Ms. Park did a series of radio and television interviews for CBC today across Canada. Tonight a segment of her interview will air at 9pm est on The National, talking about risk in current credit and stock markets around the world.   more »

So far (at least) today we have bounce day for equities and some commodities. While metals and the Canadian dollar are down hard again as I write.

Bounce days are a natural recurring phenomenon in on-going bear markets. But it will take more than a few bounce days to reverse recent trends.

Dropping through the key level of 12,750, the TSX is now hovering around its last bull cycle peak reached in September 2000:



If the TSX cannot hold at the 11,300 to 12,000 range, the next leg down would look to the psychological 10,000 for potential support. For the past couple of years, my technician partner has told me that 10,000 was the potential downside target for the TSX and the Dow this contraction. Hopefully the broad markets will hold there...   more »

Stock markets are plunging today supposedly in response to uncertainty over the Paulson bail out in the US. Actually that is not true. As I have said before, for the past couple of years stock markets have been wildly over-priced and blindly optimistic about economic prospects in 2008 and 2009. The real estate markets have been correcting for a couple of years already, the credit markets have been in severe contraction for over a year already. The stock markets of the world have been slow to get it and are now rather violently having to concede reality. Stock investors have been slow to wake up. There is an old adage in finance that the bond markets are driven by the brains, while the stock market is driven by hair brains. The adage is seemingly accurate this time again.

Recently I have seen many comments expressing a belief that governments will step in any day now and stop market declines: "they won't let the stock market go down, they won’t allow it." Sorry folks this thinking is a fool's folly. The truth is the governments are not in charge of the stock market. It is not even meant to be on their radar.

Recent emergency government efforts are focused on trying to shore up the banking system. They are not meant to save stock investors. Stock investors are on their own. And those that did not realize that before today, are suffering greatly through this. The present downturn is the most serious global financial and now economic crisis that we have seen in decades. Once the economic contraction begins to abate, and the next bull market does begin, it is likely to take years before stock and commodity markets will retest the highs of 2007. This is just how market cycles work.

Meanwhile there was an excellent article by James Galbraith (yes John's son) in the Washington Post this weekend. Apparently he too sees green technology as the next growth area that North Americans can peg our economic recovery too. See "A Bailout we don't need" for some wise perspective.

The Canadian market had its biggest decline today since October 2000. But we should recall that October 2000 was not the end but only the start of the 2000 to 2002 bear market in stocks. It is very likely that today will not be the end of this bear market either. Having lagged this global downturn to date, I suspect that Canada has more catching up to do on the downside.   more »

For me, the hardest thing in watching the current financial crisis unfold is that is was entirely foreseeable and could have been avoided had there been any independent, responsible thinkers in charge. Instead we got herd-think and Bubblenomics that led the world to the current mess. Governments were horribly remiss and out of touch with reality over the past several years. Now they are backed into a corner desperately seeking solutions.

I am frustrated at the stupidity and hubris that have led to this. But I also have empathy for the difficult choices that must now be made. The same elected officials that were clueless as the problems developed are still clueless about how best to help resolve them. But they do have to try; it comes with the job. The Paulson bail-out proposal is disturbing on many levels but mostly because of its rush, rush, jump don’t look approach. Unfettered discretion by the Treasury, blank cheques and a lack of accountability are not giving thoughtful viewers any comfort. Bush, Paulson and possibly Bernanke are all on their way out, but their legacy and policies will be with the world for much longer.

I have said all along, that the bulk of the cost to clean up this mess must lie with the financial institutions that sold us the genius junk in the first place.
Yes we should allow them a time capsule to put the bad debt into so that they can write it off gradually over time. Yes, we need them to repent and reformulate themselves and they do need to survive in order to do that. But they should not get a trillion bucks from the public to fund their rehab...   more »

Ms. Park was the guest Portfolio Manager on BNN, Market Lookahead this morning at 9:20am talking about recent news of the US bail-out package and Warren Buffett.
A clip of the interview is available here.   more »

I caught Donald Trump on Larry King last night. He was telling people he is leery of the stock market here and would not be buying it. He was saying he would park cash in T-Bills or buy a house. Real estate prices have dropped a lot he pointed out.

