Last night I watched one of the best MMA fights I've ever seen. Light heavyweight champion Jon Jones fought challenger Alex Gustafsson in an epic battle. Jones edged him out in a close decision (which I think was deserved). Both fighters took beatings and both showed such tremendous heart and courage using every last ounce of their will. For Gustafsson, he showed no intimidation toward Jones who is considered by many as the best MMA fighter in the world. Right from the start he attacked Jones without fear but did so intelligently and with confidence. For Jones, he had to find the courage to battle back for a comeback win as he had lost the first 2 rounds and had a bad cut over his eye. There's no doubt he was rattled for nobody had ever gave him a scratch let alone beat him up for 2 rounds, but he kept his composure. He battled back and was able to win the remaining 3 rounds. He showed the heart of a champion. Jones hurt Gustafsson very bad in the later rounds but Gustafsson refused to get knocked out. He scraped and clawed his way to finish the fight on his feet. He lost the fight but in no way did he lose respect. He gained it in a big way. both men did in my view. What a fight!
I admire UFC fighters because these guys are modern day warriors. It's gotta be the most grueling sport, not just because you're getting kicked and punched but also the cardio that's required. I once tried grappling and man I gotta tell you, 5 minutes of grappling is more tiring than an hour of jogging. This is why each match is 3, 5 minute rounds (with championship matches 5, 5 minute rounds). All sports are games and in games there are winners and losers. The same is true with the market and in life as well. If you look at all of those who are successful in the sport or game they play, you will find many similar traits. Aside from being blessed with natural talent and ideal physical traits, those at the very top tend also to be the mentally strongest. They are dedicated to their craft to the point of obsession. They tend to have an unshakable belief in themselves and their desire to be the best almost to the point of arrogance, in fact, many are even though they appear humble on TV. They play to win, not afraid to lose and when they do lose or are in a losing position, they don't have any self doubt. The true test of your character is when you're in losing position. That's when you see what your're made of. Losing sucks and it hurts but with the very best, a defeat doesn't weaken them. They see it as a just temporary setback and a learning experience and keep charging forward relentlessly until they become number 1.
Sunday, September 22, 2013
Thursday, September 19, 2013
Most hated bull market gets hated even more
I've only been playing this game for 14 years but I'm pretty sure that there's never been a time like today whereby a powerful bull market is hated by so many. This is so amazing yet bizzare. It seems the (permabear) trading community took it hard up the ass after the surprise no taper news which sent the market to a fresh all time high! I could almost hear the collective groaning through my screen. The reaction was more whining about how the markets aren't free anymore and how Bernanke is a "financial terrorist". Lol! I like this one. Such losers. Such pathetic, delusional, miserable SOB losers who are still hopelessly brainwashed by doomers like Marc Faber. He's calling for a total collapse but from a "higher diving board". I only found out about this because a lot of schmucks on the msg boards have mentioned it. These doomers have no shame and it's comical how they still get plenty of air time to talk about their opinions after the market has made them look like complete baffoons over and over and over. Anytime the market makes new highs they wring their hand saying we are just delaying the inevitable crash which is going to be even bigger now. You can use this excuse forever, this way you can never be proven wrong! Well, the cold hard truth is that if you listened to these doomers you're either broke or have been on the sidelines with your dick in your hand for years while watching the market soar without you either of which makes you a loser. I said this before a few times, it doesn't matter now what the market does from here; crash or no crash, the doomers have been proven WRONG and have ZERO credibility. I wonder if there's ever going to be a point when a lot of these doomer minded traders wake up and say "what a fucking fool I am". You gotta be one to have been constantly on the wrong side of a bull market like this for so long. When that happens then we'll be a lot closer to the end of this raging bull. Untill then, expect pullbacks and corrections only.
Sunday, September 15, 2013
Weekend Ramblings
I noticed a lot of articles this week discussing the 5 year anniversary of the financial crisis. It's been clear to me that the crisis still hasn't faded from people's memory and I'm sure the flash crash of 2010 and the 20% drop in 2011 helped keep those memories fresh.
