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2009

Friday, November 6, 2009

Preferred Shares in Canada



Generally, Preferred Shares are a type of stock that regularly pays a dividend of a set amount of money out of the company’s profits. On an investment scale, you might consider preferred shares to lay in between Common Shares and Bonds. For most, preferred shares will provide a normal dividend distribution and these are normally paid before a dividend can be issued to the common shareholders. Further, it is often stipulated in the preferred shares articles of prospectus that when a company is unable to pay a dividend distribution due to financial constraints the preferred dividends will accumulate as a liability for the company; this basically means that the preferred shares need to be paid for all distributions that they missed during tough times before any common share holder get a dividend. Further, during a bankruptcy, preferred shares normally have a higher ranking than Common Shares; although this must be stipulated in the prospectus.
During this most recent recession, Preferred Shares have been re-popularized by Warren Buffet. His most notable position was purchasing Preferred Stock in Bank of America (NYSE:BAC) and General Electric (NYSE:GE) during the darkest days of the fall of 2008. These shares did not suffer declines as large as the common stock of these companies and the preferred shares distributions remained the same or accumulated to be distributed during better financial times.

Although the Heading Preferred Stock seems generic, there are many different varieties:

Prior Preferred Stock: If a company has different issues of preferred stock outstanding at the same time, it is common to find some labelled with higher priorities than others. Under this scenario, if a company only has enough money to meet obligations on one of the preferred issues, it only issue a dividend to the preferred labelled as the Prior Preferred or highest priority. As a result, Prior Preferred Stock normally has a lower dividend yield because of the lower risk attached to sustainability of dividend distributions.

Preference Preferred Stock: These preferred shares rank just behind the prior preferred stock. These will receive preference over all other classes of the company’s preferred shares except for the prior preferred’s. When more than one level of Preference Preferred Stock is issued there may again be a ranking.

Convertible Preferred Stock: A Convertible Preferred Stock allows unit holders the opportunity to exchange them for a predetermined number of the company’s common stock. The exchanged is normally allowed at any time an investor chooses regardless of the current market price of the common stock. It is however only a one way deal; once you have converted to the common you cannot convert back. This allows a preferred shareholder the opportunity to participate in significant gains in the common shares.

Participating Preferred Stock: These preferred shares provide unit holders with the opportunity to participate in extra dividends if the company achieves some predetermined financial goals. Normally, if you own these kinds of shares you will participate in regular dividends regardless of how well or how poorly the company performs and if the company does very well you may receive an extra benefit.

Why do Canadians Invest in Preferred Shares?

Basically, Canadian that invests in Preferred Shares are doing so because they wish to hold fixed-income investments in a taxable portfolio. Because dividend income is tax in a preferential way in Canada compared to interest from Bonds, Preferred Shares often result in a greater after-tax return than can be achieved with bonds in many circumstances.

If you currently hold a portfolio that does not have any exposure to preferred shares you may want to consider making some acquisitions. This can be done by simply buying preferred stock of one of the many major companies in Canada or by buying a Preferred Share ETF. I find one of the best ways to find which Preferred Shares are out there take a look at one of the Preferred Share ETFs and research their holdings.

Before embarking on your journey to acquire preferred shares you should read the following article defining the legal implications of Preferred vs Common Shares:

For Example, look at CLAYMORE S&P/TSX CDN PREFERRED SHARE ETF, here is the list with shares listed in order of portfolio weighting:

Preferred Shares vs Common Shares: Legal Implications that must be understood before investing ()

• GREAT-WEST LIFECO PFD 4.8 SERIES E

• MANULIFE FINANCIAL CORP CL A SR 4

• ROYAL BANK OF CANADA 5YR NON CUM RST PFD

• BK OF MONTREAL NON CUM 5 YR RESET B S-23

• CANADIAN IMPERIAL BANK COMM 5.3%

• ROYAL BK OF CANADA1ST PRF NON CUM 5 YR R

• TORONTO DOMINION BK N-CUM 5YR CL A PFD S

• IGM FINANCIAL INC 5.75% N/C SER A PFD

• ROYAL BANK OF CANADA 5YR PFD SER-AR NON

• MANULIFE FIN COR PFD SHARES

• TORONTO DOMINION PFD SERIES M

• MANULIFE FINANCIAL CORP CL A PFD SER 1

• TORONTO-DOMINION PFD SERIES O 4.85%

• BANK OF NOVA SCOTIA 5% SER 20 26OCT13

• CANADIAN IMPERIAL BANK PFD 4.700% SER 31

• BK OF NOVA SCOITA 5% SERIES 18

• CANADIAN IMPERIAL BANK COMM SER 30 CL-A

• BROOKFIELD ASSET MGMT INC 5YR R/R PFD SE

• SUN LIFE FINANCIAL INC CL A PFD SER 1

• BANK OF NOVA SCOTIA 5.25% PFD SER16

• BANK OF MONTREAL PFD 5.2% SER 16

• BANK OF MONTREAL PFD 4.5% SER 13

• HSBC BANK CANADA 5YR RST CL 1 PFD S-E

• YPG HOLDINGS INC 4.25% 1ST PRF 31/03/20

• GREAT WEST LIFECO INC 5.20% SER G

• SUN LIFE FINANCIAL INC CL A SER 2 CUM PF

• BROOKFIELD ASSET MANAGEMENT SER 10 PFD

• BCE INC 4.4% SER AF 16 PREFERRED

• LOBLAW COMPANIES LTD 2ND PFD SER A

• BCE INC. 5.55% PREF - SERIES 19

• GREAT WEST LIFECO SERIES H PFD

• FORTIS INC. PFD 5.2500% SERIES G

• SUN LIFE FINANCIAL PFD SERIES 4

• FORTIS INC CONV/CALL PRFD SER E

• POWER CORP CDA 5.0% 1ST PFD SER D

• NATIONAL BANK OF CAN IST PFD SER 21

• POWER FINANCIAL CORP 4.95% SER K PFD

• BROOKFIELD PROPERTIES SERIES I PFD

• NATIONAL BANK OF CANADA 1ST PFD SERIES 15

• TRANSCANADA PIPELINES PFD SERIES X

• POWER FINANCIAL PFD 6% SER I

• BROOKFIELD PROPERTIES 6% SERIES F PFD

• BCE INC PFD 5.45 SERIES AA

• BROOKFIELD ASSET MGMT SER 12 PFD

• CU INC CUM REDEEMABLE PFD SHS SER 2

• BROOKFIELD PROPERTIES 5.75% SER H

• POWER CORP. 5.35% PREF SER B

• POWER FINANCIAL 5.25% SERIES E

• NATIONAL BANK OF CANADA PFD 6% SER 20

• GEORGE WESTON 5.20% PFD

• GEORGE WESTON LTD 5.2% SERIES IV

• GEORGE WESTON LTD 4.75% PFD SER V

• CANADA LIFE PFD 6.25% SER.B

• HSBC BANK CANADA 5.1% SERIES 5 PFD

• HSBC BANK CANADA 5.0% SERIES D PFD

• WESTCOAST ENERGY 5.60% SER 8 PFD

• YPG HOLDINGS INC 5% CUM RED 1ST PFD SHS

• ENBRIDGE INC 5.5% SER A PREF

• CO-OPERATORS GENERAL INSURANCE CO

• INDUSTRIAL ALL PFD SHARES

Wednesday, November 4, 2009

Top Online Broker Survey 2010



The results for the Best Online Broker survey for 2010 were recently published by the Globe and Mail. I am beginning to think that there is some sort of a monetary link between the Globe and Mail and Qtrade (Top Dog in the Survey over the past 4 years).
Qtrade does have one of the best research platforms for customers; however, research alone is definitely not the win all for me or most other clients looking for a quality online trading platform. The research that Qtrade does provide is via Thomson Reuters and is available with most platforms so not really anything that outstanding.

When people are searching for an online broker I think the emphasis is on cost followed by better access. Most opening online brokerage accounts have simply come to realize that there broker does not really know all that much about the stock market, so why pay for him/her to throw the darts in the dark when you could do it for less yourself for far less money.

The supposed reasoning behind the Globe and Mails Online Broker Survey is to help new comers find “guidance” for picking an online broker. Sounds like the top ranked brokers will have the most business directed there way by the survey.

To me, this survey has turned into a marketing machine used to direct leads to the highest bidder and here I will explain why and then provided you with the results of the survey.
1) Almost all of the platforms are identical except for some simple rearrangements of where buttons on the screen are displayed. You can rearrange these to you own hearts content though people. I have used a number of the online trading platforms and it turned out all of them used the same system software.

