Daily Updates 2008 – 2009

December 31, 2009


Tim Hortons is updated and
rated Buy at $32.10. It’s a great company but is about fully valued. Given the
quality it is still a buy although personally I was hoping the price would drop
before I would buy back into this one.


December 30, 2009


Reitmans (womens clothing store
chain) is updated and rated Weak Buy at $16.36. I like the management here.
However, given its drop in profit in the past two years, it does not look
attractive at this price. Given other investment opportunities I would not be a
buyer at this price and if I held it I would consider selling in order to invest
in higher rated stocks.


December 29, 2009


My thinking is that the watch word for the markets right now is “caution”. We
have enjoyed a remarkable run-up in the markets since March. It’s not very
realistic to expect that to continue. It is certainly possible that markets will
dive at some point during 2010.


Risk tolerance is highly dependent on the individual and their stage of life
and stage of career and many other factors. In my own case I have more than
recovered from the 2008 losses. I am not sitting on a respectable portfolio.
Given other aspects of my finances I can afford to take significant risks. But I
don’t need to. Therefore my approach is likely to continue to be to take modest
risks. I will likely maintain reasonable amounts of cash and some fixed income.
I may partially hedge my stock exposure.


Intact Financial Corporation
a property and liability insurance company (formerly ING Canada) is updated
and rated Weak Buy at $36.60. This company by its nature has lumpy and
unpredictable earnings. At the present time the analysis suggests a Weak Buy. It
could rise in price if its profits improve which in fact may happen in 2010.
Nevertheless the analysis at this time suggests it is fully valued. Given other
higher-rated  investment opportunities we would consider selling it at this


December 24, 2009


New statistics out yesterday



These show Canadian mortgage 90 day delinquencies as of October have still
not risen – at 0.44% around 1 in 200 mortgages only. In Alberta the percent is
higher at 0.69% It jumped up in Alberta in the Spring but has since stabilized.
If these delinquencies rise to more like 2% then we will have real problems.
Part of the puzzle I think is that with house prices still strong and even
having risen, people don’t default on mortgages. Instead they sell at a profit
and pay out the mortgage. If house prices drop as many expect then the
delinquencies will soar. I would certainly not be surprised to see that happen
in 2010.


But meanwhile as always my focus is on finding stock investments. House
prices are of interest to me but not of great interest.


So far the market looks set to hang on to its gains and close out 2009 as a
excellent year in the markets.


I won’t have any comments now until probably the 28th. We will have some
updated company reports next week. I am enjoying a family break at a friend’s
country house over Christmas.


December 21, 2009


I updated the analysis of the valuation of the
Toronto Stock Exchange Index. However, this analysis is not a s reliable as
that for the DOW and the S&P 500. Toronto earnings tend to be very volatile to
to the commodity nature of the economy and therefore this analysis is more
difficult to do.


Microsoft is updated and rated Buy
at $30.55. It it is not exactly bargain priced but it seems reasonably priced.


December 19, 2009


Visa is updated but only rated Weak
Buy at $88.97. (Meaning basically a Hold or sell for those who would wish to
move into higher-rated stocks). As a company it is highly profitable. However
the share price appears to be such that any “excess” profits would be captured
by the seller of the shares not a purchaser. Possibly we are under estimating
the valuation that should be placed on this near-monopoly. Maybe it’s P/E can
stay above 25 (currently it is 30) in which case it is worth buying. Or maybe
the growth can roar along at even higher than the 13% that we assumed in our
high-case valuation. But overall it just looks too expensive. There is always
the possibility that regulations in future could limit the charges it makes to
retailers and or the interest rates it charges to consumers.


We tend to think that monopolies should be regulated. If you don’t think it
is a monopoly, or at least has monopoly characteristics try opening a retail
business and refusing to take its credit cards. But be assured we would have no
qualms about buying it if the price was right. We don’t think unregulated
monopolies should be allowed to exist but they do and we are perfectly happy to
own them when we can find them at decent prices. In fact we call them
monopolicous  (we introduced that “word” under our Oct 22, 2008 comments)


Performance details for 2009 have been
updated. After a scary start the rebound has been dramatic and with our average
Buy- or higher-rated stock from January 1 is up 35%. This was our second best
year ever. 2003 with the rebound from the early 2000’s market crash was our best
year. For me personally this was my best year ever. It was my best year on a
percentage basis and on the basis of dollars of wealth gained, it was the best
be far.  I trust that all of you had great years in the market as well. Let
me know at shawn@investorsfriend.com


December 17, 2009


I added today to my Walmart
position.  A weak day in the markets with the TSX down 1.4% and the Dow
down 1.3%. With the market up so much from the lows of last Spring it is no
surprise to see to down days.


