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  Quotations - Invest  
[Quote No.29289] Need Area: Money > Invest
"For value investors the financial situation of any company they have shares in or are considering investing in, is very important. For investors new to this approach it is easy to become confused with so much information. I follow a sequence of concepts to summarise the key areas, and my thoughts about each, as if I was the business's only owner. I offer it here as a way for new investors to get a feel for this method so they can eventually develop their own. It use the acronym 'RIPE-ALE-MR-PRICE-PLANS-RISKS'. This stands for REVENUE, INCOME, PROFIT, EARNINGS PER SHARE - ASSETS, LIABILITIES, EQUITY - MARGINS, RETURNS - PRICES - PLANS - RISKS. Over time I have found this helps me collect relevant information and develop a better understanding of the particulars of each business I own or I am considering investing in. For example: REVENUE [often called 'top line'] includes thinking about sales volume and prices - including considering price changes due to inflation, divisional performances and periodic sales at lower margins, same store sales compared to previous corresponding periods and store roll-outs, local and imported competition, market size and share, price wars for market share, competitive advantages - including for example the distribution network, geographic spread, product diversification, lowest cost producer advantages or exclusive licences, the ability to increase prices to cover increased costs without a drop in sales, potential changes in funds under management and management expense ratios for fund managers, etc; INCOME (revenue - costs) includes thinking about fixed and variable costs, employment costs and wage inflation [which includes the strength of the unions, the possibility of industrial action, and the company's ability to reduce staff numbers], cost of goods - including commodity prices [especially oil for road, rail and air transportation] and inflation, interest costs [including their credit ratings that determine the ease and cost of their debt - note when this is high companies remove it by using EBITDA figures to try to put a positive spin on their results and prospects], bad debt provisions [when these are significant companies trying to put a positive spin on these will talk about profit before provisions], restructuring costs, foreign income as a percentage of this income and currency conversion impacts to develop a constant currency income, hedging positions, [be wary of companies trying to reduce costs by deferring necessary maintenance and replacement costs], etc; PROFIT (income minus tax equals earnings) [often called 'bottom line'] includes thinking about tax rates, depreciation, tax losses carried forward, etc; EARNINGS PER SHARE includes thinking about the number of shares outstanding, past and future share dilution due to placements and rights issues or share concentrations due to share buy-backs, analysts' concensus earnings per share and company guidance, etc; - ASSETS includes thinking about valuations and capitalisation rates, revaluations up or down, write-downs or write-offs, provisions for bad debts, depreciation, replacement costs, inventory levels, potential takeovers/mergers, etc; LIABILITIES includes thinking about gearing ratios, sensitivity and possibility of interest rate changes, interest cost cover, amortisation, debt raisings, asset sales, etc; EQUITY includes thinking about how market price changes could reduce this, equity raisings, percentage owned by institutional investors and their likely intentions, etc; - MARGINS includes thinking about sales mark-ups, banks' net interest margins, and profit margins, etc; RETURNS includes thinking about Return on Assets (ROA), Returns on Equity (ROE), etc; - PRICES includes thinking about Dividend/price (including payout ratio), Price/book price(net tangible assets), Price/earnings, Price earnings ratio/growth, percentage of stock that is being shorted, etc; - PLANS and RISKS includes thinking about the company's stated and possible future plans, how they relate to the company's strengths, weaknesses, opportunities and threats (SWOT Analysis) including any potential local, national, global (especially major trading partners i.e. USA) Social, Technological, Environmental, Economic [including markets - refer leading economic indicators, inflation, gold, oil, spending, production, employment, income, wealth effects from changes in house prices, equity, fixed-income and currency markets, the business cycle and stock market sector rotation, etc), Political (including legal) changes, etc. So each reporting season and every time I check the Position Statement's/Balance Sheet's assets and liabilities, the Performance Statement's/Income Statement's income and expenses, and Cash Flow Statement of any company, I carefully consider these ideas especially the percentage changes to Revenue, Income, Profit, and EPS, and the changes in the others. I focus on trying to answer why these differ between themselves, from the previous year and from the 10 year averages, as well as comparing them to their competitors. The research I have to do to come up with answers helps me better forecast these for the coming year which has improved my investing results considerably." - Ben O'Grady
Founder and Chief Executive Officer of Imagi-Natives.com
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[Quote No.29294] Need Area: Money > Invest
"Charlie Ellis, introduced to the world of institutional investment to the concept of the Loser’s Game, which holds that the secret of long-term success in investment consists, as in many sports [i.e. golf], mainly of avoiding serious errors. One of the most serious errors that an investor can make is to invest at the end of a boom - just before the share market crashes. One of the best ways to avoid this is to be aware of the long-term [at least 20 years] average return of your country's share market and to overlay that on a chart of your stock market's performance. Then you can see roughly how much over or under this it is performing. Be very reluctant to invest in the share market if it is over 10-15% above this, especially if it has been rising for more than two years, as there is a lot of evidence to suggest that markets nearly always eventually return to their long-term mean performance, which is called 'reversion to mean' in the industry." - Seymour@imagi-natives.com

