Jones Wilshire 5000 index. For the week, investors lost $2.4 trillion, and over the past year, the losses have piled up to $8.4 trillion.

and from the wall street journal:

http://online.wsj.com/article/SB122363315976122397.html

Mr. Baer, who was a Treasury-futures trader on the floor of the Chicago Board of Trade in 1987, said, “I’ve never seen a credit market like this one. The fear has gotten way ahead of the fundamentals,” including an unprecedented round of coordinated central-bank rate cuts this week that would normally prompt banks to increase their lending to one another.

Mr. Market has clearly lost his head in this spate of depression following mania.  The bubble was bad, buoyed up by a clear surge of mania, but just like we all overreact when we wake up Sunday morning to realize we took our credit card to the bar the night before and can’t remember anything after 7PM…this is a gross over-reaction at this point.

The estimated world GDP is:

For Canada and the United States paper losses amount to over 11 trillion dollars!  Or one sixth of the entire world GDP!  Does this even seem logical.

Is there someone out there who can explain this to me, because it seems farcical!

It may sound idiotic but I’m seriously thinking of picking up stocks in a lot of these companies such as Agrium that close 10 Oct 08 with a p/e ratio of less than 6!  Or  Canadian Pacific Rail with a P/E of 9!

This is craziness.  The blood is in the streets and people are running from these buys.

Quick someone talk some sense into me!  The herd can’t possibly be wrong can they?

These are two classic comic book series that ran from the early sixties to the late eighties.  Pick any one up though and you are transported into the sixties.  Simple stories about heroics in world war 2.  That’s all goodnight.