Can you get carpal tunnel from driving too long? Yes

There’s a small town of 75 000 people that exists at the western edge of Ontario called Kenora (around 2:53 of the video). I am lucky that I made a detour to grab a Tim Horton’s coffee, otherwise, I’d never have seen it. It gives a feeling of a fishing village, except there are no fishing boats because the village surrounds a lake. The town center spans two blocks and one street, while the rest of the town are mostly residential area with red tile roofs. The lack of the usual big name discount retailer’s presence along with the high class houses dotting the street, tells me that this is more of a vacation area than that of a normal city. I will return to this place one day.

Winnipeg

The moment I cross the line to Manitoba, the mountains disappeared. The whole province seems to be flat. Surprisingly, Winnipeg with a population of 600 000 has a more developed downtown than that of Ottawa, perhaps even rivaling Montreal. Or maybe, I am just not used to seeing low density business districts since everyone wants to be crammed onto the island in Montreal.

The architecture here is interesting, the city doesn’t have a grayish feel to it compared to other major cities I’ve been to. Perhaps because of the stones that they used, or the simple fact that most of the construction materials are still new. Or even better, low pollution?

In any case, Winnipeg is a major hub, located in the middle of Canada. A lot of heavy industrial complexes with railroads everywhere. Might explain why gas here is so cheap. Why else can a city in the middle of nowhere get gas cheaper than any other city without producing any?

I touched the clouds today. Can you say you say the same?

Gas $37

Motel $53

I had no idea that the great lakes are situated on such a high elevation. I took a mental note to one day return to Terrace bay and maybe retire there for a year or two during the summer.  I mean, who can resist a pituresque lake where you get to enjoy a quiet day fishing shrouded by clouds.

Thunder bay is a city of 110 000 with a small downtown that reminds me of a surfer’s vacation city. No sky scrapers with a peaceful feeling… except for the Walmart and big corporation invasion in the new part of town. According to Terry, the Motel manager, Thunder bay is the biggest producer of amethyst and gold in Canada.

One thing that is new for me are Indians. At first, I thought they are Asians, but there are subtle variations in their facial features that made me doubt my decision until I asked one of them. It make sense though since this is the most logical place in Canada to be untouched by western society. At least, I don’t stand out like the only colored person within a white soup.

Tomorrow Winnipeg… Oh yeah and I made this video out of time lapse video every 5 minutes. It seems to have turned out ok. I will try a finer grained time lapse tomorrow since the memory card and battery seems to be able to take it.

Motel: $56

I made good progress today, drove 762km in about 10 hours. The weather is cooler and Lethe is quickly adapting to life on the road or in her case, life in the car. Here’s her sleeping comfortably behind my head rest on the old carpet from my frosh year that I decided to keep. After 12 years, there’s just too much emotional attachment to it (The first major purchase I ever bartered for). I guess my cat agrees, since it’s her favorite piece to sleep on as well as her favorite scratching pad.

2 hours, is how long Lethe Meowed before she shut up. This morning, she’s a little bit better once I let her out of the cage and roam freely in the car when we are away from civilization. By the end of the day, she only does that when the road is too bumpy, or if the car went from motionless to moving. I guess it made her remember that she dislike a moving car.

There really isn’t much to see once you get past Ottawa. I can only imagine all the bored college kids and the regrets that they might have when they reach this stretch of Canada. Trees and farms, just tress and farms… oh yeah and it’s white people all around, as far as the eyes can see. I wonder if I am a rare sight in this part of the country. In any case, tonight, I have a room to myself, hot bath and AC. Lethe will have a good night’s sleep and I will have a good night’s sleep. You really appreciate the smaller things in life when you are on the road.

Tomorrow is supposed to be the most scenic stretch of this trip as I circle around the great lakes. I’ll try to take pictures, but I still haven’t gotten the hang of driving manual with one hand while taking pictures.

Gas: $20

Goodbye Montreal

Been a while since I’ve written anything, but being on the road pretty much brings me right back into in every time. My journey started at 4:30PM Tuesday July 20th 2010 when my agent told me “You shouldn’t be here to wait for the buyer” and proceeded to convince me with the most profound reasoning. I agreed and left the premises of my condo immediately without waiting to hand over my keys to the new owners. Sure enough, my agent called me while I was in traffic, asking where the microwave is. The conversation is something like this:

“Microwave? That wasn’t part of the deal. The only appliances included are stove, oven, dish washer, washer dryer so I gave it away. In any case, they inspected the place 2 days ago and didn’t raise any question about the Microwave.” This is exactly why, my agent suggested that I leave with tail in between my butt cheeks. The closing of the sale deserves its own post and is a well of knowledge that I wish I knew before but alas, if every first time home buyer/seller knew them, the industry would go bankrupt.

I considered visiting all my friends a final time to say good bye, but decided against that option because closing the deal took longer than usual. On top of that, I believe I’ve said my proper good byes throughout the past two months already. Why destroy it with a hasty 10 minute visit? So off I went, knowing that I will see them again, just not as often as I’d liked. With Facebook around nowadays, the regret is not as profound as the heart wrenching goodbyes said when I immigrated to Canada. Back then, that was like a death sentence to relationships.

First night Ottawa

With little day light left, I only have time to drive the 2.5 hour drive to Ottawa and stay in the famous haunted jail hostel. Let me tell you something, the hostel and backpacker scene in Canada, is pretty much a rip off nowadays. Actually, you can probably say this for any established hostel that shows up in lonely planet or any established guide book in 1st world countries. For $70 dollars, I get a small jail the size of my old queen sized bed with no air conditioning, one parking spot and no wall plug for electricity. They don’t even allow my cat inside so I had to constantly check back on Lethe in the car throughout the night.

This is what my jail looked like:

This is what I woke up to:

The one thing I did enjoy was walking around the Ottawa university campus and reliving all the memories I had. As I walk past each piece of familiar landmark, a random insignificant memory gets triggered and tears welled up inside. These memories will be forgotten because I will probably never come back again.

There’s that monument where we met for our first date during the frosh year when I still couldn’t tell east from west in the city. A bit further, we have the Thompson residence where I spent most of my time while I was in school. Buried within the maze of interior corridors is the international house and the big space in front where we practiced dancesport every night. I thought I’d shed some tears here, but I didn’t. It was not as emotional as I’d thought.

I retraced our usual route back to the bus stop, where you’d snuggle underneath my long trench coat while we wait for the bus, to steal my warmth on a cold winter night. It was pretty convenient arrangement I am exothermic and you are endothermic.

The journey ended with the SITE engineering building. “It still smells the same.” was my first thought… “Poor engineering students” the second. As expected, the engineering building is the only building where students are still lingering about cramming and pulling all-nighters. All other buildings are empty in a hot summer night in the middle of summer. I was reminded of the time I did in this prison like existence.

Oh nostalgia. Why do you taunt me with lives I can never relive?

Western chicken is like a blank canvas to which you can draw and meld all the big flavors you want. Due to the genetic selection and the stale diet feed in the chicken farm, you cannot expect chickens nowadays to taste as delicious as it once did. Therefore, exotic techniques need to be applied to make it appeal to demanding palates. Chicken, the most used ingredient in cooking therefore, the hardest to excel at because everyone knows how to cook chicken. I recently came upon three huge chunk of chicken breast for $4.50, an opportunity too stupid to miss once locked on by my Asian cashdar. Henceforth, I present to you my 3000 calories a day 3 chicken meal.

Breakfast: BBQ pulled chicken

The story

Sizzling chicken dipped in succulent BBQ sauce with pan fried lemon to change the flavor in mid course. The altered flavor profile of a pan fried lemon is the perfect catalyst that can mix and morph the BBQ sauce. So in reality, this is actually two meals in one. To eat this, biscuits and milks are added so that diners can wipe their taste bugs cleans each time they take a bite out of the BBQ chicken. Strongly suggested if you want to switch the flavor profile by adding lemon juices. Also to the heavy handed approach I used in making the BBQ sauce, I took care to only put a small portion of the chicken for breakfast. What’s shown in the picture is enough to last you for 5 hours, I know because it did that to me.

The chicken is first pan fried, then oven baked to harden the surface and put into a slow cooker with the sauce. The BBQ sauce is a combination mixture of chili, ketchup, molasses and black pepper vinaigrette reduced over 8 hours of slow cooking along with the chicken in order to avoid the usual dryness associated with cooked chicken breast.

Lunch: Pan fried chicken with citrus-coconut sauce

The story

The lunch dish takes after the idea of having a good Spanish siesta where I will be out and having a good beer with a couple of co-workers. The chicken is pan fried for a long time and then oven broiled with the BBQ sauce to melt and crystalize the sugar in the sauce, making the surface crispy in the process. Fries and beer are served along with a special mixture of citrus-coconut sauce that I made specifically for this type of cooking.