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[Quote No.29298] Need Area: Money > Invest
"[In 2008] We're in a very confusing atmosphere. People didn't really know what to make of a 300-point rally in the Dow the other day, but my main message was that 300 point rallies from the Dow don't happen in bull markets. In fact, they never happened in the bull market from October '02 to October '07, but it has happened 6 times in this bear market and happened 12 times in the last bear market. You don't get moves like that in bull markets. As Rich Bernstein has said time and again, 'This is the hallmark of a recession and a hallmark of a bear market'." - David A. Rosenberg
the North American Economist for Merrill Lynch in 2008.
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[Quote No.29303] Need Area: Money > Invest
"By 'the science of real estate investing,' I mean all the measurable numbers and criteria that can help assure your success. In other words, before you buy an investment property, you have to know the answers to all of the following questions... --How strong is the rental market? Okay, you just saw a couple of two-bedroom apartments in the area rent for $750. But you're looking to buy a 20-unit building with all two-bedroom apartments. Is there enough demand? Can you rent them all out at $750? --Will the property cash flow at market rent? Will it cash flow at a 15 percent to 20 percent discount to market rent (in case the market softens or you have to lower your rents to remain competitive)? --Are you fixing your interest rates? By doing so, you don't become hostage to another economic factor over which you have no control. --Are you buying at a discount to the average $/square foot for that type of property in that area? When you buy at a discount to start, you have that much greater a margin of safety going forward. --Have you thoroughly investigated what your operating costs will be? Don't take the seller's numbers at face value. They often understate costs - especially real estate taxes. (Your taxes may rise significantly if you're paying a lot more than what he paid years ago.) The key point is: You must know your costs well in order to have a reliable idea of what your net operating income and cash flow will be. --Have you considered deferred maintenance and any major expenditures that will be yours in the next few years? From a new roof to repaving a parking lot, significant expenditures of this sort can eat up cash flow and even cause a property that is not sufficiently capitalized to go into the red. --Do you have honest and competent management set up for the property? Properties that look good on paper can quickly turn bad when you have poor management. --Are you buying near or below replacement cost? This is especially important in a bear market. These are all factors over which you have significant control. And when you get good at doing this kind of due diligence, you can scoop up bargains in a bear market - without caring that you may not be buying at the absolute bottom. How to Make Money Even When You Make a Mistake: After all, if you have a fixed-rate amortizing loan on a cash-flow property, you'll eventually own the property free and clear, regardless of price fluctuations in between. Buy a $1 million property with $200,000 down and you'll eventually pick up $800,000 just from using the rents to pay off the debt. In the meantime, you'll also pocket net rents (the money left over after paying operating costs, the mortgage, and leaving a little something for reserves). So in a very bad case scenario - where the market goes nowhere for the next 20 years - you could end up making over a million dollars from a $200,000 investment. And, of course, if the market soon bottoms and improves, you could end up making a million or even millions much sooner. So in a bear market, focus on buying cash-flow properties at below market value in areas that you believe are promising and where you are confident you can put in good management. At the same time, for added bear market protection, buy near or below replacement cost whenever possible. Here's what that means... Replacement Cost: A Great Reality Check for Real Estate: Let's say that 20-unit building is 15,000 square feet, and to build that structure brand-new would cost $100/square foot - or $1.5 million. But, of course, the building isn't new. If you were to bring it up to the standards of new construction (for its class), let's say it would cost you $500,000. So that means, to stay below replacement cost, you'd want to buy it for less than $1 million. In other words, if you spent $1 million on the property and $500,000 to upgrade it to brand-new status, you'd be spending no more than anyone else who was willing to construct a brand-new competitive building in the area. In fact, your cost would still be under theirs, as you would have gotten the land along with your purchase of the building. Staying near or below replacement cost isn't always possible - especially in increasingly popular, higher-end neighborhoods. But in today's bear market, it is becoming easier in every kind of neighborhood. And buying below replacement cost is not a guarantee of success. After all, if you buy into a neighborhood that's in serious decline, you may find no one willing to build there in future years at almost any cost. However, that is an extreme case. And you'd certainly be worse off if the neighborhood went into serious decline after you had paid far more than replacement cost. So at the very least, buying near or below replacement cost will greatly reduce your risk on every type of real estate purchase. That - and your insistence on buying at prices that cash flow with a good yield - will help you be a shrewd buyer in a bear market." - Justin Ford
Successful real estate investor and author
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[Quote No.29304] Need Area: Money > Invest
"So to look for the best investment opportunities, you want to look for value and growth. You also want to look at markets with diversified economies. They shouldn’t be overly dependent on one industry, as Detroit was with automobiles and Houston was with oil when they went through their major real estate crashes. My favorite value and growth markets tend to have the following characteristics: -1-The median home is priced well relative to household income. (Typically three times or less.) -2-The median home is priced well relative to gross annual rents. (Typically 15 times or less.) -3-The market has experienced appreciation in the past few years, but at a sustainable pace, in line with the long-term average or slightly below it. -4-Population and jobs have been growing faster than the national average. -5-The economy is diversified. (One of my favorite markets has five strong sectors in the economy: a state capital, a major university, a tech corridor, music industry, and local industry.) -6-It has lively emerging or re-emerging downtown areas with a diversity of cultural activities. Once you find your new target market, focus on buying undervalued, cash-flow properties in that market. Then fix your interest rate and make sure you have the right management in place." - Justin Ford
active real estate investor, the author of 'Main Street Millionaire', and the editor of the recently updated 'Secret Value & Growth Cities: How to Make 6- and 7-Figure Profits From the Flood of Money Away From Overvalued Bubble Markets and Into America's Best Priced Growth Cities'.
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[Quote No.29314] Need Area: Money > Invest
"I've often said that until you have invested through a full property cycle, you don't really fully appreciate the property markets. You see...though many books and articles refer to the average annual compound growth of property as 10%, it is NOT constant each and every year. Property values tend to rise in cycles. In some years there will be strong growth and in others there will be no growth or negative growth. A simplistic version of the cycle goes something like this... As populations grow there is an increased demand for property and this causes an increase in rents. Slowly this causes property values to increase because financial returns have increased. Builders and developers hop on board and start constructing new dwellings as property developments become more profitable. Over time this leads to an oversupply of property which eventually results in rent reductions and slumping property values. Yes, despite what many agents will tell you, property values may fall and often have. Then in other years, values may rise by over 20%. Putting a timeframe to these cycles is not easy. Looking back over the past few decades cycles in Australia have generally lasted about seven to nine years and property growth has peaked– in other words we had property booms – in the following years: 1981; 1987; 1994; 2003. But these cycles do not exist because a number of years have passed. They occur because of a combination of factors and influences such as the state of the economy, social and political issues... At some stages of the cycle property values increase and they stay flat or decrease at other times during the property cycle, but ultimately they have a long term increase in value... [of around 10% per year for good properties in good areas, meaning they double in price every 7 to 10 years!] At various stage in the cycle property values exceed this underlying long term trend (such as in boom times) and at other stages fall short of this long term underlying value such as during property slumps. History shows that the property cycle consistently passes through 4 phases: The BOOM PHASE – This tends to be the shortest phase of the cycle. During the boom property prices increase rapidly – often by more than 20% per annum. The boom often begins slowly as investors recognise that property returns are increasing with increased rentals and slowly increasing property prices. As the boom continues a whole generation of new investors come in to the market driven by property seminars, the press, TV shows and the like. Greed starts to kick in, as does speculation. This was evident during our last property boom when many investors bought properties off the plan. They hoped to on sell their properties at a profit, many never really intending to settle on these, because often they didn't have the means to settle these properties. (Unfortunately many were caught out.) Fear also drives property booms as investors see property prices going up all around them. They are worried that thy may miss out on the profits the boom has delivered to other investors. Not understanding the dynamics of a property cycle, many of these beginning investors become overconfident at a time when they probably should be the most cautious and they are prepared to overpay, just to get into the property market, pushing up property prices to levels that are (in the short term at least) unsustainable. At this stage of the market properties often sell for more than their asking price as eager buyers compete with each other to snap up any property that comes on to the market. Vendors also become greedy pushing up asking prices and this just feeds the property boom. As the boom moves on many builders and developers flood the market with new properties to meet the increasing demand from owner occupiers and investors, but invariably they eventually flood the market with too many properties. This excess supply of properties is one of the factors that eventually brings the boom to an end. Another reason property booms typically come to a halt is when, in an attempt to slow down the property markets and keep a lid on inflation, the Reserve Bank increases interest rates and the banks limit credit. This leads to... The SLUMP PHASE This is often characterised by an oversupply of properties due to the over exuberant activity of builders and developers. This causes increasing vacancy rates and decreasing investment returns. Property prices stop growing and in some cases drop. If there has been a prolonged boom phase, this is usually followed by a longer and deeper slump phase with a greater likelihood of property prices falling. During the slump property is out of favour in the media and investors often struggle with decreased cash flows, higher interest rates and stalling values. They often consider selling their properties. When they do this in a falling market with few buyers, they exacerbate the slump. This is also the stage when many new home buyers get into trouble. They often overcommit themselves during the boom by purchasing properties they could not afford and to interest payments that could just afford. And now as interest rates have risen, some have difficulty keeping up mortgage payments and the only way out for them is to sell their properties at depressed prices. This often leaves them severely out of pocket and with a residual debt. The STABILISATION PHASE Our property markets don't usually jump from a period of negative sentiment to the next upturn. There is usually a short phase where the various economic factor catch up with each other – they stabilize or get back into equilibrium. Things get back closer to the average – I guess that's how averages work. [as they say in the industry they 'revert to their long-term mean' value.] The UPTURN PHASE During the upturn, vacancy rates slowly fall, rents start to rise, and property values start to rise slowly at first. This phase creates great opportunities but these are not usually easily recognised by most investors. At the beginning of the upturn phase of the property cycle interest rates are usually low and it is easier to get finance. Property values generally start increasing in the inner ring, more affluent suburbs and those close to the CBD or the beaches driven initially by owner occupiers looking to upgrade their homes. Over the next few years increasing property values ripple out to the middle ring suburbs and eventually, sometimes after a number of years to the outer ring suburbs. By the middle of the upturn property is generally affordable and returns from property investment are attractive. Investors begin to enter the market. In particular professional investors take advantage of the opportunities of the upturn phase, but beginning investors are not yet convinced that property is a good investment. This is the time that many builders and developers buy properties and commence development projects to have them completed by the late upturn or boom phases of the cycle. Investors slowly get back into property as conditions seem more favourable. They see property values increasing and are concerned that they may miss out if they don't buy a property. This is also the time that many first home buyers enter the property market. Property values usually increase gently during this stage (usually less than 10% per annum) and do not rise sharply until the boom phase of the cycle. At the end of the upturn phase of the property cycle real estate prices have risen substantially and property is becoming less affordable. As prices rise investment returns decrease. And.....we start all over again." - Michael Yardney
director of Metropole - Property Investment Strategists and a highly regarded Australian property commentator. He is the author of the best seller - 'How to Grow a Multi-million Dollar Property Portfolio -in your spare time', co-author of 'All You Need To Know About Buying and Selling Your Home', and contributor to 'Secrets of Property Millionaires Exposed!'.
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[Quote No.29320] Need Area: Money > Invest
"[How banks fund their loans is complex and not always strictly related to a central bank's monetary dictates as the 2008 sub-prime loans and credit crisis showed:] To minimise the risks of a liquidity crisis banks diversify their funding sources and durations, trying to get a balance between retail and wholesale money as well as short, medium and longer term funding. The balances will vary between the banks. For most of the majors, around 50 per cent would be funded from retail sources, with perhaps 20 to 25 per cent short term wholesale funding and maybe 20 per cent long term wholesale. The remainder comes from sources like securitisation. Spreads for both short term and long term money have been highly volatile since the crisis began but have certainly blown out dramatically when compared with pre-crisis settings. The longer the term of the funding the bigger the blowouts have been. Before the crisis, the spread over the cash rate for short term money was about three basis points. Until recently, when spreads dropped back to single digits in expectation of a reduction in official rates, they had been running at more than 20 basis points after being as much as 70 basis points earlier this year. It used to cost banks 10 basis points over the bank bill swap rate for three-year funding and less than 20 basis points for five-year money. Post-crisis it has been closer to 100 basis points for three-year funding and 130 basis points for five-year funds. The cost of retail deposits has moved with the overall market but they have also risen because smaller banks with lower credit ratings than the majors – who can’t access wholesale funds in this environment – have had no choice but to buy in retail funding, pushing up the cost of deposits. If the RBA [Reserve Bank of Australia - Australia's central bank] does cut the cash rate it will have some impact on the banks’ cost of short term funding. But it will have no impact on the cost of their longer term money and, even if the spreads demanded by the providers of wholesale term funding were to narrow, it would remain the case that the banks have already locked in higher-cost funding for three to five years – on average around the three-year mark – over the past year of the crisis. During that period more of the pre-crisis funding would have been displaced by expensive post-crisis money. Each month the average cost of term funding would have been rising as the banks raised new funds at a far higher cost. On some estimates the overall blended cost of funds for the majors has been rising by at least two or three basis points a month. [the cumulative weighted average cost of term funding was forecast to increase from less than 20 basis points over the swap rate before the credit crisis to more than 80 basis points. Today it is at about 40 basis points. Total funding costs today -2008- are about 53 basis points over the RBA’s cash rate. They are forecast to be about 70 basis points over the cash rate by June next year... There has been a structural change in the cost of deposits, which are the primary source of funding for smaller banks who can’t access offshore wholesale markets. NAB says these deposits, which provide about half of the banks funding, have risen from an average of 14 basis points over the cash rate last year to 67 basis points over the cash rate this year [2008]. Shareholder capital has been made far more expensive by implosions in bank share prices. Thus the relief so far – and the only real relief in prospect – applies to only about 20 per cent of the banks’ funding bases. Most, if not all, of the rest will only become more expensive over the next few years, not less. The longer the crisis persists, the higher the blended cost of funds and the longer those higher costs will persist.] Even retail deposits won’t necessarily become any cheaper if the RBA reduces official rates because the smaller banks will still need to attract a materially disproportionate share of those deposits to stay in business. Retail deposits are also invested over a range of terms, so the higher recent rates would to some degree remain embedded in those deposits for months, if not years. Thus, whatever the RBA does, and no matter how much it cuts official rates, a significant proportion of their book will have its cost locked in – some of it for months but a significant proportion for years. The longer the crisis continues, the more of that higher-cost longer term funding will be embedded in the book. The banks, of course, do remain profitable – exceptionally so by the admittedly crisis-ravaged standards of their global peers. All four majors have retained their AA credit ratings – they are among only 18 banks worldwide that have that rating. Only AA-rated banks have been able to readily access any meaningful term debt in wholesale markets. The obvious conclusion would be that they could take a hit on their margins – shift some of the pain from customers to shareholders – in order to reflect fully the RBA’s intentions. The banks would argue that they have already done that, with the 50 basis point increase in their mortgages rates above the movement in official rates not sufficient to fully recover the increase in their funding costs. Be that as it may (and it will vary from bank to bank) the banks will be wary of sacrificing margin, and not just because their share prices have already been smashed. [between 30-50%] The credit ratings agencies might now be discredited (again) for their role in the sub-prime debacle, where securities they rated as AAA became junk overnight, but they are still powerful. In re-affirming ANZ’s rating recently, Moody’s said that the bank would need to maintain or rebuild its margins to maintain a stable ratings outlook. None of the majors are going to do anything that would jeopardise their rating – at best a negative outlook would probably further increase their funding costs and at worst a downgrade would probably shut down their access to wholesale funding, which could put them at risk. And that is why, they’ll wear the ignominy of moving rates at a different pace to the RBA [and monetary policy] and why the RBA will have to consider strategies that takes the likely response of the majors into account when it sets its targets for reductions in short term rates." - Stephen Bartholomeusz
Australian financial journalist. Quote from 'the Business Spectator' 20th August, 2008.
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[Quote No.29366] Need Area: Money > Invest
"In about one out of six recessions, there is also a credit crunch underway and, in about one out of four recessions, also a house price bust. Recessions associated with housing busts and credit crunches are both deeper and longer-lasting than other recessions are. In contrast, recessions with equity price busts do not seem more costly than other recessions." - Stijn Claessens, M. Ayhan Kose and Marco E. Terrones
Quote from a 2008 paper, 'What Happens During Recessions, Crunches and Busts?', which examined the main characteristics of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the 1960-2007 period, including the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), and 234 (58) episodes of equity price declines (busts) for economic activity in these countries over the sample period. [Among these events, there is a considerable overlap, since there are 18, 34 and 45 recession episodes associated with credit crunches, house price busts and equity price busts, respectively.]
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[Quote No.29377] Need Area: Money > Invest
"A handy hint: If you see the term ‘EBITDA’ in management’s financial highlights, it’s a fair bet that the ‘I’ (interest on borrowings) from a significant debtload will have put a big hole in net profit. [and they are trying to put their best positive spin on their results!] " - Greg Hoffman
Research director at financial newsletter and website, 'The Intelligent Investor'.
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[Quote No.29381] Need Area: Money > Invest
"We [the US government] have a natural inclination, given that we are an indebted country, to choose inflation [through low interest rates devaluing the currency and therefore all US dollar denominated resources like oil and gold, boosting exports and reducing imports which helps the trade deficit and creates jobs rather than raising interest rates to fight inflation by slowing demand]. Also we have a huge amount of broken assets now [following the 2008 sub prime loan and credit crisis] and if you want to clear them off balance sheets it's much quicker and less painful if you have inflation [which reduces their real cost]. It's much longer and much more painful if you have deflation [which increases their real cost]." - Pippa Malmgren
economic and political analyst and president of the London-based Canonbury Group.
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[Quote No.29383] Need Area: Money > Invest
"Business [and investing in businesses] more than any other occupation is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight." - Henry R. Luce

