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(B)(N) Extreme Economics – Plan Zero (Buy Canadian)

November 8, 2015
Figure 1: Jobs

Figure 1: Jobs

Drama. The Canadian oil & gas majors reported their quarterlies last week and, as we might have anticipated, it’s a dire survival picture (again) and investors have knocked-off about 30% and $80 billion (CAD) of the market value since a year ago and these companies are currently trading at only $260 billion and 2012 prices in aggregate, but that didn’t all happen just last week.

Figure 2: The Great Lakes Trading Region

Figure 2: The Great Lakes Trading Region

Nor is that a new picture because for more than fifty years, Canada has been exporting heavy crudes and condensates (and natural gas) to the US mid-West and buying them back as refined products in the Great Lakes Basin and that trade in energy for goods and services has helped to create one of the largest trading blocs in the World and that process is being repeated on a new axis between Europe-Russia-India and China and Southeast Asia amid the prospect of US$20/bbl oil gone begging in the Middle East (IMF Survey Magazine, October 21, 2015, Low Oil Prices, Conflict Weigh on Middle East’s Prospects).

As investors, however, we’ve done much better and took home +100% in capital gains in the Canadian oil & gas trade in the stock market since 2012 and even more than that (+200%) in the non-resource companies of the S&P TSX 60, but it looks like the former (oil & gas and mining) has bottomed-out and the latter (goods and services) has topped-out and we need to think about what we’re going to do with all of our new money that we earned from foreign investors who own about 80% of the market and left so soon to finance the US and the other axis.

Figure 3: US Canada Trade

Figure 3: US Canada Trade

And we’re going to buy Canadian because this market feels like home and needs our money (Bloomberg, November 2, 2015, Money Flooding Out of Canada at Fastest Pace in Developed World) and the global markets don’t provide more than that or a solution for what to do with all of our new money if low dividend yields at high prices in a fading market are not good enough – but they all have that same problem; please see Exhibit 2 below for the global picture and Exhibit 1 and 3 for the solution – Plan Zero (Home Alone).

Risk? What Risk?

Figure 3: What should we do today?

Figure 4: What should we do today?

The only risk to our money invested in the stock market is not being invested in the stock market – these companies are working for us 24/7 and they’re good at it – but investors aren’t very good at investing and for us to invest properly with capital safety first and foremost in our minds, we have to get past the gatekeepers who toll and thrive on investment made risky at home and even riskier in foreign markets and it’s best to know nothing and just buy stocks – real stocks and not mutual funds or ETFs – almost any stocks and not worry about the prices on the day-to-day; please see our friend in Figure 4 on the right for how that worked-out for him in just one case of which there are many and they’re easy to find with just a stock price chart, a ruler, and a good eye.

The Bull Run and Bear Embrace

Figure 5: The Bull Run and the Bear Embrace

However, in our pursuit of knowing nothing and running with the herd, we developed the (B)-class portfolio that is more dynamic than just buying and holding stocks (and waiting) and managing any portfolio as a (B)-class portfolio always works better because the market is much more impatient than we are and they can’t wait to cash-in on news, rumors, and volatility whenever things look to be in their favor – even for the day – and the future not. Oh well.

So, already, we’ve learned that we should only buy stocks that are trading in the (B)-class and for which we can enforce an effective stop/loss policy to protect the downside which is always there and could be as bad as zero while we were out; please see Exhibit 1 below for how that is done for any company and for way too much information because all that we really need is a price chart, a ruler, and a good eye (and click on it and again to make it larger as required for a better look).

Exhibit 1: (B)(N) The Hitchhiker’s Guide to the Price of Risk

Figure 1.1: The Hitchhiker's Guide to the Price of Risk

Figure 1.1: The Hitchhiker’s Guide to the Price of Risk

S&P TSX 60 Non-resource Stocks

The S&P TSX 60 has not had a great year but maybe it’s just a normal year and we need to get used to that in all the markets including the US, Europe, and China.

Figure 6: Dead Money

Figure 6: Dead Money

Canada’s GDP (Gross Domestic Product) is expected to grow by about 1% this year, but that isn’t enough because the unemployment and underemployment rate is about 7% and youth unemployment seems to be sticky at about 13% and weekly wages have grown by less than 1% this year (Statistics Canada) and prices are up because the weak Canadian dollar has lost about 20% of its value against the US dollar, the Euro, and the Yuan, and it will go lower if we can’t increase the demand for the Canadian dollar outside of Canada because consumer debt levels are currently the highest in the G7 countries and funded only by shrinking wages and a shrinking dollar and a low rate of interest, similar to the problem that China had just last year and that the US had in 2007 – remember that?

Exhibit 2: (B)(N) Buy Canadian – Plan Zero (Home Alone)

Figure 2.1: (B)(N) S&P TSX 60 - Active Management

Figure 2.1: (B)(N) S&P TSX 60 – Active Management

Exhibit 3: (B)(N) Buy Canadian – The Battle Plan – Plan Zero

Figure 3.1: (B)(N) The Battle Plan - Plan Zero

Figure 3.1: (B)(N) The Battle Plan – Plan Zero

Depressions are a great time and, indeed, the best time for investors who don’t need to spend their money as fast as they make it to build fortunes in the Canadian oil & gas, mines, and woods which are selling now for the lowest prices in a decade. Will the Canadians step-up to it or just spend their money on “investments” in smart phones, clouds, houses, credit cards, and chat spaces?

If not, there are plenty of liquid and patient US dollars, Euros, and Yuan looking for a new place to live which is why the Canadian resources industries are about 80% foreign-owned.

For more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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