Rational Advisor

Here’s a great question that was sent to an advisor

Q What happens next if the Dow and TSX reach 5000 to 5500, which I see as a strong possibility? Is this depression territory? I feel the markets are on a downward spiral that is very difficult to put a stop to. There is a total loss of confidence in the US and global money markets. As well it now seems that Citibank will be the next institution to fail and probably ask the Fed for a bailout- comments! Where, when do all these bailouts stop? When is the time the Fed cannot put any more money into the system for bailouts- When do they run out of money?

A The basic question is what if it gets worse? The fact that many believe that it will get much worse, is actually a good sign. Markets tend to make the greatest fool out of people, so that when a consensus is made as to a particularly direction, something comes out of the woodworks to change the direction. When Oil was at $147 a barrel, most of the public believed it would head up to $200 (including a pillock at CIBC economics department who was shouting in all the papers for $200 and beyond). So, when the consensus is for the markets to head much lower, the surprise could be a much rosier picture. The surprise could be government initiatives actually working, the surprise could be understanding that 6% unemployment means 94% employment.

We seem to have moved from old news to “new” news. The old news being Iraq, and the “new” news being the markets. And to keep themselves busy journalists have swamped this area with coverage on TV, radio and paper. It’s everywhere, so people that don’t understand panic and sell, thereby furthering the cause of pessimism.

yes, there is a slowdown, but it’s not in everything - try to stop taking your heart pills, and see what a slowdown means.

This is NOT the 1929 depression, we do not have 25% unemployment, 5,000 banks have not closed, the US has not stopped producing. The US is still the largest consumer in the world, and other countries need it to remain that way. Their not stupid to let the US collapse.

We’ll get through this, with more regulations, with better fundamentals, and with better run companies that take less dumb risks, and with a new US president, that’s trying to do an FDR, Kennedy and a Clinton all in one.

So, will the TSX go down to 5,000 - don’t really know, all I do know is that our portfolios hold Government Bonds and global large cap companies - not the TSX. We don’t hold as much resources as the TSX does, so we won’t be doing what the TSX does. Yes, we will also go down, and that’s because irrational people panic, but we’ll be on the other side buying attractive companies that will still be around in five years - and much stronger.

When will the bailouts finish - the banks really don’t want them to finish, because it’s a source of cheap financing so that they can lend out at a higher rate and make a bigger profit. Otherwise, they’d have to rely on our deposits. However, the bailouts will end, once the banks show increases in revenues and earnings, and stop their game playing with write downs.

When does the US Fed run out of money - they can technically never run out of money, because they have a printing press. However, they will be reluctant to go that route, instead they’ll borrow more from China and other countries that need to sell their goods to the US. So to keep the US consumer alive, capital will be provided.

For sure this is a tough environment, equities and portfolios have gone through the wringer. The issue is that good companies with excellent profits and revenues have been sold off indiscriminately. Sanity will arrive as it always does. I only wish it would hurry, so that people can get back to their regular lives, and the papers can cover some other news item – like Michael, Madonna, Britney or Paris

I’ll go back to my two favorite economists - Adam Smith and Hyman Minsky (google them)

I know you’re all saying it - the F word

When it comes to this market, the F word is dominating things. There is just too much F going on.

That’s why the markets can’t move up.

By now, hopefully you’ve figured out the Four letter F word is FEAR!

And it’s the Fear that things have changed and the world has stopped being like it was before that has caused investors to not invest.

All of sudden they believe that companies with good balance sheets and good businesses are broken.

What we have is a buyers strike. Buyers are waiting for the sellers to stop, so that they can pick up great businesses at excellent prices. because they know, that these businesses will continue to earn a profit.

For the Fear argument

Let’s assume that this current scenario is worse that the last depression 1929. Let’s assume 25% employment, an increase in interest rates, over 5,000 banks in the US went bankrupt, stock markets fell 80%, a major blah.

By most account the depression lasted from 1929 to 1932 when a new president F. D. Roosevelt came into office and put a bunch of new rules into place. In fact the words he used were

“The only thing we have to fear is fear itself”

Here’s a link to his inaugral address - you’ll find it illuminating reading

http://historymatters.gmu.edu/d/5057/

What happened then was the resumption of lending as people took money out of their mattresses, a resumption of trade. Something that many thought would never happen again, because things had changed so much.

Eventually we triumphed over FEAR.

And that’s why you should not be afraid of the F word.