2) Speed of Execution: For the most part they are all using the same ECNs so there should be no time difference. This may be different for some of the big banks.

3) Research is available for all, but some will charge a premium. Not like this research does you that much good when 99% of analysts couldn’t predict the beginning of the most recent recession.

4) Customer Service: some may hold your hand better than others, but this is near the bottom of my wants for an online broker list.

5) Account information is pretty much the same for all except some make it more difficult to figure out by keeping each of your accounts under a different password; not the end all for me though.

6) Website Security is very good for all. If it wasn’t they would be out of business very quickly indeed.

Before providing the results of the 11th Globe and Mail Online Broker Survey here is the list of question they aimed to answer:

• Costs: Account fees and mutual funds are considered, but stock-trading commissions get the most focus.

• Trading: How quickly and cleanly can clients place orders for stocks, as well as bonds and funds?

• Customer Satisfaction: Consulting firm Phase 5 contributed this portion of the ranking through the results of a survey of 1,380 online investors conducted in September. Scores are based on answers to six questions related to how happy clients were with their broker and whether they would recommend it to others.

• Tools: The resources a broker offers to help clients choose investments and develop an overall plan. There's an emphasis this year on helping the many newcomers to online investing.

• Account Information: Grades a broker's ability to allow clients to see how their accounts are doing and perform basic account maintenance.

• Website: Security and website utility are the focus here. It's a given that all brokers in this ranking are members of the Canadian Investor Protection fund, which protects client assets in case a firm goes bankrupt for amounts up to $1-million.

The Results:

1) Qtrade Investor

2) Credential Direct

3) BMO Investor Line

4) Scotia iTrade

5) RBC Direct Investing

6) TD Waterhouse

7) Disnat (classic)

8) National Bank Direct Brokerage

9) CIBC Investor’s Edge

10) Questrade

11) ScotiaMcLeod Direct Investing

12) HSBC InvestDirect

For me, Cost was the most important factor so I use Questrade since they have the lowest fees with no account minimums to get the best price.

For details about the 2009 survey please see the article Best Online Broker in Canada 2009
For details about the 2008 survey please see the article Online Broker Survey: Who Should You Invest With?
The 11th Annual Globe and Mail Online Broker Survey is available at: http://www.theglobeandmail.com/report-on-business/online-broker-rankings/the-11th-annual-online-broker-survey/article1348448/

Sunday, November 1, 2009

Another Historic Bankruptcy: CIT Files for Bankruptcy



On Sunday Afternoon CIT Group (NYSE:CIT) finally filed for Chapter 11 Bankruptcy Protection. If you have been keeping up with previous posts on this blog then you know that this is the beginning of the next economic shoe to drop on the World Economy. This is estimated to be the fourth-largest bankruptcy filing in U.S history ranking just behind General Motors and ahead of Enron.
 
CIT Group Inc. (CIT) is the holding company for CIT bank and provides commercial financing and leasing products, and management advisory services to small and middle market companies worldwide. The company holds roughly $71 billion in assets and $65 Billion in liabilities according to the NY-Times. The nightmare the company was experiencing this weekend was the fact that $800 million worth of bonds was maturing from Sunday through Tuesday.

 
According to Jeffrey M. Peek, Chairman and CEO of CIT Group, "The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy."

 
This is still a slap in the face to US Tax payers however. Last year CIT received $2.3 billion in government aid in the form of preferred stock. Now, this will most likely be wiped out through the bankruptcy proceedings and will become the first definitive loss in the governments rescue of the financial system says the NY-times.

 
Despite the size of this bankruptcy, the U.S Government would not provide further support for the company. Earlier this year CIT asked the government for further aid, but was not deemed too big to fail so now they must fail.

 
CIT has approved a pre-packaged bankruptcy filing, which is supposed to be better than a regular bankruptcy according to the company. This still sounds like a hard pill to swallow. Bond holders are expected to receive 70 cents on the dollar, but this still seems very speculative at the moment. I guess those bond holders are not ordained as important as some of the major investors tha4t recently provided another $4.5 billion loan or Goldman Sachs (NYSE:GS) that recently provided another 2.13 billion loan, as I am sure there will be preferential treatment.

 
Before the financial Crisis, CIT was one of the largest nonbank lenders in the world, and was considered a big part of the “shadow banking system” that collapsed when the financial crisis erupted last fall. CIT was hit hard as the economy contracted and unemployment surged. As a result, a huge percent of the company’s loans went bad and CIT was forced to report billions of dollars in losses.

 
The problem I still see here is that commercial vacancies are still up and of the new leases being signed, much lower rates are being accepted. This obviously leads to less capital to service the debts of so many more businesses going forward. So Bankruptcy or no Bankruptcy, this is only the tip of the iceberg.

 
Get ready to weather another storm as more businesses fail since the U.S Consumer is not spending like the good old days.

 
Previous Articles about this subject include the following:
Other News Articles About this Topic:

Thursday, October 29, 2009

US GDP Estimates



Gross Domestic Product (GDP) will be the driver of the stock market on Thursday. Expect to see little movement or volume in the market until the numbers are announced by the FED.
The consensus among analysts is that GDP growth for the third quarter of 2009 should come in around 3%. If GDP comes in above 3% expect the stock market to surge ahead and recover most of the losses on the week. If GDP comes in below 3%, get ready for a bear market correction that could take the stock markets on a wild ride down at least 20%.

The risk seems to be more heavily weighted to the downside. Over the past week there have been numerous economic indicators missing analysts estimates to the downside with the most recent, a lower than expected durable goods shipments on Wednesday morning and an unexpected drop in new home sales.

Even Goldman Sachs (NYSE:GS) has cut there expectation of GDP below 3% to 2.7% as soon as the durable goods shipment was announced to the downside. This announcement followed an onslaught of estimate reductions: Morgan Stanley (NYSE:MS) cut from 3.9% to 3.8%, Bank of America - Merrill Lynch (NYSE:BAC) cut from 2.5% to 2.3%; however, according to marketwatch.com economists pulled still anticipated GDP Growth to come in at 3.5% on average ().

I am currently protecting my portfolio though a number of short positions: puts on (NYSE:SPY) DEC 90’s, and puts on (NYSE:IYR) DEC 39’s.

It will be an interesting day so let’s see what kind of mayhem comes.

Tuesday, October 27, 2009

Second Dot-Com Bubble Brewing!



     The first Dot-Com Bubble or IT-Bubble was created like many other investment bubbles throughout history—speculators took control of the investments in question. The original Dot-Com Bubble grew exponentially from 1998 thru 2000 and finally reached a peak on March 10, 2000 and burst. This shock had repercussions throughout the world, but the emphasis remained where the bubble had been created, the United States of America.

     The list of Bankrupt companies as a direct result of the bubble bursting was enormous; a detailed list can be found on Wikipedia. The end result of course was only the strongest companies surviving. As a direct result many middle of the road investors managed to wipe out their entire savings.

     Although many lost vast fortunes, others managed to cash out partially before the bubble burst and some of the most successful were simply holders of internet real estate, Domain Names. Canada has a host of internet millionaires and Vancouver was and still is a hot bed for Dot-Com activity. Some of these prominent Dot-com millionaires include Caterina Fake and Stewart Butterfield (Flickr creators), Kevin Ham (the $300 million Domain King), and many others.

The Dot-Com Bubble Already Happened So Good Luck Buying Quality Names for Cheap Right?

Wrong!

     Sure, buying a Latin based Character name such as Canada.com or God.com is not an option for anyone unless they are already multimillionaires, but there is a new opportunity available. On Monday, October 26, 2009 Kelly Olsen of the Associated Press announced from Seoul, South Korea in Internet Set for Domain Name Changes that the internet is set to undergo one of the biggest changes in its four-decade history. It is expected this week that international domain names that can be written in non-Latin script will be approved.

     The Internet Corporation for Assigned Names and Numbers (ICANN), non-profit overseer of domain names, is holding a major conference in Seoul and will be voting on whether to allow internet addresses to be in scripts that are not based on Latin letters. The though is that this will help continue to grow the web by making internet use more diverse allowing domains using characters such as Arabic, Korean, Japanese, Greek, Hindi, and Cyrillic (Russian).

     Peter Dengate Thrush, chairman of the ICANN board stated, “This is the biggest change technically to the Internet since it was invented 40 years ago.” If this change is approved on this coming Friday, ICANN will begin accepting application for non-Latin domain names some time in mid 2010.

Why Should I Care About New Domain Name Characters?

