Investing myths laid bare by this bear market
TheStar.com - Business -
Foremost is belief that balance sheets reflect true value of assets
October 03, 2008 Bill CarriganSpecial to the Star
The 2007-08 bear market in global stock markets has exposed several investing myths. Let's start with the idea that corporate balance sheets are a fair reflection of the value of a company's assets and liabilities.
Balance-sheet myth
Last Monday's panic liquidation began with shares of Wachovia Corp. plunging to penny-stock status in reaction to the massive devaluation of Washington Mutual's loans.
The problem was WaMu's numbers were much lower than those at which Wachovia was valuing its own portfolio.
Citigroup quickly agreed to buy Wachovia's banking operations for $2.1 billion (U.S.) in a deal arranged by federal regulators.
Mad Money's host Jim Cramer was enraged, claiming Citigroup bought Wachovia "for a pittance."
It was only two weeks ago that Wachovia chief executive Bob Steel told CNBC's Mad Money viewers that out of $500 billion in loans on the bank's books, only $10 billion were bad.
Cramer did not call Steel a liar, but rather believes that Steel believed what he said. Cramer was mad at himself for letting his viewers down. He trusted Steel, who has been known as a solid financier for 25 years, and he urged viewers to do the same.
Cramer went on to say Wachovia's financials "just didn't reflect reality," and "the SEC and multiple bank examiners all signed off on Wachovia's books. Even Steel, a former number two at Treasury, couldn't see how bad his own balance sheet was.
"He just didn't know what was there."
Cramer would end up the session by adding the CEO to the Mad Money Wall of Shame.
The demise of Wall St. shows that balance sheets could not be trusted because large amounts of their assets were based on murky financial engineering.
Complex financial derivatives such as credit-default swaps and collateralized debt obligations were not valued properly because they were not subject to the same visibility as publicly traded securities.
Commodity myth
Remember all that talk about the commodity supercycle and how China's growth would keep commodities prices in the stratosphere forever? Doesn't seem to be working out that way.
The investors who bought into the long-term commodity story have over the past several weeks learned a brutal lesson. Commodities are cyclical. They don't pay dividends and they are not growth companies.
Prices gyrate as leveraged hedge funds push prices every which way with billions of dollars of hot money stampeding in and out of the latest hot commodity.
Global diversification myth
We also learned that global diversification in recent years has been little help to investors. There was a time when markets around the world went in different directions, while economies in different countries did their own thing. But for years now it's been a global economy and markets increasingly move up and down in unison. When it comes to the world bourses, it is monkey see, monkey do.
What you do get by investing abroad, however, is foreign-currency exposure, and that does add diversification.
Currency hedging myth
While investing abroad adds currency diversification, in recent years many investors have curiously moved to hedge out that exposure. The recent weakening of the Canadian dollar has illustrated that currency hedging is an expensive scam. If foreign currency exposure gives you some diversification, why then would you hedge the advantage away? For example, the currency-hedged iShares CDN S&P 500 Index Fund (XSP) is down about 21 per cent year-to-date. An unhedged version would be down about 15 per cent in terms of Canadian dollars. Investment industry pushes helped make hedging popular two years ago.
If you have the time, one strategy that you can employ in sloppy markets is to engage in stock picking. During these volatile markets, the price behaviour of a stock will tell you much more than the current fundamentals because the price leads the fundamentals by weeks and months.
For example, collapsing markets create an opportunity to study the price behaviour of stocks in your portfolio and of the stocks you are thinking of acquiring.
The strategy here is to seek out stocks that performed better or worse than the broader stock indices during a period of fear and panic. That is very bullish
I ran a stock filter and uncovered 48 issuers that displayed the same bullish price action subsequent to the Monday massacre. The selections are relatively liquid and stocks trading under $2.25 (Canadian) were rejected from the scan.
You can view these names on my blog at www.gettingtechnical.com.
Bill Carrigan is an independent stock-market analyst.
Friday, October 3, 2008
Investing myths laid bare by this bear market
Thursday, October 2, 2008
QEC Is A Stock You Should Own At These Prices
http://watch.bnn.ca/the-close/september-2008/the-close-september-12-2008/#clip92209
The St. Lawrence Lowlands area is prospective for natural gas in multiple horizons with targets in the Ordovician Trenton Black-River and the Lorraine and Utica. Its landholdings of over one million gross acres consist of three separate blocks.
The largest block of 711,000 acres is subject to a farm-in and participation agreement with Talisman Energy. The primary zone of interest in the Greater Sierra region is the Devonian Jean Marie.
The region is also prospective for shallower zones, including the Mississippian Debolt and Slave Point formations. In November 2007, it acquired Magnus Energy Inc. In April 2008, the Company acquired Terrenex Ltd.
Issued & Outstanding:
Common Shares:
179,127,088 (as at May 14, 2008)
Stock Options:
16,769,170 (avg exercise price $0.61)
Insider Position:
17,126,231 (9.57%)
This is Today
This is the most current Corporate Presentation
Questerre Energy Corporation ("Questerre" or the "Company") (OSE,TSX:QEC) is pleased to announce that Talisman Energy Canada (“Talisman”) has elected to drill the remaining three option wells under its farm-in agreement with Questerre and its minority partner in the St. Lawrence Lowlands, Quebec.
