September Idea of the Month: What about Deflation?
by Travis Johnson, Stock Gumshoe | September 16, 2016 9:32 pm
A buy for the pessimists, and checkins on Altius, REITs and more
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Source URL: https://www.stockgumshoe.com/2016/09/september-idea-of-the-month-what-about-deflation/
Travis, thanks for the outlook on the insurers and the REITS. Been kicking tires a little, but as you say the valuations look high now and I’m worried about the overall market.
Glad also to hear your opinion on Altius. I sold out when I felt the precious metals were an immediate opportunity, but I may re-enter.
On Yamana and Chapada, check out Sandstorm’s deal on Chapada. What’s good at Chapada is good for Sandstorm.
Yes, though I’d say SAND is driven much more by gold sentiment than by the actual performance of any of their assets at the moment — I do also own Sandstorm, though that position is a bit smaller than my Altius position currently.
Hi, Travis.
I’ve not posted on this site before, so would fully accept correction if I am posting in the wrong place for the following subject.
Basically, I was wondering if you have any views on offshore brokerage Investors Europe Gibraltar / Mauritius and their trading platforms? The platform (normally) lets you access stock trading and options trading primarily in US and Canadian markets.
Investors Europe Gibraltar / Mauritius have a variety of trading platforms, including ArcticTrader. The latter decided to “upgrade” recently, in the middle of the market trading week and I could not access for days! That was intensely worrying, as the only info upon login attempts was that it was unavailable and undergoing upgrade. Very stark, and, in view of the world banking situation generally, I began to wonder the worst! But, it turned out ok, today, and I regained access.
However, it was a scare! And, though I did some due diligence upon originally opening an account with Investors Europe Gibraltar / Mauritius, I still think the “upgrading” of one of their trading platforms during market trading days, and for so long, and with such limited explanation, was very strange. The brokerage gave no further information while the situation existed, other than to state that they were looking into rectifying it, and I have had no other explanation.
So, I am left wondering just how safe Investors Europe Gibraltar / Mauritius with its Arctic Trading platform (and other platforms, too) really are. Any light thrown on this by you or anyone else would be much appreciated.
Regards.
Hi gumshoetree — I have never heard of those trading platforms or that company, I’m afraid. Personally, if a US broker upgraded during the trading week and failed to let me make any trades needed I would be shopping for a new broker. Just about all of the brokers I use have “upgraded” their websites or interfaces over the past year or two, and I’ve never had a problem with any of them. Even if that’s a one time thing, their handling of it, as you describe, would make me nervous — and life is too short to deal with a company you don’t like or turst if there’s an easy alternative.
I appreciate your prompt response. I think shopping for a new broker is wise in the circumstances, and I have begun the process. Although, that “shopping” is not so easy as it would be for a US citizen with a US address, however, but I have begun the process.
Hi gumshoetree, many gummies are using interactivebrokers.com You may want to read the discussion on this thread about it and other brokers: http://www.stockgumshoe.com/2014/11/first-steps-and-favorite-tools-for-new-investors/ Best2You ~ Ben
Travis what puts did you place with WATT? Thanks I’m trying get some experience with options and have limited myself to calls at the moment
Watt has already made me a very happy investor. I’m already up 30% in just over 2 weeks. I believe watt has the potential to go up to $25 to $30 dollars this. I think I will be in for a very Merry Christmas. Best wishes to all.
October $15s, a small position — please remember, when doing any kind of speculating with buying options (puts or calls), to keep your positions much, much smaller than your typical equity positions or you’re going to be bringing on a lot more risk. Options you buy have a very high likelihood (not just an abstract possibility, like most stocks) of going to zero — speculating with options purchases does more to feed a gambling urge than it does to build a portfolio. There’s a place for that, particularly if it keeps you from making big gambles with much larger amounts of money, but it’s a wild ride… it is fun to have the occasional 1,000% winner with options speculating, but there are lots of 100% losses that go with that.