Despite its small foot print on the plate, the coconut sauce is actually the star of the show. It is made by reducing a mixture of coconut milk, thai chili, indian curry and lemon zest in a pan until creamy. Giving it a strong and refreshing flavor. A contrast and much needed relief from the heaviness of fries and chicken.

Dinner: Beer sous-vide chicken

The story

Go ahead, take a bite out of the chicken. You’ll be pleasantly surprised by the supple tenderness that is overwhelming all your senses in your mouth. A special trait of any sous-vide dish is the even tenderness in the meat cooked by this technique.  Soft juicy beer spiced chicken with a dijon sauce derived from the same beer marinade it was cooked with. If you click on the image for a bigger version, you can actually see that there’s a slight pinkish glow in the chicken, showing the crossover point between raw and cooked.Nothing can be more serene than being hit by the surprise that is in this chicken. The whole time I was chewing, I was craving for some red wine mushroom gravy sauce. Sadly, I had none on hand to try what the combination will do. And before I knew it, I’ve already finished the plate.

The homemade crispy hash brown is the perfect contrast to the chicken, along with a small cup of steam rice and tea to bring back the memory of certain Chines dish: Boiled chicken in alcohol. That is why the garnishes for this dish has an Asian feel to it. By the way, this is how hash brown is supposed to be. Not those greasy patties that you see in school cafeterias.

It’s been a year since the official start of the recession. Many have suffered and we have all earned a few strands of white hair. But one year is just a convenient number for the media. After reviewing my trade journal, I realized that the reality of the recession is a multifaceted domino effect. Soon, the official body of finances will declare the end of the recession and we can all move on to our merry old ways.

Can we? The length of this recession is second only to the Great depression. Something of this length will always have ripples. I hope that you are all prepared to face that eventual outcome. In any case, here is my trade journal since 2006 that tracks the major events in the financial market. It’s quite long and captures what I feel at each steps of the way. I had some reserves about publishing this since it somewhat reveals the state of my financial situation, but I think my current position is sufficient different from the period this tracks that I don’t mind revealing it. You can also see me progress and evolve in my thinking as a investor and trader.

Note: There are some graphs lost during the copy and paste from my personal wiki. I will add these on as time progresses.

The Logs

September 2006, The subprime mess started where default rate started to rise and reports of illiquidity started appearing. These subprime mortgage companies have a valuation of several hundreds of millions in market value.  Amongst those, the biggest of them is CFC (Countrywide Financial). We see the first dip in the market as the smart people sold and got out of everything. However, the overall stock market continued to climb

The climb continued till summer 2007, the subprime sector has been completely wiped out and reports of defaults started appearing in Alt-A loans (the next tier).

Note: The major subprime players are: New Century Financial (NEW), Fremont General (FMT), HSBC (HBC), Citigroup (C), Countrywide (CFC), Washington Mutual (WM)

February 2007, Asian market crashed for 15%, S&P followed. In hindsight, this is also where the 100 SMA crossed 200 SMA and the net cash flow is out

March 2007, Estimated 1.3 Trillion subprime mortgage outstanding, with 600 billion made in 2006 which represents 40% of mortgage loans. In the years 2004 and 2005, it account for only 20%. The year 2007 sees the peak delinquency of loans originated in 2003 and 2004.

March 12 2007, New Century Financial shares suspended trading.

April 7, 2007, New Century Financial files for Chapter 11

July 2007, Bear Sterns seizes 3 of its hedge funds that trades subprime securities

August 6, 2007, American home mortgage files for Chapter 11

October 2007, we see the first report of the mess spreading into the traditional banking sector in the form of CDO (Collateralized Debt Obligation) and ABS (Asset backed securities). These are fancy names invented to cut up and mix different types of assets together (Mixing AAA with Alt-A) so that the rating agencies will rate it AAA+. It turns out that the ratings agency were working with companies like CFC so that they can both make money. False valuation houses and assessments of people’s financial were blurred to give as many people a mortgage as possible. The first major dip in the market occurred. CFC agreed to be bought out by BAC with a pure stock offering at approximately $4Bil.

Dec 2007, rate freeze for subprime mortgages in effect. Small market rally

Note: CDO volume: US$ 157 billion in 2004, US$ 272 billion in 2005, US$ 552 billion in 2006 and US$ 503 billion in 2007

April 2008, Bear sterns, the first reputable financial firm to fall. A case of too much exposure to subprime and overleverage. $40Bil wiped out within a week. The development was too fast due to the management hiding information from everyone. Prompting the fed to move in and force a sell while guaranteeing $25Bil in assets. The firm started by saying that it has no exposure to subprime at all. A technically valid term except that it has full exposure to the subprime from CDO and ABS due to the firesale and devaluation of houses.

July 2008, Crash in full effect. IndyMac, a deposit bank spun off from CFC recklessly loaned to home owners to get mortgage payments. Senator Schumer’s call to investigate its books brought about the first official physical bank run for a long time in the US. The failure costed 8.9Bil for FDIC. At this moment, I estimated that the FDIC can take approximately another 5 big failures like this as its fund has only $50.8 Bil

July 21~August 12 2008, SEC enacted naked short selling rule. Requiring naked short sellers to prove that they have the stock on hand before naked short selling. 19 Financial firms were protected

1. BNP Paribas Securities Corp (BNPQF, BNPNY)
2. Bank of America Corporation (BAC)
3. Barclays PLC (BCS)
4. Citigroup Inc (C
5. Credit Suisse Group (CS)
6. Daiwa Securities Group Inc (DSECY)
7. Deutsche Bank Group AG (DB)
8. Allianz SE (AZ)
9. Goldman Sachs Group Inc (GS)
10. Royal Bank ADS (RBS)
11. HSBC Holdings PLC ADS (HBC, HSI)
12. J.P. Morgan Chase & Co. (JPM)
13. Lehman Brothers Holdings Inc (LEH)
14. Merrill Lynch & Co Inc (MER)
15. Mizuho Financial Group  Inc (MFG)
16. Morgan Stanley (MS)
17. UBS AG (UBS)
18. Freddie Mac (FRE)
19. Fannie Mae (FNM)

August 2008, Warren buffet declares Fannie Mae and Freddie Mac “DEAD”

September 6 2008, Government bailed out Fannie Mae and Freddie Mac, the largest mortgage originator. They have over leveraged over the years by abusing the status of GSE (Government Sponsored Entity). Which allowed them to have leverage ratios unseen in any other financial institution. The bailout wiped out any preferred shares and normal shares, eliminating dividends. But senior debts are still paid. This move saves foreign investors asses. Otherwise, the US’s reputation will forever be tainted. FNM and FRE were seen as the equivalent of US treasuries, due to their status which is the only reason why foreign investors are interested.

September 15, 2008, Chapter 11 bankruptcy filing by LEH (Lehman brothers) and $50 bil buyout of Merrill Lynch by Bank of America (0.8575 BAC shares for each MER). Stock market plunged by 4%. LEH is a big player in credit default swaps so there are a lot of counter party claims that needed to unwind. The largest exposure to LEH are surprisingly foreign banks in Taiwan. LEH shopped for buyers for a week and couldn’t find many. By now, foreign wealth funds (dumb money according to Warren Buffett) has already overtaxed themselves and are weary of any acqusitions in the US.

September 16, 2008, the street turned to AIG (American Internationals Group), the insurer for credit default swaps as speculations about its liquidity arises. Add hurrican Ike’s 8 billion dollars in insurance claim, shorters are converging on this stock as the next one to fall. The speculation that a firesale of assets will make everyone’s book value decline. The fact that each financial system buys some pieces of the other financial systems ensures that a cascade effect will occur. Banks are increasing the interbank interest rate in order to hoard cash and sail through this storm, making it difficult for firms without a steady income stream to survive. Although the Fed said it has opened its discount window to investment banks or “anything too big to fail” AIG’s request for 40 Bil in funds was refused. Resulting in the plummet of its stock price. The fed realized its error and later lend 20Bil while allowing AIG holdings group to borrow from subsidiaries.

Summary of tresury, So far, the tresury spent 35Bil on Bear Sterns, 20 Bil on FNM and FRE (with promise of 300Bil total) and 20Bil on AIG. It seems as though the tresury has ran out of cash at 75Bil.

September 17, 2008, FED bailout of AIG for 85Bil. SEC reenacted short selling rule. Making it fraud for failure to deliver stocks on short selling. Treasury raises cash for the FED for 40Bil. Looks like the fed is running out of money.

