40 Year Mortgages .. No more

The Canadian Finance Ministry announced yesterday that 40 year mortgages will no longer be allowed if the mortgage is CHMC backed. In essence;

• Mortgages with less than 20% down payment can not be obtained for longer than 35 years and must be insured.
• A minimum of 5% down payment is mandatory on all CHMC backed mortgages.
• New rules will require and enforce a minimum credit worthiness before a mortgage application is granted.
• To service the debt a maximum of 45% of gross income will be allowed.

Even though a 35 year mortgage, in my opinion, is still too long but I think given the additional safeguards announced yesterday new home owners will have a fighting chance of staying afloat. This will also ensure that the Canadian housing market stays healthy.

To me this means my house's value will not increase at the same rate as it did in the past few years. Clamping down on crazy financing schemes means less liquidity, less buyers and lower house value increases but my house will have a value and will not face the depreciation being experienced in the USA as a result of the sub-prime mortgage mess.

This brings a reasonable conclusion to this topic which I covered in two previous posts ( May 13 and June 16 ).

Market Capitulation - Cash is King

Over the next two or three months the most viable market position to have is to hold cash or very liquid assets because I think that the market CAPITULATION is around the corner. explain?

When the market capitulation is all over; those who wanted or had something to sell would have sold then, only buyers remain. Buyers with cash or liquid positions would be kings.

Why do I think the market will capitulate?

• The financials markets are still in the gutter.
• The housing market is still straining and now the commercial real estate is showing signs of fatigue.
• The Nasdaq is trending downward.
• The Dow and S&P are in bear market territory.
• The US dollar is in the ditch and sinking. This should help manufacturing but factory utilization is down.
• The North American Consumer is tired and weary. The $600 Bush stimulus will end up being swallowed by the walloping price of gasoline.
• Inflation is rising (real cost of living is rising when we add energy and food back in)
• Economies are shrinking and unemployment is rising. Early second quarter results are pointing to a bad quarter. This quarter was expected to be the best of all quarters in 2008.
• The disconnect in the oil and gas market behaviour. In June while the price of oil and gas trended upwards, the price of oil and gas stocks in general headed south or at best stayed flat particularly the natural gas plays. for examples (CL-Nymex) (NG-Nymex) (Suncor) (Exxon)(Encana)

Putting all this together brings about a bad case of investor fatigue, anxiety and desperation caused by an emotional roller coaster ride.

Adding a global catalyst of some sort, the market traders, the small and large investors will throw in the towels and head for the exit door, all at once. Many of my readers may not have known or remember Black Monday in 1987. I do not claim that the conditions today are the same, Its the psychology that I am refrencing here.... (more on black Monday).

I also believe that the Canadian stampede will be more pronounced as evident by the disconnect between the price of oil and the price of oil and gas equities. If we remove the oil and gas component, Research in Motion and the ags from the equation will end up with a Canadian market that is a nervous wreck. We've already witnessed a mini-stampede out of metals and ags on July 2nd.

When everything is said and done still wait for the dead cat to bounce and only then move into the market and shop around for the gems.

Be careful out there!

Suckers Rally

In my posting of may 1st I said that the S&P at 1400 had no place to go but down. I also urged my readers to "be careful out there and protect themselves against the down side".SP index at 1400

Generally Canadians are nice and polite, so I did not dub the market's upward movement "a suckers rally". If you shared my opinion and protected yourself against a slide in the market then, I hear your laughter. If you didn't well, you got suckered.

Following the market decline in March many of the analysts called the end of troubles. Investors became euphoric and went on a buying binge driving the S&P upward by 11.8% in just two months.

Today the S&P touched an intraday low of 1252. This not only wipes all those gains but is 5 point below the intraday low of March 17th. Some people would say this is a double bottom and that the market should move aggressively upwards from here. I believe, this is BS. Nothing in the US economy would for a moment suggest or faintly support this theory. Furthermore, since Oct 11, 07 the S&P has channelled downward with lower highs and lower lows. The S&P reached a high of 1440 on May 19 and never looked back again. ( OK I was out by 40 points).

