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Phone: (905) 847-9146
Fax: (905) 248-3644
email: info@valuesciences.com
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 Outsourcing an old story
Politicians and press may have discovered
outsourcing just recently but the harsh history of our modern
civilization reminds us that the trend has been on for decades if not
centuries. Much of North America would not have a railroad if we didn’t
outsource the construction to cheap labour from
Asia ;
sure we let the labour stay here temporarily. I fail to see the
difference between importing human beings at pennies per hour versus
exporting jobs overseas. Granted that the pennies paid to railroad
workers got spent here while the ones currently being paid to shoe
manufacturers and shirt makers get spent abroad. Economists have long
concluded that if you open trade across boarders, people end up doing
what they are best at and when people do what they are best it, they do
it well, at a lower cost and enjoy it to boot. I can’t believe millions
of Asian and Mexican workers who actually have a job are dissatisfied
even though they may be making far less than their counterpart here.
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 The Ultimate Bazaar
We can talk of
fundamentals and technicals and valuation and P/E ratios and sales volume
and profitability but all of that has only some relationship to the stock
market. Markets go up and down by using such information as anchor or
rumor or fact to do the act of buying and selling. And it is this act
that ultimately determines whether you make money or not. In that sense,
this is just a sophisticated and very large auction house, bazaar or a
flea market. Now, when you are bargaining for that genie's lamp in
Morocco
,
what is the most important thing? You don't want to overpay. And what is
the seller going to try to do? Make sure you overpay. Very simple to
explain but so hard to implement. Especially when there are millions of
people involved and everyone is trying to get you to buy something he
paid less for.
 Alternative to
Playing with Bubbles
I have
tried to explain, in the past (FVI October '03), the
paradox of why the indices (like S&P 500, Nasdaq and DOW) keep
beating the average performance of mutual funds, even though the same or
similar mangers and skills are used in both cases. I blamed it on the
momentum created particularly acutely during market bubbles. Part of my
rationale has been that the big keep getting bigger and the losers keep
losing.
You
could take the approach that why fool with what is working and keep
investing in the bubble, hoping that you will be smart enough to get off
the train before it crashes. Chances are you won't.
So,
what's the alternative? A new Rydex SP Equal Weight ETF (RSP). It is based on the S&P EWI
(Equal Weighted Index), an index composed of the S&P 500 stocks but
calculated in a way to give each stock an equal weighting. The index is
rebalanced quarterly.
Now,
why is this new product so important? Because an equal weighted
index: (1) provides investors with true diversification; (2) is not
subject to the fortunes of a handful of stocks with very high market caps;
(3) has the potential to out-perform the cap-weighted version; and (4)
could help technical indicators provide better forecasting results.
Capitalization-weighted
indexes (like SPY) do not provide true diversification For example,
about 70% of the S&P 500 weighting is in the 50 (10%) largest stocks.
What
should you expect from this? You should get better protection if the
market cracks again and a reasonably similar return if it keeps going up.
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financial Intelligence
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updated May 03, 2008
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THE
PREFERRED CORNER
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What's New
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 Uncertainty is the new thing in
this spring time. Not that stock markets are ever certain but when the
trend which has been intact for so many years falters, you have the
perennial question; is it a short term shock or a real earthquake
around the corner?
For answers check out
the newsletter (click on the FVI button on right top corner)
 Preserve capital or pursue
growth, yet again for the last kick at the can.
Remember, back in the
nineties, after the fed crunched the market in 1994, we had one of the
most spectacular runs for the next five. Will it happen again?
Here is what I said in
responding to Ron...
I will try to keep
driving with a little longer term view. And that is, the economies in
the world re doing well . What has just happened is kind of a warning
bell that the next move may be a slowdown which means lower profits for
high flyers like real estate, metals and oils. So, even though I had
much less oil and metals than most, it was not zero. Hence we too
suffered. It is my intention to rotate, slowly, out of the resources
nearly completely to preserve assets. To grow, I will rely on what has
worked in the past which is to buy banks, utilities and income
producing bonds and pref's.
At least that is how I
feel this morning. Things may look different after coffee (just
kidding...).
The markets could get
worse before they get better. However, you should keep a few
things in mind when making your investment decisions.
1. It is always
better to enter the market when most people are selling, scared and
getting out.
2. The question is how
long will this last. No one knows that for sure but when it does turn,
it will be violently up.
3. Is this a short
term problem or are we entering another one of long term decline? Long
term declines are usually associated with recessions or global
slowdown. There is no evidence of that anywhere and particularly not in
regions that have led us so far. The end to growth will come
but is often not violent and long.
4. The best strategy
is to be slow, steady and diversified.
Japan and Apple
APPLE is now back down
to 58 level which looks enticing. Again the reason for picking apple is
not computers but high class innovative music devices, it could become
the Sony of the future.
Also, take a look at
the largest bank in Japan,
MTU. They have cleaned up Japan and the time to get
in may be now. Japan
wins not because of us, like the last time but they are the biggest
supplier to China
not the US.
Many New Stock Reports
Now Available, e.g. Exxon, NCR, Google, RIM, Adobe and many more.....
Click on the Stock Reports
link.
I Invite you to check
out the new services designed specifically for seniors and investors
with special need. The key word is, we make house calls. Click "Features".
Investing in Turmoil
Do political and
economic conditions in the world require you to invest
differently?
Some prefer to
allocate assets based on client age, income and family requirements.
That assumes that we as investors actually have control over what we
can earn. That is simply not true, even in the long term. What is in
our control, is investment strategy based on intelligent and wise
choices among assets. ...more
The dreaded death
cross, where 50 day MA crosses below 200 day MA has happened in DOW. Is
this a repeat of seven previous occasions when things went from bad to
worse? Read an analyst's report from
National Bank Financial.
