The Bank of Canada Chickens Out
With inflation running at 4.7%, and the federal government still shovelling giveaway cash into the economy the Bank of Canada decided it needs to be loved. It will start raising rates next month.
Why put off the inevitable? By leaving rates where they are the governor of the Bank o Canada Tiff Mackelm (who could hire a guy named Tiff) will give people one more month of free money.
Feeding the real estate boom
Low interest rates, along with money from overseas looking for a safe parking space, have fed the Canadian housing market. One indicator is how many real estate agents have taken the simple exam and landed a licence. There are 70,000 licensed real estate agents in Toronto. An amazing total, even if many are part time. At the moment, there are just 2,500 properties for sale.
Since even a small bungalow is worth more than a million, there is $60,000 to split between the listing and selling agent. The 6% commission might be cut on same deals. Real estate agents have seen their take home increase along with the price of housing. And selling in a hot market takes a lot less work.
Mexican Inflation: Tacos and Tequila
Okay, it’s a stereotype, but it got your attention. The price of limes is up 153% according to Mexico News Daily, an English language website in Mexico.
Limes are used to make tacos and they are the citrus fruit of choice to go with a shot of tequila. Ditto for stuffing a lime in a bottle of Corona.
Is this sell-off the real thing?
The Dow was down 1,000 points at the start of the week. Stocks bounced around, worried about everything from interest rates — the US ten year bond was as high as 1.84%— to war worries and Ukraine.
Sell-offs are a good thing. Small investors usually panic, thinking it is 1929 all over again. It doesn't happen that often.
1914 was a lot worse
In August of 1914 Wall Street shut down until Christmas. And the United States wasn’t in the war for almost another three years. Treasury Secretary was William McAdoo is credited with saving the US economy, and according to a book whose title says it all: When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy.
The reason McAdoo closed the New York Stock Exchange was to prevent panicked Europeans from selling their American stock and then exchanging the US dollars for gold. McAdoo was a southerner the son-in-law of the racist US President Woodrow Wilson. McAdoo tried to run for president several times.
A Russian invasion of Ukraine would hit stock markets but oil would really go through the roof. It is already closing in on $90 a barrel in North America and Europe.
A Socialist Take on Bitcoin
“Cryptocurrency is a giant Ponzi Scheme”, writes Sohale Andrus Mortazavi, in the socialist magazine Jacobin.
“Cryptocurrency is not merely a bad investment or speculative bubble. It’s worse than that: it’s a full-on fraud,” writes the Chicago based writer, who is also a ghost writer.
'“Mining bitcoins on a personal computer is no longer feasible. The majority of cryptocurrency mining is now conducted in commercial mining farms, essentially huge warehouses running thousands of high-powered computer processors day and night. The electricity expended mining Bitcoin and other cryptocurrencies is rapidly approaching 1 percent of global usage, which is famously greater than the total electricity consumption of many smaller developed nations.”
Here is why he says it’s a Ponzi scheme: “Investors can only cash out by selling their coins to other investors — but only after the miners and various cryptocurrency service providers take the house’s rake.”
Where does the phrase Ponzi Scheme come from?
Charles Ponzi promised investors fabulous returns: 50% in 45 days; 100% in 90 days. And he paid dividends, at first. The money rolled in from rich and poor. Three out of four Boston cops invested. Trouble was Ponzi paid the dividends from the new money that came in. The Bernie Madoff of the Roaring 20s. He bought a big house, the latest car — a Locomobile— and lived the high life.
Charles Ponzi was born in Italy. He arrived in Boston in 1903, working as a waiter until he was fired for short changing customers. He came to Montreal in 1908 and soon landed a job in a bank that dealt with Italian immigrants. He forged a check for $423.58 and landed in St. Vincent de Paul Penitentiary. After he was out he went back to the United States. No Internet records at the border. Soon he was back in jail where he learned tricks from a master con man. Cut to 1920 and Ponzi started the Securities Exchange Company. It lasted for almost a year when the Wall Street Journal looked into it and brought up his criminal record for forgery in Montreal. Back to jail. Charles Ponzi died in poverty in 1949 in a poor house in Rio de Janeiro. He was 66. He didn't invent the scam, but paying dividends with the new cash coming in is known as a Ponzi Scheme to this day.