But let’s say that the downturn is worse than the depression, let’s give it one more years - so four years of blah’s

Now tell me which companies will be surviving after four years - Will it be Wal-mart? Will it be Royal Bank? Will it be Proctor & Gamble? Will it be Unilever? Will it be McDonald’s? Will it be VISA? Will it be Fairfax Financial? Will it be Power Corp of Canada?

The answer is YES to all the above. So why not add to them now, and stop being fearful.

Remember REAL companies pay dividends. Solid companies with mature businesses in near monopolistic situations. People buy stock in these companies FOR the dividends. Any stock price appreciation is a bonus. When companies stop paying dividends, you remove the primary reason to buy the stock. Period. Companies that do not pay appreciable dividends are purchased purely for speculation…that the stock price will go up.

Companies should be actually be priced on the basis of how much money they make. If you are a stockholder, you get a share in the profits. That way the share price has some basis in reality, and is not founded on the behavioral impulses of masses of financially under-educated lemmings hurtling here and there.

It wasn’t just FDR that took on Fear, but also his wife

You gain strength, courage and confidence by every experience in which you
really stop to look fear in the face. You must do the thing you think you cannot
do.
-Elanor Roosevelt

NO. Things aren’t THAT bad. The only thing that is that bad is the amount of FEAR that is pervasive in the investment world.

Once the public becomes desensitized to the words “credit crisis” and realize that nothing has really changed in their world… they will come back to spend dollars on items we all en masse held off of over the last couple of months.

Same way the public started to sadly ignore soldiers dying abroad… dire news on the economic front will fade as CNN (and the likes) look for bigger news to attract an audience.

Everyone is on the fear bandwagon. FEAR + MEDIA = concerted emotion.

the last three months have been a sharp drop off because the above two factors choreographed a freeze in consumption on both consumer and corporate levels.

Once this fear lifts and consumers (that haven’t bit the dust) go back to their programmed behaviour, revenue will start to surprise.

Normal behaviour will return because as fear fades… normal expenditures will leak back into the economy and the SKEW of data will normalize. It will not be GREAT but it will not be DIRE, unless everyone continues to meditate on Fear, Doom and Gloom… however, I’m confident that awareness and rationality will eventually prevail.

Concerted fear has skewed the most recent results but we will swing over to more normalcy albeit not the peak consumption levels of yester-year.

From Bud Labitan Author of “The Four Filters Invention of Warren Buffett and Charlie Munger. Two Friends Transformed Behavioral Finance.”

Peter Cohan of Babson College recently wrote that

“The problem we face now is fear of insolvency which leads to capital hoarding. Financial Institutions do not know whether it is safe to do business with other FIs because the others might be insolvent.” He believes that “if they could be confident that they were solvent, then they would lend to each other because they would be missing out on profit opportunities.”

However, there is more going on now that remind me of a young patient with cancer. Warren Buffett has described the recent American economy like an athlete who has collapsed of cardiac arrest and needs resuscitating with a defibrillator. But, what if the cause of this collapse is a tumor close to the economic heart?

Tumors that originate in the heart are rare, but can be either benign or malignant.

Because the heart is such an essential organ, even benign tumors can be life-threatening. Myxoma, the most common benign tumor inside the cavities of the heart, accounts for about half of the tumors that originate in the heart. Fibromas, which also develop in the myocardium or the endocardium.

Malignant tumors that originated elsewhere in the body and spread to the heart are more common than ones that originate in the heart.

Malignant tumors, including carcinomas, sarcomas, leukemias and eticuloendotheliar tumors, can spread to any heart tissue. Lung and breast cancers often invade the heart.

Treatment of myxoma is usually done by surgical removal of the tumor.

Treatment of malignant cardiac tumors usually involves radiation, chemotherapy and management of complications.

So, the bottom line is this: If these “toxic derivatives of unknown value” are the tumor around the heart of advanced economies, then they need to be effectively identified, shrunk, and safely surgically excised from the healthy portion of these economies. Until a comprehensive treatment plan is devised to include radiation, surgery, and rehabilitation, the current infusion of extra blood is just keeping this patient alive.

Yep it’s Obamanomics, thet we’re all waiting to hear about

Firstly, I expect him to be the polar opposite of Bush. He’s articulate, he’s smart, and he got here through meritocracy, not because of a rich dad.

So, we could see a complete reversal of the last eight years. This may not be a commodity market for the next four years.

