drbubb

Time to raise rates, before people get reckless, and respond to false signals

"I struggle now to find anything that I think is very cheap." That includes GLD/Gold. i have been saying that for almost a year. It was Feb.2010 when I last bought Gold aggressively. Since then I have traded successfully in and out of: + Swiss Francs + GLD / Gold Wheaton + DBA & JJG / Grain-related etfs I think the HK$ is cheap (& I own it in size), but I have no idea when it will decouple from the US$ I am tempted by some Natgas stocks, and have begun to nibble in that sector. Some Uranium stocks look cheap, but they may stay there for some time.

Here's a statement that I would like to explore here: "THE KEY to successful investing is spotting asymetrical risk opportunities." What do I mean by this? I touched on it a bit on the Reframing Risk thread started by Positive Deviant: Guy Thomas has said almost the same thing as I was getting at. On pg. 94 of Free Capital - in the chapter about Sushil: "Conventional financial theory explains diversification as a means of reducing idiosyncratic risk: that is the risks specific to each individual company, leaving the portfolio with only 'market risk.' Sushil finds this concept unhelpful - 'I want a portfolio with large idiosyncratic risks, provided they are mispriced.' Rather than reducing idiosyncrtic risk, he finds it more helpful to think of diversification as a means of increasing liquidity in hos portfolio, and hence increasing options to change his mind as prices and expectations change." Now I might put this slightly different, using my own terms : An investor wants as much GRisk as he can get, provided it does not come with too much DRisk. This is why wise investors may buy small cap shares trading below NAV. The NAV is a measure of valuation that a company might achieve if it were liquidated. Whilst this is not truly a "safe" measure - since historical accounting values may over-state or under-state realisable values in a liquidation. Nevertheless, for a company that is not depleting its NAV through ongoing losses, it is a sort of measure, which can be refined by looking into more detail of what sorts of assets they hold. Thus, a company which is making a profit (or only nominal losses), and is trading below NAV may have little DRisk. In fact, it may have more GRisk, if an investor can identify things which can turn it around, than it has DRisk - in other words, it is "mispriced" and has a favorable ratio of potential reward to potential risk. So why do shares get under underpriced? There may be a number of reasons why this happens: + Stock prices may slide to "cheap" levels in a general bear market decline, as in 2008, or + After a period of losses, or an extended time of unfavorable share price performance, investors may get fed up with a particular stock and decided to sell. If they are large holders, with significant positions, it may take a long time to exit. And they may go on on selling even as the share slides below NAV. For some, once they have decided "to get out", they may not care what the price is. Those making such an exit may create and opportunity for new investors, by pushing the value down too far, to a point where it is "mispriced." + Another similar undervalued opportunity may be created, if an institution decides to sell because "the company's Market Cap is too small - it is against our policy to hold shares with a market cap below GBP 10 million" - or whatever the cutoff may be. I think this type of opportunity - "mispriced" stocks trading below GBP 20 million, or GBP 10 million - might have been at the core of many successful investors profiled in Free Capital.

I struggle now to find anything that I think is very cheap. I have been buying a few shares, but they mostly have "defensive characteristics." (Most of what I have been buying are Canadian shares, and I think it would be pointless to mention them here.) The best strategy now is to hold plenty of cash, and await a better buying opportunity. I did put together a portfolio of shares that I bought in March 2009, and posted over the next few weeks, as I sold down the portfolio. I did outperform the (rising) market, but not by a huge amount. BTW, I realise that if the dollar begins to collapse, sliding below USD-70, then the suggestion to "hold cash" will likely prove wrong. But there is no such thing as a riskfree trading strategy these days, since even "sitting with cash" carries risk.

I don't think that is true. There are many investors that go on beating the market year-after-year. Like Warren Buffett, and the Tisches (of Loews Corp / L) who have beat the market by a wide margin over decades. I do not think I have that degree of success, but it took courage to sell my London property, and put most of the money into Junior mining shares in 2001. Though many thought I was crazy, I did it with the knowledge that I was buying something cheap, and out-of-favor, that was beginning to show signs of a turn. Had I not been rewarded, I might have turned elsewhere, befoore losing much of the money. But emerging signs of a turn kept me onboard in those early years. Maybe this long term chart of ASA (a Major Gold stock) will highlight the opportunity that I jumped on back in 2001: (I bought more than this one stock, but it does show the pathway and the timing of prices changes in Gold mining stocks, which I acquired after selling my Flat.) ASA / ASA Corp (holds South African Gold shares) ... update Note: Something that has taken similar courage, and willingness to think "outside the box" is: the building up of the Fringe Section on GEI. Tackling these subjects that are still so out a favor now in the mainstream (even amongst the average GEI poster!) brings a real feeling of deja vu to me. As with gold investing in those years, I honestly believe that many of these subjects will be accepted by the mainstream within 3-5 years. (Meantime, about halfway into THIS VIDEO you can learn about how a willingness to discuss UFOs have ruined careers in the Military, and in Politics.) == == == BTW, I now have a copy of the Free Capital book, and have begun to read through it, and discovered this surprising error