Tally of government, The Federal Reserve has backstopped the purchase of Bear Stearns to the tune of $29 billion. It will loan $85 billion to insurer AIG. It’s letting banks borrow up to $150 billion using risky mortgage-backed securities as collateral. And it’s letting investment banks, which it doesn’t regulate, get short-term loans using the central bank’s discount window.

The Treasury, meanwhile, has pledged to backstop Fannie and Freddie up to $200 billion. Lawmakers passed legislation allowing the Federal Housing Administration to insure up to $300 billion in loans for troubled borrowers. They’re likely to loan $25 billion to the auto industry.

September 18, 2008, Gold, oil up, but other commodities down. New rules on naked short selling considers it a fraud for failure to deliver the stocks that you shorted. Making it mandatory for the transaction to settle (5 days) before you can short. Financials recovered a bit.

Note, Visa down to $60 from $75. I do not understand why since it has not assets affected. Could be because the failure of financial firms means less cards used. Also, firms with large chunks of assets are really feeling it as we are expecting a 30% decline in house prices, which directly affect the value of these assets.

September 19, 2008, SEC bans short selling. European exchange bans short selling

September 25, 2008, Warren Buffet buys 5 billion Goldman Sach’s shares. With a preferred dividend of  10%, more than anyone can get.

September 26, 2008, Congress failed to reach an agreement on the bailout due to Republican John McCain’s proposal of an insurance type of bailout by the government. Washington mutual failed and sold to JPMorgan Chase for 1.7 Billion. JPM immediately marked down 30 Bil in assets and raises 10 Bil in capital.

Note: Thoughts on the insurance method instead of the 700 billion bailout

• AAA+ rating on banks’s debt
• Banks still have to declare loss = stop lending
• Can sell assets = people willing to buy
• Default = taking the loss
• Banks pay for insuring = less capital
• Costs for banks to do business goes up = illiquid
• WHO BENEFITS???
  • Banks?? Small timers with little assets
  • Small with full subprime assets
  • Normal assets will not default, but marked down in value. So banks with “REAL” assets will suffer
  • Population? No dilution immediately, but rising cost as time goes on.

September 29, 2008, Wachovia bank failed and was taken over by Citigroup. US congress vote on the 700B bailout did not pass. Stock market in free fall.

September 30, 2008, Redemption deadline for hedge funds that require 3 months notice before years end. We will see a 20% drop from now to the new bottom. Systematic failure of each sectors of the finance industry.

Ocrober 1, 2008, SEC introduces new mark to market rule which allows banks to use internal estimates to value their assets instead of marking it down at fire sale prices.

NOTE: THIS IS HUGE and banks are allowed to include this in their next earnings’ release. Meaning the rebound should be in the 4th quarter.

Ocrober 8, 2008, Fed, with the coordination of other central banks, cut .50% from the interest rate to 1.50

October 15, 2008, Warren Buffet wrote an article on newspaper saying: Buy American

October 23, 2008, Wachovia bank reported 25Bil loss

October 24, 2008, Report of hedge fun selling assets to meet redemption starts. Expect a lot of hedge funds to fail.

October 27, 2008, Data shows that September shows the first increase of home sales. So far, no sector is recession proof. Everything went down. Even gaming and Pharma are down.

November 05, 2008, The market rallied by a lot the day before the election results, but started really low after Obama, the Democratic nominee got into power.  Because of his policy, I predict that pharma and renewable sectors are going to pick up while military contractors and others are going to go down. It’s perplexing why the market started with -1% though. I thought the financial sector wanted Obama so fixes can be done. Perhaps it is because the financial sectors has been pro Republican for so long.

Another thing to note. This election,  it is because of woman and college freshmen who got registered by the Obama campaign that made him win with such a wide margin. Otherwise, I think it will be a 50/50 like last time.

NOTE: This guy rose to fame by predicting the election result to  within 1% http://www.fivethirtyeight.com/

November 13, 2008, The treasury officially abandoned the previous plan after spending 280 billion buying up troubled assets. They are instead buying up bank shares as well as setting in place a new lendinig facility to buy up loans and bonds of consumer credit lending facility. The problem has now spread into the general economy where jobless claims and consumer spendings have declined sharply in one month.  The DOW dropped to 8000, BAC, my biggest stock owned dropped below my purchase price of 20 to 15. I have lost so much. Not sure if I can handle this.

November 14, 2008, Another redemption deadline for hedge funds. When will this end? What other sectors are there which presents a flood gate?

November 18, 2008, One of the best video game software producers Activision is dragged down and tracking the market with -40% (Tracking NASDAQ performance).  Current standing at Gamestop with three of its titles on the top 10. It recognized merger cost in the previous quarter, which is probably why its stock has been dragged down. It also initiated a 1 billion stock buy back plan.  Current EPS is at 26.92. Revenue keep on increasing and the only thing dragging it down right now is the restructuring cost. I really don’t get how the market can devalue it 45%. On a bubble economy, the EPS is around 18 on average for everyone.

November 19, 2008, List of companies that participate in the bailout. From MoneyNing

Ever wonder how many companies announced plans to participate in the US’s government TARP (Troubled Asset Relief Program)?

I did a little digging and as of November 18th, there were at least 25 companies either approved or planning to participate.  Here’s an unordered list.

1. First Midwest Bancorp Inc. (FMBI) – Received preliminary approval for about $193 million worth of investment
2. South Financial Group Inc. (TSFG) – Applied
3. CoBiz Financial Inc. (COBZ) – Plans to apply
4. E*Trade Financial Corp. (ETFC) – Applied for $800 million
5. Associated Banc-Corp. (ASBC) – Preliminary approved for $530 million
6. Capital Pacific Bancorp (CPBO) – Preliminary approved for $4 million
7. Fulton Financial Corp. (FULT) – Filed an application for about $375 million.
8. Trustmark Corp. (TRMK) – Preliminary approved and will issue $215 million in senior preferred shares and $32.3 million in common shares.
9. Pacific Capital Bancorp (PCBC) – Preliminary approved for about $188 million
10. Heritage Commerce Corp. (HTBK) – About $40 million was preliminary approved
11. Banner Corp. (BANR) – $124 million was approved in senior preferred, $18 in common shares
12. Columbia Banking System Inc. (COLB) – $76.9 million was preliminary approved
13. Heritage Financial Corp. (HFWA) – $24 million in senior preferred, $3.6 in common stock.
14. Bridge Bancorp (BDGE) – Considering participation
15. Cascade Financial Corp. (CASB) – About $39 million
16. Midwest Banc Holdings Inc. (MBHI) – About $85.5 million in preferred, $12.8 million of common stock.
17. Goldman Sachs – part of the initial 9 banks that the government bought equity stakes into, along with the 8 below
18. Morgan Stanley
19. J. P. Morgan Chase & Co
20. Bank of America
21. Merrill Lynch
22. Citigroup Inc.
23. Wells Fargo & Co.
24. Bank of New York Mellon
25. State Street Corp

As I know, the TARP is a 5 year program that allows banks to borrow at 5%, an amazingly attractive rate given the circumstances.  Do you have any relationships with these banks?  Are you scared that so many already announced their desire to participate (and many more assumed to have applied but without any announcements yet)?  Does it really matter to you?

November 20, 2008, Crude oil price falling below $52. DJIA falls below 8000 points, erasing 10 years of advancement. Canadian oil sands profitability noted as around $30. $52 is estimated based on sales and labor cost.

November 24, 2008, US government guarantees $306 billion of home loans, commercial mortgages, subprime bonds and corporate loans in citigroup. Add on to that, a $20 billion infusion of investment in preferred stocks. Getting 27billion shares that pays 8% dividend. Citigroup shares dropped 60% in value last week and jumped back 40% this Monday after the news. The deal is arranged in such a way that Citi takes the first $29 billion loss and the US citizen takes the next $250Billion

November 25, 2008, US congress promises to draft a $600 billion bailout to buy up mortgages for Obama to sign when he gets into office.

November 26, 2008, BCE buyout by Ontario teacher’s pension plan gets delayed again. The buyout prices BCE at  C$34.8 billion with $42 per share. The arbitrage was at $38 so represents a 10% premium. I was actually contemplating this yesterday as the deal is supposed to close on Dec 11. I wasn’t sure of the deal so I did some digging on the financial health of all the involved player. The first warning sign was Citigroup and the second  is the fact that the Teacher’s pension plan is losing $ 12 billion per year with total assets of $108 billion. The original plan was for Citigroup to sell bonds of this deal to hedge funds with a 10% interest. Which, if I am correct means that they are paying out 5 billion per year to bond holders.  It’s operating income is about $2.2 Billion per year with last year being the best at $4.4 billion ($2billion of which from a suspiscious “Other income” category). I am glad that I decided NOT to join in the arbitrage.