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[Quote No.29392] Need Area: Money > Invest
"[When considering commercial property and Real Estate Investment Trusts -REITs:] Residential mortgages are likely to be only the first wave of credit loss in the current cycle. Markets are priced for significant losses in commercial real estate, and hence in commercial-backed mortgage securities (CMBS). There's a notable difference between CMBS and their residential counterparts: While losses on RMBS typically decline as the loans age (or 'season'), that's not necessarily true for CMBS. Residential delinquencies are now very high by historical standards. But within this bleak picture, older mortgages have proven more resilient than recently written mortgages. That presumably is because older RMBS are backed by properties that were 'deeper in the money' when the housing cycle turned. That has reduced defaults (and ultimately should improve recovery rates). In contrast, losses on CMBS are largely driven by tenants' ability to pay rent, and that can be undermined at any stage by a deteriorating economic cycle [therefore carefully watch trend in occupancy rates, rental prices, economic activity within the business cycle which is linked to interest rates]. In short, CMBS carry a long tail risk... historically the peak default period for commercial real estate loans is at seven years." - Morgan Stanley Research
Published on web, August, 2008.
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[Quote No.29393] Need Area: Money > Invest
"The causes of events are ever more interesting [and offer greater potential for future investment understanding and profit] than the events themselves." - Marcus T. Cicero

