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Grandich Tidbits PDF Print E-mail
Written by Peter Grandich   
Monday, 07 April 2014 05:09

• Per last Friday’s post, a higher opening would have allowed my thought of maximizing short positions to unfold. DOG price was $25.73 and PSQ @ $17.70. Add that to the original shorting thought on March 7th of DOG @ $26.01 and PSQ @ $17.40 More and more negative fundamentals and technicals make me feel quite comfortable thinking being short the U.S. stock market is a worthy speculation.
• Good article on why to own gold.
• Jobs report no cause for celebration
• I believe its fool hearty to think Putin is done with his plan.

 
Marc Faber: Monthly Market Commentary PDF Print E-mail
Written by Marc Faber via MarcFaberNews.com   
Sunday, 06 April 2014 13:42

"an ongoing shift in the stock market’s leadership away from high flying concept and momentum stocks into more defensive sectors"

MarcFaber110x140Rich Learning, Enjoyment, and Fun through Conversation

Sherry Turkle, a psychologist and professor at M.I.T., and the author of  “Alone Together: Why We Expect More From Technology and Less From Each Other” opines that, “Human relationships are rich; they’re messy and demanding. We have learned the habit of cleaning them up with technology. And the move from conversation to connection is part of this. But it’s a process in which we shortchange ourselves. Worse, it seems that over time we stop caring, we forget that there is a difference. We are tempted to think that our little ‘sips’ of online connection add up to a big gulp of real conversation.....But they don’t. E-mail, Twitter, Facebook, all of these have their places - in politics, commerce, romance and friendship. But no matter how valuable, they do not substitute for conversation……In conversation we tend to one another….We can attend to tone and nuance. In conversation, we are called upon to see things from another’s point of view.”

Aside from discussing the merits of conversation, I also examine an ongoing shift in the stock market’s leadership away from high flying concept and momentum stocks into more defensive sectors.

I am enclosing two reports. The first report Breakeven inflation – reflation time, and longer-term opportunities? is by my friend Laeeth Isharc who is one of the smartest and most intellectual individuals that I know of. Isharc opines that, “The consensus narrative is ….that inflation is not an immediate problem, and that the central bank knows very well how to defeat inflation once it becomes evident.” He, however, believes that, “these concerns over deflation and weak growth will turn out to be mistaken, that it will be more difficult to control inflation than most anticipate, and that tactically the timing and entry level are right to take the other side of the trade and bet on reflation by entering a long breakeven inflation position.”

The second report is by Jawad Mian who is a fund manager living in Dubai. He started recently a macro fund and a monthly newsletter service called Stray Reflections ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it ). In his most recent reflections he discusses the possibility of shorting US internet and biotech stocks and his views about inflation.

Kind regards
Yours sincerely
Marc Faber

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Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

 

 

 

 
The Lions in the Grass PDF Print E-mail
Written by John Mauldin - Things That Make You Go Hmmm…..n   
Sunday, 06 April 2014 10:03
The Lion in the Grass, Revisited
Black Swan or Hidden Lion?
The Lions in Europe
Hidden Tigers in China
Lions in the US Stock Market?
The Bug That Roared
South Africa, Amsterdam, Brussels, Geneva, and San Diego
 

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if weforesee them.

“There is only one difference between a bad economist and a good one: the bad economist confines himself to thevisible effect; the good economist takes into account both the effect that can be seen and those effects that must beforeseen.

“Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

– From an 1850 essay by Frédéric Bastiat, “That Which Is Seen and That Which Is Unseen”

I’ve come to South Africa a little bit ahead of my speaking tour next week to spend a few days “on safari.” Which is another way to say that I am comfortably ensconced in a game lodge next to Kruger Park, relaxing and trying to get some time to think. We’ve been reasonably lucky on the game runs: besides the usual lions, rhinoceri, water buffalo, etc., we’ve seen both cheetah and leopard, two animals that avoided my vicinity on every other trip to Africa. I’m here at the end of the rainy season, so everything is lush and green, and you have to get a little lucky to find the animals in the dense bush.

In several moments here, I was reminded of an essay I wrote two years ago called “The Lion in the Grass.” So I went back and read it and decided to update it fairly extensively in order to talk about the hidden lions we don’t see today that could catch us unawares tomorrow. Just like the African bush I am surveying at this moment, the economic landscape out there could harbor some serious but still unseen problems.