Under terms of the deal announced on June 30, 2007, Teachers Private Capital will hold a 52 percent stake in BCE, Providence 32 percent, Madison Dearborn 9 percent, and other Canadian investors 7 percent.

Decenber 04, 2008, Central banks all around the globe cut lending rates in huge chunks. Euro reduced 0.75% and New Zealand by 1%. Major banks started to cut the mortgate rate in 5 year and longer term mortgages.

Decenber 15, 2008 Bernard Madoff managed hedge fund giant 50 Billion Ponzi scheme discovered. Victims include funds of funds, rich people, charities and old rich retirees. Using current depositor’s money to pay out the 1% payout each month. Former chairman of NASDAQ stock market. 10 years +  of investing experience.

He is as close a figure to “Warren Buffett” as possible. Confidence in hedge fund is going to collapse and full liquidation is going to happen. After this, who can trust any fund manager?

December 31, 2008 More on the Bernard Madoff scheme unraveled. He basically paid the old depositor’s interest with new depositor’s deposit. FBI agents were tipped off by Madoff’s own son. The fund’s equities are insured with the SIPC. SIPC has $1.5 billion in assets. The scheme is said to be 50 billion.

People that caught Madoff’s scam: Aksia LLC, Harry Markopolos, Joe Aaron

People who might have conspired with Madoff: Avellino & Bienes, from 1983 to 1993, Fairfield and Union Bancaire Privee, Frank DiPascali, David G. Friehling, Jacob Ezra Merkin (Ascot Partners LP)

Investors who lost the most:

• Fairfield Greenwich Advisors, $7.50 billion
• Tremont Capital Management, $3.30 billion
• Banco Santander, $2.87 billion
• Bank Medici, $2.10 billion
• Ascot Partners, $1.80 billion
• Access International Advisors, $1.40 billion
• Fortis, $1.35 billion
• Union Bancaire Privée, $1.00 billion
• HSBC, $1.00 billion

January 1, 2009 Semiconductor chip slaes drop 10% year over year in Q4 of 2008. Morgan Stanley predicted that each point decline of GDP will cause a 3% decline of the ad market. Another predicted a 9% by basing the number on the rest of the world’s real data (instead of focusing only in US). So there’s a possibility of a 27% to 40% decline in online ad spending in 2009.

Luxury goods declined 35% year over year and electronics declined 27% year over year.

January 9, 2009 In 2008 the US lost 2.8 million jobs. Jobless rate increased by 2.3% translating to 113 million people working. December Intel’s chip sale figure started to show really bad signs. Walmart same store sales declined. However, Gamestop sales figure increased by 10.2%.

Jobless rate by month

1. 4.9
2. 4.8
3. 5.1
4. 5.0
5. 5.5
6. 5.6
7. 5.8
8. 6.2
9. 6.2
10. 6.6
11. 6.8
12. 7.2

At this moment, I still think that the video gaming sector is the one place where it is recession proof.

January 15, 2009 Rumours abound that says BAC requires further government fund to get through the Merill Lynch acquisition. Stock price dropped by 20%. The previous day, analyst downgrade from Citigroup saying that it is exactly like another Citi and have to cut dividends made its stock price drop 10%. From $14 to $8 all within the week.

Details says that BAC actually told the treasury that it will not complete the Acquisition with MER due to a higher loss in the last quarter. I believe a deal is struck between the treasury much like JPM’s deal with Bear Sterns where the government backs the extra losses. Most of the drop seems to be from the possibilities that they’d have to cut their dividends.

I am really scared at this moment. Guess we’ll see on Monday.

January 20, 2009 Shorters assaulted BAC’s share with everything they got. Spreading rumours of nationalization everywhere. I must’ve saw about 20 blog posts and 100 forum posts that says BAC will be nationalized.  The stock price has been dropping by 15%+ for the past 3 days. Incurring damages to everyone.  I sawy 15k of my portfolio dissappear within the past 3 trading days. I don’t believe I will get through this unscathed now.

January 21, 2009 Banking stocks jumped by 30%. Followed by JPM and BAC executive Kenneth Lewis and Jamie Damon buying their own shares. Kenneth spent 1.2 million while Jamie spent 3 million.

January 22, 2009 John Thain, CEO  of  the former Merrill Lynch got axed. Chiefs who also left and should never trust: John Thain, Tom Montag, Robert McCann, who was to lead the combined brokerage, and investment banking chief Greg Fleming.

January 26, 2009 Treasury position confirmed as Timothy Geitner. Examination paper says that nationalization of the two major banks C and BAC will not happen. Bank stocks rally very hard, but still low compared to last year. A “Bad” bank proposal is in the pipeline. Not sure if it’s a good idea right now.

On a side note, head hunter calls for job applications halved since October. The three sectors that seems to be hiring are mobile devices, gaming and Linux. Work is also getting harder with more and more problems. I am not sure if it is because of a widespread low morale in the department or if it is the economy affecting everyone. If anything, I expect to have less work because of everyone going bankrupt.

Note: In January, major companies have slashed jobs. 100,000 from them alone and the pain will be felt. It’s strange that they were not able to forecast the domino effect like I did. I was able to predictably say that the bad results should show up around September. It’s like they have to wait to confirm with the actualy financial data officially released before they take their action. I will have to take that into account in the future. My predictions are about 3~6months to early. Making me act on the wrong ripple.

January 26, 2009 Some nice numbers on the impacts in tech. Global write down of US security reached 2.2 Trillion.

Tech Layoffs

February 02, 2009, Consumer savings rate rose to 3.6% amounting to $400 billion of money saved.

February 08, 2009, Finally found the mortgage reset graph. Been looking for this for a while.

February 10, 2009, The new treasury of state unveiled plans of action. There has been a build up in the stock market until now and the plan is too uncertain which led to a huge sell off afterwards. Basically leverage the rest of the TARP $350 Billion by using that as guarantee to raise Private+Public capital to the range of 1.5 Trillion. In the same date, congress approved the bailout of mainstreet that is 800Billion or so.

February 11, 2009, Reports saying that in September there were 5.5 Trillion dollars withdrawn from the money market (Same thing happened in Euro during October). Which prompted FDIC to raise the insurance to $250,000 per account. There are 4 things that started to proliferate once this crisis began. Bank robberies, Suicides, lawsuits and psychologist counselling. the society is getting more and more extreme.

Here’s more info on the bank run. Thursday September 15 on 11 o clock in the morning, there was a $550 billion bank run in the money market within an hour. http://www.youtube.com/watch?v=-xKPcyvlfnc&feature=related. By 2PM, it would’ve been 5.5Trillion and in 24 hours the total collapse.

February 18, 2009, Stimulus plan passed and signed. The stock market tanks to the lowest level saw in November. Banks are reworking mortgages so it is based on the current home value. People who are a bit under water (Mortgage not 105% more than home equity gets help to refinance to lower rates). People who are responsible, paid down payments but saw their equity wiped out are left to fend for themselves. Looks like selective rescuing is happening to those who made the best decisions.

A second big fraud to the tone of 8 Billion is discovered. This time by Allen Stanford with Certified Deposits sold through Financial Advisers. Again, this is a guy with good standings amongst people and the return tracked the market pretty well. He actually manages to fake a 1.5% decline. He was promising to invest the fund to Antigua with lots of regulators and 3rd party auditors looking at it. Turns out that the funds are invested in housing and that the regulators are fake. It is getting harder and harder to detect who’s a fraud. Maybe the whole financial system.

February 21, 2009, The nationalization fear got spread around again. This time started with Chris Dodd (Comittee of Banking head) and Allan Greenspan (Former Fed reserve chairman). BAC saw their stock drop 50% in a week with Friday dropping 20%. Bought $2000 on Friday after selling BSX. The odds of rebound is too high. I am tyhpically not a day trader, but this is too good of an odd to pass up. It also forces me to look at investing as asset allocation instead of holding on to hopes of rebounds. I am looking at investing more as an allocation of capital to something that will most likely to rebound.

February 21, 2009,

This is a picture of comparison between crisis. We are heading into unknown territory.

Found the case-shiller graph which tracks housing prices. It tells us what is going on with housing. Taken from TIME online. Can’t find the crisis anymore

February 27, 2009, stocks have been going up since the FED the government both confirmed that there will be no  nationalization. However, today treasury announced that they will be converting their preferred shares in citi into common stock. At the same time, a revised number of GDP shows that it is down 6.2% in the last quarter of 2008. Citi stock drop by 30% bringing the rest of the market with it.

Also, Obama has unveiled its 140 pages long budget. It doesn’t look good for health care providers and it increases generic drug competition. I compared it with Warren Buffet’s purchases and it seems that Warren had a preview of that last quarter.