Is the housing boom
over in the U.S.
at least? Read this piece from NY times.
Investor's Digest is
now sending us pdf files of articles published in their journals, click
on "Stock Reports" button on
the left.
Is there another
bubble being inflated? This time, in the bond market, for the fear of
deflation, or is it for the same old reason all bubbles form ... (06/17/03)
The best way to play
"value" stocks as opposed to growth is through ETF's. Here is
a list of all under trailing P/E 20 ...
(02/09/02)
The misunderstood preferred shares can be an excellent choice for
your portfolio if you find stocks a little pricey again...
(12/30/01)
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 Bank
of Greece
Inflation and cash flow?
What to do with Research inMotion, RIMM?
What to do with bonds?
Wish List of US stocks?
Asia, China?
US or Canada, Energy and
Precision Drilling?Alcan, buy or sell?
The large US deficit, should we
worry?
Fair Market Value?
A worried techy?
Buy Cyclicals and P/E?
Gas and DOW?WorldCom?
Fairfax and Schering Plough?..
Sell bonds?..
Berkshire as
the Contrarian?
Why is JNJ up when market is down?
Why the crash?.. ...more
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Features:
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The
US Dollar Crisis May not Be
A recent article in Business
Week says that Asian countries are NOT buying US dollar to the extent
everyone thinks. Makes sense as the dollar is actually dropping.
Currencies don't drop if everyone is chasing it, do they?...read the article
reproduced here.
High
Wages in Public Companies and Government:
I think we pay our people too much starting from the CEO’s making
millions to drive your investments into ground zero, to steel workers
who couldn’t possibly make steel more efficiently than the Russians or
Indians given that much of the work is done by blast furnaces and
rollers any way. Even our favourite Attorney General from new York
was
quoted saying that the one place he feels he has failed is not to go
after the CEO’s of his targeted companies. As I pointed out in my last
article that much of Spitzer effect seems to vanish after the company
has settled with the department. Quite often the CEO’s carry on. If you
doubt me, check out the stocks we were talking about last, AIG, Hartford
and Marsh
McClellan. For some, it seems like the problems have already been
settled.
Part of the reason
CEO’s make so much more than the rest of the minions is very similar in
principle to the beaurocratic bribery that is so prevalent and so well
known in the third world. Here is how it works. If you want the
Minister to approve your project, you must grease the palms of all who
would touch your affair. You can’t leave out any, except for the lowly
peon or the scheme fails. In that light, look at the CEO compensation
committee of a company, each member depends upon the Man’s grace to
flourish. For what reason , do you suppose any on that committee deny
his boss a raise, no matter how loathsome the amount? Common decency,
fair play? Now, really!
Archive...
The question of why
something like the tech bubble of 99-2000 happen still nags me and the
investors ...
(10/27/01)
Buy, Hold and Wither;
never been more true ...
(10/06/01)
Stock markets don't
bottom in an orderly fashion. All you have to do is look at the past, I
did for August-October '98 when Asia
...
(09/27/01)
Forget about the Fed,
the Prez or even the guru's on Wall Street, it is all about Earnings.
C'est tout...
(08/25/01)
Whenever it comes, the end of stock market corrections almost
always result in spectacular bounces..
(03/26/01)
Memorable Charts for
when things look soooo good again...
(12/04/00)
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Button
Bar
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What is the S&P 500 Really Worth? ©General
Valuation Model
The perennial
question for investor is what is the right value and when is the
P/E good enough to buy. A tour of stock valuation models in general
and the ©General Valuation Model in particular... Methodologies change
with time but the basic principle of making money as the primary
goal stays the same. GVM captures this need for greed in a simple
yet rigorous manner...More
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Headlines
from the Globe and Mail newswire)
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Fundamental
Valuation
International
January
'08
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Newsletter
The
state of the economy is no longer in question. U.S. is in a recession,
the Federal Reserve is worried and has already acted by slashing interest
rates by 75 basis points (apparently the largest drop in modern history),
followed by another 50, bringing the fed funds rate down to 3% citing
considerably weak economic conditions in the U.S. Some say the bull
market in stocks is over.
Curiously
many of the problems we have fretted over last few years seemed to be
getting better. The U.S. budget deficit is declining, war in Iraq
seems to be, if not closing, certainly slowing, even soldiers are returning
home and currently there is a significant positive turn in trade deficit
that has been plaguing U.S. dollar for some years. In fact the U.S. dollar has also
started to make its recovery even against our Canadian dollar which has
dropped significantly from a high of 1.10 to the recent 96¢.
All
in the Home this Time
 What caused this sudden flip in sentiments? What appeared to be a slowdown in U.S.
housing has turned into a near collapse, has led to many home
foreclosures and virtually a standstill in new construction. It is now obvious how important housing
sector is to the U.S.
economy or rather how important it has become again. For a while it
looked like technology and global trade would dictate U.S.
economic cycles. Housing and auto
were the major determinant for nearly the entire twentieth century and it
appears nothing much has changed.
And
there is talk of decoupling, i.e. world is no longer tied to US; China appears to be growing nonstop and so
is the rest of Asia, even Europe still
seems to be plagued with inflationary issues rather than recession. Only UK is in the same boat as North
America. In light of this, the most
surprising development is the stock market reaction in Hong Kong, Shanghai, Bombay and
much of Europe. These have been just as
severe if not worse than Canada
and the U.S.
You have a full blown correction going on in commodity stocks,
the
sector that was supposed to be most intimately tied to the developing
world rather than the developed world. The action in copper, zinc, Nickel
and aluminum is foretelling that the recession is not just in America
but the entire planet. Most economic data do not support this. Either the
stock market is wrong or the economists are way behind the curve. Of
course our problem is to decide, what to do next?
...more
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