Obama sparked the biggest Election Day rally ever. But the market may be bumpy well into ‘09.

Nevertheless, among investors perception often trumps reality: Obama’s victory has already boosted some health-care plays, because his insurance proposals should increase demand for generic drugs and companies that manage drug benefits. And the mere anticipation of his victory had triggered declines in the securities of coal companies, because Obama has hinted he is against increased use of the dirty fuel until there’s a proven clean-coal technology.

One of Obama’s key first steps will be to address the financial crisis. Frozen credit markets and the subprime mortgage crisis are the main factors that led to the economic slowdown in the U.S. and, in turn, the world - the new guy can only do so much to fix those problems quickly. But, just like Clinton talked about “it’s the economy stupid”. Obama also had made this a key focus.

Obama’s election provides some stability among unprecedented financial turbulence. The uncertainty has been removed.

However governments alone can’t prevent a recession, nevertheless Obama’s promises of a stimulus package for America’s struggling manufacturing industry, which could include a bailout for the U.S. auto industry and plans to invest heavily in infrastructure, could give the economy a much-needed boost.

The Obama presidency could also negatively affect the oil industry, as the president-elect has said he will fight America’s “addiction” to dirty oil, which could include crude from Alberta’s oil sands. This greening is his JFK “Man on the Moon” speech. And just like the US did put a man on the moon, they will probably succeed in weaning their demand of global oil down. Remember the US is the largest consumer of Oil in the world, so think about what this means to all those asking for a return to high Oil prices.

Who are the other winners and losers under Obama? Here’s some thoughts.

The Market

Although Obama’s prospects sparked the biggest Election Day rally ever, the gains were more than erased the very next day in the face of bleak economic news. Get ready for more see-sawing. Until the market decides if Obama is good or bad for stocks, and to what degree, volatility will still be around.

At the moment, former Clinton Treasury Secretary Lawrence Summers and New York Federal Reserve Bank President Timothy Geithner look like the leading contenders for the Treasury job. However, Obama said he was going to take great care in selecting his Treasury secretary, and that an announcement would be made in weeks, not days. He said he wanted to get the decision right, not make it in haste, which suggests that the field may be wider. This is an extremely important decision, and again shows his shift from the Bush administration - Paulson an ex-Goldman Sachs (Wall St) guy will be out. Obama’s Treasury secretary will probably be more neutral toward Wall Street than Henry Paulson.

We’ll see Obama trying to shift to more peace talks, and discussions with dissenting nations - the peace premium means lower prices for Oil and Gold.

What else can the new president do? With economies around the world under siege, it could be at least a year before any of his fiscal policies dramatically affect stocks.

You can expect Hedge funds and their managers to be taxed higher. Taxes have to be increased in the US to fuel some of the changes.

Financial Services

The stocks of banks, brokerages and other financial concerns, can expect stricter regulations that may well crimp returns, but provide a greater confidence in them

Financial stocks are getting so cheap that they’ll be hard to resist. The Standard & Poor’s financial index is down about 51% so far this year, trading at 11.3 times ‘09 earnings, versus a 36.6% drop for the S&P 500. Financials may well be among the most attractive sectors when the smoke clears.

Infrastructure

Obama has made clear that he wants to bolster the US’s crumbling roadways, bridges, schools and sewer systems, and for that reason municipal bonds are gaining interest (they’ll have to raise the cash to do the building). The Obama administration will likely send increased amounts of grant money to the states, improving their cash flows and allowing them to complete old projects and start new ones, all of which should energize the US muni bond market.

Another reason for this is infrastructure building creates jobs in the US - these jobs can’t be outsourced to some call center in India, or to China.

Defense

Democrats have been threatening to whack the defense budget. House Financial Services Chairman Barney Frank made headlines when he said the defense budget should be cut by 25%.

Soldiers will be reduced in Iraq (sent to Afghanistan), so don’t expect this reduction in capital spending to happen soon.

Green Energy

Obama’s promise to create a green-energy industry to help reduce the nation’s dependence on foreign oil has alternative energy in everyone’s winner’s circle.

You can expect the Oil nations to be severely impacted, just like they were under Clinton - Saudi Arabia was in deep trouble, so was Alberta! And they didn’t come back till 8 years later.

Already Obama’s talking about people getting credits for buying cleaner burning cars.

Much of the Oil pushers are talking about demand from China and India. These countries usage is still well below US usage.