NOTE: Another lesson to not try to catch a falling knife. If you continue to observe the market or the sector of your choice, you will start to see who is strong and who is weak. At the moment I am writing this, Ford is definately going to prevail while GM and Chrysler are both going to fall. Their stocks all dropped because investors stopped looking at it objectively. In sum, there is still time to pick the winners once it gets to a point where people are going to declare bankruptcies. Wait till the bankruptcies.

March 01, 2009, Movie theaters saw big increase in movie ticket sales to the extend of 17.5% with attendance up about 16%. People are escaping reality and paying for lower cost entertainment.

March 03, 2009, AIG announced 61.9 Billion loss in last quarter and promptly got another 30 billion loan from the government. Citigroup trade volume surpassed 1.04 Billion when government converted preferred to common stock. Netting the government 34% control. Introduced government officials at the board of directors.

Rumors of the reinstatement of the uptick rule and suspension of Mark to market is growing. Government set in motion the Troubled Asset Loan Program to help buy up credit card and auto loans. Current estimate of the total spending is around 3.4 Trillion. Some democrats started to worry about that number. China’s promise to increase stimulus send the market rising. There seems to be a shift in power here. As China’s stimuls increases the market more than the US stimulus.

The Swiss banks were forced by the US to turn over 250 names of clients that uses them as tax heaven.

For my life, I have started accumulating food and water. Canada is relatively unhurt by this. I am sort of glad that I am not living in the US right now.

March 05, 2009, Here’s a nice chart about country vulnerabilities on their investment in eastern europe

And net foreign liability

So far Iceland’s government collapsed on Jan 26, 2009  after long riots and Latvia’s government collapsed on Feb 20, 2009.

March 06, 2009, Just some interesting notes and snapshot at this time of the crisis. Banks are held at gunpoint by what we call tangible equity ratio. Which is basically Equity minus goodwill as a percentage of tangible assets. It measures how much loss a bank can absorb before it collapses. 3% is adequate and 4% is preferred as safe in a crisis environment.

Also, there has been 17 bank failures since this begin. At a rate of about 2 per weekend in year 2009.  Short term US treasury is near 0% and longterm near 3%.

The FDIC which overseas bank bankruptcy is close to insolvent right now. At 16 billion of capital it is asking congress for approval of 500 billion loan. If it didn’t get passed, rest assured, chaos will come.

March 11, 2009, There was a 2 day rally of about 20% each for BAC which also led to a broad market rally of 6%. When everyone came out and said positive things. Bernanke further confirmed that banks will not be nationalized and BAC managed to increase its cash by selling FDIC backed debt. I called bullshit and day traded the rally for 1k.

Canadian Jobless rate at 7.4% and US at 6.4%

March 12, 2009, BAC rallied another 20% today after CEO of all 3 major banks: C, JPM, BAC all came out and made a statement.  Things like they don’t need the money and explained a bit about how limiting exec pay is hurting them. They also explained in detail how Mark to Market works and why it is hurting them. We are also seeing large mergers and buyouts happening in the pharma area. So far, Genentech with Roch, Pfizer with Wyeth and Merck with Schering-Plough. Meredith Whitney was also on an interview saying that there is still the credit card crisis to come. Normally, the default rate is about 1% above unemployment rate. Currently it is at 8%. I just doubled it and use 15% as my calculation. BAC stands to lose 15B, but even so, it will not get wiped out.

Borrowed 5K today and plan on investing that tomorrow. Heard a fund manager say in passing that you can’t have Oil at 48$ and the DOW at 6000 something has to give. I believe it is the DOW that’s going to give by going up. Intrinsic value of BAC calculated at 60B. Book value at 80B. Currently at 37B. This is one of those WTF moments that I think I should catch. Also seeing a lot of synergy between the government, the banks and the regulatory officials.

March 13, 2009, Learned today that the US is a 14 trillion dollar economy.

Data gathered by Nielsen Co says that in a recession condoms and canned food sells more. As people stay home and have too much time, but don’t want the expenses of having a kid. They also eat out less.

Thawing salt, body warmers and gift packages with candy rised by 32% due to the cold winter. Jars bags and container up 15% (canning/freezing supplies). Fresh-meat sales rose 7.3%, vegetables and dry grains were up 5.5%, dry pasta 4.4% and cheese 3.1%. Wine and liquor were also up. People aren’t heading out for alcohol, but they still want to drink at home. In these bleak days, self-medication is certainly in style.

Cookie and ice cream cone sales dropped 9.7%; people can do without dessert, and further, the boom in baking supplies shows that more people are making treats at home. Bottled water was down 11%, but that makes sense. “What’s the economical substitute for that?” asks DeMott. “It’s called a tap.”

The jams, jellies and spreads category was also down, by a sharp 12.1%. That includes peanut butter; while you might expect people to eat more peanut butter and jelly sandwiches instead of steak during a typical recession, the salmonella outbreak likely dragged down the numbers. Canned seafood, down 13.3%, is a little harder to explain. In general, seafood costs more than other products, but if consumers are trading down to canned goods, one might think they’d be buying more of it in cans. (Read “Why We Buy the Products We Buy.”)

Film and cameras, whose unit sales dropped 31.5%, was the worst of the bunch. “A camera is not something you need right now,” says DeMott. Plus, who really wants to remember these tough times? And if couples are using contraception, they won’t need a camera to snap precious baby pictures.

Sports and novelty cards were down 26.5%. “You really don’t need that,” says DeMott. Magazines slipped 17.1% (sigh — don’t we know it). Products that spruce up your home — kitchen gadgets, lawn and garden items, buckets, bins and bath accessories — were slumping. Sales of air fresheners and deodorizers also dropped. “If you’re lucky enough to have a couple of extra dollars, do you really need your bathroom to smell minty fresh?” asks Shea. Both insect repellants and cough and cold remedies were struggling. We’ll suffer mosquito bites and sniffles for a few extra bucks. (Read “America’s Shrinking Groceries.”)

Business that are booming are: Micro cosmetic surgeries. Botox and the like. Herbal meds. Microbreweries from home made alcohool (imported beer down). Candies sale are up Hersheys and Cadbury (low end chocolat) performed well in recession, but badly in good times. Higher end chocoloat did not see improvements. The side effect is a possible increase in cocoa prices. We might see margins tighten. Lottery tickets are also on the up. Google also reported several days of top search terms with the lottery. Casinos however slipped by 9%. Travels to exotic and cheap places are on the rise. Africa 11%  and Middle east  5% while Busines type travels are down 3% Europe and Asia.

March 15, 2009

The G20 finance ministers laid out a broad framework for regulatory reform and repairing the financial system at meetings this weekend.

Following is a summary of recommendations in their communique for G20 leaders to consider at their financial summit in London on April 2:

- Hedge funds or their managers should be registered and disclose information needed to assess risks they pose to the financial system. Any financial institution or instrument that could pose a risk should have regulatory oversight.

- Pay and bonuses should adhere to the Financial Stability Forum’s principles of sound practice.

- Capital reserves should be built up during good times and leverage limited in order to buffer financial firms during downturns. But in the current recession, capital should remain unchanged until recovery is assured.

- Credit ratings agencies should be registered, comply with the International Organization of Securities Commissions code and have regulatory oversight.

- Off-balance sheet vehicles should be fully transparent; accounting standards improved notably on treatment of assets of uncertain value; there should be greater standardization for credit derivative markets.

- Financial Stability Forum should be beefed up as part of strengthened international cooperation and it should conduct early warning exercises with the IMF.

U.S. Treasury Secretary Timothy Geithner also said the FSF should be elevated as lead body for overseeing the global financial system, taking its place alongside the IMF, World Bank and World Trade Organization.

Until now it has been an informal gathering of financial supervisors.

- On impaired assets, G20 leaders said a top priority for governments is to tackle toxic assets on bank balance sheets, now they have taken a range of steps such as injected bank capital, set up insurance schemes and are providing liquidity to money markets. In an attachment to the G20 communique, they released a set of principles to guide how each country handles assets of uncertain value.

The United States said it plans to release its toxic asset plan before the April 2 summit.

AIG Releases document on counter parties that demand collateral: 2lkwkr4e1ytsjjcdrbla

March 19, 2009

Fed releases information that they’ve printed $1150 billion dollars. $750 of which will be used to buy bank assets. Stock rock rose for the most part in March 18. Down in March 19.

Some observations. Citigroup is going to do a reverse stock split. HSBC just had a 12.9 billion rights issue. Meredith Whiteney, ever since she started her own firm feels like losing her touch. She’s still appearing on tv to tout her doom and gloom views. Mostly about credit card write downs. She is right of course, however, the way the show is made it seems like they are claiming for about 2~3 trillion losses. I have the feeling that Meredith Whitney is being used to spread that idea but in fact she’s just a geek who’s real intention is to get the truth out. Good intention, badly used by others.  The worst is, she doesn’t realize it herself.