NEW THREAD - Putting the Free Cap analytics to work... /see: http://www.greenenergyinvestors.com/index.php?showtopic=14693

TWO REVIEWS have recently been posted on Amazon - They are both very complimentary (*****/ 5-stars) Amazon Customer Reviews : http://www.amazon.co.uk/product-reviews/1906659745/ref=dp_top_cm_cr_acr_txt?ie=UTF8&showViewpoints=1

: It will be interesting to see if any of the twelve can make it from comfortably well-off to seriously wealthy I have seen that David Webb has done that in Hong Kong over a not so long a period. When I met him at a Mensa Christmas party in late 2010, I asked him if he had any tips. He said, " Why don't you invest in the same stocks that I do. " I ran some numbers, and discovered that the stakes he held were worth at least HK $500 Million - And I consider that to be seriously wealthy. If we ever see a serious correction, I will probably copy some of his investments. And I even started a thread on GEI to keep track of his investments. Here's the Link: "Stocks & Ideas of David Webb" (of Hong Kong) http://www.greenenergyinvestors.com/index.php?showtopic=12762 Maybe we should have more threads like that on GEI. (?) BTW, when I was having my own best run of money-making by investing in Junior Mining shares, I found it very hard to get anyone interested in playing the same game. At that time, everyone was obsessed by property, and they were sure that easy money was being made there. Something unpopular like investing in Junior mining shares seemed far too risky for most. I think it is great when you can find something that is lucrative, and remains out of favor. You can quietly and unceremoniously build a nice return, while people are busy risking their money elsewhere. When they join the party, and prices get bid up, there may still be another period of good returns. But in a popular market, the risks become bigger.

There's some truth to that. But perceptions can change quickly, from things like a change in tax rates. Why, for example, have the Irish not tried to capture some that that flight capital into Dublin? If people saw Dublin less dangerous than London, they might come.

A mildly depreciating currency, not one in freefall. Look what is happening to long rates in certain European countries. Britain's turn will come. Right now, they are pushing London properties like mad in Hong Kong. I think the potential buyers will soon wise up.

NO, it wasn't The takeover helped to spur the big boom in 1996-97, when people saw that China was offering Hong Kong: "One country, two systems", and freedom for capitalism in the SAR for at least 50 years. But prices got bid up too high in the HK boom in the 1997 peak, as they have been bid up too high in the UK's boom. The bust was a necessary correction in prices, but it went as far as it did for two reasons: + From 1997-2000/1, the HK government released much new property to HK developers to try to drive prices down, and excess supply overwhelmed demand, + Thanks to the peg, HK monetary policy was linked to US monetary policy, so when rates were pushed up in the US, they were forced "too high" for HK. But HK had to keep its rates high, if it wanted to maintain the peg. The UK could be forced to push its rates "too high" if there is a run on its currency

NO, it wasn't The takeover helped to spur the big boom in 1996-97, when people saw that China was offering Hong Kong: "One country, two systems", and freedom for capitalism for at least 50 years. But prices got bid up too high in the HK boom in the 1997 peak, as they have been bid up too high in the UK's boom. The bust was a necessary correction in prices, but it went as far as it did for two reasons: + The HK government released much new property to HK developers to try to drive prices down, and excess supply overwhelmed demand, + Thanks to the peg, HK monetary policy was linked to US monetary policy, so when rates were pushed up in the US, they were forced "too high" for HK. But HK had to keep its rates high, if it wanted to maintain the peg. The UK could be forced to push its rates "too high" if there is a run on its currency

QUOTE Most of the growth, revealed in the banks’ recent annual reports, is coming from a big expansion in UK residential lending. Since 2008 HSBC’s UK home loans have risen 31.5 per cent, leaving commercial and residential property accounting for 31.6 per cent of total loans; the rise at RBS is 14.8 per cent, giving a percentage of total loans of 36.3 per cent; and Barclays’ UK home loans have increased by more than a fifth, taking property to 41.4 per cent of total loans UNQUOTE Dial up the Risk ! (you frigging Bozos!) This just shows the moral hazard in the UK bailing out their banks. Management reckons they will get bailed out again, if they get into trouble once again. This notion needs to have some penalties attached. My Idea: No government owned bank should be allowed to pay out more than 20% of a bonus in cash. 80% should be in preferred stock, with a maturity of up to five years. If the banks get into trouble, and balied out again, the preferred stock should get crunched (reduced to zero), before the taxpayer suffers a penny of loss. And anything paid by the taxpayer, should be matched in some fashion with a reduction in pensions of the top management. If the top management winds up on the streets selling apples, then the taxpayers would be able to spit in their faces, and call them names. Or maybe people like Fred Goodwyn should be forced to work in Loos, so people could relieve their frustration in other ways for the excessive risks these guys are taking on. Why not Try: Humiliation, Financial penalties... as disincentives to excessive risk taking. (More humane than the violence of old.)