I read the latest commentary from newsletter writer Sy Harding who believes there's high risk in the market. A few weeks ago he said that he feels conditions are similar to 1973 which of course preceded a nasty 40% bear market. I disagree with Harding about this. He tries to make the contrarian case that investors are enthusiastic about the market given that they have been "pouring"money back into the market. It's true that this year marks the first since the bull market that investors have been net buyers of equities but it's still a long ways to go before they make up for all the money they've pulled out since 2008 and so it's a big stretch to claim this year's inflows signals investors are once again enthusiastic about the market- some cautious optimism, yes but that's about it. If you ask the average guy on the street what he thinks about the market or the economy I doubt you can say people are enthusiastic about the market. There's still plenty of pessimism/worry out there. I still see people use the term "reccessionary" when describing the current climate - that's not the sort of thing you see near bull market peaks. Harding also points out how some sentiment indicators are showing a lot of bulls and how this is a contrary indicator. This is a weak argument. I've said this before, in a bull market, it's only normal to see optimism and so it can be "tolerated" for quite some time before a correction takes hold. Second of all, sentiment has been very fickle. It has only taken modest weakness in the market to see sentiment go from showing lots of bulls to lots of bears. Sentiment such as AAII, market vane, ect, should be used to navigate ST/IT moves in the market. It's not effective in making LT calls. When it comes to the LT, I've said it here before more than once, all bull markets have ended when there was a combination of greed and tight monetary conditions. At the very least, instead of greed, there should be a general sense of optimism/complacency about the economy by the public and there's no way you can make that claim, meanwhile monetary conditions are about as loose as they can be. So, until I see greed and tight money I will give the bull market the benefit of the doubt and treat every downturn as just a correction.
Harding also points out some recent economic data points which have been disappointing. This is weak yet again as he's cherry picking anything that would reinforce his bearish view. For instance, he made no mention how Europe and China have been showing surprisingly good numbers which is pretty significant for the global economy given that they've been a drag on it for so long. It should be noted that Sy Harding is a big believer in the "Sell in May and go away seasonality" and so he tends to be biasedly bearish from May-November. Given that his seasonality beliefs have been a failure so far this year, he's probably digging in his heels a bit and maybe getting hurt as well since he tends to recommend bear ETFs during this period.
This week everyone is awaiting the taper decision by the fed. The expectation is for a modest taper. If the economy keeps improving, the market is going to have to deal with the prospect of the unwinding of QE and the uncertainty that it brings. In 1994 and in 2004 the fed started taking away the punch bowl and this caused markets to have a moderate correction with months of sideways action until it got the sense that the fed was done tightening without hurting the economy much. I don't think a modest taper would be the equivalent to the start of a tightening campaign compared to 1994 and 2004. In those years the Fed started raising rates which is a much more restrictive action than a modest taper. However, we know the market is anticipatory and so if it gets the sense that tapering is sure to pick up steam then we will probably have another 1994, 2004 type period in the market. That's possibly what could be in store for 2014, which coincidentally ends with the number 4! We'll take it one step at a time.
I haven't mentioned Syria because I felt that yet again it's another one off (like Cyprus last year) which won't have a LT impact on the market and if futures are an indication of what's in store for Monday, the market won't be far off from making a new bull market high.
I started a position in Corridor Resources last week (CDH.to). I'll talk about it more in the next post.
I read the latest commentary from newsletter writer Sy Harding who believes there's high risk in the market. A few weeks ago he said that he feels conditions are similar to 1973 which of course preceded a nasty 40% bear market. I disagree with Harding about this. He tries to make the contrarian case that investors are enthusiastic about the market given that they have been "pouring"money back into the market. It's true that this year marks the first since the bull market that investors have been net buyers of equities but it's still a long ways to go before they make up for all the money they've pulled out since 2008 and so it's a big stretch to claim this year's inflows signals investors are once again enthusiastic about the market- some cautious optimism, yes but that's about it. If you ask the average guy on the street what he thinks about the market or the economy I doubt you can say people are enthusiastic about the market. There's still plenty of pessimism/worry out there. I still see people use the term "reccessionary" when describing the current climate - that's not the sort of thing you see near bull market peaks. Harding also points out how some sentiment indicators are showing a lot of bulls and how this is a contrary indicator. This is a weak argument. I've said this before, in a bull market, it's only normal to see optimism and so it can be "tolerated" for quite some time before a correction takes hold. Second of all, sentiment has been very fickle. It has only taken modest weakness in the market to see sentiment go from showing lots of bulls to lots of bears. Sentiment such as AAII, market vane, ect, should be used to navigate ST/IT moves in the market. It's not effective in making LT calls. When it comes to the LT, I've said it here before more than once, all bull markets have ended when there was a combination of greed and tight monetary conditions. At the very least, instead of greed, there should be a general sense of optimism/complacency about the economy by the public and there's no way you can make that claim, meanwhile monetary conditions are about as loose as they can be. So, until I see greed and tight money I will give the bull market the benefit of the doubt and treat every downturn as just a correction.
