Inventory Update

Gong Show - Gambling

I know that a lot of people have a serious gambling problem and many other people are on the verge of having a serious problem. Gambling is an unbelievably foolish behaviour and I fail to understand why it is so attractive, yet the casinos are packed, there are lineups to buy lottery tickets, and people waste billions of dollars a year on this pastime. For today's gong show, I am gonging gambling, the gaming industry, and the government for encouraging and operating the defrauding of billions.

"Canadians lost $14.5-billion to the country's gambling industry in the last fiscal year, a new study has found. The economic report commissioned by the Canadian Gaming Association found the industry made more than $15-billion in revenue last year, including $700-million on non-gambling activities such as food and drinks.

The remaining $14.5-billion constitutes the amount Canadians spent on gambling activities — such as playing slot machines at casinos, buying lottery tickets and placing race track bets — minus the prize payouts. Profits were also found to be massive, pegged at $10.6-billion, including commissions and taxes. Roughly $7.4-billion enriches provincial coffers and $3.2-billion goes to charities.

The gaming industry includes casinos, lottery, horse racing, charitable gaming, bingo, slots and video lottery terminals. The study, conducted by HLT Advisory Inc., found that gaming revenues are on par with profit generated by spectator sports, television, movies, books, magazines and performing arts sectors combined."

To put the $14.5 billion into context, Canadian put $20 billion into mutual funds last year.

Update: Are you a compulsive gambler?


Did you ever lose time from work or school due to gambling?
Has gambling ever made your home life unhappy?
Did gambling affect your reputation?
Have you ever felt remorse after gambling?
Did you ever gamble to get money with which to pay debts or otherwise solve financial difficulties?
Did gambling cause a decrease in your ambition or efficiency?
After losing did you feel you must return as soon as possible and win back your losses?
After a win did you have a strong urge to return and win more?
Did you often gamble until your last dollar was gone?
Did you ever borrow to finance your gambling?
Have you ever sold anything to finance gambling?
Were you reluctant to use "gambling money" for normal expenditures?
Did gambling make you careless of the welfare of yourself or your family?
Did you ever gamble longer than you had planned?
Have you ever gambled to escape worry or trouble?
Have you ever committed, or considered committing, an illegal act to finance gambling?
Did gambling cause you to have difficulty in sleeping?
Do arguments, disappointments or frustrations create within you an urge to gamble?
Did you ever have an urge to celebrate any good fortune by a few hours of gambling?
Have you ever considered self destruction or suicide as a result of your gambling?

Most compulsive gamblers will answer yes to at least seven of these questions. Contact Gamblers anonymous for help.

Bubble, Bubble, Toil and Trouble

Well, the numbers are in, and I'm officially "priced out forever" in my hope of owning a house in the Fraser Valley. Obviously, houses are going to continue increasing in value until the end of the world and I've missed the opportunity to own one. Well, I could get a 40 year mortgage and rent out every room in the house to boarders . . . . hmmmmm . . . . or maybe I should give up blogging and start flipping 'luxury' condominiums in Whalley for quick profits.

Sputter, sputter, cough, cough, okay, I have my tongue out of my cheek now!

Fraser Valley Real Estate Board statistics are out for the month ending April 30th, 2007. Sales are down 5% YOY and active listing are up 51% over last year. Active listings are at the highest level in 2.5 years.



Prices are up - a lot. Median detached is $480,000, attached is $312,500 and apartments are $210,000. Those Whalley condos are hot, hot, hot.



The house price index is up 2.2% MOM, 4.4% QOQ, and 14.4% YOY.



Months of inventory increased to 4.4 and the trend is up, up, up. Which means prices will go down, down, down. If this trend continues, the months of inventory will be over 10 by the end of the year. Choices galore.



The belief that these prices will hold is so prevalent now among most people I talk to and for some reason most people believe its a good thing. Contrarian psychological analysis would lead me to believe that we are very near the top of this market.

May Day, Mayday! - homes are unaffordable!

I had a discussion with a friend this morning about how much people can afford in terms of a monthly payment, because after all that is all anyone ever seems to look at.

Here we go - the most "affordable" monthly payment is with a 40 year amortization. To buy the median Greater Vancouver townhouse without a downpayment, the prospective buyer needs a gross annual income of over $95,000.



With a more conservative amortization of 30 years the buyer needs an income of over $103,000.









And with the even more conservative 25 year amortization, the buyer needs an income of over $110,000 per year, to buy a townhouse, in Burnaby or Richmond.

When I look at the income required to purchase one of these median homes, I think back to my dreams and aspirations as a younger man and dreaming of what I would be able to afford if I made $100,000 per year, which by all accounts was and still is quite a bit of money - far above the average income.

I thought about the car I could drive and the home I could own if I earned that kind of income. The car certainly isn't a problem but I'll be honest, I didn't really expect the home I could afford to be a mediocre townhouse for the education and effort required for the position that the income came with.

These are a few of my favorite things . . .

From Legg Mason Capital:

No other fund manager has duplicated Bill Miller's record of beating the S&P 500 for fifteen consecutive calendar years. Over the years, Bill Miller has received numerous accolades for his management record and distinct style, which focuses on a detailed understanding of businesses and their intrinsic value. Legg Mason's Value Equity management team was selected as a winner of Standard & Poor's/Business Week's 2002, 2003, 2004, 2005 and 2006 "Excellence in Fund Management Awards." From a universe of approximately 15,000 fund management teams, we were recognized for our "ability to demonstrate exceptional levels of leadership while consistently producing strong results over the past five years."

"You just can't use overly simplified valuation techniques to substitute for analysis and thinking. We use valuation metrics as landmarks and not roadblocks.

You don't want to have a static approach in a dynamic world"

- Bill Miller

In 2001, 2002, 2003, 2004, and 2005, and 2006, Bill Miller was ranked among the top 30 most influential people in investing when he was named a member of the "Power 30" by SmartMoney. Bill Miller was also heralded by Money magazine as "The Greatest Money Manager of the 1990's" and named Morningstar's 1998 "Domestic Equity Manager of the Year."
His unique investment management philosophy and approach to undervalued stocks has also made Bill Miller the subject of numerous profiles in publications, including The New York Times, Barron's, Business Week, Kiplinger's, Money, The Wall Street Journal, Fortune, Smart Money and Janet Lowe's book The Man Who Beats the S&P; Investing with Bill Miller.

In 1996, Legg Mason Capital Management introduced Value Equity, an institutional separate account product modeled after Bill's highly successful mutual fund, the Legg Mason Value Trust. Bill Miller and Kyle Legg co-manage the institutional separate account product. Mary Chris Gay manages related domestic and international funds.

The Value Equity portfolio typically consists of approximately thirty to fifty names that we believe trade at large discounts to our assessment of their expected value and offer the best opportunity for the highest long-term risk-adjusted rates of return. Our stock selection process focuses on companies with market capitalizations generally greater than $10 billion at the time of purchase. Adhering firmly to a value-driven, research-intensive investment process, the Value Equity team focuses on assessing expected value of companies and strives to buy stocks at significant discounts to our assessment of their worth. We assess a company's expected value by employing multiple valuation methodologies combined with rigorous business analysis, concentrating on a company's ability to generate excess cash flow, earn high returns on capital, and allocate capital efficiently. Through each stage of the investment philosophy we seek to mitigate risk through our rigorous research process, regular monitoring of business fundamentals, and appropriate diversification.

Our objective is to outperform the client’s stated benchmark, net of fees, over rolling three-year time periods. The benchmark is the cost of capital for active management.

Canadians can take advantage of Bill Miller's Value Investing style through the CI Value Trust Fund from CI Investments.