Actions Speak Louder than Words

Reasons This is a Bear Market Rally:

Insiders know more than we do. It's simple. They are on the front-lines of the business. Actions speak louder than words. Much louder. Look at April Insider trading activity:

• Insider purchases of $42.5 million are on track to make April the skimpiest month for such buying since July 1992
• “We’re quite aware that insiders are not infallible. But they are, after all, in the front lines of commerce and industry and so presumably have a better fix on the economy and the prospects for recovery than analysts and economists, whether of macro or micro persuasion.
• And just as they wouldn’t be laying off people in such extraordinary numbers if they thought their business was about to rebound soon, they’d be loath to liquidate their holdings in such an emphatic way if they espied a turnaround in the offing.”

Source: http://online.barrons.com/article/SB124061355986854673.html
Highlights from: http://www.ritholtz.com/blog/2009/04/beware-insider-selling/

When Microsoft reported earnings, the company did not give any forecasts for the next quarter. If Microsoft does not give forecasts, how are any of us qualified to do so?

In the stock market, the value of uncertainty is usually a negative one.

Notable: Commercial Real Estate
Based on the U.S. "Stress Tests" coming to a market near you: 240B bank losses.


On Commercial Real Estate:
The One Trillion Commercial Real Estate Bomb
http://zerohedge.blogspot.com/2009/04/one-trillion-commercial-real-estate.html

In this article, $700B in commercial loan defaults sounds irrelevant. But "Banks have $1.1 trillion in core commercial real estate loans on their books according to the FDIC, another $590 billion in construction loans, $205 billion in multifamily loans and $63 billion in farm loans."

"Total maturities by 2018 are approximately $2 trillion, with $1.4 trillion maturing through 2013."

Author's conclusion:

"And, at last, there is the view that the refi problem could fix itself, based on the argument that CRE cash flows are likely to rebound quickly as the economy begins to improve due to pent-up demand.

This argument is nonsense: even if cash flows recover to their peak 2007 levels, values would still be down 30% as a result of the shift in financing terms. Ironically, it would require cash flows rebounding far beyond their peak levels to push values up sufficiently to overcome the steep declines. This is equivalent to predicting (as the administration is implicity doing) that the market will be saved by the next rent and real estate bubble, which the U.S. government is currently attempting to generate."


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Book Review: Greater Fool (Part 1 of 2)
Subtext: Invest in Canada?

With the U.S. markets on the decline, every buyer out there is asking if the same will hold true in Canada. For my own interests, I will focus on Garth Turner's discussion about Toronto. His arguments that Canadian real estate is not immune to what is going on around the world use some of these points:

Economic:

• Majority of exports is to the U.S.
  
• Majority of oil is exported to the U.S.
  

Consumer:

• Canadian personal savings rate is similar to U.S. personal savings rate
• 30% of condos in Toronto are investments (after 1989, owners rented condos at a loss)
  
• mortgage payments account for a substantial amount of consumer expenditures
  

Turner discusses the role of the dotcom bubble and 9/11 in the U.S. housing bubble effectively. He also discusses the role of demographics over the next 10 years, and environmental issues as factors that will influence the real estate market in the future. I did not, however, find the latter two arguments to be very effective. Nevertheless, for $16 this book is worthwhile reading for anyone who wants to buy real estate. After all, $16 is far less for a buyer than a single percentage drop in the price of a home.

Retrospective:
I previously visited the notion of a weaker real estate market back in June 2008. Since then, some things have changed for Canada:

• Commodity prices collapsed (See TCK, AA, ABX)
  
• Canadian dollar rallied
• GM/F collapsed in share price - there are rumors that 10% of the workforce will be cut
• Nortel cut jobs; its future is in doubt
  

From an international investor point of view, Canada represents 30% resources. This sector will rally about twice the rate of other sectors if the stock markets recover. It will also decline by twice the rate.

From a real estate perspective, the above factors are too great to ignore. The only positive is that the Canadian dollar is stronger. This should benefit the manufacturing sector.

So, let's simplify the investment strategy, because there are simply too many things to monitor (let alone the health of the U.S. markets).

Right now, trading is dominated by economics. Recession/"Depression", consumer spending, deflation, government debt, and government policy. If we roll up all of these factors, the gold sector comes to mind. It would appear to me that there will be numerous reasons to eventually buy into this sector. Note that gold producers will move more over the underlying commodity. My favorites are: Goldcorp, Barrick, and Kinross.