The average pawnshop people used to be around 39 and have incomes of around $29,000 now we are seeing it spill over to a larger socioeconomic. Big LCD TV and gold get used as pawn a lot. While power tools gets bought more as homeowners gets more handy at repairing. These tools are from professional home builders who lost their jobs. There’s also an increase in demand for music instruments from pawn shops. Especially guitars and amplifiers. Firearm sells is also up, but this more due to the fear that the new president will enact gun control. Wii and xbox are also getting pawned a lot. Indicating that people are getting more strapped for food and are foregoing even the simplest of entertainment.

March 23, 2009 There has been a lot of mergers going on recently. Or rather, news of mergers. Starting with the Pharmaceutical sector and moving on to The tech sector now. Cisco to buy sun and ATVI announced plans for buying. I think most of the companies are projecting a bottom. From my personal point of view, this is a milestone. Sunocor merged with Petro Canada and Daimler had a 2.7 Billion dollar investment from Abu Dhabi.

The “Bad Bank” Plan was unveiled and the stock market soared by 6% DJIA soared by 500 points. BAC up 30%.

March 25, 2009 Signs of recovery are showing up. Durable goods orders are up. Mortgage origination increased. Forecast 800 billion more for the year. Housing inventory decreases as more houses are sold, even though the prices are still dropping.

March 26, 2009 Obama announced the rejection of GM and Chrysler’s restructuring plan. GM drops by 20%. Surprisingly, BAC dropped 15% along with it. Pretty stupid from my point of view, but we’ll see if my point of view is correct. Found out that BAC extended 800 million in total to GM.

April 1, 2009

March 31 (Bloomberg) — The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

April 3, 2009 There were a flurry of good news yesterday, but the stock market failed to rally much. Well DJIA did rise by 200 points or so but in terms of Banks, not much happened. The G20 meeting promised 1 Trillion dollars of aid, the Mark to Market rule is relaxed for banks (securities not actively traded can be marked to a cash model), Ken Lewis went on TV and said a bunch of things. All these gave a 7% rise at the beginning of the market, but tapered off because the initial jobless claim was 700,000. Today we confirmed that unemployment rate is 8.5% and that IBM is going to buy Sun microsystems at a reduced price. From $11 to $9.5. RIMM did release a great earning which brought the stock up 20%. So, we are in mixed signal territory and consolidation. People are saying “Show me the money.” Probably no major moves until the earnings are release, with the exception of Uptick rule on April 8.

April 9, 2009 Analysts have came out and made their stand.

Bears

• Michael Mayo is bearish
• Frederick Cannon of KBW
• George Soros,
• Chris Kotowski is bearish,
• Nouriel Roubini is bearish,
• Betsy Graseck of Morgan Stanley
• Paul Miller of FBR Capital Markets
• Wachovia’s Matthew Burnell $7 or $8

Bulls

• Dick Bove is bullish and
• Marc Faber is bullish.
• Keith Horowitz of Citigroup
• Jack De Gan, CIO of Harbor Advisory

April 10, 2009 Huge bank rally today after WFC pre released some earnings information BAC up 35%.

April 13, 2009 GS reported earnings beating estimated and initiated a stock sale to raise $5 billion in order to pay back TARP. Whitney mentioned that things might be turning around if banks are able to raise equity. I think this is it. Other smaller and more traditional banks also recorded good earnings. Like bank of Ozarks beating estimates by $0.03 per share. Tech factory workers are called back to fill orders, news of programmers finding new jobs. My work reported $40 million in earnings instead of $30 million for the quarter. My most major stock BAC jumped to $11. I blew some money away this weekend with friends.

April 14, 2009 The White House auto industry task force and negotiators for Chrysler are asking banks holding some $6.9 billion in secured debt to take just $1 billion as the automaker tries to avert bankruptcy by the end of this month.

But the banks—JP Morgan Chase, Citibanak, Goldman Sachs and Morgan Stanley, which hold 75% of the debt—are remaining steadfast in refusing the deal. Their recourse, since their debt is secured by Chrysler assets such as the Jeep brand and factories, is to take their chances in a bankruptcy filing and hope they get a better deal when the assets are sold. Other lien holders include hedge funds—Elliott Management, Stairway Capital Management and Perella Weinberg Partners.

April 15, 2009 A good site for unemployment rate http://edition.cnn.com/SPECIALS/2009/map.economy/index.html

BAC with $182 billion in card loans as of Dec. 31, according to data from American Express Co. The bank wrote off $11.4 billion of uncollectible card balances last year. Citigroup Inc., ranked first by loans in the American Express data, and No. 2-ranked JPMorgan Chase & Co. still charge 3 percent on balance transfers, according to spokesman Sam Wang of Citigroup and Stephanie Jacobson at JPMorgan. Both banks are based in New York.

April 20, 2009 The week of bank earnings is over, finished with BAC release 44 cents per share earnings. However, the market sold off and BAC is down 25%. It started with WFC pre releasing earnings to bring the market to euphoria. After that, every bank who reported earnings see their stocks sold off by 10% or more. What worries people is that the ripple is now getting into the traditional  “loan and lease” part of earnings. Where traditional banks hold the biggest assets. BAC’s Merril Lynch and Country Wide acquisition actually performed spectacularly. Mortgage origination and trading are doing well while loan and leases are defaulting.

On another news, GSX is buyinig up someone and Oracle bought Sun after IBM dropped the offer to buy SUN. We are at the final phase of the down turn. The ripple is going into the most traditional part of banks and mergers are happening.

April 28, 2009 The WSJ released a report saying that C and BAC “MAY” need to raise more capital. Bringing their stocks down 10% pre market. I am starting to see a pattern here where WSJ will release something along the line of dilution before a major event. They did the same before earnings. Which suggested the US will convert preferred to common. The housing prices is still declining but at a slower rate of 18.6% in Feb. While consumer confidence jumped to 39. Some are spreading the fear of the swine flu from Mexico in order to bring the stocks down more. Of course, the timing of the WSJ against BAC’s earnings release as well as its share holder’s meeting is too much of a coincidence to overlook. If you want to orchestrate the downfall of the US financial system. This is how you do it. We’ll see what the conspiracy is soon.

April 30, 2009 China’s stimulus comes in the form of coupons for Washer/Dryer, TV etc. I think it’s the best way to stimulate the economy since people won’t be motivated to hoard the cash. Credit Suisse give out bonuses in the forms of the SIV that was the root of the problem. If all bank executives are forced to take these by the government, there will be a very big incentive to get it working again.

May 2, 2009 US to China trade relationship

Who’s buying what

May 15, 2009 Chrysler has declared chapter 11 bankruptcy restructuring protection. 800 of the dealers are dismissed. I think this will give consumer confidence and start buying cars again after the uncertainty of whether or not the guarantee will be upheld is cleared up.

The banks stress test result was also released a while back. BAC needs $34 Billion, WFC $11 Billion, JPM none, Citi $5 Billion. The result also showed that Goldman Sachs was not properly audited. In any case, BAC shares rallied from $9 to $15 because of this and settled back to $11 at the moment because WSJ originally leaked that they need $70 billion.

June 16, 2009 The world is in a recovery. Not much to say. Most banks who received TARP has started the process of paying it back. BAC required to $raise 33.9B and raised it within a month. Eurozone’s unemployment rate finally started to skyrocket. A socialist society can only hold out for 3 months more than the US.

The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. Employment during the first quarter fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995.

June 27, 2009 I’ve taken some measures to increase my cash flow in order to increase my leverage. One of them is to rent out my second room for $400 a month as well as selling a bunch of stuff. Credit servicing should come out to about $1000 per year.

That aside, the market has basically been flat and going sideways for a while. The only thing worth noting were GM and Chrysler bankruptcies and unemployment rate potentially going above 10%. As predicted before, they still got until August to fix the unemployment rate, or we’d see some very unhappy people getting cut off from the benefit roll and eventually lead to riots.

Five more banks got shutdown this weekend the most in a weekend, totaling $1.04 Billion in assets: Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles. I expect this trend to keep up now that the administration don’t have to worry about the big 20 banks failing anymore. They can move on to closing the smaller ones.

PBS frontline: Breaking the bank is a good tv documentary showing how the US government was invovled with the banking crisis.

June 27, 2009 7 banks closed today.  Founders Bank, of Worth, Illinois. City Bank.  First National Bank of Danville. Elizabeth State Bank in Elizabet. Rock River Bank in Oregon, Illinois. John Warner Bank of Clinton. First State Bank of Winchester. Millennium State Bank of Texas in Dallas.