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[Quote No.29397] Need Area: Money > Invest
"[It is very important to avoid mistakes, unnecessary risk and losses to be a successful long-term investor. Therefore unless everything lines up... ] It is more important to say 'no' to an opportunity, than to say 'yes'." - Warren Buffett
Highly successful value investor, Chairman of Berkshire Hathaway Inc and one of the richest men in the world.
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[Quote No.29399] Need Area: Money > Invest
"For value investors assessing and managing risk are critical to long-term success. Therefore even in the best of times they look for the gray lining in the silver clouds." - Seymour@imagi-natives.com

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[Quote No.29401] Need Area: Money > Invest
"I think that one should recognize reality even when one doesn't like it - indeed, especially when one doesn't like it." - Charlie Munger
Successful value investor and business colleague of Warren Buffett.
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[Quote No.29402] Need Area: Money > Invest
"Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now." - Charlie Munger
Successful value investor and business colleague of Warren Buffett.
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[Quote No.29403] Need Area: Money > Invest
"When inflation is running high and the economy needs to be slowed the central bank will raise interest rates. This is intended to slow consumer spending and business investment (capex - capital expenditure). If, because of unacceptable long-term capacity constraints, business continues with its capital investments interest rates will stay higher for longer." - Seymour@imagi-natives.com

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[Quote No.29408] Need Area: Money > Invest
"Far too many executives have become more concerned with the four P's - pay, perks, power and prestige - rather than making profits for shareholders [who own the company]." - T. Boone Pickens
Texas oil and gas executive who created Mesa Petroleum, corporate raider and shareholder-rights crusader.
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[Quote No.29411] Need Area: Money > Invest
"In the middle of [economic] difficulty lies opportunity." - Albert Einstein

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[Quote No.29443] Need Area: Money > Invest
"[One way to see how the market views the financial strength of a share market traded company is from the rate the market demands for its credit as the following article shows:] [The Australian Bank] ANZ has pushed its convertible preference share issue very hard, using nine co-lead managers to multiply its distribution channels. But even allowing for that the outcome is positive, for the bank and the market generally. ANZ tested the market for a $500 million issue of preference shares that will convert compulsorily to ANZ shares in June 2014, and will pay a pre-conversion dividend rate between 2.5 and 2.9 percentage points above the bank bill rate. Retail investors and, it seems, some fixed interest institutional investors, have shown enough interest for the bank to double the issue's size to $1 billion, and to set the dividend at the bottom of its range, at 2.5 percentage points above the bill rate. I suspect ANZ might always have had $1 billion pencilled in - but hitting that mark is still a welcome development for the bank, given the unwanted publicity it has attracted this year, for problem loans including Opes Prime, and its exposure to the subprime credit squeeze. Other groups that have successfully slotted away hybrid raisings in recent months include Suncorp, which announced a $400 million offer in May and then boosted it to $735 million; Macquarie, which raised $600 million at the end of May; and Westpac, which announced a $600 million-plus raising in mid-June and closed it at the end of July at $1.02 billion. Macquarie's offer was for fixed rate convertibles, but the Westpac and Suncorp issues are basically the same as ANZ's: paper that will pay a floating fixed dividend until conversion, at a fixed margin above the bill rate. Suncorp is paying 3.2 percentage points above bills, and Westpac's convertibles are set at 2.4 above - 10 basis points below ANZ. ANZ's preference shares convert in mid-2014 and run about nine months longer than Westpac's. Credit default swap prices that quantify the market's assessment of credit risk rate Westpac slightly more highly than ANZ, at a spread of 89.7 points versus ANZ's 92 points. Given that, ANZ should pay more than Westpac, and it has. But it is close enough to Westpac to suggest that investor sentiment has improved in the past weeks, even as the sharemarket struggles to get clear of the 5000 point barrier: on the evidence ANZ has just provided, Westpac would be able to raise its $1 billion for as little as 2.2 percentage points above the bill rate today. The ANZ and Westpac default spreads at are the low end of the risk spectrum, as are NAB's and CBA's spreads of 92.8 points and 90 points. To put them in context, St George's spread was 95.5 points yesterday, BHP Billiton's was 94.5, Wesfarmers 134.5, and GPT and Lend Lease - doing it hard in the property sector - were priced at 395.8 points and 286.7 points respectively. That underlines one of the keys to the success of the hybrids so far: they have all been issued by what are, in a market context, top brands. Australia's banks have copped a sharemarket hiding, but their underlying creditworthiness is still strong. The convertibles rate as Tier One core capital for the banks, and the expanded $1 billion issue will add about 34 basis points to ANZ's Tier one capital base, taking it to 7.25 per cent, behind Westpac and CBA at 8 per cent and 7.6 per cent respectively but ahead of NAB's 6.7 per cent. In a risk-averse market that's a move in the right direction for ANZ - and investors rewarded the bank yesterday by moving its shares up 12c, or nearly 0.75 per cent, in a market that was down by 1.6 per cent overall, with CBA, Westpac and NAB down 1 per cent, 0.95 per cent and 2.3 per cent respectively." - Malcolm Maiden
Australian newspaper article published in the 'Sydney Morning Herald', September 5, 2008.
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[Quote No.29445] Need Area: Money > Invest
"[By using an understanding of sector rotation - investing in the sectors that follow the normal business cycle, even in very damaging times, such as the 2008 sub-prime crisis, it is still possible to make a profit!] While it is probably true that an environment of wholesale deleveraging, courtesy of the banking and credit crisis, accounts for much of this year’s losses across multiple asset classes, the headline figures – as always – disguise significant dispersion among investment returns within the same headline asset class. Take the UK stock market. You will have made money year-to-date if your portfolio comprises industrial engineers (c. + 13%) or the shares of oil equipment services businesses (c. + 6.5%), or pharmaceutical and biotechnology stocks (c. + 5%). You will have lost money, and lots of it, if your portfolio (or your fund manager’s) heavily comprises the shares of general retailers (c. – 33.5%), (somewhat bafflingly) fixed line telecoms (c. – 33%), or leisure goods companies (c. – 31.7%). Shares of banks, life insurers, media and travel and leisure companies have also been roundly battered. Given the widespread and increasingly visible problems surrounding the UK’s financial services infrastructure, its inability to extend credit, and the knock-on effects on consumer spending and the High Street, none of this year’s losing sectors from the UK stock market has exactly proven to be much of a surprise. The market’s current pangs were forecastable last year by any who had eyes to see. [and who understood the business cycle and how it effects share market sectors]" - Tim Price
Quoted from an article of his published in the 'RGE Monitor', Sep 3, 2008
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[Quote No.29446] Need Area: Money > Invest
"Gold usually rises between September through to December each year due to the Indian wedding season and the resulting increased demand from the Indian jewellery market." - Seymour@imagi-natives.com

