Juggling Dynamite

Last night I finally got to watch the “May I be Frank?” documentary from the library (thanks Beth).  I think everyone should.  It is one of those films that in 97 minutes can teach, lead and inspire us to the discipline and habits of health and personal transformation. There is something to be learned (or remembered) here for everyone.

Watch as Frank Ferrante, a 54-year old Sicilian from Brooklyn, NY, with a lifetime of drug & alcohol addiction and everything that comes with that is taken on a 42 day journey by 3 twenty somethings that includes raw vegan food and transforms his health, weight, and view of the world.  Here is the direct link to the trailer.

This type of personal transformation in many could go a long way to solving the world’s problems: financial and otherwise.

Danielle was interviewed by Trader’s Lens this week on Tips to successful trading. You can watch the video clip here.

This chart of the Canadian bank sector (XFN) is one of the many that we are tracking carefully at present for signs of what comes next in the credit crisis fiasco phase 3.

As we look at the first peak in the banks marked in early 2007, one can’t help but note that global GDP was about 5% back then. It is likely to be about half that in 2012. Consumers had less debt, and governments were much less indebted. Yet shares of Canadian banks are back hovering around credit bubble highs today.  I am worried about the regular folks who have been pushed into the banks for “safe yield” the last couple of years.  When the levered traders pile out again, mom and pop are likely to be hurt just as badly this time as they were in 2002 and 2008.  No doubt oblivious advisors will be surprised yet again by the losses.

Source: Cory Venable, CMT, Cory Venable Investment Counsel Inc.

Here is the direct link to this MSNBC clip with David Stockman.

Visit msnbc.com for breaking news, world news, and news about the economy

Back from the west and scampering to catch up (always it seems).

I have been speaking on panels with portfolio managers from Sprott Inc. for the past 5 years at different conferences, including one yesterday afternoon in Vancouver on the topic of investment strategies.  Yesterday I was rather taken aback as the Sprott manager espoused a focus on capital preservation, income and low volatility that included presently holding a large weight of cash.  This was a philosophy and assessment of world conditions that largely aligns with my own and struck me as a marked departure from the much more aggressive recommendations I had heard from Sprott and co in the past.

In particular I could recall the remarkably different views we had each espoused on panels in 2007 and early 2008  when I was also very defensive and the Sprott managers were recommending allocations to Canadian equities, precious metals and commodities.  As it turned out, at that time, they were also gearing up for an initial public offering of Sprott Inc. which came to market in May 2008 at $10 a share. Naturally the issue was heavily sold to the investing public and various funds who gobbled it up through brokers and dealers across the country.  I had noted back in 2008 that their funds went on to lose (in my view predictably) massive amounts in the downturn, but I hadn’t paid must attention to the firm or their results since.

On the plane back, I happened to read an article in the Globe that brought me up to speed. It is entitled: “Eric Sprott takes a new path toward less volatility”.  To wit:

“Investors want more than the extremely volatile, precious-metals-focused funds that Mr. Sprott runs…his current narrow focus on gold and silver made it a painful ride for investors in 2008 and again last year.  Sprott Canadian Equity fell almost 30% in 2011.  Sprott Hedge fund fell 24%.  With that performance from its flagship funds, Sprott Inc.’s stock is down 36% from its 2011 peak and well below its initial public offering price.”

Here is a chart of the Sprott stock price since the IPO in 2008:

The IPO made Mr. Sprott and company fabulously wealthy no doubt. Brilliant marketing served them well. But from $10 to $3 to $6 is an incredible ride for those who bought into their story. Nearly 3 years after the celebrated IPO, Sprott investors have faced heart-stopping volatility. Even those who did manage to hang on through the first 70% drop and bounce back via QE2 in 2010, are still missing some 40% of their initial capital today.

No wonder, Sprott managers are sounding a little more cautious. The performance of their funds and share price is apparently starting to hurt their own fee income. Time for a change of philosophy indeed…

Joe Granville, technical analyst, and author of the Granville Market Letter, has been calling market cycles with a very respectable record for more than 40 years. Today he explained his current view on Bloomberg. A 4000 point drop is incomprehensible to those who do not understand the climate of a secular bear. To those that do, this type of retest of the prior cycle lows (tested in 2003 and 2009) is always within our realm of downside risks. Watch the Bloomberg clip here.

Danielle Park, the author of “Juggling Dynamite,” chats with anchor Bridgitte Anderson about her belief that we may be “revisiting the downturn, so look out!” Nothing may be safe, as she describes how gold may even be vulnerable and Canada isn’t as well-positioned as it was in 2008 to take the hit that’s coming. Wise investors concerned about the real direction of the economy will learn something here! Direct link here.

I watched the documentary Food Inc. last week. Although it was pretty familiar material for me, it did remind me that conflicts and crony capitalism are not unique to just the financial sector. All the usual offenders are alive and well in the food business.