I have been captivated by the concept of the seen and the unseen in economics since I was first introduced to the idea. It is a seminal part of my understanding of economics, at least the small part I do grasp. It was introduced by Frédéric Bastiat, a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost. He was a strong influence on von Mises, Murray Rothbard, Henry Hazlitt, and even my friend Ron Paul. (I will have to ask Rand about his familiarity with the Frenchman the next time I see him.) Bastiat was a strong proponent of limited government and free trade, but he also advocated that subsidies (read stimulus?) should be available for those in need. “[F]or urgent cases, the State should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions.”

Today we explore a few things we can see and then try to foresee a few things that are not quite so obvious. The simple premise is that it is not the lions we can see lounging in plain view that are the most insidious threat, but rather that in trying to avoid those we may stumble upon lions hidden in the grass.

But first, I really want to urge you to consider joining me in San Diego May 13-16 for myStrategic Investment Conference. We are continuing to fill out the strongest list of speakers we’ve ever had in our 11 years at this. My good friends George Gilder, Stephen Moore of the Wall Street Journal, and Neil Howe (who wrote The Fourth Turning) have all agreed to come and join Niall Ferguson, Newt Gingrich, Kyle Bass, David Rosenberg, and a dozen other A-list speakers from around the world. You can see who else will be there by clicking on the link above or here.

And I’m especially honored and pleased to announce that Vice Admiral Robert S. Harward, Jr., has agreed to join us on Wednesday night as a special keynote speaker. The three-star admiral (just recently retired) is a Navy SEAL and former Deputy Commander of the United States Central Command. In addition to his numerous other positions and awards, he also held the title of “Bull Frog” from 2011 until 2013 (longest-serving SEAL on active duty).

This is simply the finest economic and investment conference anywhere in the country. Don’t procrastinate; make your plans to come and register now.

The Lion in the Grass

When I was discussing this concept with Rob Arnott (of Research Affiliates and the creator of Fundamental Indexes) in Tuscany a few years ago, he mentioned the following photo, which he took on the savannah in Tanzania. I think it’s a perfect way to start out our discussion of the lions in the grass.

140405-01

Going back to Bastiat, let’s look at that first sentence:

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

It is natural to focus on the apparent dangers in front of us. That is part of our evolutionary heritage from the time when humans were first dodging lions and chasing antelopes on the very African savannah in Rob’s picture. But we soon learned that, if we were to survive, it wasn’t enough to dodge the lions we could see. It is the hidden lions that may spring upon us suddenly and take an arm or a leg.

Below I have once again reproduced Rob’s picture. Even when I knew there was a hidden lion, I couldn’t find it. But after it was pointed out to me, it is now the first thing I see. And there is a direct analogy there, to both economics and investing.

So, before you go to the next page, I suggest you go back and look one more time to see if you can spot the hidden lion. Just for fun, you know.

I showed this to a friend of mine who is a hunter, and he found it almost immediately. But then he has taught himself over the years to look for hidden game. And as Bastiat noted, it is the skilled economist who looks for the effects that are hidden, the surprises that are unseen. It should be a habit to look at the potential second- and third-order consequences of what we can see happening before our eyes. That way, we not only avoid the hidden lions, we also turn what would hunt us and do us harm into the hunted. Sometimes, the dangers themselves can be turned into a very nice trophy indeed – if you can act in time.

As I noted, that previously invisible lion is now the first thing I see. And that is the way with economic lions in the grass. Once someone points one out, it’s obvious, so obvious that we soon convince ourselves that we would have seen the lion without help. How many people told you they “knew” all along that subprime debt was going to end in tears? Or that the housing market was a bubble? Or that we would be plunged into the Great Recession?

I remember that in the fall of 2006 I was beginning to talk about the probability of a recession, in this letter, in speeches, and in numerous media interviews. (There is one such episode still up on YouTube.)  I was told I was ignoring what the market was telling us, and indeed the market proceeded to go up for another six months or so. Being early is lonely. Me and Nouriel. J

Today there are a lot of people who tell us they knew there was a recession coming all along. In fact, the farther we get from 2006, the greater the number of people who remember making that call. It now seems I had no reason to feel so lonely out there on that limb, scanning the tall grass of the savannah. In retrospect, it seems that limb was rather crowded.

So, with that in mind, let me show you where the other lion is. Then go back and look at the first picture. After a few times you will see the hidden lion almost before you see the obvious ones.