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[Quote No.29447] Need Area: Money > Invest
"September is historically the worst month for stocks." - Joseph Williams
Director of equities at Commerce Trust Co.
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[Quote No.29449] Need Area: Money > Invest
"Unfortunately, history tells us that for most retail investors they tend to exit the market just at the time when they should be getting back in. [The time to buy is at the point of maximum pessimism, when everyone else has suffered so much that they have given up on the stock market and are selling out. This provides very cheap prices, which is the secret to successful investing - buying good companies' share low and selling high. Unfortunately most retail investors buy after they have seen the market rising for some time - so the prices are no longer cheap and then they refuse to sell when they are high because they think they will go still higher instead of understanding the odds are that they are going to fall and selling to realise their paper profits before the smart money sells and the market drops leaving them with much less than they could have had. Therefore good investing requires the information and experience to value companies, the courage to buy when others are selling but the prices are good in your calculation and the ability to progressively sell, before the top of the market and business cycle, while everyone else is buying more, but the prices are no longer good by your calculation.]" - Kris Sayce
Financial journalist with 'Money Weekend'. Quoted from the Saturday, 6 September 2008 edition.
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[Quote No.29450] Need Area: Money > Invest
"Foreign exchange/currency trading is really about relative interest rates and where the different countries are in their business and monetary policy cycles. If the currency is freely floated, so long as there is an orderly market, rather than a disorderly panicky market, the Reserve Bank of Australia, or other central banks, don't usually buy the currency to stabilise the market. They usually let the market decide the comparative levels. " - Seymour@imagi-natives.com

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[Quote No.29452] Need Area: Money > Invest
"When markets shrink in difficult economic times, cashed up companies can acquire or merge with other companies, in order to take advantage of the ability to rationalise and reduce duplication, thereby minimising costs while at the same time reducing the likelihood of price competition as well as keeping or improving market share in preparation for future improved market conditions." - Seymour@imagi-natives.com

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[Quote No.29455] Need Area: Money > Invest
"[In theory, you can make a lot of money investing in market bubbles. But you have to deal with one killer problem: when to leave the party. Remember] It is more difficult to attend a party and leave before the trouble starts than not to attend the party at all. [Therefore sometimes it is better to avoid temptation and be safe rather than sorry. If you do want to go to these parties, ideally you need to get there early and leave early. If that's too much to ask, don't go at all. And if you don't know what's early and what's late, stay away. These parties can be rowdy and make you lots of dough. But for latecomers and hangers-on, they're guaranteed to leave you with one heck of a hangover, at the very least, and at the worst you may leave in an ambulance.]" - John Stumpf
CEO of Wells Fargo [Highly regarded USA bank, that refused to sell subprime loans and their derivatives and therefore avoided the worst of the 2008 sub-prime loan crisis.]
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[Quote No.29456] Need Area: Money > Invest
"Excess generally causes reaction, and produces a change in the opposite direction, whether it be in the seasons, or in individuals, or in governments. [or investments!]" - Plato

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[Quote No.29467] Need Area: Money > Invest
"[Learning about the basics of an industry sector and business type is necessary to understanding why it and its share price behaves as it does at different stages of the business cycle. The following article touches on a number of points that give the new share investor some insight into the insurance industry. The article doesn't mention it but another piece of the industry knowledge is that when inflation and therefore interest rates and oil prices are high people drive less so there are fewer car crashes and therefore lower costs for these types of claims.] The insurance industry is facing tough times at the moment. The excess reserves [sometimes called 'the float' which are unused premiums that are invested before they are needed to pay out insurance claims] that were used to boost profits have just about dried up, the investment markets remain weak and there appears to be an increasing frequency of storms. [These are similar to banks' profits from their own investment divisions as well as their profits from their wealth management and fund management operations.] That is a lot of issues for one industry to bear at the same time. The storm activity has prompted a debate in some circles as to whether insurers have been unlucky or ill-prepared for the increased risk of weather related losses. Storm losses have become a feature of the general insurance industry worldwide over the past five years. The impact and frequency of bad weather and the possible link to climate change have been a hot topic of discussion. Storms and their impact on insurers are on the agenda this week at the annual get together in Monte Carlo of the world's reinsurers. The annual congress is a critical part of the reinsurance [where insurers insure their large risks with mega-risk insurers] industry's rate setting process. Brian Greig, head of KPMG's insurance group, says the word out of that congress is that rates are expected to increase. Greig says that weather related events in the first half of this year contributed to a 34 per cent decline in the profits of the top five global insurers. He says there were 400 storms and catastrophes in the first half of 2008 that triggered losses of about $US60 billion, of which about $US16 billion was insured. He says 2008 is confirming a long-term trend towards a greater number and severity of natural events. Five storms and an earthquake in New Zealand cost the industry $1.15 billion in the year to June 2008, according to the latest general insurance survey by KPMG. Studies by actuaries in Australia in recent years have failed to draw any direct connections between climate change and the increasing frequency of storms. But one definite pattern that has emerged in Australia in recent years is the increasing number of smaller storms causing losses as opposed to single huge catastrophes such as the $3.3 billion Sydney hailstorm in 1999 or the $1.5 billion Queen's Birthday Weekend storms in Newcastle in 2007. The two companies that are most exposed to weather events are IAG and Suncorp because they control about 70 per cent of the personal lines insurance market. QBE has a very small share of the local market but is exposed to offshore storms [especially hurricanes in the later part of each year in the Gulf of Mexico's oil drilling and refining areas] through both direct underwriting and reinsurance. IAG got hit with $502 million in storm costs in the year to June 2008. It had made an allowance that was built into its premiums for storm losses of $320 million. However, IAG's decision in 2006 to lift its maximum event retention (MER) level from $100 million to $200 million left it exposed to higher losses when a succession of storms hit. [This is a bit like a bank's bad debt provisions] It has since decided to take a more conservative approach. From July 1 this year, the first event MER for Australia is $118 million. For a second event it drops to $75 million. Also, from January 1 this year, IAG bought a property catastrophe aggregate excess of $150 million to cover accumulated losses arising from events larger than $15 million. IAG has a provision to cover storm losses built into its premiums for 2009 of $314 million. Also, it says that its reinsurance policies have delivered recoveries in excess of premiums over the past four years. IAG believes Australia is moving from an El Nina weather episode with high rainfall to an El Nino-South Oscillation which should lead to lower rainfall and lower claims costs. Suncorp reported storm costs of $415 million in the year to June 2008. It had built into its premiums a storm provision of $200 million so it was about $215 million short. On the reinsurance front, Suncorp's board had decided it was prudent following the takeover of Promina to boost its MER from $100 million to $200 million. That protection proved to be a little thin. In fact storm losses of $280 million in the first half of 2008 prompted Suncorp to pay $15 million to cut the MER to $100 million to cover significant hail, storm and bushfire events. Suncorp says it has built a $240 million provision for storm losses into its annual premiums for 2009 and this is up from $200 million for the 2008 year. Suncorp says the cost of protecting the company against storms has to be balanced against the reinsurance costs. It says it is now impossible to get reinsurance cover or an MER of $50 million or less. QBE has managed to avoid the hits to the bottom line from storms, despite operating in 45 countries. In the year to December 2007, QBE incurred claims from 21 catastrophes with a net cost of $317 million, up from $251 million in 2006. QBE said the net cost was well within the allowance included in its business plans. For 2008, its business plan includes an allowance greater than that experienced in each of the last 10 years. The higher storm costs are hitting general insurers at a time when the ['float'] reserves available for boosting profits are drying up. Big reserve releases have occurred over the past three years thanks to Tort law reform and a reassessment of certain classes of insurance liabilities. General insurers don't reveal their reserves but according to Siddharth Parameswaran at JPMorgan, there is unlikely to be much in the way of reserve releases in the future. IAG and Suncorp have a level of sufficiency in their reserves equal to the 90th percentile while QBE is sitting on reserves equal to the 94th percentile. This figure is a measure of the percentage probability that the central estimate of liabilities will be adequate. After the HIH collapse, APRA demanded minimum probability of sufficiency of reserves of 75 per cent. IAG had central estimate reserve releases of $366 million in 2008 while Suncorp had $251 million. Parameswaran's analysis of QBE's net paid claims to net incurred claims led him to conclude that QBE had been drawing on its reserves. 'We understand that in Australia their (QBE's) once very substantial reserve buffers have to a large extent been exhausted,' Parameswaran said. With fewer reserves and weak investment markets, general insurers will be under pressure to show just how good they are at underwriting risks, rain or shine." - Tony Boyd
From the article, 'Insurers Caught Napping', which was published in 'The Business Spectator', 9th September, 2008.
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[Quote No.29468] Need Area: Money > Invest
"The legendary investor, Warren Buffett, says that you shouldn't invest in any company that you don't understand. In order to understand any company it is vital to learn about the basics of its industry sector and business type in order to understanding why it and its share price behaves as it does at different stages of the business cycle. This knowledge can then be related back to each company's specific situation and share price and a better decision about its value as an investment can be determined." - Seymour@imagi-natives.com