A HONG KONG TSUNAMI ? Today's SCMP has an article: (page A3) Is HK safe from tsunamis? Experts say no "A computerised simulation of seismic dangers by a US professor and his team found that a magnitude 9 quake along a trench in the South China Sea could trigger tsunami waves up to eight meters high that could hit Hong Kong and nearby cities." + Study by David Yuen, a Univ. of Minnnesota professor + He assumed a magnitude 9 eartthquaek struck the Manila trench + In a worst-case scenario, teh waves hitting Guangdong, HK, and Taiwan would be 5-8 metres high + Recent earthquakes give a false impression that HK is safe + Some historical records indicate a 10 metre wave hit Taiwan in 1782, killing 40,000 people

I agree, but think the cutoff should be 70% - like in Hong Kong. Why the banking regulators in the UK have failed to learn from the lesson of HK is beyond me. HK went through at heartbreaking 69% drop in prices from 1997 to 2003. How many banks went bust and needed to be taken over by the government? Answer: None. Naughta. Zero. The banks all survived. And they are happy to be constrained by the 70% limit on normal lending, since it applies to all/

Well, obviously they are lending too much at 75%, 80%, or whatever to take on THAT risk. If they lent less (60%? 65% LTV?) and charged more, the perhaps they could. They do lend that way in the USA.

Overpaid for your House? Then, blame the bank that financed it - surely the buyer was not to blame. BTW, a drop from 130,000 to 79,950 is a drop of 38.5%, not 50%. But if this couple is so naive about buying property, why should they be able to do maths?

A quick look at the financials shows: ENGI Market Cap.--- : GBP 0.80 m Net Debt ------- : GBP 2.38 m Shares In Issue : 32.04 m Net Tangible Asset Value PS * 0.80 p /source-: http://asia.advfn.com/p.php?pid=financials&symbol=L^ENGI /website: http://www.energiserinvestments.co.uk/ Upon seeing this, my conclusion is : This company is TOO SMALL, And is really suitable only for those who are looking to invest in shells. And I really prefer to do that when I can buy below Book Value. At 0.80P, this is not so here. Advfn is rather useful for these quick checks on UK companies.

This thread is about the book in general, and the techniques employed. I don't want to get into discussions of individual personalities here. USING THE TECHNIQUES... In the interests to sticking to techniques discussed in the book, I am going to post a chart that looks interesting. Personally, I like to start with the charts, and then dig deeper, when the charts look good. I wonder if this Company will stand-up, and continue to look interesting, as I dip into fundamentals? UK:ENGI / Energiser Investments PLC ... update-5yrs : 1year-chart THE GOOD THING is that they have announced a profit, and remain "realistically" cautious towards the property market: Energiser Investments PLC (ENGI.LN): a United Kingdom-based investment company announced Thursday it made a pretax profit of GBP182,000 for the six months to June 30, 2010, compared with a loss of GBP147,000. MAIN FACTS: -EPS: 0.57 pence (2009: Loss 0.52 pence) -Net Cash: GBP72,000 (2009: GBP8,000) -The directors do not intend to recommend a dividend. -Notwithstanding the improvement in the company's net assets, the Board is cautious about the outlook for the U.K. property market at present. -Having said that, the Board is evaluating some new opportunities in this sector with a view to expanding the Group's property portfolio. /see: http://asia.advfn.com/p.php?pid=nmona&article=44589716&symbol=ENGI

I believe most buyers wise up fast, and stop viewing the overvalued properties. A lack of viewers is a clear sign to a vendor that their property is over-priced, but it may take a few weeks for that to sink in.

I think they are ! (Rightmove offers property for sale, doesn't it?) In a "Buyers market" - like now - the job of the agent is "to talk the sellers down." If they fail to do that, they are going to do little business. And there are so many seller around, the chances of finding one who is "flexible" is better than find a Buyer clueless enough to be talked into paying more.