A Bitcoin Tale of Woe
On November 12, 2021, an NFL football player, Odell Beckham Jr. signed a one year deal with the Los Angeles Rams for $750,000. Mr. Beckham opted to take his pay in Bitcoin. At the time, Bitcoin was worth $64,293. On Friday it was worth $37,639.
That means his original $750,000 is worth $439,071. But Federal and California tax will take 50.3% of the original pay-packet of $750,0000. As of today Odell Beckham has netted $66,321 from his contract this year.
China dominates World Trade
China has won the trade war, according to a study by the Lowy Institute, an Australian think tank. Its major source is data from the International Monetary Fund.
“Before 2000, the U.S. was at the helm of global trade, as over 80%of countries traded with the U.S. more than they did with China. By 2018, that number had dropped sharply to just 30%, as China swiftly took top position in 128 of 190 countries.”
Moving graphic of China vs US, 2000 to 2018
And China is the new colonial power in Africa.
Essay of the Week
Stock Market Investor
Harry Steele, the great Newfoundland businessman, died at the age of 92 on Friday January 28. I have been running chapters of the book I wrote on Harry and here is the next instalment.
Chapter 5
Stock Market Investor
It is more important to know when to sell than when to buy. — Harry Steele
Years before he left the navy, Harry Steele became a successful stock market investor, helped at first by his wife Catherine’s brother, Roland Thornhill. Roland was a stockbroker in Halifax, working for a small Saint John, New Brunswick, firm called Eastern Securities. Harry opened an account there and started buying small amounts of stock withmoney left over from his pay in the navy, which was not an extravagant sum.
“Harry became fascinated with the investment business. He used to take me down on board the ship, as he was still in the navy, and I would visit with him and some of his mates in the boardroom. They were all interested in the stock market, but Harry was just obsessed with it,” recalls Roland.
Bill Shead recalls that Harry had a good feel for what was going on in the market, and Bill credits Harry with giving him a grounding in the world of money, which paid off down the road, making his retirement that much more comfortable.
“Harry’s brother-in-law was involved in the investment field, and he and Harry would often talk finance when they were together having a drink or on a ship,” recalls Bill. “We got involved as well, and we learned quite a bit from him. I got interested in it, and I think I started my first investment when I was on that ship and thanks to that I’ve done fairly well but not in the class of Harry.
“I would think Harry had a sizeable nest egg when he left the navy, which allowed him to go off and into business.He was generous, and he didn’t splurge on things, so he was careful. He was conscious that there was a way to make adollar. Any invest- ment that he made, I’m sure he was aware had some downside potential but a hell of a lot of upsidepotential. He was not afraid to take a risk.”
Even his brother-in-law was surprised at how he took to the market. “I’ll tell you how good Harry was: One time when he was just about ready to get out of the navy, he talked to me about becoming a sub-agent for Richardson [Investments, which had acquired Eastern Securities] in Newfoundland. I told him that before becoming an agent, you had to write a test, which would tell them if they had a suitable candidate. So he said he wanted to take it and he came and we put him in a little office there for exactly one hour. I gave him the test and sent it off to Winnipeg where they analyzed it.”
The test measured Harry’s interest in and knowledge of markets, his ability to pick promising investments, and otherqualities that would make him suitable to work in the field. Remember, this was a man who was still in the navy with a full-time job running a complex base in Gander, Newfoundland.
Roland was shocked at the result. “The chap who was in charge in Winnipeg [would] normally review it and comment that the candidate wasn’t suitable or was adaptable, and I should pursue it, but in this particular case he called me and said I should hang on to this guy because this was one of the best results they had ever seen.”
Harry did not become a sub-agent, but he started to trade heavily. To handle his deals, he dealt, in particular, with two men who would have a profound influence on his business and invest- ing life: the late Nigel Martin, then a Torontostockbroker, and Seymour Schulich, whose investment savvy made him one of the richest men in Canada, something that has allowed him to become a generous philanthropist.
