March 5, 2013 Comments

So the Dow Jones Industrial Average reached a new all-time high today. Not a big deal, but it does seem an encouraging sign.

I have a very heavy weighting in equities (around 90%). For that reasons I may look to see what positions I should trim a little as prices rise. But for the most part I am content to let things ride.

Warren Buffett was on CNBC’s Squawk Box for three hours on Monday before the market opened. He said that equities remain good investments compared to other assets. He never makes predictions about the stock market except that he thinks it will rise in the long term. He said a long-term government bond was the dumbest investment around. He encourages Americans who need a house to buy ad to take a 30-year locked in mortgage rate. He does think that at some point the FED will begin to reverse its easy money policy. When that happens he believes most institutional stock investors w will be looking to sell some stocks. (Basically he is saying stock prices will fall then, perhaps a lot). Berkshire will not be looking to sell stocks at that point.

I notice that lower mortgage rates in Canada are in the news. In some ways it is surprising that banks have not always been more competitive. People say the industry is an oligopoly with only five major competitors. Actually five is plenty to promote competition. Consider, three airlines in a market will usually beat each other to death. Banking should be very competitive in that their products are the ultimate commodity. And with the internet the old convenience of the local branch is not much of a factor. But there remains an inconvenience and a high a=switching cost (in time and effort) to se=witch banks. Big banks are very silly to offer mortgages through brokers. That is a low profit business. Smart banks will try to capture you as a customer and have you using five or more of their products. When they do that they don’t have to be as aggressive on prices.

Speaking of airlines/ I saw an ad today where Air Canada will match prices and give you an extra $50 off if you find a cheaper flight within 24 hours of booking. This is a really stupid strategy for Air Canada. It’s seldom a good idea to compete on price. And I don’ think it is ever a good idea to price match since that means you are agreeing to match whatever stupid price your competitor offers. And it’s really dumb to compete on price when you are not the low cost operator. Air Canada should try to compete some other way like convenience, comfort, safety service and on-time travel. On top of an already stupid idea, this will create¬† a customer service nightmare when people start trying to phone in and prove they saw a cheaper flight. As Buffett also said yesterday, Airlines have all the characteristics of a really bad industry. Encouraging customers to shop even harder for the lowest price every time is not going be a money making strategy.