I predict that the S&P will continue its downward movement and find real support at the 1050 to 1100 level with a lot of volatility in between now and when we reach those levels.

Again if your investments are still in the black then, protect yourself from downward pressures. How? Buy puts. Place sell on stop orders. If you are the sentimental type and you really love and would like to keep your stocks then, sell calls. Selling calls will give you some cash-in while waiting for the market to turn around.

Be careful out there !

Oil, Nuclear or Hydrogen where is the vision?

I am mad as hell.

Today President Bush called to end the offshore drilling ban.

He said "There is no excuse for delay" and that “Families across the country are looking to Washington for a response".

He proposed the opening the Arctic National Wildlife Refuge for drilling and making it easy to explore the green river Basin in Colorado, Utah and Wyoming.

An 18 billion barrels of oil could be found he says of course, some time in the future, and this should ease pricing today he thinks.

Haven't we done enough damage to this planet. When are we going to accept the fact that the oil producing countries have us by the balls. This applies to us too in Canada we ship our western oil to the USA and buy oil from those other countries to feed our eastern Canadians.

Bush is not the only one with this screwed view, our Canadian government is giving permits to mining companies to use beautiful Northern lakes full of fish and life to dump mining crap and turn them into poluted pools.

Something is awfully wrong with those pictures. Whatever oil we find we will deplete and whatever clean water we contaminate today, our kids will be missing in the future. What are we going to use to make plastics once we've used all the oil to move our asses from point A to B.

J F Kennedy said "We choose to go to the Moon". He had a Vision, he mobilized the scientific community to fulfill the dream and they did it.

I wish JFK was alive today his quotation may read something like this in the future: "We choose to do without oil and move our dependence to Nuclear and Hydrogen Power".

The developed world has the technologies today to resolve those issues and secure a bright future for ourselves and our kids. I have no doubt that once the oil producing countries get the hint of what we could and will do, our balls will spring free and the price of oil will drop. As a bonus we'll have some oil left to make all the other useful products.

I agree with President Bush there is no excuse for delay and that families across the western world are looking to one of the world leaders for a guiding vision.

BCE, still a toss up

We will have to wait a bit longer.

I think the Supreme Court will render its decision on the weekend.

I still bet .. BCE wins this case.

Outlaw 40 Year Mortgages

I think Jim Flaherty (The Canadian Minister of Finance) must have read the article I posted on May 13, 2008.

An article in The Province reported today “Finance Minister Jim Flaherty recently suggested it might be wise to outlaw 40-year mortgages”.

The article also sites that " David Bach rightly advises people to quit throwing their money away on rent and instead build up equity in a house. But the plan fails when interest-only or 40-year mortgages mean payments go to banks and not to pay down principal and thus build equity. " More

For non Canadian readers: Keep in mind while reading this article that interest on home mortgages in Canada is not tax deductible and capital gains on a principle residence is tax exempt.

So, in Canada it is paramount to pay the least amount of interest and maximize equity in the principle residence.

The lending institutions are creating a new generation of Canadian home owners. To the institutions, this new generation sole purpose in life is to pay rent disguised in the form of interest paid on longer than life sentence mortgages where principles are paid back very slowly.

Jim Flaherty got it right , this kind of practice should be outlawed.

BCE is this a coin flip

I believe that the Supreme Court of Canada should side with BCE against the Bond Holders and allow the deal to progress further.

Two reasons for that:

First: In take over deals, traditionally in North America companies Worked to maximize shareholder value and not pay attention to bondholders or preferred share holders. The extent of the agreement with the latter groups is to secure their principle value at maturity in return for Interest and Dividend payment, nothing else.

Second: The Supreme Court does not create law but rules on how cases relate to existing laws and corporate laws requires that companies, in a take over play, maximize value for their Shareholders.

So it should be a done deal. The fact is that the court agreed to hear the case puts it back into the toss up phase. I choose heads.

Gas Coupons

While cleaning your place this weekend look for old gas coupons. You probably have one or two lying around somewhere.

Hurry, be sure to use them before they expire!!

Happy motoring.

Recording a conversation..Only in Canada...eh

Sorry to depart from Markets Bull to Marketing BS.