The three wells will complete the work program allowing Talisman to earn about a 75% interest in the original 719,000 acre farm-out block. Questerre also retains about a 4¼% gross overriding royalty on production from Talisman.
Michael Binnion, President and Chief Executive Officer of Questerre, commented, “We were one of the first companies to recognize the potential of the Quebec Lowlands for unconventional gas and have worked for almost ten years to get to this point. We are thrilled that Talisman, which also saw the potential early on, has decided to accelerate the exploration and appraisal program. Our joint land lies right in the heart of the Lowlands between the Yamaska growth fault and Logan’s Line and runs from Quebec City to south of Lac Saint Pierre. We continue to believe this land position proximate to the market has significant natural gas potential.”
The three-well program is expected to commence in the latter half of 2008. The wells will test multiple horizons including the Trenton Black-River and the Utica and Lorraine shale sequences.
Questerre Energy Corporation is a Calgary-based independent resource company actively engaged in the exploration, development and acquisition of high-impact exploration and development oil and gas projects in Canada.
This news release contains forward-looking information. Implicit in this information are assumptions regarding commodity pricing, production, royalties and expenses, that, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in the Company’s plans, commodity prices, equipment availability, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee made by the Company that the actual results achieved will be the same as those forecasted herein.
For further information, please contact:
Questerre Energy Corporation - Jason D’Silva, VP Finance
Tel: (403) 777-1185
Fax: (403) 777-1578
Email: info@questerre.com
Web: www.questerre.com
Wednesday, October 1, 2008
September, 2008: 30 days that rocked the world
September, 2008: 30 days that rocked the world
DAVID PARKINSON
Tuesday, September 30, 2008
Perhaps one day, they'll print it on T-shirts: I Went Through the September Wringer of 2008.
With a dizzying, dismal September finally behind the world's financial markets, investors are left surveying the carnage of the most volatile month for stocks in a generation. After a history-making month of failing banks, rescue plans and dashed hopes, investors find themselves looking at a Canadian market worth almost 15 per cent less than it was a month ago – and facing some difficult questions about what comes next.
Veteran market watchers note the markets have seen deeper turmoil over shorter time spans – most recently, the selloffs of October, 1987, and August, 1998, both of which saw 20-per-cent-plus declines.
But what is more worrisome this time is the underlying economic and credit landscape, which offers little support for stocks.
Unlike the plunges that were triggered by financial market woes but came in times of a generally solid underlying economy, this selloff has come amid a severe credit crunch and a global economy lurching toward recession.
“This is a more complicated situation. It has a lot more layerings,” said UBS Securities Canada chief economist George Vasic, a market veteran of nearly three decades.
Even after rebounding more than 450 points Tuesday, the S&P/TSX composite index finished the month down 14.7 per cent – its fourth-worst month since 1980, and its worst September since 1931. The month featured wild mood swings in which one-third of the trading sessions (seven of 21) featured moves of more than 3 per cent.
The end of September also caps a dismal quarter of credit woes and sinking commodity prices that fuelled a 19-per-cent slide in the S&P/TSX composite, its worst quarter in a decade. The index is down 22 per cent from its peak in June.
The month wasn't much kinder to U.S. markets. The S&P 500 fell 9.2 per cent, its third-worst September, and eighth-worst month, since 1950.
Sharp downward corrections in stock markets aren't as rare as many investors imagine. In the past decade alone, the Canadian market has had eight months with losses of more than 7 per cent.
“These things happen more often than people remember,” Mr. Vasic said. “The pain of the past doesn't sting quite as much right now, because you eventually recovered from that pain, but at this moment you're not sure if or when you're going to recover from the current situation.”
And, indeed, stocks have historically rebounded smartly from violent short-term slides. Merrill Lynch analyst Mary Ann Bartels noted that in six of the eight occasions the S&P 500 suffered losses equal to or greater than Monday's 9-per-cent plunge, stocks bounced back the next day and were still above those selloff lows a month later.
But with the global economy still slowing, complicated by the confusion surrounding credit and financial sector woes, this pullback may not follow the typical model.
“Even allowing for the U.S. recession, we do have the fact that U.S. consumers do need to de-lever themselves. So, that would appear to cement the prospects for a weak recovery,” Mr. Vasic said.
And the credit-fuelled turmoil in the global financial sector “is a feature that really hasn't been there in any of the postwar recessions,” he said.
Academics said Tuesday that although we're still in early days, September's events and their accompanying market turmoil could one day make up key chapters in economic and financial text books. The transformation in some of the world's biggest and most powerful financial institutions, government and central bank manoeuvrings and the gut-wrenching reconstruction of the world's credit system could provide valuable lessons for the global economy and financial system.
“This is not the end game, but it's the beginning of the end,” said economist Mahmoud El-Gamal of Rice University. “How the end game plays out really depends on whether there is an international level of co-operation on reconfiguring the international financial system, as well as specific sectors including the investment banks and the hedge funds.
“We don't really know how it's going to go.”
© Copyright The Globe and Mail