One of the thoughts you should be thinking about is, “is China the new Japan?” In the 1990’s Japan could do no wrong, an investment managers around the world mistakenly thought that they’re manufacturing processes etc would make them the new leaders of the world, the greatest guzzlers of energy. Still waiting 18 years later.

So, be careful and revisit the stories on Oil usage. John F Kennedy showed how a commitment to a goal (his was putting a man on the moon) could make things happen. Obama has said Foreign Oil dependency to be eliminated in 10 years.

Auto Makers

Both Obama and the Democratic Congress have committed to rescuing the U.S. auto industry.

“The bailouts will fail because Detroit’s production costs are too high and the world auto market has excess capacity,” he says.

Health care

Another Obama play is health care, which is likely to be the target of a Hillarycare redux. Drug companies may get the shaft.

Drug makers fear losses in revenue as Democrats push to negotiate lower drug prices under Medicare.

But there also could be some winners in health care. The generic drug makers could benefit from any assault on drug pricing. And managed-care companies could benefit by bringing technology systems and other efficiencies to the insurance market and pharmacy-benefits services.

The Bottom Line

We could see the reverse of the Bush era, much like we saw with the Clinton reverse of the previous Bush era.

What does it mean for Canadians

- Still need Bonds, maybe we’re wrong, maybe it’ll take longer than thought to get all the plans implemented
- Companies with good balance sheets and giving dividends make sense
- Eventually, in the next four years we will get out of this mess, and get stronger. Obama will be planning for relection in three years, so he really has three years to clean up things. Things may happen faster than most expect, including me.

Remember reversion to the mean.

Bush signed an executive order creating a “transitional coordinating council” to insure a smooth transfer of power to the next president.
Their next challenge is getting it away from Cheney.

I had been walking behind two nuns the other day, when a rather large gent exited a corner sports bar. and headed down the street in our direction.
It was obvious that he had over indulged as he was staggering around quite a bit, and noticed that it had made two nuns very nervous.

As the man approached, the two nuns split apart, one walking to the man’s left and one walking to the man’s right.

After the nuns were past the man, I heard him mutter, “Now how in the hell did she do that”?

Despite the persistent volatility of the stock and commodity markets, frozen credit markets around the world continue to show signs of steadily thawing. The 3 month LIBOR rate has fallen for 20 consecutive days. What this means is that Banks are lending to other Banks, they’re just not lending to us yet. Eventually, when Banks begin to trust us again, they’ll start lending to us. When will that be, when the assets we have go up, when house prices we own go up. So, like the old saying goes - A banker is someone who gives you an umbrella when you don’t need it, when the sun is out, not when it’s raining.

The Reserve Bank of Australia cut interest rates by 75 basis points.
The Bank of England cut rates by 150 basis points from 4.50% to 3.0% and the European Union cut rates from 3.75% to 3.25%.

Inflation fears that were rampant only a few months ago appear gone for now. Hey Oil is down 60% since July this year.

So, what caused the markets to fall after the US election

Profit-taking may be a big factor in the selloff after Election Day bounce.

Last Tuesday’s biggest US Election Day pop ever had been followed by a 10% slide over the next two days — a bad case of buyers’ remorse suggesting traders are worried about the daunting economic challenges ahead. Yet the stocks hardest hit last week included many that were widely held by hedge funds, a sign the selling was driven less by fresh fundamental worries and more by money managers liquidating assets to shore up cash to meet the potential demands of their lenders and investors.

Also, the Standard & Poor’s 500 had surged 19% from Oct. 27 to Election Day, and the top 50 stocks leading that ascent fell 15.1% in the post-election slide — far worse than the 9.6% loss suffered by the bottom 50 laggards. “This indicates that simple profit taking has been a big factor of the selloff,” notes Bespoke Investment Group.

Also, after the close Friday, came bleak news from Omaha: Warren Buffett’s Berkshire Hathaway said third-quarter net fell 77%, the result of turmoil in the insurance market and investment losses. It was the company’s fourth consecutive quarterly decline in profits. (a whole year) Even Warren isn’t immune

Still, there are several things that could help stocks find a trough in November. These include;
- A continued improvement in the short-term credit markets,
- The end of uncertainty associated with this anxious third-quarter earnings season and the presidential election, and
- The passing of a mid-November deadline for investors to notify some hedge funds of redemptions this year. Hedge funds could come to center stage this week if they receive another wave of redemption requests from investors. The upcoming Nov. 15 deadline for redemptions could cause further instability in the market, Cohan said.
- Bad economic news just getting tiresome. Explosive surges in volatility are rarely sustained over time: Bad economic news ultimately loses its ability to surprise, and a stung market adjusts its pain threshold. Already, the volatility forecast as measured by the VIX volatility index has eased quickly — too quickly, in fact — from an October high near 89 to 45 by Election Day. It was at 56 Friday.