But we all had to deal with call centres. Call centres for equipment we purchased, services we acquired or problems we faced with cable or internet providers. You name it they have a call centre for it and many of them are half a world away from North America.

We all listened to the message before a human answered the phone telling us " your call is important to us and may be recorded for quality control reasons".

Often we are promised resolution to problems in ways that never materialize. Of course, you misunderstood what they told you on the phone. If you ask for the recording to prove that promises were made. Yes, you guessed it, no recording of that conversation was ever made because the message said the call MAY BE recorded and your conversation wasn't recorded.

Well, in Canada it is legal to record your own telephone conversation as long as the recording is used for the purpose it was recorded for namely; document a telephone conversation for the purpose of protecting yourself against unscrupulous marketers.

It is illegal though to use such recording for extortion, intimidation or in any illegal manner.

If the recording is used to protect yourself against empty promises, it is legal.

Only in Canada ..eh, may be not. Check your local legislation. You may be surprised and next time someone promises you the moon, they'd better deliver because you have the proof.

40 Year Mortgage, no Down Payment?

This issue bothered me for a while now.

Since 2006 Canadian Banks have been dishing out 40 year mortgages with little or no down payments. Mortgages upward of $300,000 to new home buyers.

The Bank of Canada Governor is concerned because this extra liquidity is driving housing prices up. The policy makers are also concerned because they've witnessed what happened to our brothers and sisters south of the border.

In Canada, this kind of lending is not called sub-prime mortgages but has all the element of cause and effect as was the case with the sub-prime mortgage fiasco namely; lending money to people who could barely afford the financial load.

Why is the Bank of Canada and the policy makers so concerned?

Because, Canada always caught a cold six months after the USA sneezed.

This time the US housing market came down with a bad cold. However, Canada has been somewhat protected by a gel of black oil and a skin of glittering gold.

Make no mistake, not if but when this glitter fades and the protective gel wears out, Canada may end up with a bloody pneumonia.

In Canada as was and still is the case in the USA people will get hurt. Again those people who are the most unlikely to recover from a financial hit will have their lives turned upside down.

I do not blame those people for having a dream and striving to fulfill it. I blame those who create the illusion that this dream is attainable when in reality the only way to attain the dream is to mortgage ones life. Hell, a life sentence in Canada is 25 Years.

There might be hope that this Bull S-- will stop.

The Bank of Canada and the Policy Makers are waking-up and smelling the stench. This is good news for all those lucky ones who haven't mortgaged their lives yet.

Oil at $200 and Gold at $2000

I think this will become the mother of all self fulfilling prophecies.

Not because of fundamentals, not because of demand and supply equations but because of all the hype and bull that is being created by analysts that think they are reading magical crystal balls.

With every additional analyst hopping on this roaring locomotive thousands become believers and drive the price of oil and gold higher. Why? because we are human beings.

I remember the months leading to new years eve, the year 2000.

Does anybody out there remember that hoax. They actually got me convinced that I should replace my computer, as did millions of people and companies around the world. I even remember President Bush mentioning Y2K a few times.

The only thing sane minds could do is be opportunistic and profit from the hype and the BS surrounding it all. Ride the momentum of the wave but, keep an eye on its formation before it breaks.

The ride downward will be horrendous and this is the good news side of the story.

At $2000 gold, who gives a damn, we could all stop buying jewelery because that's all this stuff is good for.

At $200 oil and if the wave does not brake and continues to build momentum the whole world will come to its knees and that would still be a good news story.

The bad news is that when human beings' own existence is at stake, then people go to WAR.

I surely hope this will not be the case and that I am just being an alarmist. If war erupts, the one awaits us will be worst than the tsunami that hit my parents in the 1940's. Yes, I mean worst than WW2.

The Nintendo game being played is a very dangerous game. It is time to reboot the system now before it is too late.

SP Index at 1400

"The S&P 500, on several occasions attempted to close above the 1400 point level and failed. Now that the relatively good earning season is almost over, going forward, the S&P will be at the mercy of economic news. Since the economy is facing further contractions, then the S&P has no where to go but down."