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[Quote No.29469] Need Area: Money > Invest
"Since 1950 [in the US share market] we have had 48 pullbacks - meaning declines of 5 - 10%. We’ve had 18 corrections - meaning 10- 20%, and 8 bear markets. At the worst on average we end up getting back to normal in about 3 1/2 years. But people just don’t want to wait that long and they let fear overtake their emotions." - Sam Stovall
Chief investment strategist at Standard & Poor’s. He made this statement in August 2007.
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[Quote No.29470] Need Area: Money > Invest
"The stock market is one of the few places on earth where people become more excited to buy when things are expensive [i.e. have gone up a lot], and more anxious to sell when things are cheap [i.e. have gone down a lot], ... this is so wealth-destructive" - Bill Mann
Senior Editor, Investing, The Motley Fool website
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[Quote No.29471] Need Area: Money > Invest
"I had all this data on industry indices, and anybody can find out when economic constractions and expansions started and ended, so I decided to determine what sectors performed the best during different periods of an economic [business and share market] cycle. That's how I became involved in sector investment and analysis." - Sam Stovall
Author of 'Sector Investing' (1996)
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[Quote No.29477] Need Area: Money > Invest
" 'Naked short selling' involves selling short shares of stock that one has not borrowed or determined are borrowable. (SEC Release 34-50103 dated July 28, 2004 states that Rule 203(b) (3) 'requires any participant of a registered clearing agency...to take action on all failures to deliver that exist in such securities ten days after normal settlement date, i.e., 13 consecutive settlement days.)" - Seymour@imagi-natives.com

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[Quote No.29485] Need Area: Money > Invest
"[When inflation is high, building costs rise as do interest rates. Both of these lower demand for housing and mortgages.] Soaring steel and other metal prices in the June quarter have added $1678 to the cost of building an average house and will continue to hurt affordability, according to the [Australian] Housing Industry Association. For a new house worth $250,000, price increases for steel — one of the key materials — and other metals added 0.67%, or $1678, to construction costs. HIA Victorian director Robert Harding said builders were already bracing for another round of increases, but there was 'no way around' using steel in a new house and consumers were wearing the added costs. 'On the (construction) price aspect there's not much joy that we can offer,' he said. 'Commodity goods are in high demand throughout the world and Australia is no exception. We're also seeing surcharges added for fuel, and the fact that our dollar has dipped against US prices doesn't help.' Hot competition for materials and labour has put a rocket under construction prices since the start of the year. A note sent recently to industry players from OneSteel warned that steel prices would most likely rise in the second half of this year. Steel prices have already risen more than 60% since January. In August, there was about a $200 a tonne increase in the price of specialty steel used in concrete structures, which includes columns, slabs and walls. The global rally in oil has helped generate a 72% lift in the cost of plastic. Materials make up half the total cost of residential construction, with labour accounting for the rest. Building unions are in the midst of enterprise bargaining agreement negotiations, and experts believe wages will probably increase between 3.5% and 4% nationally. Rider Levett Bucknall national director Mark Lochran said this would help soften the impact of double-digit bounces in the cost of materials, but the forces of demand and supply could push up prices beyond that base. 'The underlying cost increases, including materials and labour, could be 4% to 5% per annum but when the market comes on board and people put up their margins, that is where 5% can become a larger number for subcontractors,' he said. He said subcontractors would then pass the higher margins on to the head contractor and the cost would flow to consumers. But some commercial contractors were shrinking margins and tender prices to buy business and fatten their long-term pipeline of work. Mr Harding said government must step in to offset these increases for house buyers by reducing planning delays and cutting taxes, particularly stamp duty. He said Victoria was falling behind the other eastern states in stamp duty relief. Queensland this week abolished the land transfer duty for first-home buyers on properties worth less than $500,000. Victorian first-home buyers are entitled to concessions but still face duty of about 5% of the purchase price." - Eli Greenblat and Natalie Craig
Article published in 'The Age' newspaper in Australia, September 11, 2008.
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[Quote No.29488] Need Area: Money > Invest
"[When investing into a company it is well to remember the African poverb -] Only a fool tests the depth of the water with both feet. [ - and dollar cost average over time into the total amount you want to hold.]" - African Proverb

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[Quote No.29489] Need Area: Money > Invest
"[Holding real assets that appreciate can be a good inflation hedge when inflation is high] especially if real interest rates remain negative. That's when the interest received on holding cash deposits is lower than the rate of increase of the cost of goods and services [i.e. short term interest rates at 2% while inflation as measured by the CPI is 5%]. The last major time it occurred was the late 1970s. The negative carry made real objects, like art, antiques, and yes, diamonds, very attractive. [For example, top quality half-carat diamonds – that's about the average size of a nice engagement ring stone – are up 9 per cent year-to-date, according to a new detailed study by diamond market guru Martin Rapaport, founder and chief executive of Rapaport Group. In dollar terms, that top rock will now have an asking price of about $US2,500. But that's just the wholesale price... For the uber-rich it's even worse. Prices for five-carat diamonds are ahead more than 40 per cent over the same period and have more than doubled since the beginning of last year. Such a boulder will set you back about $400,000, or the equivalent of a studio apartment in an OK area of Manhattan.]" - Simon Constable
Quote from an article in 'The Business Spectator', published 12th September, 2008.
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[Quote No.29495] Need Area: Money > Invest
"Great doubts deep wisdom! Small doubts little wisdom!" - Chinese Proverb

