Charts

I found this great chart over at Calculated Risk and thought I'd post it here for discussion.

Here is a chart of the TSX as well. As of market close on October 27, the TSX was down 43.3% from its June 18th peak. In terms of speed of the crash, the TSX kicks butt on the S&P500 with a 43% fall in only 20 weeks.

I've Been Busy

With markets around the world declining further by the day, I've been very busy at work and unable to post much recently.

Markets have fallen further and faster than I've expected and I suppose that shouldn't be a surprise but this is clearly presenting a once in a lifetime buying opportunity in equities for those with cash on the sidelines.

Here is a list of the best things you can do right now to position yourself for future investment success:
1) Stay true to your personal risk tolerance. Now is not the time to mess around with your overall risk level unless you can devote more to equities. Be honest with yourself about your risk tolerance. Can you handle a 10,20,30,40+% decline in your investment value?
2) Set up a systematic investment plan and contribute as much as you can afford to a portfolio that matches your risk level.
3) Develop a plan to meet your goals if you don't have one. Be realistic about your return assumptions and your lifestyle needs.

As always you should pay off unsecured high interest debts before you invest a dime.

A Letter From Warren Buffett

From the NY Times.

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Credit Crisis: The Worst May be Behind Us (for now)

Several indicators, like the TED spread, have now reversed direction this week and are now getting better not worse after hitting ridiculously elevated levels last Friday.

See Calculated Risk for more on the Credit Crisis.

The local media has really glommed onto the idea that house prices have fallen and are falling more.  The facts, which were clear to many of us 2 years ago, become more obvious by the day to the average Vancouverite - house prices got too high and now they need to come back down.  Articles in the Georgia Straight, Vancouver Sun, Province, and Globe and Mail all pointing to further weakness in the local housing market.  It is improbable that there will be any material improvement in this situation for at least 18 months.

Several projects have now hit the skids with the overly ambitious Infinity Project in Surrey making the headlines this week.  More to come on further project cancellations.

I had a nice time off.  What are you seeing out there right now?

Happy Thanksgiving

Have a great Thanksgiving everyone. I have alot to be thankful for: family, friends, health, rewarding work, a free country, and great food!

I'll be away for a few days. Have fun.

CMHC to buy mortgages from banks.

From the Department of Finance.

The Honourable Jim Flaherty, Minister of Finance, today announced the Government will take steps to maintain the availability of longer-term credit in Canada by purchasing up to $25 billion in insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC). This action will help Canadian financial institutions raise longer-term funds and make them available to consumers, homebuyers and businesses in Canada.

This relief to Canadian homebuyers and consumers comes at no fiscal cost to the taxpayer. Indeed, these securities will earn a rate of return for the Government that is well above the Government’s own cost of borrowing. Moreover, as insured mortgage pools in Canada already carry Government backing, there is no additional risk to the taxpayer.

"It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers," said Minister Flaherty. "Our mortgage system is sound. Canadian households have smaller mortgages relative both to the value of their homes and to their disposable incomes than in the U.S."

"However, it is becoming increasingly clear that the continuing disruption of global credit markets, which has been severe and protracted, is making it difficult for our financial institutions to raise long-term funding. This is beginning to affect the availability of mortgage loans and other types of credit in Canada.

"The Government has therefore decided to act to address the current scarcity of private sector lending to Canadian mortgage markets and lending markets overall. This is going to make loans and mortgages more available and more affordable for ordinary Canadians and businesses."

This action builds on recent steps taken by the Bank of Canada to provide increased volumes of term liquidity across a broader range of collateral. The Bank increased to $20 billion the volume of liquidity that it will provide banks and has widened the range of collateral it will accept, using the expanded statutory authorities provided in the 2008 budget legislation. The Bank also cut its overnight target rate by ½ percentage point to 2½ per cent in a coordinated reduction with five other major central banks.

The actions announced today will also supplement CMHC’s regular Canada Mortgage Bond (CMB) Program, which supports mortgage lending at affordable rates by Canadian banks and other lenders. The CMB Program has recently been expanded, including a record issue in June of this year.

"The mortgages involved in today’s initiative are already guaranteed through government-backed mortgage insurance and are high-quality assets," said Minister Flaherty. "This initiative is an efficient, cost-effective and safe way to support lending in Canada by providing secure, reliable funding at an unprecedented time of global market turmoil."

The first operation is planned for October 16, with a purchase amount of up to $5 billion. The Government will announce a schedule of future purchase dates to take place over the coming weeks. CMHC will shortly announce further details of the competitive auction process that will be used to purchase the insured mortgage pools.

Things I've Read

Great synopsis from Calculated Risk - The Adjustment Process
Canadian Banks ranked safest in world - Globe and Mail
The Stock Market is presenting buying opportunities now - Canoe Money

Are you reading anything interesting out there?