Did anyone catch the news last week about a certain Canadian company called Manulife.

Manulife Financial Corp. announced Thursday it struck a deal to borrow $3-billion from Canada’s big banks. Chief executive officer Dominic D’Alessandro, also told analysts he had asked the federal regulator to change capital requirements. The loan is an unsecured 5 year term loan, which will pay a floating rate to the banks, currently equivalent to 6.38%. That’s a bloody high rate to pay for a company with such a good credit rating score. What are we missing? Where are they going to make up the interest payments from?

The stock has fallen 35% in the last month or so.

Why is this stuff going on

- Did they make too many aggressive acquisitions, the bane of every power hungry majestic CEOs to leave a lasting impression of empire building at the cost of peon shareholders pockets.

- Did the accounting rules, that require mark to market accounting seem to strict for them? in that they had declare the current value of an asset if it dropped on their books, even if the asset was a long term asset. As a point of reference, I agree with market to market, because it is better than the other option - market to sell price, then nobody knows what it is worth, and a share price cannot reflect the pricing of assets correctly.

- or, were their investment products too risky, when they were really offered as safer investments.

And here is my big concern when it comes to these “Guaranteed Income Products” that are sold on the Insurance or Bank Acts as opposed to on teh Securities Act.

These products such as Manulife’s Income Plus, SunLife’s Sunwise, and Desjardins Helios - are variable annuities (and there’s a reason they are disliked in the US). Yet, being a relatively new vehicle in Canada, and saying all the key words - Guarantee, principle, income - they were an easy sell.

The reality is that in the Insurance Act and the Bank Act - Fees can be raised without a unitholder vote, without any information being provided to the policy holders (oops, yep, policy holders not unit holders). And if the investment returns are not going to come from the investments to pay the policy holders, guess who they are going to come from (Nope, not the insurance companies), but from you - the policy holder - Fees will be increased (without your consent). So, when you are getting that 5% - you are just getting your own money back! Oh and about the lifetime thing, it’s not free either.

So, this borrowing from the government of $3B, and the sell off of CI Investments from SunLife - could they be linked to mismanagement of product? Think about it. Why the heck would Sun Life sell a company like CI, unless they were in desperate need for capital.

From Reuters “Executives said manulife was going to scrap a whole swathe of investment products it has promoted heavily in recent years as a way for customers to save for retirement.” “A generation of so-called segregated funds, or variable annuities that offered guaranteed minimum returns will be redesigned, after the risk associated with making those guarantees helped rock insurers in the past two months”

There are a lot of insurance segregated funds that are going to be coming up on their ten year anniversaries - and guess what, the value of their investments may be lower than what they were ten years ago - who pays for that difference - the insurance company, where do they get that capital from - you, the policy holders of their other products.

The same goes for these PPN (Principal Protected Notes) - now that the principal is so underwater, these have converted to a Bond Fund. So, you now own a very expensive Bond Fund (probably the most expensive, and because they’re on the Bank Act, you’ll never get the true cost (somewhere around 3%)!

Think about, when someone comes to you offering these perfect investments.

I know I’m not going to make a lot of friends with these comments, and I know I’ll get a tonne of emails. But the thinking is - am I saying something so wrong!

There’s a reason why I never liked these things too much. Too much marketing, they jsut seemed to clever

Just to be clear, there are some reason to have these, and they will be suitable for certain individuals or corporations from the tax perspective and litigation side. But these clients aren’t the norm. They are not Joe six pack, or the Hockey mom’s.