Harding also points out some recent economic data points which have been disappointing. This is weak yet again as he's cherry picking anything that would reinforce his bearish view. For instance, he made no mention how Europe and China have been showing surprisingly good numbers which is pretty significant for the global economy given that they've been a drag on it for so long. It should be noted that Sy Harding is a big believer in the "Sell in May and go away seasonality" and so he tends to be biasedly bearish from May-November. Given that his seasonality beliefs have been a failure so far this year, he's probably digging in his heels a bit and maybe getting hurt as well since he tends to recommend bear ETFs during this period.
This week everyone is awaiting the taper decision by the fed. The expectation is for a modest taper. If the economy keeps improving, the market is going to have to deal with the prospect of the unwinding of QE and the uncertainty that it brings. In 1994 and in 2004 the fed started taking away the punch bowl and this caused markets to have a moderate correction with months of sideways action until it got the sense that the fed was done tightening without hurting the economy much. I don't think a modest taper would be the equivalent to the start of a tightening campaign compared to 1994 and 2004. In those years the Fed started raising rates which is a much more restrictive action than a modest taper. However, we know the market is anticipatory and so if it gets the sense that tapering is sure to pick up steam then we will probably have another 1994, 2004 type period in the market. That's possibly what could be in store for 2014, which coincidentally ends with the number 4! We'll take it one step at a time.
I haven't mentioned Syria because I felt that yet again it's another one off (like Cyprus last year) which won't have a LT impact on the market and if futures are an indication of what's in store for Monday, the market won't be far off from making a new bull market high.
I started a position in Corridor Resources last week (CDH.to). I'll talk about it more in the next post.
Thursday, September 12, 2013
Perspective
The other day I just barely avoided hitting a kid with my car. I was on my way to my parents house driving uphill on a sidestreet which winds sharply to the left . Visibility is normally limited as to who's coming around the bend but it was entirely eliminated when I approached it because at the corner house to my left, a van was at the end of the driveway waiting to back out. As I was about to turn the corner, a kid no older than 10 came flying downhill on his bike from the opposite direction passing right in front of me literally out of nowhere. I slammed the breaks just barely missing him. He wiped out on his bike but aside from a little scrape he was perfectly fine. If I had been driving on that road 1-2 seconds sooner I would have had no chance to avoid hitting this kid and he would have been very seriously hurt and possibly killed. He had no helmet on either.
The things that I have experienced these past couple of years makes me realize just how fragile life can be.We wake up everyday taking for granted that we will go to bed at night and do the same all over for years to come when in an instant, out of nowhere, our life can be taken away. What I've learned from this is that life must be lived with some sort of urgency and there's no time for being a pussy. You have to do what you must to make the most of this limited life you have and do it starting right NOW for you don't know what lies around the corner much like I didn't know with that kid. Stop being afraid of whatever is holding you back and take the risks you need to take to get where you want to be, but do so smartly not foolishly.
A couple years ago a girl I knew died of cancer. She was 35. When when she got diagnosed she was told she had about a year to live. Imagine how that must feel and then compare that to whatever is worrying or upsetting you right now. Imagine someone in this dire situation who is then later told that her cancer had miraculously disappeared. How do you think they would approach life? What could possibly make them afraid? Nothing. This is the type of attitude we have to have. Do you remember the scene in fight club where Tyler Durden threatens to kill a convenience store clerk? It's the same idea.
