Bigger Picture

If global growth keeps at 4-5% (stock market assumes), then every 15 to 20 years global GDP will double. In 100 years, GDP would grow 32 times. Is it reasonable? No! Can our earth support this kind of growth? NO!

Now let's look at where growth will come from. In last century, it was population growth plus industrial revolution. During 1990s, it was information revolution. Growth from technology and population growth has slowed since year 2000. In order to push the growth, government and companies started to use financial leverage to expand. It was a debt induced growth in last 10 years. It was also a decade of BRICs emerging. The debt bubble has since been bursted. Population growth is slowing. Environment issues (Global warming, clean water and pollutions) have put restraints on growth as well. In addition, resources shortage eventually will put a brake on growth.

I truly believe global growth will not exceed 2% over long run. So stock market growth will come from efficiency rather than revenue growth.

summary Feb 16, 2010

The market rallied 1.5% today and financials had a good day. I still expect commodities will be under some pressure, especially copper.

Closing value
Portfolio 1 $(U$): 111640
Portfolio 2 (c$): 80747

fiscal discipline

President Obama is talking about freezing spending and raising tax on rich. It is more about politics than real fiscal restraint. The budget situation will get much worse. It is quite likely that we will have another recession before 2019, which is not in Obama's budget projections. The only way Governments will reduce deficits is being forced by the b0nd market. The bond market is too friendly right now but will get tougher. I do not see Federal reserve to continues to underwrite government debts. The 10 year yield can move up 100 bps easily in next 18 months. It will happen not only in U.S., will also happen in EU, Japan and China.

housing in Canada

Bought HXD @12.96 and will sell @ 13.45.

Canadian Government is tightening mortgage rules. I won't say Canading housing market is in bubble territory right now but it starts to move closer there. The rent can not cover the carrying cost and there is no investment case on cashlow basis. If interest rate move up 100 bps, there will be pain for lots of home owners.

central banks

Most central banks are worried more about growth than inflation. Interest rates will be kept artificially low for a long time. The consequence is bubble economy. Easy money will chase assets, whether it is capital assets (stock and bonds), hard assets (gold, oil and other commodities), real estate or consumer goods. Since the money can flow freely globally, bubble can pop anywhere.

Greece debt problem did not go away. It is politically difficult for Germany to bailout Greece.

The market is in a see-saw range as expected. Canadian market is probably at the high end of its trading range. I am going to short the market a little bit. I will put order in for purchasing 300 HXD (ETF for shorting TSX) @ 12.96C$. This is a short term hedge.

summary Feb 12, 2010

The market performed better than I expected. I still felt the market has more downside risks, especially commodity companies. I will be very careful on Canadian market because the exposure to commodities. Lower price on energy and metals are good for U.S. economy in long run.

Closing Value
Portfolio 1 (U$):111,195
Portfolio 2 (U$):80,621

China tighten reserve requirement

China raised reserve requirement by 50bps before Chinese new year. It will put pressure on commodities. China is in negotiation on long term contract for iron ore, potash, coal and want to buy gold to diversify its foreign reserve. So it is in their interests to push commodities down right now.

Retail sale in Jan. in U.S. is OK. But a big part is gift card from Christmas. Feb retail sales will be low.

The market is at the high end of the range right now.