For many people, the ideal meal is fast, cheap, and tasty. Food, Inc. examines the costs of putting value and convenience over nutrition and environmental impact.

Our food policies and behaviours are literally killing us physically and financially with exploding health care costs. 1 in 3 children in North America will now get diabetes from the poisonous diet that their parents are feeding them. We might as well be getting our children hooked on cigarettes in kindergarten. Feeding them highly processed, junk food is that dangerous to their long-term health. And the most frustrating part is that this is actually something we, as a society, can fix fairly easily if we just get serious.

We need to reverse course, remove subsidies for junk food and redistribute any incentives toward healthy, sustainable farming. It should be more expensive to buy a Bic Mac than it is to buy organic vegetables. Here we have governments giving tax breaks to the offending companies which is increasing their profits and leaving us the society with even bigger tax bills due to increased medical costs. We taxpayers are paying the bill directly in both ways and getting nothing but pain and suffering for our investment. In a time, where improved efficiencies and reduced expenses are the necessary theme, this area is screaming out for our attention. (As a side note, for a ginormous graphic of the Big Mac Index showing relative purchasing power and how long people have to work to afford a Big Mac in various countries click here.)  Here is the direct link to the trailer and more on Food Inc.

The Financial Survival Network radio interview from last week is now available on youtube here.

This weekend, Bill Moyers did two exceptional segments on crony capitalism and how it has undermined democracy and prosperity in America.  The first segment is with former Reagan budget director, David Stockman and the second with Pulitzer-Prize winning journalist Gretchen Morgenson.

I have rarely heard these key issues discussed with more clarity and insight.   Here are the direct links to Part 1 and Part 2.

On a plane yesterday I watched the 2011 documentary “Chasing Madoff”. It is the story of how independent financial analyst Harry Markopolis and his three friends spent ten years trying to expose Bernie Madoff’s massive Ponzi scheme that scammed an estimated $18 billion from investors.

The film is a little quirky but entertaining and clearly shows that Madoff built his 50 billion dollar Ponzi scheme with a lot of help from a lot of people. There was the global network of financial advisors and feeder funds who collected rich commissions funneling a constant stream of new clients to the Madoff group. There were the clients who wanted to believe unrealistic numbers. The finance types who suspected things were fishy but did nothing. The regulators and media all who failed their job of oversight and investigative reporting.

A culpable group that is not mentioned in this film, are the politicians and finance heads who fought for deregulation over the past 30 years gutting the powers, and most importantly the budget, of the SEC and other financial regulators to apathetic levels. The finance industry did not want to be regulated. The politicians did not want financial offenders to be prosecuted. And so monster corruption blossomed. Madoff was a sociopathic criminal to be sure. But in many ways this is a story that many in the free world wrote together through our collective choices and behaviour. There is much to be learned here. Here is the trailer.

The Project Syndicate site hosts excellent articles from some of the world’s best independent thinkers on finance and the economy.  Here are a few worth reading:

• Does Austerity promote economic growth?, by Robert Shiller
• The Straits of America, by Nouriel Roubini
• The Perils of 2012, by Joseph Sitglitz
• Rethinking the Growth Imperative, by Ken Rogoff
• How to Create a Depression, by Martin Feldstein
• Repairing the global plumbing, by Mohamed El-Erian

More depth and thought than the staple grade-school banter of financial commentary these days.

I am speaking at the Vancouver Resource Investment Conference this weekend, with a keynote on Sunday at 2pm and a presentation Monday at 11:00am as well as participating in the closing panel on Monday at 5:30pm.  You can see more details and register in advance on the Cambridge House website here.  Do say hello if you see me.

Today there is more speculation by some on a next round of QE from the Federal Reserve.  The recession in Europe, the UK, and Japan has already begun.  North America is very likely destined to couple and follow this global trend down.  If the Fed does announce more QE it will be the next desperate attempt to prop up the banking system and artificial asset values in the real estate and the finance sector.  It will not arrest the recession underway.  It will not revive consumer demand or create jobs.  It will not therefore change the fact that the stock market at current levels is over-valued, low yield and unattractive.  Prices may leap into yet another manic phase, but this will surely be even more fleeting and dangerous than the other manic phases which have followed each central bank intervention to date with increasingly diminishing returns.

For those who wish to ‘play’ the “QE trade”, you better have your rules clearly defined and you better have lots of luck on your side.  The road to financial ruin is thickly littered with decades of the brave, brilliant and foolish who have tried their hand at running the tables. 

For those who do not wish to gamble with their life savings, they may want to wait for the fatter pitch which will be come after the markets acknowledge that the next global recession is devouring the optimistic analyst community and their rosy estimates.

None of us individually control markets or other people.  All we can control, is when, and on what terms, we choose to participate.

As the wealth gap widens, more consumers fall out of the consumption cycle, leaving the economy and housing markets increasingly fragile.  The BBC’s Michael Robinson investigates.  Listen to the radio clip here.