Three rules to remember here

1) Measure twice, cut once

2) All that glitters is not gold

3) There is no free lunch

While political leaders around the world shout out about how terrible things are - how this is the worst thing that has ever happened, and blame blame blame

Examples of these leaders are

‘We are facing the worst at the moment, and if we are not bold, it will be fatal.’
- French President Nicolas Sarkozy, Oct. 21 to EU lawmakers in Strasbourg

‘We are in the midst of a once-in-a-century credit tsunami … Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief.’
- Former Federal Reserve chairman Alan Greenspan, Oct. 23 to Committee on Oversight and Government Reform

‘The world is on the edge of the abyss because of an irresponsible system.’
- French Prime Minister François Fillon, Oct. 3 in Paris on eve of meeting of EU leaders

‘Everything that is happening in the economic and financial sphere has started in the United States. This is a real crisis that all of us are facing. And what is really sad is that we see an inability to take appropriate decisions. This is no longer irresponsibility on the part of some individuals, but irresponsibility of the whole system, which as you know had pretensions to [global] leadership.’
- Russian Prime Minister Vladimir Putin, Oct. 1 to government meeting

One person has shown himself to be a very rational

‘The sky is not falling. The sky is still there, the sun is still coming up every day and the Canadian economy is still functioning … We started from a very strong starting point. We’re going into this difficult period for the global economy with a number of fundamental strengths … These problems originated outside of our borders, and the primary solutions to correct them must take place there as well.’
- Bank of Canada Governor Mark Carney, Oct. 23 at a news conference

Whew, a big sigh of relief: The markets are looking for an end to the uncertainty that has built up over the long campaign, and some direction on the financial crisis.

First the good news - George Bush is out come Jan 20, 2009, and no more hockey mom, Joe the plumber jokes.

like

“It turns out that Joe is not a licensed plumber, he had to admit that he’s ‘not even close’ to buying the plumbing business, the business does not bring in $250,000 to $280,000 like he said, and his name isn’t even Joe — it’s Sam. Turns out the only true thing about ‘Joe the Plumber’ is ‘the.’” He’s the Sarah Palin of plumbing.” –Jimmy Kimmel

“In Boca Raton, Florida, yesterday, a woman who looked like Sarah Palin caused a near riot when she walked into a diner for breakfast. And after a minute or two, people finally realized it wasn’t her when she started answering questions.” –Jay Leno

Next the Bad News - Economic problems won’t be fixed overnight, but there is light at the end of the tunnel.

Throughout the election, the struggling global economy has been the number one issue. In the past month, focus on the economy has intensified as governments have introduced a series of sweeping efforts to recapitalize the global banking system and revitalize lending.

The change in administrations, of course, comes at a critical moment for the global economy — and US President-elect Obama will play a central role guiding it.

What has he talked about doing

Obama’s response to the financial and economic crisis will have to follow in line with the parameters set in the massive $700 billion financial rescue package passed by lawmakers and signed into law by President Bush in October. He voted for that bill, but also then came out with a fbunch of proposals to ease the growing strains felt on investors as a result of the crisis.

Among the measures he proposed:

- A new Treasury chief: Whoever Barack Obama names to replace Treasury Secretary Henry Paulson will be particularly important since the federal government has already taken unprecedented steps to intervene in the financial markets in an attempt to deal with the credit crisis. Obama economic advisor Warren Buffett has also been suggested as a potential pick for Treasury secretary. And during the second presidential debate, McCain even endorsed him as a possible pick if he wins. But Buffett, the legendary billionaire investor who controls Berkshire Hathaway, told a forum last month that he would like to see Paulson asked to stay on. Paulson is on record as saying he does not want to remain in the post, though. Buffett also
had praise for Federal Deposit Insurance Corp. chairman Sheila Bair, who others have speculated could be selected by Obama. Bair has taken an active role in trying to stop banks from foreclosing on homes and Obama has said that this would be one of the main issues he would want his Treasury Secretary working on. Bair would also be the first woman to hold this Cabinet position. There are a number of other good candidates.

- Temporarily allow penalty-free early withdrawals from IRAs and 401(k)s of up to 15% of the balance but not more than $10,000.

- Temporarily suspend rule that seniors age 70 1/2 take required annual distribution from retirement account. (good rule for Canada to adopt)

- Exempting jobless workers from having to pay income taxes on unemployment benefits and calling for an extension of those benefits; and

- Give temporary tax credit of $3,000 in 2009 and 2010 to companies for each new full-time employee it hires in the United States. (Now that’s a great idea for Canada to adopt)

- Obama has stressed the need for greater transparency and imposing capital requirements on financial institutions. (more regulations to come and stricter one’s) - Canada’s already there.