Hi Travis, So are you sting that Fairfax used to be
Good? I scuttled some dough back into Appl ‘@
Watts. A good idea to take it out i think. Whatshisname, Trembly, said he’d dble my dough if it it doesn’t move and that’s not the stock
I think it went up .20 on Friday. Man, can I catch a
Break around here ? Trembled would be out the
Door if he worked for me. This is the second time
That bozo has done it to me, and once I was mad
Cause I didn’t put any dough into something,
Good bye Ernie. Harry
I don’t think I understand the question. If you’re asking about those Ernie Tremblay teaser pitches, I wouldn’t blame you for being skeptical — those are risky biotech trades based on clinical trial results or FDA decisions, and no one should speak with the kind of certainty Tremblay does about those, particularly when they’re almost promising huge returns.
As far as Fairfax, I’m sorry it wasn’t clear from my comments above: I think it’s an appealing “hedge” stock for my portfolio — it is positioned so that its investment portfolio would benefit from a falling market (it’s hedged more than 100%) and from deflation. That doesn’t mean I’m sure Prem Watsa will be right about that, but it means having some capital effectively invested with him provides a bit of hedging to my portfolio… and in the meantime, his insurance companies are profitable and have done consistently well now for a number of years. If the market booms for another year or two, Fairfax probably won’t crash… it will just do worse than many other insurance companies and will probably underperform the broad market.
Don’t laugh at me, but if the stock market goes
Bust, dont I lose all my money? Why should I hang in there? And they talk about buying after a crash, I see it two ways, the market is going to be
Manipulated, or God will put a stop to this insane
Culture of getting screwed all the time. They stabbed 8 people today, and said their’s more coming, right where I was yesterday. They say a bombing isn’t a bombing unless it’s Isis. And now they’re supposed to be
Bringing the Isis “thugs” into the country to do the
Dirty work . Why isn’t all this taken care of? Why isn’t Hilary and her rapist husband In jail, and
The Big “O” says we’ve got plenty of money and he’s never heard of a “rigged ” election. Why are t they in jail? We are all worried about the stock market and we’re going to be marched into boxcars to take a little trip. There’s been so much treason and lies and I think we oughta kick NATO
Out of our country! Am I nuts? Walmart has closed 250 stores cause those are going to be the new “fema” joints for us. How in the hell can we make any money? Hilary said were going to
Tax the middle class. See ya! Can someone answer why these people aren’t locked up? It’s not getting better. I think we’re stupid for investing. And if we don’t change it to a different currency before they turn the electric off, we’ll have nothing. Have they bought off the world?
God Bless, I don’t understand why the military isn’t all over those people. And they talk about making new bombers. I flew in a B-52 over Cambodia, and Vietnam. Evertime we buy something are change something we’re all gonna
Have bad haircuts one of these days! If we can’t make million dollar option trades, I think we should play cards. Sorry , but this country is really pissing me off! No one cares. No one can do anything about it. We are all locked down!
So why in the hell are we even trading!
Sorry , but this is insanity! Maybe the Daily Planet
And Superman would help! I don’t get it, and if you guys do, will you please tell me where I have to dig a hole and then get shot when I come out?
Good night!
I’m not telling you to “hang in there” or do anything else, of course, but it sounds like you have a lot of anxiety about the world and the markets. My only suggestion for folks who find those kinds of feelings overwhelming is to be careful about diversifying away from yourself a bit — don’t let your feelings about politics or the state of the world, whatever they are, determine the entirety of your investment strategy.
Things looked bleak and terrible to a great many people in 2009, and many of them sold everything — and therefore missed the huge gains their portfolio would have had over the last seven years, almost regardless of where that money was invested (bonds, stocks, gold, real estate — all are higher now than they were then).