July 20, 2009 A look at past declines

July 31, 2009

Products created for this depression targeting consumers:

Cash for clunkers: $4500 for people to trade in their gas guzzling old vehicle. (Has to be extended from 1 B to 3 B)

Home owner rebate: $8000 for first time home buyers

Mortgage companies to buy up and service the bad loan portfolio from the crash for 40 cents on the dollar.

In Canada 5% cash back credit cards. And huge one time point coupons that give rebates based on Grocery and Gas purchases.

50% off most travel (rail/plane) and hotel prices.

China force feeding loans through banks.

September 23, 2009

Fed declared the recession over today. S&P crossed 1070.  92 total banks failed so far.

I haven’t logged much lately because recovery is well underway. A few things to note.

The FDIC’s fund has about $10 billion left. The PPIP didn’t get underway as the recovery is very strong. Unemployment is around 9.7% now and should continue to recover. SEC banned naked short selling (excpet market makers) and flash trading.

From my observation, the order of recovery from a crisis of this magnitude seems to be as follows: Rebound of banks that continued to show profit and are federally guaranteed. (JPM, GS, MS, BAC etc.) alongside the commodity (back to 50% of the peak value). Then, a tech rebound back to 20% off peak followed by a rebound in medium sized banks. Transportations, REIT then casinos. To finally end with insurance companies that insures financials and mortgages. (AIG, FNM, FRE, MBIA). Currently, the banks that are in the devastating regions with 14%+ unemployment are still seeing a lot of pain and are under valued. I am constantly scanning for sectors that are still undervalued for whatever weird reason there are. I bought CRBC for $0.65. This will probably be my best purchase of my life if it ever happens.

The loan loss sequence is as follows:

Subprime, alt-A, Prime mortgage, industrial, consumer, commercial.

Underwhelmingly, Tech and healthcare didn’t perform as well as I thought and aren’t the knight in shining armor that would lead us out of the recession. They didn’t fall as much, but they didn’t rebound as hard either.  The GDP for Q2 shows that we are not out of the recession yet (While most of Europe already is and China soaring). I have a lot of doubt about Chinese GDP and their loans, but time will tell. If I am right. September GDP should show a positive number and officially ending the recession. But we won’t see that until October or November.

The cash for clunkers programs all over the world were huge successes, pushing next year’s automobile demand to this year. My only regret is that I scrapped my clunker last year and thus am not eligible for the program that’s coming out in Canada. Still, $10,000 for my Hyundai Accent that only needs $25 per week to fill up is great.

With the recession over, I have begun thinking about exit strategies. At the moment, I am 200% invested, meaning I have borrowed money to invest as things goes to hell starting last October. The move paid off and I am now sitting on a huge profit. Taking the profit will net a large tax charge, so I am planning this carefully and defining the sell conditions. Preferably, I’d like to lock in my profits into secure bonds and CDs as interest rates goes up. The initial idea is to decrease my equities by 25% with each 1% increase in the Federal interest rate. Of course, I will wait for the actual confirmation to finalize my decision. Some of my recent move are less about pure equity gains and more about a continuous stream of income. You can see that from the purchases of REIT and banks that pays dividends.

The most puzzling stock for me are ATVI and NRG. Both of which has perfect score on my fundamental analysis. ATVI has zero debt and NRG’s derivitave hedging and low P/E (5) is a mutant compared to the financial health of some of the more problematic companies (ahem AIG ahem).

In any case, hopefully I can stop updating this entry soon as the GDP confirms we are out of the wood next time.

Current holdings: AMD, ATVI, CRBC, BAC, C, NRG, CRR.UN, BMO, TD, V

October 01, 2009

The market has been stuck in the same place for the past 3 months now, waiting for the earnings to confirm the trend. FDIC is running  out of cash and are exploring the possibility to get early advance on fees from the banking industries for the years between now and 2012 for $30billion. I think it is crazy and am confused on why it isn’t using the 100 billion credit line from the treasury. Maybe Sheila Bair fears losing power?

Ken Lewis announced resignation amidsts all the criticism. I feel sad. I should really start writing that letter to him.

October 16, 2009

GE, IBM, AMD, BAC, C all posted a loss followed by spectacular results from JPM and GS. Huge drops right after earnings report. The financial crisis is now fully in consumer credit card losses and spilling into the commercial real estate market. It looks like the commercial real estate market will be the final hurdle to overcome.

November 05, 2009

We’ve broken the record and reached 100 bank failures last week. GDP for october is a positive 3.5% which unofficially marked the end of the recession. Fannie Mae started renting out the houses that they possess which are underwater back to their owners to avoid foreclosure. Punishment of Ponzi schemes has mostly completed with Madoff in jail. The officials are moving on to punishing hedge funds who did insider trading. The whipping boy right now is Galleon group.

November 27, 2009

Dubai world, a state fund for Dubai, is in technical default after asking creditors for a delay in payment.  Estimated world financial exposure to Dubai world is $40 Billion. Including off balance sheet vehicles, it amounts to $80 billion. This changes things and will probably ripple through the world if not taken cared of correctly. Oil fell in expectation that they will have to sell oil to make up for the debt and the USD + YEN rose as a safety heaven against emerging market defaults. The unwind of the carry trade might have been triggered by this.

I was hoping for peace and quiet going into thanksgiving and Christmas, but that doesn’t seem to be what the market wants. I am tired.

December 04, 2009

The dubai world problem seems to be less than anticipated (at about 26 billion) and has minimal impact on US banks. With the biggest creditor being HSBC in Europe.

Obama held a job summit with top CEOs in the country to find a way to jump start small business hiring. Today the November nonfarm payroll data got release and is a meager -11,000.  Surprisingly, the market did not rally. I find that this should be a big deal. We are almost at the point where we are gaining jobs. Then again, it could just be Christmas hiring. Another thing worth mention is that BAC is paying back 45 Billion in full by issuing 1 billion in alternative securities that has a strike price of $15 if shareholders approve. Which could be the reason why 1 billion shares of BAC traded hands today. A historical volume with a stock at this price.

January 25, 2010

Obama opened his mouth and, in a speech mandate the breaking up of traditional banks from trading. He wants to reintroduce Glass-Stegall. At the same time, Ben Bernanke’s re-election as FED chairman was questioned. The financial stocks promptly dropp by a good 15% while the overall market dropped by 4% in the period of a week. These are all due to the fact that the democrats lost a seat in a very iconic state Massachusettes. The loss spanned 2 days, just as I was on a business trip.  I can’t believe how bad the timing was and I thought that I can leave the market for 2 days.

This is an example of government getting too involved in the economy. They represent populist rage of the uneducated people who probably represent only a small amount of the nation’s wealth. What Obama and the administration probably don’t realize is that the well educated “better off” people are seeing their wealth vaporizing and no jobs returning to the market while the administration is hell bent on passing their pet health care reform.  The message is very clear, I believe. Fix the economy first.

Please, don’t screw up the rest. The government is at a fine point where it might over legislate and bring the whole market to a halt again.

January 26, 2010

CDS have started trading again since its market was frozen in 2007. In 2008, junk bonds were the high yield trade netting 10%+ in interest. Now that this yield is gone, investors are pushed to make riskier trades.

Treasury secretary Tim Geitner is seen being put behind Paul Volcker, showing that Obama has lost faith in the easy money policy of keynesian policy. However, he is going to announce a government spending freeze. Apparently the same old same old political bullet dodging as ever. People know that it is politics as usual, but coming from Obama, it is bad.

February 16, 2010

Rumours of Greece default began 2 weeks ago and have now settled down a bit. Last week the EU announced that they will back a solution to “bailout” Greece, but did not give any details since they are considering several plans. Today, they demanded the Greece CDS that is used to hide the % of debt to their GDP. EU requires members to have that ratio below 5%. Of course, the CDS was constructed by Goldman Sachs. The firm that’s been bankrupting countries since the beginning of US history.

March 23, 2010

Healthcare reform passed. Stocks up. Greek problem persists after Germany backs out of bailout.

Perhaps as I have increasingly more activity going on outside of work  (courtesy of my job),  my internal calculation for the cost/benefit to my personal wealth is kicking in and telling me that it’s not worth it. Yet when asked what’s so important in my personal life that I can visit the clients on a certain date, I struggle to give one example of an event of enough importance. Rather, it’s the sum of several normal events that I need to cancel/move which made the disruption to cost me more personally. Or rather, the almost zero sum of the benefit from making the actual trip. Wait… I can’t determine that yet.