 
Penalty Landmines in the 'rate-war' PDF Print E-mail
Written by Dustan Woodhouse   
Sunday, 06 April 2014 08:42

Spring has Sprung!

Short Version

  • There is no mortgage rate-war
  • Mortgage Rates are likely to remain flat or drop lower still.
  • What will drive rates up?   Good economic News.
  • Maintain focus on the Variable Rate Product.
  • 6 out of 10 CDN's break their mortgages at an average of 38 months.  
  • Current clients 18 months into a 5yr fixed 2.99% - penalty $16,481 on a 470K mortgage!
  •  Were this a variable rate product the penalty would have been ~$3,476.43 a savings of $13,004.57.
  • Bottom line;  Have a serious conversation about the flexibility, merits, and safety of a variable rate mortgage with your Mortgage Broker.

Long Version

Along with a frenzy of activity in the Purchase and Sale market we also have a frenzy of activity around interest rates.

To be clear there is no mortgage rate-war as much as the media may wish to paint such a picture.  It is not as if the Banks have decided to write mortgages at a loss, or even at a 'special' deep discount this Spring.  Rather a shift in the economic fundamentals is leading to record low rates once again.  Signs of a struggling economy in which the Banks Profit margins remain strong at sub 3% interest rates.

To simplify it; Bad Economic News out of the USA and also Canada tends to precipitate lower interest rates.  Worried about a massive economic shock impacting rates?  As long as it is (more?) bad news then the result would likely be for rates to stay flat or drop lower still.

Rates Today

  • 1yr          2.89%
  • 2yr          2.49%
  • 3yr          2.49%
  • 4yr          2.79%
  • 5yr          2.89%
  •  Variable 2.45% - Prime (3.00%)  -.55

What will drive rates up?   Good economic News.  Aside from being in short supply this is rarely something that happens with short notice.  More likely economic good news will build slowly, and thus any eventual interest rate increases would also be somewhat gradual.   Along the lines of .50% or perhaps 1.00% over a 12 month period.  However all indications point towards a delayed start for such a 12 month period.  Likely late 2015 or even 2016.

Maintain focus on the Variable Rate Product;

Of note regarding variable rate mortgages is this recent story which indicates how stable Prime is.

Essentially todays variable rate mortgage is not very variable at all.  i.e. No change to Prime since Sept of 2010.

The larger issue as always remains prepayment penaltieseven with a 2.99% rate.

Lurking like a landmine in this perceived 'rate-war' amidst an artificially manufactured sense of urgency to rush and 'lock in' there is, laying in wait, the ever present and often undisclosed Interest Rate Differential prepayment penalty.

Listed below is actual prepayment penalty data sent to clients Monday regarding their fixed rate 5yr 2.99% from Big Bank.  These clients are 18 months into a 5 yr term.  They fall into a group which now measures 6 out of 10.  6 out of 10 CDN's break their mortgages at an average of 38 months.  

The prepayment penalty on fixed rate product is designed to eliminate the advantage of breaking the current agreement for a lower rate.  The penalty radically outweighs any benefit of a lower rate.

Much like each of the 6 out of 10 CDN's breaking early, these clients never expected this would be the case for them.  100% of clients believe they will for the full 5yr (or longer) term.  Yet only 4 in 10 actually do.

This thing called 'Life', it happens!

It is worth noting that this mortgage in particular is not a ‘no frills’ product as is the current BMO offering – instead this is a fully featured mortgage.  Despite this;

 Balance $470,061

  • 5 yr term 2.99%
  • Matures 10/07/2017
  • Penalty $16,481

 Were this a variable rate product the penalty would have been ~$3,476.43 a savings of $13,004.57.

Bottom line;  Have a serious conversation about the flexibility, merits, and safety of a variable rate mortgage with your Mortgage Broker.  It is the product I continue to prefer.  As does the TD Economist with whom we were on a conference call with Monday.  When asked about ‘the next ten years’ his preference was also variable rate product.

For more around rates; http://dustanwoodhouse.ca/another-spring-falling-interest-rates

Have an excellent day!

 
If only PDF Print E-mail
Written by Peter Grandich   
Sunday, 06 April 2014 04:05

this stupid brain and sinful nature of mine could remember this song 24/7 and live it - life would be so much better for me

 
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Page 17 of 1029
Greg Weldon
17 April 2014 ~ Michael Campbell's Commentary Service

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