We believe that Canada and the United States are facing very difficult economic times that will affect the stock markets and inflation. It will not be pleasant. Overspending and paying too high prices for many stocks coupled with too much debt are the main culprits. They will take a harsh toll.

Keep in mind that years ago the brokerage industry was created to offer a liquid market to buy and sell (invest) for the companies and for the investing public. However today it has been primarily for the benefit of the banks and the brokerages. Much has been lost due to that priority.  Generally, the research from the major brokerages was inaccurate and of poor quality. It was and has been primarily a sales tool. Few will admit that.  

The officers and directors of the publicly traded companies in Canada and the U.S. are required to report any of their personal purchases and sales within three business days. Failure to report is a serious offence. While the graph in Barron’s for insider transactions seemed to be positive by its gauge of total transactions to be bullish for the market, Yet if we add up the dollar value for the transactions. It is extremely negative.

Recently for the U.S. listed stocks there was a total value of $41,000,000 (forty-one million dollars) of insiders (officers and directors) purchasing their own companies’ shares!  Yet, that very same week, the insiders sold $309,000,000 (three hundred and nine million dollars) of their own companies’ shares (over seven times the dollar value of the purchases). That high percentage of selling has been ongoing for months. It is a strong indication that the industrial stock markets may be difficult for a long time.

Au contraire! But in the Canadian Resources (Gold, silver precious metals companies) we find a tremendous amount of insider buying and very moderate insider selling. Our view is that we are in a hard assets bull market and the brokerage/banking cannot accept that as it brings lower profitability.

Inflation! Just recently inflation has returned as a surprise to the head if the Fed and the head of the Treasury. Most intelligent people have seen inflation occurring for years. But of course, energy costs and food prices do not count. We estimate that over the last 6 months the cost of true living inflation has risen by 16% to 20% and for many items 30% to 40%. We have morons giving advice and opinions.

The Debt levels for governments, corporations and individuals are at levels that can be considered as threatening to say the least; there is a strong possibility of bankruptcy for all categories.

Despite our long-term bearishness, there are and will always be tremendous buying opportunities in so many stocks. Bear markets create exceptional buying opportunities. Do your homework and use your own judgement-not governmental led intellectual morons’ views.

Note well that the specialists (market makers) are very limited in how much volume they can handle during selloffs. Not much!

We must say it again: Today’s investors must recognize that we no longer have the comprehensive brokerage house research support for stocks as in the past; research has declined for over thirty years and that lack of analysis continues. Why? For one reason because the narrow spreads between stocks’ bid and offer prices have become so narrow that the brokerage houses’,  banks’ and market makers’ profits are minimal if not totally non-existent.

The profitable wide spreads in the past paid for research and provided capital for brokerage houses’ market makers to support their stocks and trading. Gone! Thus, computerized trading coupled with today’s tiny spreads between the bids and offers shattered the profitability of “making markets” by market makers. Those “now lost profits” did provide enormous support for research and provided trading capital for years. 

Written by: K.C. Grainger & Bob Pellerin