December 16, 2009


With Walmart slipping the last few
days I may add modestly top my position. It’s easy to get excited by the market
going up but I believe a cautious stance is warranted. Buy higher quality
companies but only selectively and considering keeping cash in cash the market
does drop.


December 15, 2009


Our stocks edged higher today including a 3.6% gain in


Wells Fargo’s stock issue came at $25 and so maybe Wells will drop a little
on that news. If I did not already own it I would buy some.


December 14, 2009


Having just rated
Canadian Oil Sands as only a Weak Buy I sold half my position in it today.


Wells Fargo will repay TARP $25
billion and pertly by selling $10.4 billion in shares. Normally a stock issue
sends a stock’s price down but the ability to repay TARP may be seen as a sign
of confidence so not sure where the shares will head on this news.


TMX Group did well today…
It’s not clear how much impact competition is having on TMX. Their president was
whining about the fact that the big banks own one of their competitors (Alpha).
TMX had an (unregulated as to price) monopoly and I guess they don’t like losing
even a part of that monopoly. I guess the competition is hurting at least enough
to move the TMX president to whine about it. But overall I think TMX are still
set for strong profits.


December 13, 2009


Our analysis of the valuation of the Dow Jones
Industrial Average is further updated to include a new chart which nicely
illustrates where the DOW earnings and therefore the DOW should be based on its
historic relationship to GDP.


December 12, 2009


Our analysis of the valuation of the Dow Jones
Industrial Average is updated and indicates it is about fairly valued.


December 11, 2009


Canadian Oil Sands Trust
is updated and rated Weak Buy at $28.35. The
performance of this entity is mostly based on the world price of oil in U.S.
dollars, but also on the exchange rate of the Canadian dollar. (It benefits when
the Canadian dollar falls) This helps Canadian investors but not American
investors. Production problems or lack thereof also impact its profits. The
price it has received in Canadian dollars has ranged from $55 to $73 in the past
12 months, or an average of $66.50. The company expects about $71 in 2010 but
that is really anybody’s guess. The stock looks somewhat expensive at current
oil prices. It will likely be a good performer long-term. At this time unless an
investor has a particular wish to have exposure to oil, it may be just as well
to sell this and look for more certain investments.  I will consider
selling some or all of my shares in this.


I mentioned a couple of days ago (Dec 7)  I bought some shares in URX
which was trying to do a transaction with Chaperral Energy a private company.
The Deal may not go through. Was supposed to be approved yesterday, but the
meeting adjourned until this morning. No word heard yet today as at around 2:30
eastern time. Warrants on URX seem to indicate deal not happening. Bottom line,
I sold these URX shares at a very small gain. The whole thing was way too
complicated. I prefer to stick the the stocks on this Site which I understand a
lot better.




December 9, 2009


Dalsa is updated and rated Sell at
$7.11. It’s earnings have evaporated in 2009 and sales are down as well. With
such low profit and an uncertain outlook, a Sell rating is appropriate. We will
likely not update this company any further.


Walmart is updated and rated
(higher) Buy at $54.25. You may recall, Warren Buffett has been a buyer of
Walmart in the past year (the shares, not just the cheap groceries though I am
sure he was all over that as well).


The news reports today that housing starts were up quite substantially in
Edmonton in November. This will benefit
Melcor which should report a strong Q4.


December 8, 2009


article on the valuation of
the S&P 500 index is updated and indicates an estimated over-valuation of


Canadian Tire is updated and rate
(higher) Buy at $53.79. I added to my position in this company today.


December 7, 2009


Canadian Tire will be updated tomorrow and will be rated (higher) Buy at
$53.79. I may add to my position in this company.


I made two trades today based on recent updates.


Firstly I purchased some
Canadian Western Bank Preferred Shares as an alternative to holding cash.


Secondly I purchased additional Wells
Fargo shares.