     Remember the first Dot-Com Bubble? If you can purchase highly sought after Domain Names like a translated version of God.com or Money.com or Porn.com…you could make a windfall. How exactly the new domains will be sold is another question. If it happens that you can buy them like regular Dot-Coms, it may be a shot gun approach to who can register a name the fastest. Like a Wild Wild West race for a free stake of Oklahoma lands.

     Although this doesn’t mean we are in for a repeat of the Dot-Com bubble, it does lay the ground work for a repeat of history throughout the rest of the world. Maybe a World Dot come bubble to come after this World Wide Recession.

     If you are smart about these new Domains you could get in and out and make a bundle with a little bit of research.

Friday, October 23, 2009

Top TFSA Investments: Canfor Pulp Income Fund (CFX.UN)


Canfor Pulp Income Fund is one of the strongest forestry companies in Canada with a great balance sheet to make it through this recession and further potential future bumps in the road. This fund was recommended previously on this blog in the article Income Trust Picks for my TFSA
Canfor Pulp Income Fund (TSE:CFX.UN) is involved in the supply of pulp and paper products with operations based in the central interior of British Columbia. The fund was created to acquire and hold a 49.8% in Canfor Pulp Limited Partnership (CPLP). The fund owns and operates 2 Northern-Bleached Softwood Kraft (NBSK) pulp mills and 1 NBSK pulp and paper mill. The mills have the capacity to produce over 1 million tonnes of NBSK pulp and 140,000 tons of kraft paper.

The forestry sector in Canada has been in what some might call a depression for well over 5 years and many smaller outfits have fallen by the way side. The real bread and butter have always been the US Housing market, but NAFTA Softwood Lumber issues negatively affected most Canadian Forestry companies before the World Recession began. As a result, forestry sector stocks such as Cascdes Inc (TSE:CAS), Domtar Canada Paper Inc (TSE:UFX), Catalyst Paper Corp (TSE:CTL), Fortress Paper Limited (TSE:FTP), SFK Pulp Fund (TSE:SFK.UN) have been pounded over and over. Only the strongest have survived and of those Canfor is one of the best. With lumber prices on the rise again and the rumbling of logging trucks heard again throughout BC Canfor looks like a real winner.

Canfor (CFX.UN-T) is currently rated by Thompson Reuters as 8 out of 10 while the Forestry & Paper Sector as a whole is ranked at 6.2/10. There are 9 analysts listed as publicly following the fund and of those 1 ranks it a Strong Buy, 5 a Buy, 2 a Hold, and 1 a Reduce. The current price is around $5.69 with a 52 week high of $6 and a 52 week low of $1.30. Analyst estimates at this point place the fund in a range between $3.25 and $8 with a mean of $5.19. The current dividend is lacklustre at only 2.1%; however, when the company gets back to production there will be a huge spike.




As I made acquisitions in my TFSA I ran out of room for this fund since TFSAs this year only allowed a max of $5,000. Due to the extent of dividend payments I have received to this point in my TFSA I am now ready to add another acquisition to the mix. If the recession does end the US then this fund should do very well. Looking at a 5 year Chart you can see that the fund reached a maximum price around $16. Further, looking at the chart I can see the long term down trend is about to be broken.

For more TFSA picks take a look at the following articles:

Wednesday, October 21, 2009

Google Predicts End of Recession?



Google (NASDAQ:GOOG) has recently been touted in the media for the company’s accuracy in displaying real time infection data for H1N1 (Swine Flu). If you go to Google Maps there is an application that tracks the number of people searching for symptoms for the illness. It’s pretty amazing that the graphical representation of this data in real time has been shown to be spot on with data collected by the world’s health authorities who take over three months to compile, analyze and plot their data. The H1N1 tracker in Google is a huge leap forward for the health crisis management effectiveness in the world and you can even zoom right down to see which parts a single city are reporting cases.
So Google can display where people have the flu, how does that predict the end of the recession?

It doesn’t.

The tool that Google does have however is an intimate understanding of advertisement spending. You see, there have been a number of studies undertaken that suggest that web advertising is a leading indicator of the end of a recession. The other interesting thing about some of these studies is that they also claim that Google Adwords (For Advertising) and Google Adsense (For Publishing) are also laggards to the recession. Basically, businesses turn off their online advertisements last and also turn them back on first.

You may have noticed that Google recently reported the company’s third quarter results and advertising was up. This much cannot be said for rival Yahoo (NASDAQ:YHOO) who reported profits up from major cost cutting while revenues continued to decline; however, that’s another storey. Google on the other hand is predicting even more growth in the coming years as well—in 2004 online advertising was $18 billion and by 2013 is expected to top $87 Billion according to PricewaterhouseCoppers.

Simple ways to tell Ad revenues are likely up:

Method 1) Go on Google Adwords and bid on a set of key words. The interesting thing here is that you can search keywords for specific industries to see if ad spending is up.

For example take the Financial Sector:

Keywords to search: Investment, finance, investment advice, stocks, bonds, etf, mutual fund, insurance, savings account, banking, bonds, forex, etc.

Now track the results over a series of time and you can chart and trend that information to predict stock market movements for a single sector or an index like the S&P 500, NYSE, or TSX.

Method 2) If you are a publisher like I am, take a look at your Google Adsense earnings. Compare your average costs per click (CPC) conversions to determine if your average CPCs are increasing or decreasing. This is another easy way to tell if ad spending is on the rise or fall.

Obviously this is not a full proof method to play the stock market; however, it does present an interesting new tool to add to the tool belt and may help reinforce some market expectations and forecasts.

Give this method a test run and let us know at Investing in Canada what your results are like. It should be an easy system to track with an excel spreadsheet.

Thursday, October 8, 2009

The Next Economic Shoe to Drop on the World Economy



Economic Crisis: U.S. Commercial Real Estate is next to put a huge dent in the Economic Recovery.
Everyone remembers the destructive mortgage practices that lead the US Housing collapse that triggered the Global recession. These mortgage products were not limited to Residential properties, many loans were provided using the same teaser rates for Commercial properties and the affects are beginning to emerge.

According to the Vancouver Sun paper, the Obama White House is preparing for the second round of the real estate/banking crisis by attempting to encourage liquidity for refinancing. There are approximately US$3.7 Trillion in outstanding commercial real estate backed loans. The short term outlook is for around US$400 Billion to reach maturity in 2009 and then exploding to US$2 Trillion in 2010 and 2011.

Why is it a big deal that so much US Commercial Real Estate Debt is maturing?
• Commercial Profits are Down

• Vacancies are up

• Cap rates are up

Obviously commercial property profits are down. The retail goods sector has seen the sharpest declines and services are also way down. Retail tenants can not afford the same levels of rent to turn a profit and neither can Office Tenants. With the decrease in profit levels for tenants, landlords must offer better leases to keep tenants in place. Vacancies are also up so the new leases signed are being signed with many sweeteners resulting in much lower lease rates. Further, there is more risk perceived in these properties now so even though interest rates have declined capitalization rates have actually increased in most areas.

The basic way a commercial property value is determined is by estimating the net operating income and dividing by a capitalization rate (risk return required to hold the asset). In its most simplistic form this works out to a formula like this one (Property Value = NOI/Cap). When NOI declines and caps remain stable the Property value drops. When NOI remains stable and Caps increase the Property Value drops. Obviously if NOI declines and capitalization rates increase the Property value will drop even more and this is exactly what has been happening with US Commercial Real Estate.

Given this very basic information, which should be well interpreted by the market, real estate values have dropped so banks will be looking for more equity on their books. Essentially this means you will not be getting a refinanced mortgage with out putting down a significant amount of new equity. This will lead to a massive amount of cash strapped landlords with a cash crunch dilemma. Do they sell at huge losses, take on high risk high interest mortgages, or do they go bankrupt? We have already seen some of the largest commercial REITS cry for help. For example, General Growth Properties (OTC:GGWPQ) is currently under bankruptcy protection. I bought this a few weeks back for $2.82 a share and sold it a day ago for a huge profit: recall the article General Growth Properties Takeover Target. This stock may be running out of steam though; I sold because I am concerned about the Commercial REITs in general.

It is almost surprising that the iShares Dow Jones Real Estate ETF (NYSE:IYR) has rallied so substantially over the past 6 months. Most investors should be well versed in the current crisis of (lower NOIs, higher vacancies, and higher capitalization rates with so many mortgages coming due over the next year.)

I suspect the only thing holding Commercial Real Estate up on the stock market at this point is pure speculation. NOIs will remain lower going forward and capitalization rates are very likely to continue to rise, especially if the FED decides to rein in inflation by raising interest rates in the future.