This statement could have been written by any one of the guru analysts and the market would have reacted instantaneously to the down side.

Technical analysis would indicate that there is truth to this statement. I think this is a possibility however, these days with the hyper reactive speeds of the market, anything could go.

So be careful out there. Protect your down side.

Ag.com vs Tech.com

The International Herald Tribune quotes Tobias Levkovich, Chief equity strategist for City group Investment Research in reference to his analysis of the agricultural equities as saying:

"Some of these stocks are up 15-fold in the last couple of years, and people are saying they look cheap," he said, referring to commodity producers. "We're telling people to move away from these stocks." to read more

This is a Deja vue. Only 8 years ago the tech bubble burst and how quickly do people forget the "irrational exuberance of those days" and the carnage that followed.

I am sure many Canadians remember Nortel Networks or is it Nortel Who?

Many other Canadians also remember Ross Healey calling the top on Nortel and yet they shrugged him off. Turns out those who listened saved their hide and hold a lot of respect for the man including yours truly.

The Ag bubble will burst like any other bubble. A lot of people will either praise Tobias Levkovich for his foresight or hate him for having burst their bubble. While they are at it, they might as well blame him for the housing bubble, which incidently also burst.

If I were thinking of buying and holding some of these stocks I would absolutely stay away. However, if I am a trader, the price movements of some of these stocks represent excellent opportunities for quick returns. But you won't catch me holding those stocks overnight.

POTASH

On April 16th I wrote

"Going forward I would watch POT like a hawk its curve is turning parabolic. Maybe some crazy money is moving in."

(Link to the globeinvestor.com to view the Chart ).

Pot has since re-traced. Is it retracing back to its upward trend line? Will it bounce off its 50 Dma? or would its holders be spooked by a strengthening US dollar along with the other commodities?

It is not looking good especially that its volume on the down trend is higher than average.

I would set a strategy to protect the down side and continue to watch it like a hawk.

It is not the time to go to sleep with this stock stashed in a drawer. This stock represents a commodity and some analysts have estimated the world known reserves of Potash to be good for 300 years.

Technical Analysis

Some of my friends consider technical analysis to be no less than bull. They believe that only fundamentals should guide the investor.

I believe that every active investor must comprehend technical analysis and use it as a tool to help in buying and selling stocks at appropriate times.

Technical analysis books are a dry read, but if you want to learn some about technical analysis and how you could apply to your investing, you could watch Larry Berman's call on BNN every Monday at 11:30 or link to http://watch.bnn.ca/bermans-call

Larry's presentations are easy to follow, very informative and he does not down play the importance of fundamentals.

Each of the aired programs ends with an educational segment which is quite interesting.

PS: Markets Bull has no interest in Larry Berman's aired programs. I just believe that he is one of the best I listened to and this is No Bull.

What happened with apple

I lost some sweat.

What a ride from the time Apple announced last night to the close today.

After all the gyrations last night, at the open it took off but it stayed below my short point, then it plummeted, then bounced back and lingered for about an hour. It tried to go below $162 three times but it failed. That's when my guardian angel said get the hell out.

I think Apple is going to be range bound for for a while. It will hit a lot of resistance at $170 and it will find support at $150.

Will I short apple again? Not in this crazy market. Neither charts nor fundamentals seem to work anymore.

What will Apple do Tonight

Let's walk through this.

Texas Instrument missed. Nokia tanked.

The market is counting on the i-phone for results. I think the last I heard the i-phone is still a consumer electronic product and until it is up and running for business, Apple remains at the mercy of the consumer.


The i-phone is a product captive to the US consumer.


Well, the US consumer is in bad shape. Home values took a bad hair cut, the stock market went on a severe diet and gas prices went through the roof. Will people buy a fancy looking phone or buy gas to go to work? I think the phone will go first.


what if I am wrong? I'll have to cover the short and probably lose some dough.

Nothing ventured nothing gained.

Just For Laughs -Take 2

This fellow in the picture must have shorted Google on Thursday.

Hope he has money to buy a new monitor.

Don't despair we only started the crazy season.

Have a good weekend.

