Random Thoughts

Peter Harrison: 10 June 12

Excellent pieces by Serge and Sig. What more can I say?


Sig Carlsen: 20 June 11

Gentlemen: There is a continues and infernal noise just outside my study by the tree men as I write this note to you, but it is nonetheless music to my ears because I am having cut down a bunch of very large pine trees much too close to our new summer home near Mountain City, TN. We finally sold our Mill in France after 13 years of a marvelous adventure. So here we are in the mountains with the usual assortment of bears, deer and a bunch of very pesky wild cats on the porch. It seems different to set up another entire household from scratch than it was just some 13 years ago when we did it last. The machines are different, as an example, Jane's new washing machine is totally programmed to do it's own thing by weighing the clothes then deciding how much water it will take, the kind of soap etc. You can only get a computer table it seems in a big cardboard box and then having to assemble the contents according to the indecipherable instructions included. Well, the big one I got from Walmart sort of self- destructed, and became totally useless after two whole days of valiant and frustrated effort on my part, but as you know, they take the stuff back always!  The next one from Staples fared much better so here I am writing to you. Enough of that, except to say that I sure don't want to do this house setting-up yet another time !!!

 
There are always very interesting and often very important thoughts present on our web site. One struck me as very pertinent and wise by Emil. He admitted his perhaps reluctant second thoughts about deficit financing when already labouring under a mountain of sovereign debt and private commitments (read pension obligations public and private). Nor am I going to say that Paul Krugman is a damn fool, surely an idealist with his heart in the right place and what have you, but he is not persuasive anymore because inescapably Keynes is no longer applicable under present circumstances; not that one should seriously condemn Helicopter Ben's QE 1. Inter alia it was probably correct to save Detroit even though their products are in my view not quite up to snuff. But then, while admitting that Keynes is dead, the question still becomes where do we go from the here and the now? As investors that question simply demands an answer, and I don't have one, and I surely don't like it!  What is infinitely more important is that no one else does either. Melvyn King's musings about the excess capital flows due to globalization finding a home here (eg. subprime stuff) and causing the mother of all bubbles is a correct analysis I think, and I suspect that Peter K. just won't agree with that. But nevertheless I would rather face our mess than that of the EU. The Greeks on the street are in the right as were the Icelanders. Let the bad banks go if necessary, the taxpayers should not be saddled with the results of their greed and stupidity. As a result we need not having to resort to a bartering system either, let the respective governments concerned establish our equivalent of Crown Corporations in banking, and let them flourish for a while, and then sell them to investors. That solution is not socialism but in reality capitalism as I read it anyway. Very interesting stuff is being published on all this in Ireland as you know.
 
Could I just turn to military matters a bit? Yes I am very very glad that finally the whole Petraeus doctrine of insurgency suppression and nation building in Afghanistan (and Irak for that matter) is shown up for the empty rhetoric that it truly is. Stratfor is surely correct in their analysis on all of this, and we shall see, I hope, a halving of the DOD Pentagon budget in the near future. But the USN must be spared in the main for it just takes much too long to build up a navy unlike the other branches of the military when painful choices must be made. I permit myself a small digression, but an important one. Surely our two erstwhile leaders Al and Bill, will or should, make it clear to the powers that be that it is absolutely unacceptable for female cadets to share the same dormitories, ablution and toilet facilities as the men. It is a plainly immoral situation Gentlemen and something should be done about it because it is stupid, ungodly and plain immoral. It is a stain on our reputation!  Read Tom Wolfe's "I am Charlotte" if you need any further convincing. So now I have said my piece tonight, but let us please remember at next year's Reunion to offer perhaps the most important toast that we have neglected heretofore; a toast to our wives and ladies without whom we would be nothing.  Sig.

Peter Kirkham: 22 June 11

I am in the throes of vigorous discussions:
1. strategic economic planning , and population projections 
for the City of Kingston;
2. trying to convince an errant Club management that the reporting
of the Club finances are totally erroneous, and misleading;
3. navigating through the "mess" that collectively represents
the global economy.
 
The first is of no concern to our audience here.
The second, hopefully, will start to resolve itself by the end of the month,
or we, the members, will all be in deep "do-do".
The last, the global economy and our personal investments, is on the top of my agenda
for the next few weeks.
 
There is much I could say about this situation, but I just have time for a few remarks here at this time.
(when I have a little more time, maybe in a month or so, I would be prepared to elaborate)
 
First, there are 3 major elements, or processes, in deciding whether to add or subtract
from our investment positions:
1. fundamental analysis ( evaluating the stock, or whatever, on the basis of the underlying business)
2. technical analysis, comprised of the "charlatan motions of imaging price patterns from past price patterns";
and "mathematical statistical analysis of the underlying data, and their generating functions "( read "what is in the black
box that is generating the numbers", and will it continue as in the past, or switch to another pattern; think
of balls in an urn, spinning it, and having one fall out, or picking one; or swithching urns).
3. macro economic factors, including Sig's reference to Keynes.
 
The first two, above should always be part of our tool kits.
But in an environment like this, the last ( macro economics) dominates the other two. If we are exiting the market, we
don't need the first two. We just have to keep an eye on the tax implications of what we are doing.
 
 
If we are thinking of "entering the market", we need to assure ourselves through the first two processes, that our impending move
makes sense from these perspectives, but then we need to totally
"assess" the move from a macro perspective also.
 
An abbreviated view:
1.who will hold the US debt, and at what price; meaning at what level of interest rates.
Someone has to hold the outstanding balances; most likely this can only be achieved,
willingly, at higher interest rates, perhaps 3%,4%, or 5% for short and medium term issues.
2. then there is the "risk premium" that we will want, collectively, to stay in the market.
3. the sum of the government yield and the risk premium, will represent the earnings
yield that we desire in our stock holdings.
4. the inverse of the stock yield is the P/E ratio. In the example, with an interest rate of 5%, and say a risk premium of 6%,
we would want an earnings yield of 11%, which implies a P/E of 9 (100 divided by 11).
5. right now the TSX index has a P/E of 18.  This implies a potential drop of some
7 points in the P/E ratio of about 40% to 50% in the index.
6. my own guess, at this time, is that we easily have another 10% to 20% to go down in this leg
of the developments. Not much incentive to be aggressive at this point.
7. the people that I read, and respect, in terms of market views, easily see another
7 or 8 years of "bear", before we even begin to see the light at the end of the tunnel.
 
ALL THIS TO SUGGEST THAT WE ALL NEED TO BE EXTREMELY CAREFUL, AND
VERY LIQUID, PASSING THROUGH THESE SHOALS.


 

Phil Hindmarch: 22 June 11
 

As you may know, in my idle moments I write light verse. I was moved by Sig's comments to write the following. It should appear in six, four-line stanzas. Sometimes the format gets altered in transmission, Do with it as you will.
 

UNISEX?

Oh, how things have changed!

We don’t distinguish any more

Between the boys and girls,

A condition to deplore!

 

When we were young and horny

And screwing still forbade,

The sexes were divided

By walls of prison grade!

 

The military colleges

Were strictly for the men.

The women went to Queen’s.

The world was clearer then.

 

Cadets now live together

In unsegregated dorms.

They use the same facilities.

Togetherness is the norm!

 

They fuck during classes,

In the showers and the gym,

On the cold parade square,

And not just her and him!

 

It was better in the old days

When we were kept apart.

Prim and proper was the rule;

Sex a matter of the heart.