If you believe like I do that Commercial Real Estate (NYSE:IYR) is due for a major correction, but don’t want to take on the infinite risk associated with shorting a stock, look to a better strategy that contains risk—BUY Put options on IYR. This way your risk is limited to the amount you put down and your potential upside is very large.

I like the Jan 2010 $37 Puts. This has lots of volume and a tight spread.

Wednesday, October 7, 2009

Canadian Dollar to Outperform US Dollar Over the Coming Years.



The American Dollar is in trouble. Over the past couple of decades the US Government has borrowed and borrowed and now the White House sites on over $11,925,000,000,000 in debt. That’s around $38,834 per person! Take a look at the US Debt Clock. If you scroll down to the bottom you will see that each citizen in the US is Liable for an estimated $348,953 of Total Debt. If you think the US Consumer will be back in their full glory of spending fury any time soon than please explain how this is possible to the rest of the World.
On October 5, 2009 a major rumour that could significantly deflate the value of the US Dollar hit the media. The rumour, some Gulf Arab states were considering using currencies other than the US Dollar for oil trading. The Canadian Dollar responded to these accusations by rallying over $0.01 which is over 1%. If Arab Oil economies do in fact make such a move from the dollar there is huge potential for a nose dive in the US Dollar. This would make US Exports cheap and potentially help revive American production, but at the same time the US is a net importer so a lower dollar will destroy American purchasing power. This would be another stake in the heart of the American consumer.

An American consumer that has to pay more for goods and services will experience extreme amounts of inflation scraping away years of wage increases, and further eroding retirement portfolios. I guess freedom 55 becomes a tall tale.

With the Arab oil rumour in full force during afternoon trading Gold price shot higher. Inflation concerns were the main culprit. This rumour was brushed off by the Arab Oil States, but such a rumour sounds all too reasonable.

If you were an Arab Oil State and concerned about your profits being tied to the US Dollar where would you turn?

Let’s face it, there are only so many currencies that make sense for petro trading: the Euro, the Chinese Yuan, the Russian Ruble, the Japanese Yen, the Canadian Dollar, the Australian dollar.

Some of these currencies can be scratched from the list almost immediately due to their lack of faith from the investing World. Personally, I would immediately remove the Yuan and Ruble from the mix due to my lack of familiarity with the currencies and potential for drastic changes due to government control. The rest I would argue could be a diversified mix of currencies the Arabs may turn to in search of replacing US Dollars.

There is still too much uncertainty in the stock market and currency markets to make a well established prognosis, but it does give you something to think about in the mean time. My personal opinion is that the Canadian Dollar will appreciate over the coming year at the expense of the US Dollar as the American Economy is lucky to limp out of this recession. The other currencies above are also likely to do the same.

Previous Articles about the Canadian Dollar at Investing in Canada include: Is Now the Time to be Investing in Canadian Dollars, Canadian Dollar: How to make money on the increasing value of the Canadian Dollar, GDP Growth, Inflation and the Yield Curve, Strength of the Canadian Dollar

Tuesday, October 6, 2009

Canadian Big 3 Telecoms Scramble to Defend Against New Rivals



Only offering Neapolitan ice cream in a country as big as Canada is outrageous; so why has it taken so long for more than 3 wireless providers to offer service in Canada? The Big Three Wireless Providers, Bell (TSE:BCE), Telus (TSE:T), and Rogers (TSE:RCI.B) have controlled the CRTC for far too long and are fighting hard not to lose that control.
Last year it was announced that the Canadian Government decided that times have changed and since Canadians have been gauged by Bell, Rogers and Telus for far too long, an auction would be set to effectively allow other companies to offer wireless service in Canada. That auction came and passed and consumers have been waiting well over a year now to see some results. A previous article on this blog, New Cell Phone Competition: What’s in store for Canadian Telecom Giants, announced the new companies that were successful in their bids for wireless contracts and provided the amount they spent on those contracts.

Bell, Rogers, and Telus have not given up their fight to remain masters and have thrown every trick in their CRTC complaint book to the board. The most notable has been the uproar about a private company called Globalive (www.globalive.com). Globalive is thought to be the only real threat to the big 3 as Globalive has the potential to become another national carrier. The Bell, Telus, Rogers oligopoly went so far as to try to force the CRTC to forbid Globalive from operating in Canada for a bunch of insignificant details. To read more about the CRTC’s decisions with reference to this case take a look at ISPs upset with latest CRTC ruling.

The brand name that Globalive is entering the market under is WIND. WIND has a 10 year history of operations in Italy and Greece and has a strong reputation throughout Europe. This should challenge Telus, Rogers and Bell into providing better service in Canada at more affordable rates. WIND is meant to launch in the fall of 2009 so it’s no wonder Bell and Telus recently made a major announcement.

Now Bell, and Telus announced that they will be offering the iPhone starting in November according to an October 5th article in the Globe and Mail titled “Bell, Telus to launch iPhone next month.” This sounds like, looks like and tastes another attempt by 2 of the 3 big wireless providers to lock up some unknowing customers on 3 year deals before some of the new providers can start their major advertising campaigns. If you are not on a contract already then wait it out for a great deal.

If you are an investor in any of the big three wireless providers I warn you one more time, market share is in jeopardy and profits will be cut by price wars.

Friday, October 2, 2009

How to Profit in a Down Stock Market



 There are many ways to profit in a declining stock market, but I want to discuss a method where your downside risk is limited while upside potential profit remains huge.
 The stock market has been in a mid-term up trend for many months now and these stock increases have been fuelled by speculation and greed. There are many reasons why there is potential for a stock market pull back and these have been discussed in previous articles on Investing in Canada: How to Protect Yourself From a Red October, Double Dip Recovery or V Shaped Recovery.

The most effective way to profit from a pull back in the stock market is to implement a very basic options strategy: The Long Put.

Now, this is not your regular old Long Put. I am not suggesting simply buying puts on a stock like (Nasdaq:GOOG) and hoping it tracks the market or drops more than the market; what I am suggesting is a Long Put on steroids. Basically, ETFs have made going long and short the market very affective because many have options capabilities with large volume. Further, leveraged ETFs that are long or short the market allow you to gain an added incentive since there are rebalancing cost for the fund that chip away at the total value.

Some issues that you need to consider before undertaking such a strategy are:

• The duration of time you expect the pull back to occur over

• The size of the pull back

A rule of thumb with options trading is that the longer the duration to option expiry the more you pay; the closer the strike price is to the current price, the more you pay; and the lower the volume in the options traded, the more you will pay.

Now that we have some basic rules I will provide my interpretation of what these rules mean to me today and how I will be executing.

• First, it is a difficult feat to pick the absolute top or bottom of a market cycle so a very short term options contract will not work for me.

• Second, I do not want to pay a tonne of option time premium

• Third, once a pull back begins I do not expect to be able to pick the bottom.

• Forth, when investing in Canada you will notice that options do not get the volume necessary for a tight bid/ask spread so I will look to NYSE, AMEX, or Nasdaq options.

Given this and the fact that I want to be well diversified in my strategy I will buy puts on a market ETF. There are so many different ETFs out there now, but these guidelines narrow it down very quickly.

Although there are not currently any leveraged ETFs that track the S&P 500 my selection is to track this market as it is a good gauge for the overall market in North America.

My selection is to buy puts on (NYSE:SPY), which is an ETF that tracks the S&P 500 and has the seconded highest volume out of all North American ETFs.

The next step is to determine the time duration I am comfortable with. Since the erosion of the option time premium increases exponentially as you get closer to the expiry date and I want a slightly lower priced option I will go for a December 2009 expiry.

Now you go to look for the cost of the various puts for your time frame. The closing price of (NYSE:SPY) was $103 so if I pick a price very near to $103 I will be paying more for being at or near the money and the further down in price I pick the strike price the cheaper the contract will be. You need to balance out your price expectations here against the time frame.

I could conceive of a 15% pull back at this point so something around $87-90 suites me. When scrolling through the DEC put option contracts on SPY I noticed that the $90 strike has large volume and many open contracts. As a result this is the contract I will purchase.

The contract symbol I am referring to is FYSXL.X; the bid is $1.40, and the ask is $1.46. Let’s assume I have to buy on the ask at $1.46 to calculate the break even point per contract that I buy at expiration.

B/E = Strike Price – Premium Paid

B/E = $90 - $1.46 = $88.54

This means that SPY must trade below $88.54 at expiry to make a profit. This is effectively a 14% drop in the S&P500.

Now, that is assuming that I hold onto the contracts until expiry, which I would not recommend. If I sell the contracts at the end of October I will still be able to recuperate a substantial amount of time and risk premium from the contracts.

The great thing about options is that when you buy puts or calls the most money you can lose is the amount you put in and you get to be leveraged 100 to 1 against the stock or ETF index.

Wednesday, September 30, 2009

Westshore Terminals Income Fund (WTE.UN) Profits to Soar over the next 3 years


Westshore Terminals Income Fund (TSE:WTE.UN) is the premier shipping terminal for metallurgical coal for the North American Market to the Pacific Rim. An announcement by Western Coal Corp. (TSE:WTN), a major coal mining company, on Tuesday will turn into a windfall bonus for shipments from the Roberts Bank Coal Terminal. Westshore Terminals Income Fund earns revenue from volume of shipments so the announcement of a major expansion by one of the major producers in North America is a big deal.

Western Coal Corp. (WTN.TO) announced Tuesday it is “aggressively” seeking to expand capacity to 10 million tonnes a year by 2013. According to the Globe and Mail article Western Coal keen to bulk up the company is selling off non-core assets while expanding coal production through acquisitions.

 Although the above statement sounds like a wash, selling one asset while buying another, it’s not. John Byrne, chairman of Western Coal Corp., stated that there are buying opportunities in British Columbia and West Virginia. Due to the large barriers to enter the coal mining industry Western Coal should be able to pick up some new mines with the $60 million the company raised with a bought deal in August and get them operational.

 Currently, Western Coal is operating just above 50 percent capacity extracting 7 million tonnes of metallurgical coal annually. Last November as coal prices plunged, Western Coal Corp slashed production, cut jobs and expenses at its operations.

   The company will now become a pure coal play and plans to export much of the coal to China, India, and others. According to Mr. Hogg, Western Coal CEO, “the company is now ramping up production as demand returns, particularly in countries such as China and India.”

 Much of the increased production will occur by expanding British Columbian operations including Brule Mine, Wolverine mine, and Willow Creek Mine.  This will have a significant impact on the shipments through Westshore Terminals Port since the majority of coal exported from North America makes its way through this terminal. It’s a good thing Westshore Terminals has been adding capacity and improving efficiency through new equipment and systems. Look for an upcoming announcement about the benefits of Western Coals expansion in Westshore Terminals Income Fund third quarter discussion in the coming months.

  It won’t be long before the market puts two and two together to figure out the positive impact this will have on Westshore Terminals. This is a great income trust to hold in a TFSA or RRSP so if you are investing in Canada as a Canadian Citizen makes sure you take advantage of your tax sheltering accounts. I am buying more WTE.UN to hold in my RRSP now because the stock has pulled back over the past 2 weeks so the entrance price is looking very nice. Even if the market pulls before the end of this year this looks like a great long term play.

 For previous articles about Westshore Terminals Income Fund take a look at the following:

Tuesday, September 29, 2009

Canadian Diamond Stocks: Diamonds from Canada Not Just a Girl’s Best Friend.



Whenever someone mentions the word diamond there are two immediate images projected: the bright eyed look of a woman opening an engagement ring box, or the negative connotations of the infamous blood diamond.  There is however a new image beginning to gain ground and it is due in part to some of the recent discoveries in the north of Canada.
It is no secret that there are diamonds in Canada. Over the past number of years if you went to a jeweller and asked for a certified Canadian diamond there is no question, you would be paying a premium.  Canada has become a preferred destination for diamond mines due to the stable political and social environment, excellent transportation systems, and highly developed mining technologies and infrastructure.  It’s no wonder that Diamond Investing News recently reported Canada is “the next diamond Mecca.”

Diamonds are not just for her anymore; ever think about investing in Diamonds? Ever think about investing in Diamonds in Canada? Well, if you haven’t maybe you should. There are loads of diamond mines in Canada and the overwhelming majority are located in the North. Over the past few weeks there have been some major new diamond finds made, most notably the 2 cores drilled by Peregrine Diamonds Ltd (TSX:PGD). Since the find was announced, Peregrine Diamonds stock price has gone from under $1 to $4.65 within a week.

Diamond stocks can be explosive when a find is made. Some of the other better know diamond stock names include the following:

Mountain Province Diamonds Inc. (TSE:MPV)

Stornoway Diamond Corp. (TSE:SWY)

Diamond Fields International Ltd. (TSE:DFI)

There is also a maze of diamond stocks on the Canadian Venture Exchange, but in a high risk asset field you may want to stick to something with better coverage.

At lease with most stocks listed on the TSX you will find some analysts providing insight into many of these companies. From the brief analysis that I did, I found that Mountain Province Diamonds (TSE:MPV) has the highest ranking and reputation with analysts. Also, don’t be surprised to find that some of the major investors in any of the above companies are other major mining companies. If a discovery is made they may try to buy up a significant portion of the company before you have a chance to blink. I suppose it pays to be an insider.

For more information about Diamond Stock Investing I suggest searching for free newsletters on the subject where you can get your feet wet with the latest information on the topic.

Friday, September 25, 2009

How to Protect Yourself from a Red October in the Stock Market



A basic definition of a Red October in the stock market is one of carnage. Red October is synonymous with panic selling followed by a wave of bearish behaviour in the markets.

The Hunt for Another Red October could be occurning in the stock market this October as well.

Since this may not be fresh in everyone’s minds here is a Chart Displaying a Red October Last year in 2008.




This chart displays the S&P 500 as well as the TSX based on percentage changes. The steepest drop off in the chart occurred in October of 2008, which most people can remember as the mortgage meltdown.

During this time frame, most people lost a significant amount of money while a few bearish investors made fortunes. I was not lucky enough to be one of the bearish investors that made money in the stock market during the latter half of 2008, but I did learn a few lessons.

Fast-forward to late September 2009. I would like to highlight the bull V shaped rebound we have experience and then discuss the current implications. This next chart is the TSX alone so that a sense of the numbers can be displayed.




This chart displays the TSX over the past year from Mid September 2008 to the current time in September 2009. I have drawn in the mid-term up-trend line and a horizontal line at the most recent resistance level.

The current trend line has been chugging along nicely and has only really been tested 2 times throughout this cycle. As you can also see, the latest resistance level has sent the market on a collision course with the trend line, which it will likely test sometime next week.

There are many reasons that one might assume we are in for a Red October again this year, but that is not the point of this article. For reasons there is potential for a pull back in the market, take a look at the previous article titled Double Dip Recovery W or V shaped.

My main concern is discussing how one may protect their portfolio from such an occurrence. From my perspective, I am looking for efficiency and still want the ability to participate in further gains in case a Red October does not occur. This calls for the use of options, but don’t worry it is really very simple.

There are 2 methods that can be employed depending on your level of portfolio diversification.

1) You are well diversified

• Simply buy put options for the market index. You will want the options to be based on the stock market your main portfolio holdings are based. For me this would involve buying puts on the TSX. A couple of things you will need to remember is that the longer the time to expiration on the options the more they will cost and the higher the degree of protection you opt for the more it will cost.

• Personally, I will likely buy puts on the TSX. SXO – S&P/TSX 60 Index Options are my best bet since they track the TSX market. Since I want a large amount of protection and only believe I will need this protection for 1 month I will look at the SXO Nov 690, which currently has a bid ask of $35.50 to $38.15. Yes there is a big spread, but that is because there is not as much volume in Canada. If you are investing in Canada you may opt of S&P options on the NYSE for a better spread and similar market movement.

2) You are not diversified

• Under this scenario you may want to focus specifically on the stocks that you hold in your portfolio. For example is you on Suncor (SU.TO), you could just buy Suncor puts. The amount of protection you want will again be based on how long you think a correction could last and the degree of risk you are willing to take. If you want to protect all of your gains you will pick a strike price at or near the current market price of the stock.

Figuring out exactly how many options you need to buy is much easier with the second option strategy since you only need to match the amount of shares you have with the amount of contracts. For the first scenario you need to work out the dollar value of your portfolio in relation to the SXO index. If you have $200,000 then divided by the SXO index price ($200,000/670 = 298). Here you would buy 300 contracts or 3 lots since they trade in lots 100 contracts.

For more detailed information about buying options please review the bearish options strategies articles.

Wednesday, September 23, 2009

Bakken Oilfields to Out Perform Canadian Oil Sands


Bakken Oilfield Producers likely to be much more profitable than Oil Sands

The Bakken Oilfields make up a gigantic oil formation with over 4.3 billion barrels of recoverable oil. This oil fields stretch across southeaster Saskatchewan, North Dakota, and Montana and was not technically or economically accessible in the past; however, new technologies have made this massive oil field accessible in a much more environmentally friendly way than the oil sands of Alberta.