Simple Math

If you have a $1000
You lose 50% , you are left with $500
You need to make up100% of the money left and some to pay for taxes to get back to $1000.

In my book:

Rule no 1: Conserve Capital
Rule no 2: Use strategies to limit losses

Buy & Hold are you Nuts

Do you think the markets are volatile?

Blame it on the Nintendo kids.

Well, we baby boomers created them. Every time they pushed that control button they expected Mario Bros to instantaneously jump. When the game didn't workout, they crashed it and started all over.

Time flies, those kids are adults now. Some of them trade the stock market with the same intensity they used to play Nintendo. Except this is real life with real consequences.

Add to this, real time charts and quotes, point and click trading , computer triggered orders, real time news, pre and after hours trading ..etc.

This tells why I think it is nuts to buy and hold for the long haul. Not for the average investor. Not anymore.

Opposite to what I said in my previous posting if Google reported a miss that stock would have tanked, may be more than $79.

Has the world gone Crazy?

3 minutes after Google reported its results the stock jumped to $500 from the close of $449. As I write this it is trading at $528. This is $79 above the close.

Of course Google is a growth company but it is also an advertising company. Advertising companies take a beating in a slowing US economy.

What is going on with the world these days? People use their homes as an ATM machines and the stock market as the big mother of a casino.

I am glad it is not my money especially when the whole thing turns out to be a bear market rally or to use a more common term, a sucker's rally.

Some people say the rest of the world will keep the profits up so things are going to be alright.

I think this is Bull.

For example: In Canada people talk about the decoupling of our economy from that of the US. Well, home resale took a hair cut of 13% year-to-date.

And guess what, the BRIC economies will follow suit. What is going to happen to China when the Olympics are over. Or may India when food pricing keeps on rising. Don't forget the speculator have taken hold of oil and they are driving its price higher and higher.

Stay tuned for my thoughts on why I don't believe in "The buy and Hold Strategy"

Sell on Stop ? or Buy a Put

Recently this guy calls into a talk show and asks the analyst "I hold Potash (POT) and I am making money what is your opinion, should I hold or sell?"

The chart pops on the screen and the analyst hums and beats around the bush and finally says " I would sell".

Looking at the chart (Link to globeinvestor.com to view the curve).
Wow. I wish I held this thing.

I wouldn't Have sold there. This is Bull

At that time when the fellow called, POT was trading at $160 and it followed a nice curve inclined 30 deg. It bounced off its 50day moving average (yellow line)and was well above its 200dma (red Line).

At $160 POT faced a lot of resistance and to be fair to the analyst if the traders let go of it POT would have dropped. But hey this is a commodity and it moves on news. As it turned out the competition came in with good numbers and POT broke out. Today it closed almost at $200

Still not knowing all this I would have done one of two things:

1. Bought puts at 160 if it finally let go and tanked below the 50dma I'd then exercise my option and pass my stock to someone else at $160 of course less the premium. If it moved up well, I'll have $40 more per share again less the premium.

2. Or I would have placed a sell on stop order slightly below the 50dma. If it drops to that limit then I am taking out and I keep most of my profit. If it moved up, which it did I keep all my profits

Going forward I would watch POT like a hawk its curve is turning parabolic. Maybe some crazy money is moving in.

Sell on stop orders once triggered they become a market order. With super movers like RIM on the TSX which trades substantially lower volumes than RIMM on the NASDAQ the order could be filled at much lower level than the trigger point. Been there, done that.

Just for Laughs

As reported in the Ottawa Citizen, Traders who are high on testosterone outperform those with less of this stuff running through their veins. They are not talking about sex here. They mean making more money.

It is also a medical fact that bald men have more testosterone than those other guys with a full set of hair.

Well in conclusion, and for women looking for a rich stud:

Look for the bald ones in the crowd. Not too hard to find, especially on a nice sunny day.

Listen to them talk. The one you hear talking about the stock market don’t let him out of your sight. He is probably rich enough so you could buy him a nice headpiece to transform his visual.

So, for you men with a full set of hair, watch out.

How about shaving your head?? Don’t even think of it. That will not work

Stay tuned for more Market Analysis : -)