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[Quote No.29497] Need Area: Money > Invest
"Much [share investing] success can be attributed to inactivity [patiently waiting for the right low price to buy or the right high price to sell]. Most investors cannot resist the temptation to constantly buy and sell." - Warren Buffett
Highly successful value investor and one of the richest men in the world.
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[Quote No.29499] Need Area: Money > Invest
"Over very long periods of time, national wealth is by definition a mean-reversion machine. Over 40 or 50 years, national wealth has to revert to the growth in nominal GDP. That's just the way the economics and the math work out. Basically, the principle is that trees cannot grow to the sky. Just as total corporate profits cannot grow faster than the overall economy over long periods of time, neither can national wealth. Think of Japan. At one point in 1989, relatively small areas of Tokyo were worth more than the total real estate of California. And then the bubble burst and Japanese national wealth decreased and grew much less than GDP and is now in line with the long-term nominal growth of GDP. In the US, long-term growth of nominal GDP is about 5.5 percent. We've actually grown by 7.2 percent for the last 25 years [1983-2008]. To revert to the mean means that over the next 15 years, maybe more, we're going to see nominal wealth grow between 2.5 and 3 percent. That's a major headwind and a major dislocation from the experience that we've had. Investors have been expecting to get the past 25 years to repeat themselves. The laws of economics suggest that cannot be the case." - John Mauldin
President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm.
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[Quote No.29509] Need Area: Money > Invest
"There are six [emotional/sentiment] phases of the full [rising] bull through [falling] bear [share market] cycle: [1st Bull] Skepticism, [2nd Bull] Growing Recognition, [3rd Bull] Enthusiasm, [1st Bear] Disbelief, [2nd Bear] Shock and Fear, and [3rd Bear] Disgust. [1st BULL - Skepticism:] In a major Bull Market, the first phase is accumulation of stocks at bargain prices by the ‘smart money’ (the knowledgeable and experienced investors). Meanwhile, the mass mood toward the stock market ranges from disgust to general skepticicm [scepticism]. Stocks are depressed, and may have been for a long time. Still, some investors know that the cycle always turns up, even while fundamental business conditions still appear grim. The smart money begins to bid for out-of-favor stocks, which are selling at temptingly low bargain prices. Transactional volume, which has been low, starts to improve on rallies reflecting the entrance into the market by these forward-looking, patient [value] investors. [2nd BULL - Growing Recognition:] The second Bull phase is known as the mark-up phase. Stock prices rise on increasing transactional volume. There is growing recognition that fundamental business conditions will improve. Stocks move up big. It is a very rewarding time to be in the market. [3rd BULL – Enthusiasm:] The third Bull phase is marked by popular enthusiasm and speculation. Sentiment indicators are near record levels. [Economic and company] Fundamentals now appear extremely positive. There even may be widespread talk of a ‘new era’ of rapid economic growth and never-ending prosperity. Stories of speculators making millions in the market flood the media. Everybody is optimistic and is buying, so transactional volume is extremely heavy. Late in this third phase, however, volume starts to diminish on rallies, as greedy buyers shoot their wads and become fully invested, usually on margin. Also, the smart money [in particular value investors] has reminded itself that ‘no tree grows to the sky’ and all good things must eventually come to an end. Consequently, those knowledgeable investors, who bought early at wholesale prices, stop buying. Moreover, they begin the distribution phase, parcelling out their stocks at retail prices. Smart selling intensifies as the greedy but unsophisticated mob snaps up overvalued stocks at absurdly high prices. Late in the game, tell-tale bearish technical cracks start to appear under the ‘obviously’ bullish surface. Technical divergences in stocks and groups are caused by irrational buying of the wrong stocks by unsophisticated players while the smart money liquidates the best stocks. Stocks churn and make little net progress. [1st BEAR – Disbelief:] The first Bear Market phase is marked by clear and widespread technical deterioration, even while almost everybody is still feeling extremely bullish. But when everyone who ever is going to buy has already bought, there is only one direction for prices to go – down! When buying power is used up, there is insufficient demand to absorb the accelerating distribution [selling] of stocks by the smart money at current prices, so prices have to move lower. An ever increasing number of stocks already have stalled out and formed potentially bearish chart patterns. But even as stocks break critical chart support levels, this clear bearish technical evidence is widely ignored by the uninformed masses. After all, fundamental business conditions are still rosy, and ‘buy the dips’ is still the advice of the brokers and the dealers and their paid spokesmen in the media. The public hopes and believes that the ‘conventional wisdom’ of all the highly compensated Wall Street analysts, strategists and economists is right. Besides, the public has been told that they bought for the long term, and over the long term stock prices always go up. So, stock price declines are met with general disbelief. The public can’t buy more, if only they were not already fully margined. But they are. So they can’t. [2nd BEAR - Shock and Fear:] The second Bear phase is marked by a sudden mood change, from optimism and hope to shock and fear. One day, the public wakes up and sees, much to its surprise, that ‘the emporer has no clothes’. Actual fundamental business conditions are not panning out to be as positive as previously hoped. In fact, there may be a little problem. The smart money is long gone, and there is no one left to buy when the public wants out. Stock prices drop steeply in a vacuum. Fear quickly replaces greed. Repeated waves of panic [and price falls] may sweep the market [with people and media continually asking ‘Is this the bottom?’]. Transactional volume swells as the unsophisticated investor screams, ‘Get me out at any price!’ Sharp professional traders are willing to bid down in price for stocks when prices drop too far too fast. The best that can be expected, however, is a dead-cat bounce that recovers only a fraction of the steep loss. [before falling back, perhaps even further] [3rd BEAR – Disgust:] The third Bear phase is marked by discouraged selling and, finally, total disgust toward stocks. Fundamentals clearly have deteriorated and the outlook is bleak. Downward price continues but the negative rate of change eventually begins to slow as potential sellers liquidate holdings at distressed prices. Even the best stocks, which initially resist the downtrend [especially resources and oil] succumb to the persistence of the Bear. Transactional volume, which was high in the panic phase, starts to diminish on price declines as liquidation runs its course. Eventually, after everyone who is capable of selling has sold already, the Bear Market is exhausted. The discouraged public lament is ‘never again’. After stocks are totally sold out, the stage is then set for the cycle to begin again. When everyone who ever is going to sell has already sold, there is only one direction for prices to go – up! These phases are no secret. They have been written about…for more than a century. These phases repeat endlessly, over and over again. Still, the public never learns [as it is not in the financial interests of brokers, analysts and investment companies to explain this to their customers. Most people learn this by being duped at least once. Then they look for the answer and find it by listening to the smart, experienced investors, especially value investors who rather than being victims of these cycles, use them to get above average returns at below average risk. But don’t be too hard on yourself and those caught.] It is all too easy, it is merely human nature, to get caught up in the mass mood of the moment, lose all perspective and run with the emotions of the crowd. If you do not learn how to [understand the economic/business cycle, value companies and] recognize the technical indications, and if you are not disciplined, the easiest thing in the world is to allow yourself to be pulled along by the mass mood, the ‘group think’. But that is the way to be wrong at the critical turning points, to buy at tops and sell at bottoms [rather than to buy at bottoms and sell at tops] and to consistently underperform the market. To make money and outperform the market, we need to do the opposite [and buy at the bottoms and sell at the tops]." - Robert W. Colby
From his book, ‘The Encyclopedia of Technical Market Indicators’.
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[Quote No.29517] Need Area: Money > Invest
"When share markets crash be aware that after the financial 'earthquake', there will be 'aftershocks' and clearing up, so don't expect an immediate recovery or be enticed to go back into the market too early on false rallies. Determine the causes and only return to the market when they and any other subsequent problems have been sorted out." - Seymour@imagi-natives.com

