Archive for April, 2009

Tough times for bears

By: ispeculatornew | Date posted: 04.10.2009 (6:54 am)

bearFor the past 3 weeks, I’ve been speaking with several players in the market who have been short the market, especially when the S&P500 was approaching the 800 level. They were convinced that this is a bear market rally and that the market will be back on its bottom soon. Of course, since then, the opposite has happened with the market going in a pretty steady upward direction. Such markets always create interesting dilemmas. The question being of course, how far are you willing to go before you admit you are wrong?

And no, I’m not saying these bears are wrong, simply that when entering such positions, I believe it is essential to be able to sustain a maximum loss but also have an exit point. Because if you don’t, such a trade can become an investor’s downfall by itself.

A few of these friends have finally capitulated this week closing out their position. The more difficult part is that a lot of data has been improving in the economy, perhaps not being considered good numbers or even a rebound, but probably helping most economists to start to envision a rebound of the economy at the start of 2010. But if the typical market in a recession rallies 6 months before the economy, you would think that the market still has some suffering to do. There of course several ways to deal with this and personally I use exit points. When I enter a trade (apart from long term trades in a retirement fund), I generally have 2 exit points that are pre-determined, one that would close out profits and one stop loss.

What are your thoughts on this? Is this a bear market rally and how long would you stay in such a trade??

sp500

Stop being so naive…

By: ispeculatornew | Date posted: 04.08.2009 (4:00 am)

swirlingRight now, in Quebec, there is outrage because of a major loss by the main state pension fund, the CDPQ (Caisse Depot Placement Quebec), a loss of $40 billions over the 2008 fiscal year. Compared to other pension funds, the CDPQ severely underperformed its competitors and this has rightfully brought up debates about how it is being managed, bonus, compensation, etc. All of these things are reasonable and fair and with such a dismal performance, you would expect every rock to be turned in order to find not only what caused this underperformance but also the other problems that exist in the organization. Up to now, I’m fine with everything and can understand the outrage from citizens regarding the loss…

But then, one night I open the tv and see a tv broadcast where the news is about the CDPQ spending millions of dollars in hockey and show tickets for their clients. They then proceed to speak with “specialists”, business teachers that have courses about ethics, corporate governance, etc. Those “specialists” said that in such a context, CDPQ should not be spending any money on hockey tickets; that it is not part of what they are mandated to do.

That is when I feel outrage. It just seems like such an easy point to make, especially when you are speaking to the general population, where most people are far removed from the field of finance. It’s an easy story to break and you would of course have the support of the population if you tried to block such expenses but it would also be dead wrong to do so.

Fact is that in finance, as in other fields, generally salesmen provide many services to their clients. Great meals at expensive restaurants, bottles of wine, gifts, sport tickets, etc, etc. I’m not saying it’s the only thing that matters of course, but it counts. Generally, a client will prefer going with a seller that will take him out for a day of golf, all expenses included, than another one that provides the same service without the nice day under the sun. You might not like it, but that is how things are done. And they are done like this all over the world in many industries. So while I cannot of course say that CDPQ is using its sport tickets in an optimal manner, it is very simplistic to say that they should not buy any. Anyone saying that would simply not know the business.

In theory, the best service and lowest cost will get you all the clients you can handle. That is what you will also learn in school. But try that theory out for a few years, I’ll be giving out a good (as opposed to excellent) service, at a fair price, but providing my clients with hockey tickets, we’ll just have to see who comes up with more sales…

Smartphone apps (Iphone-AAPL vs Blackberry-RIM)

By: ispeculatornew | Date posted: 04.06.2009 (4:00 am)

blackberryA few months ago, Apple started putting more emphasis on its applications and it has helped to take the Iphone to a whole other level. Apple now features examples of possibilities in its ads and have many customers looking to buy the phone not because of its great look or features but rather because of all of the possibilities now offered in its itunes software.

RIM, the Canadian company behind the famous Blackberry was a little slow to react as for a while it seemed to diminish the threat of these applications or there possible impact on its business. But seeing this could be a major problem, it did finally launch app world, an environment aimed to excite both users and developpers.

But it will take a long time to catch up because even to blackberry users, these new possibilities are hardly even known! And because of this, the quality of applications being released is simply not comparable so far. This will no doubt have an impact on new users that are deciding between the two smartphones.

Just think about what happened last week when Skype, the internet communications company owned by Ebay launched a major application last week for the Iphone. The app was downloaded 1 million times in the first 2 days, 6 times per second. And when will be application be avaiable on app world for Blackberry users to use? In May. To me, that is clearly a statement by Skype that right now, being available on Blackberry was probably not the top priority and if I was RIM, that would worry me without a doubt.  Of course, when the application is made available to Blackberry users, it will likely get no press coverage and will be seen as simply being months late after the launch for the Iphone. It is no surprise that reviews of app world generally compare it to the Apple version and so far, it has been coming up a bit short in most reviews, something it can ill afford.