Which brings me to the actual hidden variable that actually pushed me to agree to go. The seeds that I sew during the trips. You see, I have long understood that my persona is a brand that I need to build on, an impression that people can recall as soon as the name is uttered. The only way to do that, is to completely and utterly destroy any doubt about it. I believe I am good at what I do and I will show that.

Which brought me to a comment that the client used to describe me:

We were all having a laugh about how in the past, you’ve always come off as very business like when dealing with us, but once you are here in person, you are cracking jokes and mingling like you’ve always known us.

And that is how I’ve decided to build my professional image. A bipolar existence that allows me the freedom to switch tactics when needed. It is a very suitable image for the world of business since most of the encounters are short term, the contrasts creates a longer lasting effect. I wouldn’t be able to maintain that though since, in my personal life, we all know that I am quite boring. Especially so when I am crunching numbers. You might ask why I am building a brand? Why not? I am after all, aiming to be a CEO one day. With that ideal, I have to always look at things from the perspective of a boss and evaluating the feelings while working as  a grunt.

Away from the duties of work, there is one particular quirk that I’ve noticed about myself on a business trip. I am a lot more extreme in my actions because everything’s taken cared of, paid for and insured. Does the safety net drive this behavior? If the safety net can change the behavior of someone like me who is always penny pinching and have triple redundancies in any plans, then it is something that I have to take into account as I grow in life. How do I reign myself in once I reach the point when I have created this safety net for the rest of my life?

Unlike in the previous year, I don’t have 10 lists of things I want to achieve. I am beginning to realize that multitasking is bullshit. This year there is only one theme and that is the execution and follow through of the secret project. For those of you who’ve followed my blog for more than 2 years, I mentioned this in the passing from time to time and you’ve probably seen it being put to the side and added back on.

This year, it will be completed.

The US has been accusing China of currency manipulation for the past several years now, with less weight in their accusations as the collapse intensified. The reason is pretty obvious and is something that you will never see printed in big media. Prepare for some wake up call: China owns your future generation’s income.

To fully understand the effect of this duopoly, one shouldn’t stop at this superficial fact . You could say that China started pegging its currency to the US as an indirect way of saying that it is inflating the Chinese Yuan without the negative connotation. Dollar pegging, is the term that countries use when they earn more than they spend, printing money is the more familiar term but it only occurs in countries who spend more than they earn. You can draw a direct equality between the two, except the context is different.

To dollar peg, China buys US treasuries in mass, turning part of the Yuan into US dollars and decreasing the value of the Yuan as dollar drops. The US, seeing this phenomena, initially called China to stop, but realized later that if China were to stop buying treasuries at the height of the collapse the US would be in deep shit. Japanese style lost two decades deep shit. So, without political clout nor the financial power to push, what does the US do? Print money i.e. sell a ton of US treasuries and effectively lowering the interest rates.

China in turn, realized that they just got royally screwed by the US as their huge treasury position got devalued by at least 15% in the past year, so they now look to diversify to other currencies. As a subtle way of saying “hey, we are going to be increasing the value of our Yuan”.

Secondary money flow

The trillions of dollars created above together with the hundreds of billions spent in stimulus resulted in what we are seeing as the “almost zero interest loan”. During a period like this, it is essentially a no-brainer for anyone to get a 0% loan and invest it somewhere abroad where the currency will appreciate. If your investment doesn’t go up, at least their currency value will. I am not sure how much of that money went into China, but I know that a lot of Chinese stimulus ended up in the real estate market there. Since their currency cannot appreciate due to the dollar peg, the properties will. Hence, a housing bubble and China blaming the US for creating the biggest carry trade using US dollars. It’s more of an American way to say “up yours” to China.

So most of these US stimulus got stuck in the US institutions and never made it into the workers. If you follow the news last year, you’ll see the US government simultaneously accusing the big banks of not lending enough while saying that their risky lending is the cause of the collapse and that regulatory policies will need to tighten. They are basically giving the big banks a truck of money and telling them to lend to risky people and not lend to risky people, effectively shifting the blame to the financial sector. Politics is a game of shifting blames. The institutions weren’t idle though. Even if they are not lending to the average Joe, they have enough sense to make money out of the cash. So everyone benefits. Sadly, because these money is not directly spent on real projects, real inflation has not happened yet.

The great unwind

Most governments are targeting June 2010 for the great unwind, with a few whose trades are tied to China having to raise interest rates prematurely. We are hoping for everyone to do it together so that it doesn’t disrupt the currency exchange rate too much. For the US-China carry trade though, the unwinding might happen as a hurricane. While the Yuan is pegged to the dollar, if the US raises interest rate the Chinese will have to sell its US treasuries in order to maintain the peg. By selling the treasuries, it decreases the demand for US treasuries, further driving up the rate. As the largest treasury holder, China’s selling pressure will influence US treasuries the most forcing the US to increase the rate more in order to attract more buyers. Of course, they could just sell less treasuries, thus keeping the rate low, but I doubt that’d be the case because they’ve already committed to huge budget deficits for the next 3 years.

Of course, at one point of the unwind, China will see that they are running out of foreign reserves (US treasury) at an alarming rate which will force them to float the Chinese Yuan. This will make a few things possible in the western world. Inflation and wage increase. Simply because China produces everything that we buy, the increase in Yuan will mean an increase in cost leading to an increase in the wages demanded by the Chinese people in dollar term. This will have the secondary consequences of making hiring in the US a more attractive term for the big corporations. Yes, you can basically thank the Chinese for record low prices on everything after the government force fed 2 Trillion dollars into the economy over 4 years. This trend will not continue and will lead to the next low of the business cycle after we experience the recovery. Currently, I place the probability of this happening in 5 years. Usually, a cycle lasts about 10 years, but I believe the boom and bust cycle has significantly sped up in the modern time.

The future

I get the feeling that this is probably the final US recovery. After this, I will be looking to invest in other countries. Mainly Brazil,  South Korea and China. At the moment, they are a bit over valued, but I will buy on any dip in their market. Especially Brazil. The western part of American will rise in activity while the eastern part falls in its glory due to the tie that they have to the different continents. The west is a bet for Asian economy while the east is a bet that the European economy will rise in power. I am going to place my long term bet soon and I hope I am not wrong.

Note: I stopped adding on to the research and improving the details before I consider the report complete because it became obvious that we are not at the point of a sbubble burst yet. In the next couple of months, you will hear some report in main stream media about 20% increase year-over-year for November and December housing. Keep in mind that these are high because last year’s oct-dec period was abysmal for housing.

Sources: Statcan, Census, Income, income 2003 to 2007, household credit, Foreign portfolio investment, CPI,

Summary:

The biggest concern for the Canadian market right now is the doubling of consumer and mortgage credit within the past ten years with half of the increase occurring between 2007 and 2009. That is about $300 billion of mortgage credit and $100 billion of consumer credit. To put that in perspective, every household is $21,428 more in mortgage debt than we were in 2007. The consumer credit increase is still linear as opposed to the exponential growth in mortgage credit so I am less worried about that. Although I can’t reach any conclusion until I get some data for 2009 when the bank of Canada lowered the rate to 0.25%.

To determine whether or not there is a bubble. I use the “average house price must be less than 5x after tax income” as a barometer, 7x if considering pre-tax income. The healthiest province is Alberta.  Their housing prices still have a while to go before catching up with the income increase from oil. For Montreal, the housing prices are about 10% away from a bubble. Vancouver is already there and Ontario (mainly Ottawa and Toronto) is about 3% from bubbling. Of course, we will never get a bubble if the median income increases along side house prices. With the recession in effect, I doubt anybody saw a raise in the past 2 years.

I estimate that we need at least one more year of 1o% price growth before the need to worry. Therefore, I will not sell my condo.

Methodology:

This is what happened to the US before the housing bubble burst.

The inflation adjusted income vs inflation adjusted house price will give you a pretty good idea whether or not you are in a bubble. Some uses (GDP per capital/price per square foot)*100. If it goes above 30 then we are in a bubble. Different methodology, but you can’t just take one measure and use it without seeing the other.

For Canada, it is actually quite frustrating to try to compile data like this. The problem lies in getting my hands on the data because our government don’t spend as much of their resources in polling people about the state of their wealth. I ended up having to scrape numbers from here and there as well as estimating them based on past data. In truth, we may never know what state our economy is in until the next census. Actually, the average Joe will not know until the next census because you’ll have to pay $3000 for the data sets to CANSIM if you do want to get your paw on the data.

Being poor and having no sponsor who would pay for this research, I opted to estimate instead.

Here are all the data I used and their sources. Hopefully I can just go to the same sources next year for the updated data.

Data: Financial Security_Family Income

Source: Human Resources and skills Canada

Source: Stats Canada

Source: CHPC