· Impose liquidity and capital requirements on investment banks. (again more regulations)

· Streamline regulatory framework of the financial services sector. (again more regulations)

· Create an oversight commission that would advise the president, Congress and regulators on the health of and risks facing financial markets. (okay, more regulations)

· Obama has said that his top priority as president will be ending U.S. dependence on Middle Eastern oil. Expect Oil prices to be affected by less demand from the US.

- He supported the government’s takeover of mortgage giants Fannie Mae and Freddie Mac in September as a stop-gap measure. But he has called for reform of the agencies so that ultimately their public functions will be completely disentangled from their private ones.

- Oh yes, probably the most important issue - the exit of troops out of Iraq! that alone will save around $10 Billion per month. He’s quoted as saying within 16 months. Start counting

So what does it mean for us

Peering into the future is tricky in the best of times. But even though predictions always turn out to be flawed - it’s impossible for even the smartest experts to nail this stuff perfectly - you cannot build a future without first guessing what challenges you’ll face on the way there.

History is our best guide. It has taught us that recessions tend to push inflation lower; that stocks usually recover before the economy does; and that jobs recover later. Most of all, history shows us that downturns don’t last forever - and that it’s when people are most disheartened that rebounds begin.

So, with the US elections over, you can expect a broad-based, global market rally, sometime, maybe not right away.

My reasons are simple. In the short term, at least, stocks respond to sentiment more than fundamentals. For example, even in the face of an oncoming recession, the recent downdraft sank many stocks to prices much lower than justified by their fundamental outlooks. The same thing would happen in reverse now. Whatever the reality, in many people’s minds, the Democrat represents hope for a better future. In
election cycles since World War II, the Dow Jones industrials have posted bigger average returns under Democratic presidents, the Stock Trader’s Almanac says.

That’s true globally, not just in the United States. Polls in Russia, Germany, Spain and even China tell the same story. People around the world express optimism that Obama, as president, would change U.S. foreign policy for the better. Further, a win by the Illinois senator would prove that the American dream was alive and well.

Those positive feelings would likely spill over to stock markets, pushing share prices higher in the U.S. and around the world. Eventually, the excitement would diminish, and the market would go back to worrying about how business was going.

In the United States, Wall Street has historically enjoyed a bounce in the fourth quarter after a presidential election. I don’t know if it’s the end of the bear market yet, but it looks as though the bear has taken a nap. The elections may only have a
peripheral effect on the market, as there had been no major surprises. More important to the rally, are the continuance of coordinated interest rate cuts worldwide, the continuing thaw in the credit markets, improvements in lending and corporate earnings and the increasing resiliency of the markets to the daily drumbeat of bad economic news.

More rationality seems to have arrived

Did you know that every Hotel in Hawaii has a copy of a certain book, besides the Bible.

It’s the teachings of Buddha written/spoken in 486 BC

A lot of the characteristics that showed up in successful investors also showed up in Buddhist philosophy.

Here are the main points and their relationship to investing

The Four Noble Truths
1. There is Suffering Suffering is common to all.
2. Cause of Suffering We are the cause of our suffering.
3. End of Suffering Stop doing what causes suffering.
4. Path to end Suffering Everyone can be enlightened.

1. Suffering: Everyone suffers from these thing
Birth- When we are born, we cry.
Sickness- When we are sick, we are miserable.
Old age- When old, we will have ache and pains and find it hard to get around.
Death- None of us wants to die. We feel deep sorrow when someone dies.

Other things we suffer from are:
Being with those we dislike,
Being apart from those we love,
Not getting what we want,
Investing - worries about the uncertainty of it, the volatility of it
All kinds of problems and disappointments that are unavoidable.

The Buddha did not deny that there is happiness in life, but he pointed out it does not last forever. Eventually everyone meets with some kind of suffering. He said:
“There is happiness in life,
happiness in friendship,
happiness of a family,
happiness in a healthy body and mind,
…but when one loses them, there is suffering.”
Dhammapada

2. The cause of suffering
The Buddha explained that people live in a sea of suffering because of ignorance and greed. They are ignorant of the law of karma, laws of the markets and are greedy for the wrong kind of things and pleasures. They do things that are harmful to their investments, bodies and peace of mind, so they can not be satisfied or enjoy life.