In my opinion, this is one of those times where RIM must seriously consider launching an important advertising campaign to let potential and current customers know that the blackberry is also a “cool” phone and can offer many of the interesting features that they are looking for! Blackberry has what could almost be considered a monopoly in terms of corporate phones but that is always a fragile domination an ensuring a superior product is the best way of staying on top!

Financial Ramblings

By: ispeculatornew | Date posted: 04.04.2009 (1:41 pm)

1-Four Pillars hosted a great edition of the Carnival of Personal Finance here!

2-Great inspirational post by the Financial Nut in “My Small Business Paid me an extrea $1000 this month

3-BuyMyStockPicks looks into THE question: “Should I buy stocks?

4-TheFinancialBlogger looks into the sale of Primerica!

5-MillionDollarJourney and Canadian Capitalist launch Canadian Money Forum🙂

6-Very interesting outlook from Four-Pillars on the Car companies.

7-Interested in Hedge Fund ETF’s? Read about them here!

8-Update on S&P500 dividends

9-Financial advisor suicide by WhereDoesallMyMoneyGo:)

Investing in Citibank

By: ispeculatornew | Date posted: 04.03.2009 (4:00 am)

citibank_logo1A few days ago, we received an email inquiring about investing in Citibank. Honestly, I find it quite difficult to judge the US banks and the financial sector in general and personally would stay away from it. There are many factors that have created such an uncertain environment and I would generally consider a play on Citi or Bank of America as a gamble. The environment is just too difficult to predict, especially in the financial sector. Here a few of the reasons why:

-Accounting methods: There was speculation that much of this crisis had occured because of the changes to force mark-to-market accounting. And the government ended up changing some of those laws in order to help financial institutions. However, the new laws are unclear and it is nearly impossible, even for executives of the company, to know what effect this will have on their earnings in the next few quarters. As well, this has major implications on the capital levels of these instutitions and given their leverage, on the trading they will be required to do to account for those losses.

-Timonthy Geithner has usually been blamed for not being clear about his plan and about the context. But last Sunday, he was very clear in saying that some banks would require further capital. A few banks such as Goldman Sachs and Bank of America have been vocal about their intention to pay back the capital as soon as possible. The same echo has not been heard out of Citi so far and that would be another warning sign in my opinion.

-Because of its huge size and complexity, Citibank becomes difficult and perhaps almost impossible to get a clear picture of which makes it difficult to forecast future earnings. The US government will clearly not let Citi fail but how it would rescue it is far from clear as is the impact on bondholders and shareholders.

Because of those reasons and many others, I would still consider Citibank to be too much of a gamble to qualify as a good investment. If you do not have time to visit a casino though, Citi might be a good shot at fortune!

Canada to sell British Columbia to US government

By: ispeculatornew | Date posted: 04.01.2009 (12:00 am)

north_america_mapWe usually do not get involved in politics too much but considering the impact this could have, a post was necessary. There had been whispers for a few months although generally it did not make it into the mainstream media. It is no secret that Canada had grown more and more dependant on oil over the past decade. Last fall, the Canadian government almost collapsed as the Stephen Harper government refused to discuss publicly the problem.

A Canadian official described the ongoing crisis: “The Harper administration got into important trouble through some commitments as they made the Federal government budget planning for oil at 120$. Turns out, the current debacle is taking its toll and several senior members are worried that the market will start pricing in possible default on the long term bonds.” That has left the Harper government no choice but to go through drastic measures. Many options had been considered including selling the highly strategic northern territories that are increasingly becoming disputed as the global warnings enhances its potential both in terms of commercial navigation as well as for oil and mineral extraction. But in the end, the decision was made that selling British Columbia had more upside in both its relationship with the United States as well as for the economic and environmental objectives of Canada.

No doubt, the Canadian government is feeling the heat, and seeing an opportunity to get the problem settled. The UK is currently under the spotlight as the G7 country that is perhaps under the most severe economic problems but Canada has crucial problems of its own to face. Fact is, the US government has been looking into getting oil from Alaska back to the continental US without needing to go under the Pacific Ocean. The Bush administration had been looking into various options. When British Columbia started causing issues in Canada because of their environmental concerns, it became apparent that British Columbia would be causing problems and so the Canadian government, before losing the province to a separation, started talks of selling the land (as it had done with Alaska several decades ago).  With Quebec, British Columbia is the biggest believer in a green Canada and believes all the costs associated with this solution are merely something that needs to be done.

A senior Obama member said: “The deal is nearly done but we are not to discuss it or move in any way on the deal before the end of 2010 as the Canadian government does not want to have the world’s eyes on this sale during the upcoming 2010 Vancouver Olympics.”  There are many other conditions to the deal including Obama stopping any initiatives to renegotiate NAFTA (North American Free Trade Agreement), something that had been raised during the elections and which had caused Canadians to be very worried about the possible impact of losing a lot of ground with its most important commercial partner. Looks like instead, trade between the countries could increase.

In fact, the US is already looking into having oil from Alberta transit through the British Columbia pipeline thus increasing the trade between the two countries by an important margin. But this whole story brings up a lot of new questions.. we clearly did not know about these plans until a few hours ago and are now wondering what else the Canadian government is hiding and if this could affect the unity and even existance of the country?