Stay tuned.

Another Long Idea (Part 2 of 2)
Think poor. Think saving money.

What does the consumer NOT do? The consumer will avoid expensive ticket items (cars, LCD TV's, electronics, computers, items over $1,000).

What DOES a consumer do? Go thrift. Eat burgers, shop discount.

Yumm. Cheese-burgers (not the expensive big macs):


A dollar can go a long way:
Walmart might be everywhere, but so will shoppers looking for one-stop low-cost shopping:




Time to go to fewer yoga classes and to wear sweats at home with yoga videos (SELL):

Toronto Real Estate Prices Finally Fall

National Post announced the housing boom in Toronto is finally over, because average prices have fallen for the first time in 12 years. Here are the figures from TREB (The Toronto Real Estate Board):

• Average prices fell to $393,647 year-over-year in September 2008
• Sales were down 6% from a year ago, and down 11% in Toronto
• Housing "supply" increased 19% year-over-year to 16,236
• Days on the Market increased to 36 days, from 31 (year-over-year)
• 905 sales declined 3% (to 3,878) but average price increased to $352,071 from $351,641
  

Analysis:

• 2007 was a strong year, so the figures illustrating the decline are exaggerated
• A month-over-month comparison is required to get a truer picture of the health of Toronto real estate
• Using averages is too broad: median home sale prices and an analysis

Some counter-figures:

• For Central "C" area month-over-month average prices increased 6.2% from August to September, and median prices increased 12.2%
• For Central "C" area year-over-year (Sep 08 vs Sep 07) average prices declined 7.5%, and median prices declined 2.4%
  

One thing is for certain: the days for bidding wars is long over. I find it hard to perceive buyers over-bidding for homes when the supply has increased.

Risks are increasing that the Toronto housing market will falter further, the longer the U.S. economy struggles. Ontario (and global countries, already facing substantial housing bursts) is not special and therefore not immune to the weak US economy. In short, the U.S. is an important trading partner for this province.

Lower home prices is simply good news for the buyer who is not willing to devote a large pay cheque to paying down monthly mortgage payments.

Raw Material and Commodity Prices Falling. Buy These Stocks

There is a stealth bull market brewing. FSX Players take note. Companies that benefit from lower grain prices, like General Mills, is performing well. In Canada, George Weston rallied back. It's quietly clear that the market is betting the bailout will result in dis-inflation and slower growth. Again, watch the US Dollar, gold and oil prices, and stocks like Potash.

Canadian Housing - No Bust Just Yet

After declining 5.3% in June, the value of building permits increased 1.8% to $6.4 billion in July, mainly as a result of multi-family dwelling permits in Central Canada and industrial construction intentions in Saskatchewan.

In the residential sector, the value of building permits rose 2.7% to $3.7 billion, mainly as a result of an increase in the value of multi-family dwelling permits in Ontario, Quebec and Manitoba.

In the non-residential sector, the value of building permits edged up 0.6% to $2.7 billion. An increase in industrial construction intentions more than offset declines in both commercial and institutional permits.

Residential: Increase in multi-family dwelling permits

After two consecutive monthly declines, municipalities issued $1.5 billion worth of permits for multi-family housing in July, up 9.6% from June.

At the same time, single-family permits declined 1.4% to $2.2 billion. Ontario accounted for more than half of the decline, while Quebec posted a second consecutive monthly increase in single-family housing.

Municipalities approved 19,518 new residential dwellings in July, up 12.0%. This was due to a 24.4% increase in multi-family units. The number of single-family units approved declined 1.4% to 8,257.

Source: www.statscan.ca

Analysis:

The figures are skewed by building starts for condominiums in July. Real estate activity continued to increased but so did supply. Investors must continue to monitor the health of the commodities market (currently declining), unemployment levels, and the health of U.S. banks and U.S. real estate market.

How Real Estate Stocks Are Performing

Some of the Canadian real-estates stocks that have stabilized include Brookfield Properties, Riocan, and Rona. Although technical signals for these stocks are positive, there are risks in their fundamentals.

Brookfield properties has the potential to rally to $28. Careful, as it has heavy exposure to New York's commercial property market:

Riocan:

Rona's Rally quite a surprise: