The Wall On The Canadian Side Is Now Complete

The wall on the Canadian side is now complete.


On Market Valuation

Below are my comments in an email on recent market valuation:

Are stocks expensive, yes. Is it a bubble no. Will there be a correction? Of course. When? Who knows. We are in the 8th year of a bull market rally. In the past there was a correction every 18 months on average. Look where we are today. Nobody predicted that. No one. The stock market reached a new high yesterday, again making a mockery of what savvy economic commentators though they know about the world. It’s absolutely ridiculous. Consider how things looked one year ago. The world economy seemed hopelessly trapped in a cycle of low growth and inflation. Markets recoiled at the mere possibility that the Fed would raise interest rates. Now, interest rates and inflation forecasts have risen substantially from last year; financial markets are shrugging off — or even rallying at the possibility of — imminent Fed rate increases; and it is all taking place during the Trump’s presidency. Now there are signs that the “new normal” will become the “old normal”. Good luck trying to make sense of all that.

Now back to market valuation. The famous Shiller CAPE ratio chart is often brought up to explain the next crash. Bears like to cited this chart when predicting the next big crash. The last two times CAPE ratio was this high was 1929 and 2000. You know how that ended. It’s true and it’s a powerful chart that really sinks in. Well there’s a few things that are not mentioned.
1) The Shiller ratio has been a record high for a few years now. It’s been brought up to predict the next crash but still waiting. There’s a popular saying in the business: “I predicted 9 of the last 5 recessions”.
2)Back in 1929 and 2000 the the risk free ratio was at least 5%. That mean a treasury bond, the safest investment of all, would guarantee you least 5%. Today you are getting nothing, or negative return because of inflation. The reason why the stocks are persistently expensive is that there’s no other option to park your money. Where else are you going to put your saving? Bonds are  on the block to get slaughtered if interest rate ever normalized. Why would I loan money at somebody for less than 1% or even negative rates? Then you have gold. Very speculative and how to you value gold? It looks good on your wife what else are you going to do with? The return on gold since 1800 is 0.5%, on stocks 6.7%, and 3.5% for bonds. These numbers are from Professor Jeremy Siegel are Wharton. Because of persistently low interest rate, people are stuck with stocks.
3) The CAPE is backward looking. It divides the S&P with the last 10 years of earnings. It would be more accurate if you divide it with the expected earnings. I know it’s predicting but you can have a range. It would come down a bit.
4) Professor Robert Shiller said he would still buy stocks because interest rates are super low. He also said that you are not looking at the chart correctly. It wasn’t met to be a marking timing mechanism. You have to look at it like its continual.The lesson there is that if you combine that with a good market diversification, the important thing is that you never get completely in or completely out of stocks.
But to hell with all that, too much explanation, let’s just tell people that it’s doom time again. If you are managing money, I think you need to explain a little bit more. You owe that to your clientele.
Charts has the tendency to over simplifying things. You can’t just wait there until it comes down to PE 6x or something. Stocks just don’t drop because the chart said so. You need a catalyst. A recession would do it but it looks like the U.S. is doing well and that should help Canada. My money is on rising interest rates. Rates will need to go above 2% or more for people to get out of stocks. People are sitting on dividend yield of 3% for now, so why get out. My worried is how are we going to pay all that debt back once interest rate rise? We have taken on a lot of debt but its costing nothing. But that can’t last forever. All that need will need to be renewed one day and it might be a much higher rate. Budgets are already strained and nobody is asking how are we going to pay it back. But again, what do I know.
Right now stocks are on fire because of Trump. Which has me worried. It seems like the market only listened to the good stuff Trump had to say and ignore the bad stuff. The good stuff: tax cuts, regulation cut, and massive infrastructure spending. The bad stuff: possible trade war, protectionism policy, disrupting diplomacy etc…. And Trump’s personality is very volatile. But he has a good business team in board so that’s reassuring.

Stocks could be high for a while.The last couple major dips (5-10% drop), like in August 2016, Jan-Feb 2016, Brexit…was only a blip on the radar. The stocks came roaring back. there are too many specialized funds that take advantage of the dips. While you are trying to make sense of what’s happening stocks are back up. The best move was doing nothing.
The market anticipates very big things from the Trump administration. However market anticipations are often wrong. Trump will not get everything he wants and the market could take it the wrong way. But there is also some real improvement in the economic data underneath the shifts, reflecting economic forces that have been underway for years. And this resetting of expectations is evident in market data beyond the always erratic stock market.
Every decade or so there’s a massive storm like in 2000 and 2008. This is the key to real returns. It’s to buy when nobody wants everybody is selling. When there’s “blood on the street”. That’s easy to say (or write). You need nerve of steel to do that. It wasn’t evident in 2008-2009, after stocks were down 50% that the smart thing to do was to buy stocks. After weren’t we on the brink of a financial collapse? There will be another downturn one day to profit from.

Uber Part Trois

This is my 3rd post on Uber. You can read part 1 here and part 2 here.

This isn’t much of a post but instead a link to Business Insider. They have a great piece on Uber’s finance with tables and charts. It appears that they pieced together a bunch of leaks from various sources. It’s not complete and there are holes in the data but it pretty much confirm a lot about we thought about Uber’s financial state, which is aggressive growth combined with mega losses.

Anyway here’s the piece:

 Uber’s leaked finances show the company might — just might — be able to turn a profit

Find credit to value investor François Denault.

“Sorry hunny, I’m skipping Subway today for Wendy’s, I want to eat healthy today”

Subway’s Soy + Other Stuff Sandwich

Let’s say you are on the road and you need a quick, healthy, fast meal. If you had to choose between A&W, McDonald’s, Wendy’s,  Tim Hortons, and Subway, you would probably hop for the last one. Subway has always positioned itself as a healthier alternative. So all the time that you went to Subway because you though you were making a healthier choice, well you are in for a slap in the face. It turns out that the chicken in your Subway chicken sandwich might not contain very much chicken meat at all.

Trent University and the CBC’s marketplace conducted a DNA analysis of the poultry in several popular grilled chicken sandwiches and wraps found at those popular fast food joints. The study revealed that in the case of two popular Subway sandwiches, the chicken was found to contain only about half chicken DNA. In testing, Subway’s oven roasted chicken and the chicken strips in its Sweet Onion Chicken Teriyaki sandwich clocked in with just 53.6% and 42.8% chicken, respectively. The results stood up after extra rounds of sampling.

So it looks like chicken, might taste like chicken, but it’s not chicken. So what is it? An unadulterated piece of chicken from the store should come in at 100 per cent chicken DNA. Seasoning, marinating or processing meat would bring that number down, so fast food samples seasoned for taste wouldn’t be expected to hit that 100 per cent target.

Here are the results:

Source: Trent University/CBC

In the tests, most of the meat from Subway’s competitors was shown to contain 85 to 90% chicken DNA.“Subway’s results were such an outlier that the team decided to test them again, biopsying five new oven roasted chicken pieces, and five new orders of chicken strips,” CBC News explained. Surprisingly, A&W and Wendy’s topped the chart. Now I didn’t expected that. McDonald’s and Tim Hortons did well. So if you are limited in your options, you know you are getting at least 85% chicken. McDonald’s has been working very hard at cleaning its reputation in the last few years. I wish they did the study 10 years (I’m sure its out there) to compare the progress they made.

Naturally, Subway disagree with the results. Subway claimed to use only 100% white meat chicken in their chicken products, they did admit to using soy as a stabilizer. They are going to check with their suppliers. I wonder if A&W and Wendy’s are going to ride high with the results with some kind of marketing campaign. Wendy’s is delicious, but its delicious for all the wrong reasons. You committing a sin eating there, but it’s a sin that makes you feel good (well just at first when you are eating). Now the quality of their chicken is superior to Subway!!??? “Sorry hunny, I’m skipping Subway today for Wendy’s, I want to eat healthy today”. I smell class action lawsuit for misleading consumers…

Subway’s chicken also caused a stir in late 2015 following a study by the environmental group Friends of the Earth, which awarded the franchise an F for using antibiotics in their meat. In response, Subway announced that they would be removing poultry raised with antibiotics from its 27,000-plus of its U.S. locations by the end of 2016.


What’s in your chicken sandwich? DNA test shows Subway sandwiches could contain just 50% chicken

The chicken challenge: Testing your fast food (Video)

Company responses: Chicken


What Investors Really Want

We want high returns from our investments, but we want much more. We want to nurture hope for riches and banish fear of poverty. We want to be number 1 and beat the market. We want to feel pride when our investments bring gains and avoid regret that comes with losses. We want the status and esteem of hedge funds, the warm glow and virtue of socially responsible funds, and the patriotism of investing in our own country. We want good advice from financial advisors, magazines, and the Internet. We want financial markets to be fair but search for an edge that would let us win, sometimes fair and at other times not. We want to leave a legacy for our children when we are gone. And we want to leave nothing for the tax man. The sum of our wants and behaviors make financial markets go up or down as we herd together or go our separate ways, sometimes inflating bubbles and other times popping them.

Source: What Investors Really Want by Meir Statman and Ben Carlson from

Your Home Value


The World Economic Forum

It’s this time of the year again.


80$ Off Code for Nespresso Machines

Nespresso Citiz

*Deal ends on November 14, 2016

I received 5 codes from Nespresso. The codes gives you $80 off the ORIGINALLINE machines. The code is not applicable for the cheapest INISSIA $149 machine and the luxury VERTUOLINE machines. So everything in the middle is game. Each claim gives me $40 in credit. It’s a win-win situation.

Here’s the code: N16.D4B.J34.A9F

How to use it: Sign up at, buy a ORIGINALLINE machine, and apply code. You can also do it at their boutique or at 1-855-325-5781.

Even though I rarely drink coffee anymore (find it better for my health but still love it), I have a Nespresso machine and they are top of the class. They look great and they make great coffee. They have a large selection of capsules so you are not stuck always stuck with the same 2-3 flavors. Great to entertain guess too!

By the way this is not some weird spam offer. I wouldn’t post it if I though it was garbage. If you can save $80 off and I get a $40.

Chasing Hot Stocks Is Expensive

I enjoy reading CEO Prem Watsa’s annual letters, with the latest one here: 2015 Fairfax Financial Holdings Annual Letter. He’s been labelled the “Canadian Buffett”. Like Buffett, Watsa also runs an insurance conglomerates that preach value investing.

I have clipped two tables below that are particularly interesting. The first table demonstrates what happened when you chase hot stocks and the 2nd one is the latest valuation of the “unicorns”. In the first table, the only one in the group that might not belong there is Netflix, since its returns over a five-year (chart) period is monstrous. On the other hand, Netflix never looked cheap and people investing in it in the last two years were pretty much jumping on the bandwagon that they missed, hoping to score a quick financial gain. A lot of the stocks below, like Twitter and Groupon, are trading below their IPO price.

If you tune in to your favorite popular financial 24hr media channel, it would seem that there only ten companies in the world to talk about. However, the best opportunities are where nobody is looking.

Bubble stocks
Fairfax 2015 Annual Report, page 22.

The 2nd table shows the latest valuation funding from the so call “unicorns”.  A unicorn is a private startup company valued at $1 billion dollar or more. They are interesting and very disruptive in some cases like Uber and Airbnb. But it’s also important to make money. Since these companies are private, there’s no way of knowing if they are profitable. An educated guess tells me that most of these companies are bleeding cash. That’s why they constantly need more funding. And the next round of funding is always at a higher valuation. You can play that game as long the capital markets/private investors like you. But, what we are witnessing according to the table and news, valuation in the private startup world is falling apart. There a new label going around: unicorpse.  That means the bubble is bursting. Many of them cannot fund their losses internally for more than a few months and now have almost no access to external funding. Layoffs have begun in many of these companies. Money is being raised at lower valuations than the previous round of financing and the cycle is now in reverse. Uber is worth $62.5 billion?!?!

Fairfax Financial 2015 Annual Report, page 22
Fairfax Financial 2015 Annual Report, page 22

If Donald Trump Published an Academic Article

There are a lot of Trump jokes out there and this one has actual brain and work put into it. It’s worth sharing. This joke is named “If Donald Trump Published an Academic Article”:Trump Academic Paper