For example, once children have had a taste of candy, they want more. When they can’t have it, they get upset. Even if children get all the candy they want, they soon get tired of it and want something else. Although, they get a stomach-ache from eating too much candy, they still want more. Replace the word candy with investment sector/country/etc. What we want is our choice of grande iced flappa-wacker-skinny-chino on rye to go, in like, two minutes, and for only five bucks, so we don’t really mind. Like the kids in Pinocchio, we don’t realise that, at this very moment, we are becoming donkeys. The things people want most cause them the most suffering. Of course, there are basic things that all people should have, like adequate food, shelter, and clothing. Everyone deserve a good home, loving parents, and good friends. They should enjoy life and cherish their possessions without becoming greedy.

3. The end of suffering
To end suffering, one must cut off greed, fear and ignorance. This means changing one’s views and living in a more natural and peaceful way. It is like blowing out a candle. The flame of suffering is put out for good. Buddhists call the state in which all suffering is ended Nirvana. Nirvana is an everlasting state of great joy and peace. IN Investment terms, Nirvana is not the continuing uptrend of the markets, they never going down. But more the acceptance that downs are a normal part, and accepting them, and taking advantage of them. And cutting of the fear and greed.

4. The path to the end of suffering: The path to end suffering is known as the Noble Eightfold Path. It is also known as the Middle Way.

THE NOBLE EIGHTFOLD PATH

1. Right View. The right way to think about life is to see the world through the eyes of the Buddha–with wisdom and compassion. To have the right view on the markets, and not get carried away with the daily news and events that excites or depresses us.

2. Right Thought. We are what we think. THink carefully about your investments, chhose them with the right understanding, and not based on some excited phase, do rational thinking.

“Be fearful when others are greedy and greedy when others are fearful” - Warren Buffett
Do not let your emotions get control of you-invest with reason and logic

3. Right Speech. By speaking kind and helpful words, we are respected and trusted by everyone. Don’t speak about markets as if they are a cursed thing, understand that the way you speak about your investments also affects you physically.

4. Right Conduct. No matter what we say, others know us from the way we behave. Before we criticize others, we should first see what we do ourselves. The same goes with investing, it’s no use criticizing or comparing against other investment or products. Should have been in GICs, or this fund is better than yours etc. This gets you nowhere.

5. Right Livelihood. This means choosing a job that does not hurt others. The Buddha said, “Do not earn your living by harming others. Do not seek happiness by making others unhappy.” Do not choose investments, because they are planning to do some investment harm - this is why derivatives and such are not as great as they seem. The normal trend of investments is based on companies growing and making profits. Derivitaves such as shorts etc benefit from others having pain. There is a need for them to control risk. But the exaggerated use of deriviatives with leverage is a big cause fo the pain we are all collectively going through in the markets.

6. Right Effort. A worthwhile life means doing our best at all times and having good will toward others. This also means not wasting effort on things that harm ourselves and others. IN investing, right effort, means making sure that the managers you have chosen have the right experience, that homeowrk has been doen in their selection and choice. They weren’t just chosen/rejected because of their recent past performance.

7. Right Mindfulness. This means being aware of our thoughts, words, and deeds.

8. Right Concentration. Focus on one thought or object at a time. By doing this, we can be quiet and attain true peace of mind.

Following the Noble Eightfold Path can be compared to cultivating a garden, (similarly fro an investment portfolio) but in Buddhism one cultivates one’s wisdom. The mind is the ground and thoughts are seeds. Deeds are ways one cares for the garden. Our faults are weeds. Pulling them out is like weeding a garden. The harvest is real and lasting happiness. In investing, the investment portfolio is the ground and the money you invested is the seeds. The management of them is the care for the garden. Our emotions are the weeds. Pulling out your emotions from your investments is like weeding a garden. Bad weather can come, bad weather can cause havoc, but with continuance of management care, and good seeding the harvest is real and lasting.

Ultimately it’s all about

“ When proper temperament joins up with the proper intellectual framework, then you get rational behavior.” – Buffett

Yep, your dreams have come true, finally a car that runs on air, and for around US$20,000.

Is there any wonder why the Oil companies are trying to squeeze the last amount of profit out of the system.

Zero Pollution Cars developed a car that runs on compressed air

Here’s the links of interest or you can google “Zero Pollution Cars”

http://www.squidoo.com/compressed-air-car

http://www.associatedcontent.com/article/1175306/zero_pollution_motors_to_introduce.html

http://inventorspot.com/articles/zero_pollution_motors_bringing_a_11032

http://www.autobloggreen.com/2008/02/21/air-car-coming-to-america-by-2009-2010-will-cost-17-800/