The Oil Sands in Alberta require energy intensive extraction methods, but not the Bakken Oil fields. The Oil in the Bakken’s can be extracted without this energy intensive process making it much more economical and ethical compared to oil sands extraction and refinement.

The new technology is called ‘horizontal multistage drilling’ and it does exactly what it sounds like: breaks rock along the length of a well to enable the oil to flow. This technology is expected to produce some of the highest returns in the oil and gas sector throughout not only Canada, but the world.

Does anyone remember President Obama’s statements about the negative side of the Canadian Oil Sands? He was very quick to highlight the negative environmental consequences to this type of oil extraction. Did you also know that President Obama believes the Bakken Oil Fields are a much better alternative?

On Wednesday, August 25, 2009 President Obama stated he“believes that drilling in the Bakken Shale is an important development...” because of the substantial amount of oil that is estimated to be recoverable.

This may be hearsay at this point, but rumblings can be heard that President Obama plans to pass legislation that would put a premium on Bakken Oil versus oil sands oil. The implications of such hearsay could result in explosive stock performance in any of the Bakken Oil Field producers. Just remember; where there’s smoke, there is normally fire.

Here's a look at where the Bakken Oil Fields are:



So who are the big Bakken Oil Producers in Canada?

Number one is Crescent Point (TSE:CPG), which first acquired Bakken lands in 2006.

Number two is Petrobakken, a newly formed company through the merger of Petrobank (TSE:PBG) and Tristar (TSE:TOG). Petrobakken has become one of the largest pure-play unconventional oil producers in Canada.

So what do these stocks look like?

Crescent Point (TSE:CPG) is currently trading just off its 52 week high around $37. The 52 week high was $38.23 and the 52 week low was $18.13. The current dividend yield is a healthy 7.2% and the average analyst rating is a buy.

Petrobank (TSE:PBG) is currently trading at $42.51. The 52 week high was $47.20 and the 52 week low was $16.26. There is no current dividend, but the average analyst rating is a strong buy. The merger with Tristar is coming soon.

Tristar (TSE:TOG) is currently trading just at $14.47. The 52 week high was $17.76 and the 52 week low was $6.90. The average analyst rating was a buy and the merger is coming down the pipe.

Look for these stocks to outperform their counter parts in the oil sands, especially if the rumours turn out true.

Monday, September 21, 2009

ETFs are Glorified Mutual Funds



Did you every here of a time when history repeated itself?
It happens all the time. Does anyone remember the many transfers of hegemonies in history? This basically means the dominant world power at a point in history and the transition periods from one dominant society to another have similar circumstances throughout time, War. Let’s make a quick side trip before we get into Mutual Funds vs. ETFs.

If you recall some of the greatest wars have occurred during a state of changing dominant nations. For example, the USSR and the USA fought the Cold War (1945-91) for global hegemony. Other hegemonic transitions occurred with Wars as well: Egypt and the Roman Empire, The United Kingdom and France, etc. A new battle is brewing for world control between China and the USA.

Now, back to mutual funds and ETFs:

Mutual Funds, according to investopedia.com, are investment vehicles made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market funds, and similar assets. Mutual Funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the investors.

It has been stated by many in the media that the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of assets which would be next to impossible to do with a small amount of capital. The main downside has been displayed by the overwhelming lack of performance that mutual funds have achieved compared to the general return of the market they are benchmarked against: NYSE, TSX, Nasdaq, Russell, etc. Further, it is common knowledge that mutual funds charge management expenses ratios (MER) against the total asset value in the fund; if the fund does well or poorly the fund manger still takes a percentage.

Over more recent history, the biggest complaint from investors about mutual funds has been their divergence in performance versus the index they are benched marked against. The second complaint has been the front or rear loaded fees charged for selling out the position.

Just a few short years of bad press and wala…ETFs are born.

Exchange Traded Funds (ETF), according to investopedia.com, are securities that track an index, a commodity or a basket of assets like an index fund, but trade like a stock on an exchange. ETFs experience price changes throughout the days as they are bought and sold.

According to Investopedia, because ETFs trade like a stock the Net Asset Value (NAV) is not calculated every day like a mutual fund.

By owning an ETF, you get the diversification just like a mutual fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is lower expense ratios compared to mutual funds because they are not as actively managed.

Let’s get real now though. Under those fancy window dressing definitions is the same investment vehicle. There were many mutual funds that tried to just mirror an index the same way ETFs do. Thanks to the many lazy mutual fund managers out there or maybe we could call them geniuses, many mutual funds bought baskets of stocks/assets that would provided the exact same return as the market index. Some of them even lowered their expense ratios because these funds took a lot less time and energy to maintain.

It’s not rocket science. It’s just like going to the ice cream parlour and ordering Chocolate-Chocolate ice cream instead of just plain old Chocolate. It’s all smoke and mirrors and the financial community is famous for implementing the same things over and over and never learning from mistakes of the past.

Just because you can short an ETF doesn’t mean it’s any different. You could have bought a mutual fund that shorts the market.

Just because you ETFs are designed to track an index dosn't mean it's any different.  Anyone remember Index funds?  Index funds are mutual funds designed to track different indexes.
Just because you can short an ETF that shorts the market doesn’t mean it’s any different. That’s a double negative that gives you the same return as buying the ETF or mutual fund that is not shorting the market.

The only real difference is that you buy and sell throughout the day, but that doesn’t make it a different flavour.

Thursday, September 17, 2009

Is now the time to be investing in Canadian Dollars?


This question should probably be rephrased, ‘is now the time to invest in assets that the world demands more and more, whether there is or is not a recession?
According to the Canadian Press, “Canada has the potential to attract billions of dollars in investment from Chinese companies.” It is no surprise that one of the top priorities of Export Development Canada has been on the emerging windfall trade relationship between the two countries. Let’s think about this…hmmm…who wants to gain exposure to an over 1 billion person consumer base? Also, a Country expanding at as rapid a pace as China needs commodities to grow, so where is a stable source of such commodities as Oil, Coal, Metals, Wood Products, etc.?

In a recent report, The Asia Pacific Foundation of Canada concluded that while the scale is relatively small, the outward investment by Chinese companies is still “in its infancy.” There have been many recent announcements of major Chinese companies looking to invest in Canada, especially in oil and key metals.

According to the University of Alberta, a vital piece of China’s plan for energy security is dependent on Canada’s oil sands. Petro China recently agreed to buy a 60% stake in two Canadian oil sands projects owned by Athabasca Oil Sands for $1.9 billion. This is not the first major Chinese investment in Canada nor will it be the last.

If you would like to here this bullish sentiment on the Canada Dollar from a recognized expert, look no further than Dennis Gartman, Virginia based investment author of the highly subscribed Gartman Letter. He finds many more reasons to remain bullish on the Loonie than the current United States / China Trade disputes. Mr. Gartman believes Canada stands to benefit immensely because the economy in Canada is in better shape than most economies in the world, the exports are viable, the propensity of foreign nations to buy Canadian seems to be rising at the expense of American goods, and relations between Beijing and Ottawa are good.

Word for word from the Gartman Letter, “The world needs energy; Canada has energy to go. The world needs food; Canada's got food; The world needs base metals; they can been found in Canada …and Canada has the ports to ship those needs; it has the laws to protect contracts signed, and it has favourable and friendly relations with everyone.”

So, now you are thinking I should buy Canadian dollars, but then what, or I am Canadian so I already have Canadian dollars, so then what?

Well, if you are going to be earning more money than others just based on the appreciating value of the Canadian Dollar maybe you should by Government of Canada Bonds that are guaranteed and pay next to nothing in interest right? Forget that…if you are investing in Canada, then you need to be putting your dollars to work. You are trying to reach a state of financial independence aren’t you?

Just take a quick minute and think about what the Chinese companies will be investing in and couple that with the fact that the Canadian dollar is likely to appreciate over the coming years against the Greenback. The only problem I have is narrowing the field down. There are so many companies that produce products that will be in great demand. Start by picking which commodities make the most sense to you: oil, natural gas, coal, uranium, gold, copper, etc. From there you can narrow your search for the right companies to invest in. I prefer to pick companies that have lots of coverage so that you can always find out what is happening, what others think, and for the most part the volume will be high enough to make large trades.

For some great ideas about investment advice, take a look at any of the great investment blogs from Canada. If you like what one of the authors has to say, but you want to know what they think about something they have not covered yet, send them an email. Most, including myself are happy to do the research and provide an opinion in a new blog posting.