Seymour started as a research analyst in the Montreal office of Eastern Securities. At the time, there were not many Jews in the investment business, but that was about to change. Seymour, the city kid from the Snowdon district in Montreal,hit it off with Harry, the kid from Musgrave Harbour. Both had overcome adversity to achieve success, and the two becamelifelong friends. For a while, Seymour was chairman of Newfoundland Capital Corporation, and in later years the two men and their wives went on cruises together. “Seymour has got an ego the size of Manhattan, but there’s no better friend in the world,” says Harry.
One of Seymour’s closest friends was Nigel Martin, a Toronto broker originally from Montreal. Martin was a boy wonder as a stock trader, and after working for a large firm, he became a partner at Thomson Kernaghan (astockbrokerage), with a 15 percent stake. Harry was a client at the firm through his connection with Seymour Schulich. Oneof the brokers he dealt with there was David Bruce, an affable Scot who continues to work as a broker to this day.
“I met Harry through Nigel. When we left Dominion Securities [DS] in 1973, Nigel and I went to join Ted Kernaghan, andwe were at Kernaghan … then. Nigel’s association with Seymour Schulich was from his Montreal days when he was at DSand Seymour was a good friend of Harry’s. When Harry asked Seymour for a broker, he mentioned Nigel’s name. So he called Nigel in 1974, and we started from there, forty-three years ago,” says David.
At the time, Harry was still the base commander of Gander, but, as mentioned, he was already a successful stockmarket inves- tor with a sizeable portfolio. As Roland Thornhill notes, Harry had a natural feel for markets, and he studied the way markets move and how to value a particular stock by reading about it.
One company that came into his sights was Eastern Provincial Airways. The company was based in Gander and, as we will learn later, Harry was interested in attracting its employees to The Albatross, the hotel he and his wife owned in Gander. Hecould see that the shares of EPA were pretty beaten up and he put in an order with Nigel Martin and David Bruce to keep an eye on the company’s stock.
Eastern Provincial was not the only stock Harry was interested in. It was different from the others he traded, however, because he was not interested in acquiring control, or at least a sizeable position, of any other firm. Harry was atrader, and David Bruce says he was a very disciplined trader.
“He was very successful building up his nest egg; he was an excellent trader. He was impatient; he wanted the stockright then, ‘Right now’ he would say. Any time Harry had a profit, he’d say, ‘Let’s go, let’s leave some for somebody else.’ He was not someone who would ride things forever.”
Bruce estimates that by the time Harry left the navy his for- tune was close to a million dollars — a lot of money then. That is a figure that other people outside the family have also come up with.
Bruce remembers the price Harry was paying for Eastern Provincial stock more than forty years ago. “We werebuying the stock for between two and three dollars, but I don’t know … the precise deal he did with the Crosbies.” Detailsof that transaction are dealt with in chapter 7.
As a Scotsman, David Bruce loved to fish for Atlantic salmon, the same fish that rises to the fly in Harry’s fishing camps in Labrador and swims in the lochs and rivers of the highlands of Scotland. David Bruce and Seymour Schulich were the perfect guests at Harry’s fishing camp. When they were on the river or over drinks and dinner, the conversation was all about business and especially the stock market. Just the way Harry liked it.
“Harry Steele was a spectacular guy, someone who would always give you the time of day. He knew everybody by theirfirst name and where they came from and what they were all about. He had guys who would follow him to the ends of the earth. He was an absolute guy’s guy,” says David.
“He was very easy to talk to and not tough at all unless things weren’t going his way. I’ve seen him angry probably twice since I’ve known him. One of them was when he had the big pilot’s strike at EPA; he was absolutely furious at his pilots.”
Though Harry Steele’s stock market acumen helped him in busi- ness, some of his family members and colleagues say at times it was a distraction, if not an obsession. If Harry had one vice, it was the stock market. A man who relied on information, whether it was a Soviet radio transmission or a stock tip from his network, Harry was always on the lookout for a winner.
“That was Harry’s only addiction, to use your word, but it never killed him, so what the hell,” says one of his closest advisers.