My heavily concentrated positions in the market are a reflection of what I discussed above. I'm trying to maximize my potential but I'm not taking higher risk just for the sake of being bold and getting rich quick. I'm trying to fully take advantage of situations where I believe the risk/reward equation is heavily skewed in my favor. Betting small or even moderate in such situations would be wasting a rare opportunity. In life situations often times the only risk in an lucrative opportunity is damage to the ego. Asking that girl you've always wanted to ask out for example. These are the situations that you can't let slip because there really is no downside risk when you think about it. Bruised egos heal and depending on your attitude such failures will make you stronger. Then there are those situations where you will be put in harms way if things don't turn out in your favor. You need to be selective in those situations but if you live your life always playing it safe you will not live much of a life. One of my favorite episodes from Star Trek TNG is called Tapestry. You don't need to be a Star Trek fan to enjoy it and learn the valuable lesson it teaches.
The things that I have experienced these past couple of years makes me realize just how fragile life can be.We wake up everyday taking for granted that we will go to bed at night and do the same all over for years to come when in an instant, out of nowhere, our life can be taken away. What I've learned from this is that life must be lived with some sort of urgency and there's no time for being a pussy. You have to do what you must to make the most of this limited life you have and do it starting right NOW for you don't know what lies around the corner much like I didn't know with that kid. Stop being afraid of whatever is holding you back and take the risks you need to take to get where you want to be, but do so smartly not foolishly.
A couple years ago a girl I knew died of cancer. She was 35. When when she got diagnosed she was told she had about a year to live. Imagine how that must feel and then compare that to whatever is worrying or upsetting you right now. Imagine someone in this dire situation who is then later told that her cancer had miraculously disappeared. How do you think they would approach life? What could possibly make them afraid? Nothing. This is the type of attitude we have to have. Do you remember the scene in fight club where Tyler Durden threatens to kill a convenience store clerk? It's the same idea.
My heavily concentrated positions in the market are a reflection of what I discussed above. I'm trying to maximize my potential but I'm not taking higher risk just for the sake of being bold and getting rich quick. I'm trying to fully take advantage of situations where I believe the risk/reward equation is heavily skewed in my favor. Betting small or even moderate in such situations would be wasting a rare opportunity. In life situations often times the only risk in an lucrative opportunity is damage to the ego. Asking that girl you've always wanted to ask out for example. These are the situations that you can't let slip because there really is no downside risk when you think about it. Bruised egos heal and depending on your attitude such failures will make you stronger. Then there are those situations where you will be put in harms way if things don't turn out in your favor. You need to be selective in those situations but if you live your life always playing it safe you will not live much of a life. One of my favorite episodes from Star Trek TNG is called Tapestry. You don't need to be a Star Trek fan to enjoy it and learn the valuable lesson it teaches.
Wednesday, September 4, 2013
Thoughts on Canadian housing part 2
About 3.5 years ago I discussed my thoughts about CDN housing. You can read the post here. I basically concluded that house prices should go higher because we were in the early stages of an economic recovery with low mortgage rates and a "bubble burst" has never occurred in such circumstances. It was right and without trying to sound arrogant, it was a relatively easy call. Living in the GTA, I can tell you that the value of my home has increased about 20% in 3 years given recent sales of a couple houses on my street similar to mine.
So, the question is what about now? Well, we are certainly a lot further along in the recovery but mortgage rates remain historically low despite ticking up recently. The government enacted some tightening measures by shortening amortization periods to 25 years last year but that only had a brief cooling effect. Prices are now at new highs.
Sentiment towards housing is fascinating. Just like 3 years ago, there's no shortage of doomers out there who keep calling for a collapse. If you read the comment section of any article that talks about housing you will see it dominated by doomers. Early this year I remember reading about some economist (from one of the big banks I think) calling for a "lost decade" for housing prices. Just recently The Economist and the OECD have been warning about Canada's frothy housing market. I'm not going to be a smart ass and say that a bubble can't burst until all this pessimism is gone. There's always gonna be doomers no matter what, however, at the top of a "bubble" market, there is at least a major cohort of people who have come to accept that the elevated prices of the asset in question are a thing of permanence. I really don't get a sense of that just yet. There's at least an equal amount of pessimism as there is optimism towards housing in Canada.
The main argument that housing doomers use is the price to income ratio which they point out is way above the historical norm. This is to me is a flawed measure for it doesn't take into account a very critical factor in determining housing affordability - interest rates. Take for example Joe Blow, who earns $100,000 a year and has a $300,000, 25yr mortgage with an 8% interest rate. The monthly payment for such a mortgage would be $2290. Now take John Doe who earns $100,000 with a $450,000 mortgage at 3.5%. The monthly pmt is about the same as Joe Shmoe even though he's carrying a mortgage that's 50% larger!