Tuesday, September 15, 2009

Black Gold Income Trust


Westshore Terminals Income Fund (WTE.UN)
I have been following Westshore Terminals Income Fund for more than a year now and even recommended it in a previous article on this blog: Income Trust Picks for my TFSA.

The fund is based out of my home town Delta, BC and it has a very real and easy to understand business. Westshore operates a coal-storage and loading facility at Roberts Banks, British Columbia. It is an essential link in the coal chain between mines, rail, shipping, and the end user. Shipments are regular and go to around 24 counties and bring in $2 billion or more of wealth a year to Canada.

Currently and over the past couple of years Westshore Terminals has been upgrading its coal handling capacity and improving efficiency in handling the coal from the railcars to storage and onto ships. Westshore is now the leading export coal facility in North America. Coal exported through the terminal is mainly metallurgical coal that is used in making steel; it’s no wonder that China, one of the largest Steel makers, is a major customer.

One of the nice things about this company is the stability of cash flows leading to stable quarterly dividend payments. This is due to the fact that the fund derives its income from the volume of coal that passes through the port, not the price of coal and there are many long term contracts that have been signed with some of the largest coal miners in Canada. For example, Westshore’s major customer is Elk Valley Coal which is the second largest coal exporter of metallurgical coal in the world and is increasing mine capacity by 3 million tonnes to 28 million tonnes within a few years. Another interesting note is that coal shipments from Montana and Wyoming in the United States are also being railed 2000 kilometres to access Westshores Terminal.

Sounds like a great story, but what are analysts saying?

Looking at a consolidation of all known analysts that are currently following this stock, Westshore Terminals has received a 10/10 for the past month. I do like to use Thomson Reuters for this type of information since they consolidate all analysts’ opinions for a stock that follow the stock. The 10/10 rating is based on a collective analysis of 5 factors: Earnings, Fundamentals, Relative Valuation, Risk, and Price Momentum. The average for the Industrial Transport Sector is currently 8.5.

The current price of Westshore is around $13.55. The 52 week high is $16.50 and 52 week low is $7.02. The market cap is around $1 Billion and the current dividend yield is around 11.6% with quarterly distributions. Of the 6 analysts that follow the stock, the 12 month Price target ranges from a high of $15 to a low of $12.

I believe this type of investment is very well suited for a TFSA or an RRSP account due to the new tax rules coming in 2010 that will affect distributions. These new tax laws will only make Income Trusts that much more suited for tax sheltered accounts.


This is the most recent chart of WTE.UN from Google Finance.  As you can see the uptrend has been sustained for the past 6 months and WTE.UN is now pulling away from the trend line.  This may result in a steeper uptrend to into the future, but I think WTE.UN will likely pull back to the trend line in the coming weeks.

There is no time like the present to buy this for the long term.

Friday, September 11, 2009

Double Dip Recovery W or V Shaped Recovery?


The match is set. It’s GDP versus Unemployment and we are currently only in the mid-rounds of this heavy weight match.
Up until our current round we have seen some back and forth between the two fighters. GDP has taken some pretty heavy punches on the ropes and even received a KO count in the initial rounds. Unemployment on the other hand has been growing stronger through the match, but in the most recent rounds this growth in strength has been increasing at diminishing increments while the visual impairment, from the heavy hits GDP has taken, seems to be on the mend.

All the while, the stock market crowd has moved from a state of despair and frenzy to one of optimism.  The state of despair came as the economy tanked and the amount of unemployed grew at a staggering pace.  The reversal to a state of optimism has grown at just as staggering a pace; however, this optimism has brewed as a result of analysts dire forecasts not being substantiated for the most part, not because the economy has been seriously improving.

So, where is this match going in the final rounds and whose forecasts can we trust?

This is where things get interesting. Do you want to believe the majority, the general consensus of all the Analysts that didn’t predict this recession, or do you want to believe the minority, a small group of analysts that were credited with predicting the current recession?

Let’s face it, most analysts simply wait for someone else to make a prediction and then they try to pull together the evidence to support that claim and call it their own. This is obviously not the way to accurate forecasts. On the other side though, the naysayer minority forecasts that diverge from the crowd sometime just make their predictions different than the consensus to receive attention.

Here’s what we know now:

General Consensus

• We are in recovery mode

• Unemployment in America should top out around 10%

• Jobs will continue to be lost in the coming months but at a slowed pace

• Company Balance Sheets are improving and expansion is around the corner

Naysayer Analyst (predictors of the recession)

• We are in a short term up cycle in the market with a further down turn to occur in the coming months

• Unemployment will pass 10% and likely reach levels nearer to 13%

• Job losses have slowed, but are still being lost and will keep being lost for longer than the majority think

• Companies will not begin hiring again for some time

• A total meltdown of the financial system is still a real potential

I personally want to be an optimist, I really do; however, there are so many factors pointing me to a more pessimistic view of the stock market and economy in general.

1. Consumer mentality has shifted. People are not buying like they used to; they are becoming savers instead of spenders

2. Debt levels of the average consumer are still at unprecedented levels and bankruptcies are still high.

3. Banks have not been required to disclose losses on their balance sheets.

4. The Bank Stress Test was based on 10% unemployment. Anything above that would make the test faulty in predicting defaults of the remaining banks.

5. Commercial Real Estate Vacancies are on the rise and these properties are highly levered with similar NINJA mortgages to what was written for Residential Real Estate. These mortgages are beginning to default and could lead to a second mortgage crisis in America. Look at General Growth Properties Inc (GGWPQ), used to be the largest REIT in the US. (this has the potential to be the knockout punch.)

6. The American Dollar is still collapsing. As the dollar decreases Americans are able to afford to less and less imports leading to even less global trade.

7. There is a stock market bubble forming in China due to lack lending standards. Chinese citizens are can easily borrow with no collateral and have been throwing everything they have into the stock market there. A short drop could cause a snowball here that would be felt throughout the world.

8. Oil prices continue to rise and this will make goods more expensive due to higher transport costs.

9. The stock market has rebounded far too quickly from this recession and this rebound has been based on purely speculation with lower and lower volume as prices increase.

10. Most fund manager have been taking profits and getting ready for the next shock wave in the stock market.

11. Gold Prices are still increasing as more and more money is diverted from the stock market into gold because of many fund managers concerns about the current market environment.

12. The US has thrown a ton of money at fighting this recession and that is leading to a lack of confidence in the US$ around the rest of the world. This could lead to a drastic drop in the value of the US Dollar.

13. The recession stimulus spending needs to be paid for and this will happen through increased taxes, which will detract from future growth.

These are just of a few of my concerns on the horizon that make me feel a bit pessimistic about the current stock market environment. There is also a list of positives, but I am still swayed this way for now.

If you are interested in what the analysts that predicted the recession are forecasting, take a look at Thomas Watson’s article “Economic forecast: Double Trouble“

Wednesday, September 9, 2009

General Growth Properties Inc - Takeover Target

General Growth Properties Inc (Public, OTC:GGWPQ)


Potential Take Over Target!

General Growth Properties Inc used to be know as GGP; after filing for bankruptcy protection back in April 2009 the stock has been relisted OTC as a pink under the new ticker GGWPQ.


If you read any of the discussion boards about this stock then you should already be familiar with the large group of lovers and haters of the stock. All I have been able to piece together from the message boards so far is that people who love this stock provide no evidence to suggest it should be valued higher and people who hate the stock just yammer on about the range that it has traded since filing for chapter 11.

After digging a little deeper, not that you need to dig much, you can find a few interesting facts.

• GGP has been in the shopping center business for over 50 years

• One of the Largest REITs in the USA

• Involved in buying, selling, developing, and managing real estate

Bankruptcy Restructuring

• To restructure finances and de-leverage balance sheet because collapse of credit markets made it impossible for GGP to refinance maturing debt.

• Bankruptcy Judge (Gropper) has been making beneficial decisions to allow GGWPQ to restructure providing lots of time to refinance the dept the way the company wants.

• Financial performance of the company has been very positive since filing for chapter 11.

I have been reading a number of blogs that post frequently about General Growth Properties Inc. including http://wealth-ed.com/ and http://woozo.info/.  Both are well versed in the company’s affairs, but there just seems to be something missing that no one has really been discussing...

Alright, you caught me…I’m talking about potential takeovers whether hostile or voluntary. Who you might ask, would be interested in purchasing some of the best income producing properties the United States of America has to offer?

I’m sure a large list of companies and personal investors immediately pop into your head like they did mine. Let’s be somewhat realistic here and think of some real potential Takeover Tightens.