FUN-in-the-SUN EXPAT BOZOS are being handed their Red Noses... Those that could not afford to buy with small mortgages, or finance in Euros are finding it is no party in Spain Figures from Smart Currency Exchange show that the average increase in mortgage repayments after the ECB rate rise will be £1,750 a year. Rates are expected to increase further to a possible 1.75pc. Mr Jordan said he has seen an increased number of clients choosing to remortgage their main home in the UK in order to pay off the mortgage on their second home, and thus avoid making regular payments in euros. Charles Purdy, director of Smart Currency Exchange, said that he was advising customers to be "very realistic" about the rates they will get on sterling. "If they have a large mortgage, the liability will have gone up in sterling terms," he said. "They need to realise that the size of their mortgage has effectively increased, and there is inflation in Europe, too, so that makes it even worse. People who are buying abroad now are more worldly wise than they were a few years ago, but I am telling them that they need to budget for €1.10 to the pound rather than €1.20 or €1.30." For many, the rise in rates combined with slumping sterling has put paid to dreams of living in France or Spain. A survey from website www.primelocation.com showed that interest in acquiring a French property was slumping due to an increase in living costs and weaker sterling. David Vindel, a senior public relations consultant from London, is one of those who has been hit by the changes in sterling. He has bought two properties in Spain to rent out during the past five years. "They were meant to be good investments, but things have turned out rather differently than I expected," he said. /more: http://www.telegraph.co.uk/finance/personalfinance/8454000/British-expats-forced-to-sell-up-and-come-home.html

DELUSIONAL SELLERS in Rightmove's Survey raised their April offers by +1.7% - But buyers aren't biting... The rising offer prices haven't helped London based builder : Barratt/ BDEV It is hard to take advantage of rising offers, when NO ONE IS WILLING TO PAY THEM: "But the leap in prices in March is due to misplaced optimism, as homes are not selling. The mismatch between supply and demand led to the number of unsold properties on estate agents' books rising at its fastest level since May 2007, to an average of 74 homes per branch. Rightmove warned that with interest rate likely to rise, vendors wanting to take advantage of the traditional spring window needed to adopt 'serious sales tactics'." Read more: http://www.dailymail.co.uk/news/article-1378011/Overly-optimistic-sellers-raise-house-prices-1-7-market.html#ixzz1JsAXilJx

... And do they pay any tax on it? The rising offer prices haven't helped London based builder : Barratt/ BDEV It is hard to take advantage of rising offers, when NO ONE IS WILLING TO PAY THEM: "But the leap in prices in March is due to misplaced optimism, as homes are not selling. The mismatch between supply and demand led to the number of unsold properties on estate agents' books rising at its fastest level since May 2007, to an average of 74 homes per branch. Rightmove warned that with interest rate likely to rise, vendors wanting to take advantage of the traditional spring window needed to adopt 'serious sales tactics'." Read more: http://www.dailymail.co.uk/news/article-1378011/Overly-optimistic-sellers-raise-house-prices-1-7-market.html#ixzz1JsAXilJx

Imagine having so much money, that you are willing to spend £200 Million on a "Trophy" ! == == == The comments in the Report are clearly Bearish: Increased seller numbers not matched by increase in purchasers’ ability to buy, resulting in biggest monthly jump in agents’ unsold stock since May 2007 – up from 70 to 74 properties per branch • As property supply is increasingly outstripping demand, this month’s jump in new sellers’ average asking prices of 1.7% (£4,032) looks misplaced • London remains the exception as buyer demand pushes asking prices to a new record of £431,013 • With base rate rises looming, sellers who are keen to sell in the spring window should adopt ‘serious seller’ tactics . . . Estate agents report that sales success this year has the following three main elements: - Price low. “Undercutting similar properties for sale is a must. Agents report that in order to stand out in an increasingly crowded marketplace the asking price has to look like a real bargain rather than merely competitively priced. With the transparency of the internet, potential buyers can easily judge which properties are over-priced”, says Shipside. - Push the ‘added value’. “If your property has real ‘added value’ features that give it an edge over similar looking ones, then ensure your marketing really promotes the differences those extra benefits will make to a new occupier’s life. If your advert fails to stir the emotions, then don’t expect to shake local buyers into life”, adds Shipside. - Polish till it sparkles. “Remove your rose-tinted spectacles, and look at your property with a diamond dealer’s loupe, as that is the level of critique that many buyers now apply. Immaculately prepared and presented property gems not only stand out, but give less reason for buyers to squeeze you on price”, advises Shipside. /see: http://www.rightmove.co.uk/news/files/2011/04/april-2011.pdf I also note that the Delusion Index looks like it is pressing up near a high. (near 144%?) So it is a great time for Vendors to "get serious" and look cheap, by offering a realistic "discount" in relation to other delusional sellers