So, despite what the doomers say, interest rates matter and matter big time and to ignore them in any kind of affordability measure is not being realistic. When you take into account the actual burden of carrying a mortgage, housing prices aren't as bubbly as they would appear to be. I wouldn't say they are cheap either though. Now, a doomer who reads this will certainty say it's inevitable that interest rates will rise substantially from these low levels. Well, that will likely turn out to be true...at some point, but you have to keep in mind history has shown that interest rates can be very low for decades! Just look at what interest rates (both short and long term) where from 1930-1960.
Then there's the argument of owning vs renting. There are those who claim that right now it's cheaper to rent vs own when you take into account all variables. I have to admit, I need to examine this claim further but with my personal circumstances, I don't see the appeal of renting. When I compare the cost of carrying my house (which includes property taxes, utilities, ect) to renting a similar house in my neighborhood, I see no advantage in renting. I realize my situation could be different vs that of others (mortgage size, mortgage type, fixed vs variable, ect). But again, I need to look into the renting vs owning situation in more depth.
3.5 years ago I was comfortable in predicting there was no immanent "bubble bursting" for Canadian housing. With prices now considerably higher and with the economy further into the recovery cycle, it's not nearly as easy to make the same call but if you put a gun to my head I'd say I still believe there's no immanent bubble bursting. Housing is definitely now more vulnerable should there be some sort of shock like an interest rate surge or a recession but neither seem to be in the cards and without such a shock, it's going to be difficult to see housing prices collapse or even have a serious correction. The government might try to tighten conditions again and that could be a trigger, but unless they do something really drastic, I believe it would only cause a temporary dip as what happened last year. I still think it's going to require a period of sustained rising interest rates to trigger a downturn in housing. Even though interest rates have been rising they are still quite low historically and so I think we'd need to see a much larger rise for it to prick the bubble.
The main argument that housing doomers use is the price to income ratio which they point out is way above the historical norm. This is to me is a flawed measure for it doesn't take into account a very critical factor in determining housing affordability - interest rates. Take for example Joe Blow, who earns $100,000 a year and has a $300,000, 25yr mortgage with an 8% interest rate. The monthly payment for such a mortgage would be $2290. Now take John Doe who earns $100,000 with a $450,000 mortgage at 3.5%. The monthly pmt is about the same as Joe Shmoe even though he's carrying a mortgage that's 50% larger!
So, despite what the doomers say, interest rates matter and matter big time and to ignore them in any kind of affordability measure is not being realistic. When you take into account the actual burden of carrying a mortgage, housing prices aren't as bubbly as they would appear to be. I wouldn't say they are cheap either though. Now, a doomer who reads this will certainty say it's inevitable that interest rates will rise substantially from these low levels. Well, that will likely turn out to be true...at some point, but you have to keep in mind history has shown that interest rates can be very low for decades! Just look at what interest rates (both short and long term) where from 1930-1960.
Then there's the argument of owning vs renting. There are those who claim that right now it's cheaper to rent vs own when you take into account all variables. I have to admit, I need to examine this claim further but with my personal circumstances, I don't see the appeal of renting. When I compare the cost of carrying my house (which includes property taxes, utilities, ect) to renting a similar house in my neighborhood, I see no advantage in renting. I realize my situation could be different vs that of others (mortgage size, mortgage type, fixed vs variable, ect). But again, I need to look into the renting vs owning situation in more depth.
3.5 years ago I was comfortable in predicting there was no immanent "bubble bursting" for Canadian housing. With prices now considerably higher and with the economy further into the recovery cycle, it's not nearly as easy to make the same call but if you put a gun to my head I'd say I still believe there's no immanent bubble bursting. Housing is definitely now more vulnerable should there be some sort of shock like an interest rate surge or a recession but neither seem to be in the cards and without such a shock, it's going to be difficult to see housing prices collapse or even have a serious correction. The government might try to tighten conditions again and that could be a trigger, but unless they do something really drastic, I believe it would only cause a temporary dip as what happened last year. I still think it's going to require a period of sustained rising interest rates to trigger a downturn in housing. Even though interest rates have been rising they are still quite low historically and so I think we'd need to see a much larger rise for it to prick the bubble.
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