Potential buyers will all have a number of required attributes:

• Deep pockets! Cash is King after all

• Highly Informed about Commercial Real Estate

When you think of companies or individuals that possess these attributes think again and then remember this: Real Estate Prices have tanked, especially in the USA and there is potential for another major drop in commercial real estate on the horizon.

So who’s got the goods?

Look no further than some of the many Cash Flush REITs

According to CNN Money in June 2009 REITs have been raising cash to go on the offence to acquired distressed properties and distressed REITs are also targeted.

Some of the well know names that are on the office include the following:

Boston Properties (BXP), Regency Centers (REG), Simon Property Group (SPG), and Vornado Realty Trust (VNO).

David Simon, CEO of Simon Property Group, was even quoted in a recent CNN Money article stating that “One big opportunity the gang at Simon is keeping an eye on is the portfolio of General Growth Properties.”

American REITs are not the only ones on the offensive though. Look to some of the larger Canadian Players, who have experience a tempered downturn compared to American rivals, to make some major acquisitions in the coming months.

The most notable cash raising I can find is that of Brookfield Properties Corporation and Brookfield Asset Management Inc (a Canadian Group) who on August 20, 2009 announced a $4 Billion Real Estate Turnaround Consortium. Bling Bling, according to the article this Mountain of Cash is dedicated to investing in under-performing real estate with a minimum of $500 million to be allocated to global purchases and the remainder, $3.5 Billion, available for North American Purchases!

Look out General Growth Properties, the vultures are here and ready to scoop up some of your assets.

There are two scenarios I can see for General Growth, a fire sale of individual properties to the highest bidders, or a share buyout. I wouldn’t be at all surprised if a total buyout is on the way, but there will likely be more than one bidder so I buy today.  Bought at $2.82.

This is a high risk trade so only make the trade if you are willing to lose it all!

Tuesday, September 8, 2009

Best Canadian Credit Card Part 2

Now that you can see why a Dividend Dollar Credit Card provides the most benefit to a consumer it’s time to decide which Dividend Dollar Credit Card is Best in Canada. I will provide a brief list of the features of some popular cards and then highlight the dominant winner of best cash back credit card in Canada.
The following is a list of cards that I am familiar with and will now analyze: MBNA Premier Rewards, CIBC Dividend Card, Scotia Momentum Visa.

Many other bloggers have discussed these cards in the past. For example, Milliondollarjourney.com  discussed the first 3 on the list plus a few more and provided a brief analysis.

MBNA PremierRewards Platinum Plus (Milliondollarjouney pick)

• 1% cash back on all purchases.

• No maximum rebate.

• Car Rental Insurance.

CIBC 1% Dividend Visa

• 0.25% cash back on annual purchases up to $1,500.

• 0.50% cash back on annual purchases from $1,500.01 to $3,000.

• 1% cash back for net annual purchases over $3,000.

• No maximum rebate.

Scotia Momentum Visa

• 2% Cash Back on all eligible purchases at gas stations, grocery stores, drug stores, recurring bill payments

• 1% Cash Back on all other eligible purchases

• $39 annual fee

Based on my Scenario, I spend around $30k / year on my credit card with 70% of that on everyday purchases and the remainder on everything else. This would equate to a cash back rebate of:

• MBNA PremierRewards: $300 (no maximum)

• CIBC Dividend $281.25

• Scotia Momentum Visa: 2% Cash = $420, 1% Cash =$90, Total $510

This looks like an overwhelming victory for the Scotia Momentum Visa Card even with the $39 annual fee. If you go to a Scotia Bank to sign up they are also likely to waive the 1st year’s fee.

Sunday, September 6, 2009

Best Canadian Credit Card: Personal Credit Card Preference

In the end, Credit Cards are one of two things for an individual consumer:


A) A Benefit

B) A Nightmare

There are 3 main companies offering Credit Cards in Canada: Visa Inc. (Public, NYSE:V), MasterCard Incorporated (Public, NYSE:MA), and American Express Company (Public, NYSE:AXP).  Each has benefits and costs; however, they are all competing fiercely and all offer similar plans.

For any consumer that pays their card off in full every month the card is definetly a Benefit. Even if you do not pay off the card in full every month, as long as you have a line of credit you can leverage to pay off that Credit Card then you be still consider the Card a Benefit.

If you answered “(A) Benefit “ to the above question than you have some great opportunities.  Do you want Airmiles, a low interest rate, Dividend Dollars, points towards purchase discounts at a particular store, etc. There are so many options, but which one is best and why?

If you think you know the answer to this question you might be surprised by what my answer is.  Anyone with even a basic understanding of Economics could likely predict what my answer is here and likely hold the same opinion.

My answer is based on answering this basic question: Which Credit Card Benefit provides an individual with the highest Utility?

Utility? I hope I didn’t just initiate flash backs to Econ 101 Nightmares.

Utility is basically the satisfaction derived from the consumption or use of a good or service.

What provides the highest Utility to an individual? Let me answer now and then provide an explanation: Cash in Hand!

Assumption 1: To keep things simple let’s assume that there are 3 possible credit card benefits offered: Airmiles, Points for discounts at a department store, Cash in Hand (Dividend Dollars).

Assumption 2: You currently consume can spend $100.  For example, $100 on airlines and $0 on Department stores or $0 on airlines and $100 on Department stores, or some mix of the two.

Assumption 3: Let’s make a lot sided assumption just to highlight the best benefit, If you use the Airmiles Card you get a $50 bounus in travel or if you use the Department Store Card you get $50 in purchases.

Let’s make a nice picture because economist appreciated drawings.

Nice Picture, but what the heck does that mean.
 
I1: You Budget Line.  This is the Total amount that you can afford to spend on Airlines and Department stores.  On the Y axis I have placed Airlines; assuming you spend all your $100 on Airlines and $0 on Department Stores.  The other connector for the Budget line is Department stores, here we assume we spent all $100 on Department Stores.  This is our budget line; anyting along this line represents a mix of spending on Airlines an Department Stores.
Now let's spice it up and see what happens when we get the Airmiles Credit Card
This is one confusing picture, but if you analyze step by step it's pretty clear.

1) Because we get the Airmiles Credit Card we now get a $50 bonus to use on Air Travel so our Budget Line (I1) rotates because we can now afford $150 in Air Travel or $100 still in Department Store purchases.  The new budget line is I2 and is shown in Blue.

2) We get a new higher Utility from useing the Airmiles Credit Card seen at U2 (in red)

3) If instead of getting $50 for Air Travel only we got $50 Cash to spend on what ever we want then our budget line would Shift instead or Rotate; the new budget line would then be I3 (the Brown line).  This is because we could now Buy a maximium of $150 in Airmiles or $150 in Department stores.

4) With the Cash you can see that we are better off because our Utility is at U3 (in red), which has a higher value than U2.
Let's see how this works if we get the Discount Store Credit Card instead:
1) Because we get the Department Store Credit Card we now get a $50 bonus to use on Department Store purchases so our Budget Line (I1) rotates because we can now afford $150 in Department Store purchases or $100 still in Airmiles purchases. The new budget line is I2 and is shown in Blue.


2) We get a new higher Utility from useing the Department Store Credit Card seen at U2 (in red)
3) If instead of getting $50 for Department Stores only we got $50 Cash to spend on what ever we want then our budget line would Shift instead or Rotate; the new budget line would then be I3 (the Brown line). This is because we could now Buy a maximium of $150 in Airmiles or $150 in Department stores.

4) With the Cash you can see that we are better off because our Utility is at U3 (in red), which has a higher value than U2.

This proves that the Dividend Credit Card is the best to use because it allows you to have the highest Utility since you can purchase more goods than without a credit card and it also provides a higher utility than the Airmiles or Department Store Credit Card since we can choose how much of each good to consume.

The next step would be to do this anlysis with slight differences in the amount of benefits made available with each card.  If the Airmiles of Department Store credit cards provided more of a benefit for the same amount of purchases then the Dividend Credit Card than you may have an alternate out come.

For me, I have used a number of different credit cards over the years including a number of divident cards.  I have finally settled on the new Scotia Bank Momentum card because you get 2% cash back on everyday purchases and 1% cash back on everything else.  These dividend dollars add up very quickly. 

My previous Credit Card only paid 1% dividends and had a step function.  For the first $5,000 you would get 0.25% and the next $2,000 at 0.5% and then fianlly above that amount I would get 1%.

My new card dosn't have a step function so it's 2% from the beginning.

I hope this article helps you find the best credit card for you.