Prepare for the worst things that you fear, sure, but also prepare for the possibility that you’re wrong, and that the next 30 years might be similar to the last 30 years with war, bloodshed, unrest, dispute, debate… and also longer life expectancies, less war and bloodshed than the previous generation faced, and a growing global economy that has lifted billions of people out of starvation and poverty and enriched millions.
I’m an optimist at heart, as you can probably tell. But I diversify away from myself, too, by preparing for emergencies or economic catastrophe with things like gold, cash, and the like… and I think about how certain investments might help hedge my portfolio if I’m wrong. I just don’t let that “insurance” or “hedge” stuff become the principal part of my investing strategy.
Thanks Travis! No, I wouldn’t bail out of the stock market, but it would be things that I would keep like BDX, things that have got a better Chance of surviving. Things this time
Around do scare me a lot more than last time. I just follow you and I’m good to go!
Coal: metallurgical coal has been soaring, explaining the parabolic growth in Teck resources, and possibly in Westshore terminals. I hold a number of medical reits, and today HLTH is doing well on the basis of a new acquisition.
Teck Resources Ltd (USA) (NYSE: TCK) Fri 9/23 17.0 Calls (Wkly): 3500 @ ASK $1.44: 5033 traded vs 16k OI: Earnings 10/27 $18.11 Ref – Benzinga thx wal.schwager
I know there are a great many folks who would like to respond to the comment from cmilone following up on Playfulhair, but I don’t want to host those debates here — please move it to the “clubhouse” where discussing religion and politics is welcome and those who don’t want to engage in that don’t have to see it, you can find the latest iteration of the “clubhouse” here.
I’ll move the comment from cmilone to that space as well, for those who want to join that conversation.
Travis Do you have a link for this company?
Fairfax Financial (FF.TO, FRFHF), the Canadian insurance conglomerate. http://www.fairfax.ca/
Comment from a reader:
My response: “sort of” — what’s happening is that Fairfax Financial has a large bet on deflation and a bear market, and that’s what has helped the stock to get a bit of a premium valuation as an insurance company. The spike in inflation expectations (the opposite of deflation, that is) means those deflation bets are likely worth a lot less than they were a week ago… and with the market currently rising, the bearish bets are also worth a lot less.
Watsa is far quicker to make big macro bets than are other well-known “baby Berkshire” investors or value investors, and he has already made some adjustments post-election — he did cut back on long bonds before the election, here’s a short piece about that, and he did substantially reduce his hedges after the election (as reported by the Globe and Mail here, he went from over 100% hedged to about 50% hedged), so things are very much in flux for Fairfax and they have a HUGE amount of cash on the balance sheet (thanks to the sale of those long bonds) that’s not doing anything.
The stock is now much less of a “hedged” bet on a bearish market, so investors who were holding primarily for that reason may be losing interest (and that may, indeed, be the reason for the selloff), but it’s still very much a bet on Watsa’s predictions about the macro economy and his investing acumen.
I’m trying not to make any big macro bets right now, but I’ll look at Fairfax in some more detail when some more of the dust settles… the valuation is down to about 1.2X book value now, so it’s reasonably valued as a high-quality insurance company and there’s no obvious reason why the stock should be a bad bet for the coming years, though it is suffering some from the cost of the bearish positioning Watsa has had for a couple years. I still think it’s worth having exposure to the stock, and that move out of long bonds was very prescient of him and (assuming that this week’s trend is not reversed) may help the balance sheet versus some of his competitors next time Fairfax reports, but if Watsa is walking back all of his bearish exposure there’s less reason for me to hold this one versus other high-quality insurers who are not as active in trying to predict broad market moves. It’s still cheaper than some of my favorite insurers, like Markel, and it’s always interesting to follow Fairfax, but it’s no longer as much of a direct “hedge” exposure for bear market worriers (we don’t know if he has walked back his specific deflation bets in addition to the bearish market exposure, but those are worth dramatically less now than they were a week ago)
REITS gold Ernie Tremblay FDA options