I agree with the Donald's overall comments. So far US realty markets are down by 20 to 50% in many areas, and overall the stock market has dropped about 20%, so comparatively less. Generally speaking the higher asset prices are the greater the risk. Overall asset prices that have corrected more tend to present less risk to new capital than assets that have corrected less. That said this general statement is a very broad concept that needs much more fine tuning before we would call it an investment strategy. This brings me to the trouble with Donald and those like him.

Donald is rich so people swamp to listen to him. He is the "best in the world". Just ask him. The Donald is a "real estate guy", just as stockbrokers and mutual fund salespeople are "stock guys". He is telling people to avoid the stock market and buy real estate, because THAT IS WHAT HE ALWAYS SAYS!

The Donald was touring the country the last several years promoting his books and real estate seminars teaching everyone how they too can lever themselves to wealth through real estate. He was in Toronto last fall promoting his newest Trump Condos and telling captivated audiences why $1500 a square foot was cheap, cheap for his luxury condos in Toronto.

The Donald is an incredible sales guy. But no one should ever confuse his comments as strategically timed or valuable advice. And let us not forget that the Donald has gone bust a couple of times as well. Perpetually bullish people can be interesting entertainment, but we must never download them as advising our investment approach...   more »

Many years ago, when I realized how corrupt and self-serving the financial industry can be, I felt disheartened, disillusioned and thought about changing careers. At the time I had been working on the sell side of a major investment brokerage and I felt that my values had been sullied. About this time, the news was full of stories of scandal both in the business world and in the Catholic Church. From the coverage at the time, it seemed like all financial types were crooks and all Priests were pedophiles.

One day I ran into the Priest from my local parish. He is a man that I had always respected as liberal, smart and dedicated to serving his community. We got to talk and he asked me how things were going. I told him bad, I felt like I was in the wrong industry, and needed to change careers. I told him, "based on all the stories of abuse of trust in the news of late, it seems like both of our professions are hopelessly flawed." Then Father Frank said something that changed my life. He looked at me and he said, "Do you not think that the world still needs trustworthy advisors doing this work?" "Well yes," I said, "no doubt it does." "Then go and be that," he smiled...   more »

This morning markets around the world are roaring their hope-filled applause at the announcement that the US Government is trying to set up a place to swap in bad debts and get them off of bank balance sheets. If they can figure out a structure this weekend, and get it approved by Congress this could be the next necessary step to healing the credit crisis.

The other intervention announced yesterday is the farcical ban on short selling for the next 10 days. This is a ridiculous attempt to stop the natural correcting mechanisms of over-valued stock markets. Also see Big Picture article: SEC induced mother-of-all short covering rallies.

Notice there was no intervention to stop insane speculating on the up side over the past couple of years. Had there been some regulation on the upside we no doubt would not have arrived at the crisis now plaguing the world. But now that markets are trying to come back down to reasonable valuations, the authorities are stepping in to stop the evil speculators. This is a stop gap that will artificially inflate markets again temporarily only to exacerbate their declines again down the road...   more »

Ms. Park was the guest portfolio manager on "Investing Styles" on BNN this afternoon at 2:50 pm est. She was talking about the management discipline employed at her firm which has enabled them to make gains and not losses during the present bear market. A clip will be available after the show here on the BNN web site.   more »

The credit markets of the world are signalling severe distress. The overnight LIBOR rate (off which all credit instruments are relatively priced) yesterday shot to an incredible 6.5%:



Today the yield on US T-bills plunged to the lowest levels since at least 1954 as global funds piled into US Treasuries for relative shelter from the global storm. (This means that those already holding US T-Bills made money today.)

People who are shocked at the run back to the US dollar are not apparently aware of the relative risk in other emerging economies around the world. Russia, with its stock market now down 65%, today closed its exchange, suspending trading indefinitely. Also see Meltdown in Moscow.

China's stock market is down more than 70%. And every other world market has done horribly too. So much for the new economy. So much for international "deworsification". Terror has officially gone global. And so it should...
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Ms. Park will be doing a second interview with Ron Charles for CBC tonight airing at 9pm on Newsworld and 10pm on CBC Television.   more »

For the past several years, I have been writing about the likelihood that world stock markets entered a long secular bear cycle in 2000. In history these secular bear cycles have always followed long secular bull cycles and have averaged about 17 years from start to finish. The last secular bull cycle was 1982 to 1999. I thought it likely that this secular bear started in 2000.