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[Quote No.29520] Need Area: Money > Invest
"According to the website demographia.com, across the world, an affordable home is about three or four times the average gross yearly wage. Therefore when a housing market grows faster than wages grow [which is usually a little above the rate of inflation], eventually the market slows down till wages catch up or the prices fall as demand dries up because the houses have become unaffordable to the average buyer." - Seymour@imagi-natives.com

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[Quote No.29521] Need Area: Money > Invest
"At the top of the economic, business, credit and share market cycles as inflation becomes too high the central bank usually raises interest rates to slow demand which thereby causes bank profitability to slow as loan growth slows and impaired assets and funding costs rise. When inflation falls closer to the central bank's target range interest rates are lowered to stimulate the economy and employment so bank profits rise again as loan growth speeds up and funding costs fall." - Seymour@imagi-natives.com

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[Quote No.29528] Need Area: Money > Invest
"When valuing resource companies it is important to remember the volatility of resource prices. These are tied closely to market perceptions, demand and supply differentials, currency changes especially related to the USA currency which is used to denominate many resources and the global business cycle. They are therefore highly volatile and changes in these can dramatically effect the value of mining company reserves and whether they can be mined, processed and transported economically, which in turn can dramatically change the value of mining company shares, both down as well as up. This is why investing in mining shares is considered both more rewarding but also more risky than nearly any other type of share investing." - Seymour@imagi-natives.com

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[Quote No.29529] Need Area: Money > Invest
"Credit crunch is a term used to describe a sudden reduction in the general availability of loans (or 'credit'), or a sudden increase in the cost of obtaining loans from the banks. There are a number of reasons why banks may suddenly increase the costs of borrowing or make borrowing more difficult [for instance by raising lending standards and loan to value ratios]. This may be due to an anticipated decline in value of the collateral used by the banks when issuing loans [asset deflation], or even an increased perception of risk regarding the solvency of other banks within the banking system [which is reflected in a spike in inter-bank lending rates, for example the LIBOR -London Inter-Bank Offered Rate]. It may be due to a change in monetary [policy] conditions (for example, where the central bank suddenly and unexpectedly raises interest rates or reserve requirements) or even may be due to the central government imposing direct credit controls or instructing the banks not to engage in further lending activity. A credit crunch is often caused by a sustained period of lax and inappropriate lending [for example interest rates are kept too low for too long discouraging saving and encouraging speculation, especially if loan to value ratios are too high and inadequate checks are done on the borrower's ability to repay, which drives up asset prices irrationally eventually causing widespread inflation and then significant asset price falls back to fair value] which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known. These institutions may then reduce the availability of credit [especially due to the fractional banking system's remarkable ability to lend each dollar of assets many times over and therefore the reverse situation of a loss reduces the lending capacity many more times than just by that dollar amount], and increase the cost of accessing credit by raising interest rates. In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses. The crunch is generally caused by a reduction in the market prices of previously 'overinflated' assets and refers to the financial crisis that results from the price collapse. In contrast, a liquidity crisis is triggered when an otherwise sound business finds itself temporarily incapable of accessing the bridge finance it needs to expand its business or smooth its cash flow payments. [Many companies rely on access to short-term loan funding markets for cash to operate - liquidity, such as the commercial paper and repurchase markets, pledging mortgage assets or CDO as collateral. Investors provide cash in exchange for the commercial paper, receiving money-market interest rates. However, in times of a credit crunch, the amount of commercial paper that the market wants to buy is severely reduced as they may not have much spare cash themselves and the interest rate charged increases substantially above historical levels to attract them and offset the greater risks of default.] In this case, accessing additional credit lines and 'trading through' the crisis can allow the business to navigate its way through the problem and ensure its continued solvency and viability. It is often difficult to know, in the midst of a crisis, whether distressed businesses are experiencing a crisis of solvency or a temporary liquidity crisis. In the case of a credit crunch, it may be preferable to 'mark to market' - and if necessary, sell or go into liquidation if the capital of the business affected is insufficient to survive the post-boom phase of the credit cycle. In the case of a liquidity crisis on the other hand, it may be preferable to attempt to access additional lines of credit, as opportunities for growth may exist once the liquidity crisis is overcome. A prolonged credit crunch is the opposite of cheap, easy and plentiful lending practices (sometimes referred to as 'easy money' or 'loose credit'[or loose monetary policy]). During the upward phase in the credit [business and share market] cycle, asset prices may experience bouts of frenzied competitive, leveraged bidding, inducing hyperinflation in a particular asset market. This can then cause a speculative price 'bubble' to develop. As this upswing in new debt creation also increases the money supply and stimulates economic activity, this also tends to temporarily raise economic growth [for example measured by GDP - Gross Domestic Product, and GNP - Gross National Product] and employment [for example often measured by its opposite - unemployment]. Often it is only in retrospect that participants in an economic bubble realize that the point of collapse [business and share market bust] was obvious. In this respect, economic bubbles [business and share market booms] can have dynamic characteristics not unlike Ponzi schemes or Pyramid schemes." - Wikipedia.com

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[Quote No.29530] Need Area: Money > Invest
"The Austrian business cycle theory is the Austrian School's explanation of the phenomenon of business cycles (or 'credit cycles'). Austrian economists assert that inherently damaging and ineffective central bank policies are the predominant cause of most business cycles, as they tend to set 'artificial' interest rates too low for too long, resulting in excessive credit creation, speculative 'bubbles' and 'artificially' low savings. According to the theory, the business cycle unfolds in the following way. Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable 'monetary boom' during which the 'artificially stimulated' borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas which would not attract investment if the money supply remained stable. A correction or 'credit crunch' – commonly called a 'recession' or 'bust' – occurs when credit creation cannot be sustained. Then the money supply suddenly and sharply contracts when markets finally 'clear', causing resources to be reallocated back towards more efficient uses." - Wikipedia.com

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[Quote No.29531] Need Area: Money > Invest
"A 'Minsky moment' is the point in a credit cycle or business [share market] cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments [for example on margin]. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing asset prices [a share market bust or crash] and a sharp drop in market liquidity. The term was coined by Paul McCulley of PIMCO in 1998, to describe the Russian financial crisis, and was named after economist Hyman Minsky. The Minsky moment comes after a long period of prosperity and increasing values of investments [a share market boom], which has encouraged increasing amounts of speculation using borrowed money. The concept has some parallels with Austrian Business Cycle Theory, although Hyman Minsky himself was known as a 'radical' Keynesian [economist]." - Wikipedia.com

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[Quote No.29535] Need Area: Money > Invest
"Zeitgeist is a German term that means 'the spirit of the times', and in investment can be equated to the sentiment of the market, for example pessimistic when markets are crashing or optimistic when markets are booming." - Unknown

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