When stock markets moved up from 2002 to 2007, I received many comments from people who took issue with the secular bear thesis: “stocks have been moving up for 5 years, so how could we be in a secular bear?”

The fact is that the cyclical bull in stocks from 2002 to 2007 did absolutely nothing to negate the probability that we were and are still within a secular bear climate that could last another 7 to 10 years.

This big picture secular thesis is so far reinforced by the following three charts:
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Ms. Park will be interviewed on CBC News Today with Suhana Meharchand at about 1:20pm est. They will be discussing this week's market action and the Federal Reserve interest rate decision today.   more »

Many people are angry and upset over the trend of recent events and mounting financial losses around the world. The list of those who bear guilt in this fiasco is long.

In the final months of election campaigns in Canada and the US, it is presently very popular to blame the current mess on failures of the Bush administration, regulators and Alan Greenspan. I agree they are all culprits in the present mess.

It is also popular to blame the executives on Wall Street, and I agree they are extremely culpable in this.

It is not so popular to blame the lazy, somethin’ for nothin’- consumption and risk-addicted behaviour of individuals who have helped to orchestrate their own demise. But individuals are clearly to blame too.

At the end of the day, no one party was to blame for present turmoil. So the reality is that no one party can fix it. Collective action through individual responsibility and behavioural change is the only way forward.

Recessions and bear markets are times when gains that were recklessly made in bull times are taken back. Bear markets are the time when the masses discover that those they deemed genius now profoundly disappoint.

The fact is that no CEO or analyst or big bank or government body is ever in charge of the prices bid on investment markets. I repeat no one person or body no matter how competent or educated or charismatic they may seem are ever in charge of the bid on investment markets. Investment markets (stocks, bonds, commodities, futures, currencies) are all secondary auctions. They are all priced by the collective bid of the masses...   more »

We live in very anxious times. People everywhere are talking about their fear.

The demise of the US economy has become gradually and then widely accepted as the U$ dollar plummeted for 7 years.

As the dollar fell and credit derivatives buoyed consumption, commodity prices shot to the moon.

But here is where human's fall down. We are backward looking creatures. When something has been happening for a while most of us can only see more of the same in the future. This is why most people (and governments) are poor planners and horrible investors.

To survive and thrive each phase of human history we must fight for objectivity and make fluid, realistic plans as we go.

For a long time, at my Canadian money management firm, based on our own set of technical rules, we had a sell on the US dollar. So we stayed out of the US dollar. At our firm we like to keep things simple and objective as possible. The U$ was dropping versus our home currency so we stayed out of it. While the U$ was dropping commodities rallied and we made money on commodities.

But we did not fall in love with commodities. We did not hate the US. We did not need to.

Last November we got a buy on the US dollar so we bought it. The trend has been going up ever since. This spring we got a sell on our gold and energy positions so we sold them. We did not question the signals we received on our rules. We did not argue against them, we did not try to insist on our way.

I have learned the hard way over the years, that I am small and inconsequential in world financial markets. My education is worthless, my reasoning superfluous. Financial markets don't give a damn what I think. They do what they do-- with or without us. The only thing that we can control as investors is our rules about when and how we agree to take part in markets...   more »

Back from Vegas (thank God). No offense to those that love it, but Vegas is one of my ideas of hell.

Another form of hell is seeing first hand the pain and still frequent denial plaguing commodity investors right now. People are literally losing their shirts this year and many are still assuming it is just a short bounce until all will be Rosie again. The typical problem of over-heated markets is clear. Tons of people bought into the commodities bull theory just in the past couple of years as prices went parabolic. Now that parabolic spikes are inevitably racing back down toward their mean, many are shaking their heads in disbelief. "I don’t get it," they say, "why are precious metals falling?" "Why aren't mining company shares doing well? Why am I losing money?"

Here I go with this simple comment once again: it’s called a bear market folks.

In bear markets like the one that we have been in since last October, pretty much all boats fall together; that means all risk assets like stocks, bonds and commodities.

Energy and commodity companies are late cycle performers; they make impressive gains late in the economic expansion. When the slowdown hits, they become the big laggards in keeping with their "deep cyclical" nick name. And important to realize, is that once these stocks turn down the sectors are not likely to outperform again as a group until the peak of the next economic expansion some 4 or 5 years from now!! You must time your exposure accordingly. Buy and hold is a sure fire recipe for disaster.

Another question I get is when I say that "cash is king in bear markets", some people ask "what do you mean by cash?"   more »

Ms. Park will be a guest speaker at the Hard Assets conference at Mandalay Bay Resort in Las Vegas Sept 9 and 10. You can learn more or register for the event here.   more »

Valuable investment management is simple but not easy. The investment world is full of hares that seem at times, to be sprinting ahead at breakneck speed. And in a world of short attention spans and systemic impatience, hares often attract great interest.

But the thing is this. In the long and medium run, it is humble turtles that win the money race. Turtles win by collecting steady, low risk gains, not losing capital and sticking to their buy and sell discipline in good markets and in bad.

Like the Tech funds managers before them, from 2003-2007, hedge fund managers attracted enormous capital and adoration. As commodity markets went parabolic, those "genius" enough to keep playing them were proclaimed prolific. And now we come full circle.

In the down cycle that began last October, high risk managers have been falling on their swords. Hedge funds that once sprinted on ahead are now trying to quietly close their doors. This is a very old story. The managers are sorry and bow their heads. The leverage that was a wonder drug in the bull market becomes a lethal potion in bears.

This week the next "surprising" casualty is the demise of the once exalted Ospraie Fund, the flagship fund of Ospraie Management, the commodities-focused money manager. Having lost nearly 39% of its value this year -- or almost $1.3 billion, with more than half of that in August alone -- the fund is being wound down. No longer pushing for returns on their money, investors are now hoping for just the return of some of their money. For several years Ospraie enjoyed a solid reputation. It appears they have been hurt by the rapid fall in resource companies, particularly in energy and mining. Apparently they have been taken unaware.   more »

For the year to date through August, equity markets worldwide fell an average of 23%, with U.S. markets down an average of 10% (Standard & Poor’s). All 26 markets in developed countries were down an average of 23%, and markets in 24 of the 26 emerging countries fell an average of 18%. The Canadian Venture Composite was down 30%. Jordan (+11%) and Morocco (+10%) were the exceptions.

The entire S&P 500 dropped 13% for 2008 through the end of August, with 343 stocks declining and 153 gaining. All 10 sectors in the S&P 500 were down, with
financials (-27%) falling the most, followed by telecommunications (-22%). Consumer staples did the best, (-3.2%), followed by materials (-6.7%), consumer discretionary
(-7.4%), health care (-7.6%) and energy (-7.8%).

These results refute once again, the myth that there is safety in spreading equity capital around the world in a bear market. It also demonstrates why buying "defensive stocks” in a bear market is also a fool's play. All boats fall in bear markets. Saying you lost less of your savings than others, should be poor comfort.

But here is the next big issue that markets will have to face going forward: according to data compiled by S&P, analysts are predicting 2.4% y/y earnings growth for Q3, then a surge to a record 62% in Q4 and 27% for 2009. The probability of getting this type of record earnings growth over the next couple of quarters is low to nil in my humble view.

I accept that I don't know much about the future. All we have is common sense and rational probabilities to calculate. But with the present Price to Earnings ratio of the S&P 500 already at an extremely lofty 26 times reported profits, (highest in 5 years, third highest in history) and the "E" in that equation risking more compression over the coming months, stock prices here must be clinging to a very rickety rung of hope.

Buyers and holders beware. You buy the "long always" party line from your broker/dealer/mut fund companies at great personal risk.   more »

US$ bears can wring their hands and forecast doom all they like, but the chart of the US $ over the past 6 months should silence its critics:




Meanwhile in the mirror opposite direction, commodities of all stripes and the Canadian dollar are tumbling as they must, down, down, down.

Much hope has been laid at the feet of China and India over the past five years; hope was that their enormous populations would fuel enough demand to abolish the business cycle and carry the global economy indefinitely. In Canada this hope became widely held optimism that our economy would continue to expand by selling our exports to Asia notwithstanding the contraction in western world demand. Central to this thesis, was the argument that the centre of the demand boom, over the past few years, has been Asia.

But the centre of the 2002-2007 boom never was Asia...   more »