I also made an additional buy that is unrelated to to the Stocks on this


Chaparral Energy is raising cash and going public through a reverse takeover
of United Refining Energy Corporation (URX on AMEX). URX is basically a shell
company that raised cash for the purpose of this type of transaction. An
acquaintance of mine has been involved in Chaparral Energy since its founding in
1988. This person has a successful track record. He did not recommend URX. The
bottom line is I am buying as a speculation. Chaparral has a very weak balance
sheet but this transaction will improve the balance sheet. But it will still
have a lot of debt. I really don’t have a basis for an opinion on this
transaction but simply wanted to let subscribers know that I bought some shares
of URX. It was not a large amount.


December 6, 2009


Target is updated and rated (lower)
Buy at $45.67. After a rough year and a half it did post an earnings increase in
Q3 although same store sales were down modestly. As it reports Q4 and then Q1,
these will be easier comparables and it should be able to show earnings growth
in relation to the year-ago quarters.


Wells Fargo is updated and rated
Speculative Buy at $26.92. This stock has been a long-time favorite of Warren
Buffett’s. It appears to be one of the best managed large banks in the U.S. I
may add to my position in this one.


December 5, 2009


Canadian Western Bank is
updated but rated only Weak Buy at $22.49  It’s a good and well-managed
little banks but seems about fully valued at this time. If we held it we would
consider selling to free up cash for other investments.


Canadian Western Bank
preferred shares yielding 6.8% are also updated and rated Buy at $26.90. I
will likely buy some of these as an alternative to holding cash. Unlike cash
there is a risk holding these, but I believe that the risk / return trade-off is


December 4, 2009


The composition of my own portfolio is


In summary my portfolio is as follows:


  Equity % Portfolio %
 TMX Group  17.9% 9.6%
 Shaw Communications  15.5% 8.3%
 TSX Double Bear  5.6% 3.0%
 TSX Single Bear  4.4% 2.4%
 Melcor  12.4% 6.7%
 Wal-Mart  11.6% 6.3%
 Canadian Oil Sands  7.8% 4.2%
 Wells Fargo  8.2% 4.4%
 Canadian Tire  4.6% 2.5%
Other 11.9% 6.4%
Cash   46.2%
Total 100.0% 100.0%

This is not a recommended portfolio. It’s just where I am at the moment. My
portfolio has become quite concentrated with meaningful positions in only seven
stocks in addition to a large cash position and the bear position.




December 3, 2009


Markets today lived up their reputation of being unpredictable…


the market trading statistics for the TSX market came out today. They looked
pretty good. Volume was down 13% from last year. (Probably last November had
frantic trading in reaction to the market crash at that time). But financings
raised were $7.1 billion compared to only $2.5 billion last year. This will
greatly improve cash flow in Q4 due to associated listing fees although it does
not help income much since this is amortized into revenue over ten years. The
total market value of the stocks on the TSX is up significantly due to the
market recovery. This should bode very well for the continuing listing fees
which should rise although that probably does not kick in until January. Overall
this looked to me like a positive sign for the earnings of the
TMX Group. However, as mentioned
in our last report the impacts of new competition that the TMX Group faces are
very hared to predict.


Shaw Communications
has done well lately after lagging most of the year. No surprise, given it has
monopoly characteristics.


December 2, 2009


Canadian Western Bank
released earnings tonight. The earnings were good given the state of the
economy. Reading the report I I get the sense that management is honest and open
and trustworthy. Recently I had some concern that they are under-estimating
their loan losses. But so far-so good. Everything seems to be under control. The
outlook for next year appears good. I’ll update our rating within a few days
after I see how the stock reacts to the news.


It’s interesting to see the 10-year U>S treasury bond still yields only 3.32%
You would think that if the U.S. dollar was weak and expected to fall then
certainly foreign investors should be looking for a higher interest rate. For
example 3.32% is pretty poor if the dollar sinks at say 5%. For U.S. investors
and for any foreign investor that plans to spend the money ultimately in the
U.S. the fall in the currency is not a concern. For these investors inflation
would be the major risk. A 3.32% yield for 10 years suggests quite a low
inflation expectation. Yet Gold is rising reportedly due to fears of inflation.
The signals here are definitely mixed.


December 1, 2009


Well, we had a nice start to December with the TSX up 2.3% today.  Does
that mean the market will be up and away? Who knows? what we do know is that
markets are always unpredictable and that the best bargains will be found in
individual stocks.


I had a bit of strange Reply from Boston Pizza today. Unit holders in Boston
Pizza benefit only from franchise sales, which excludes liquor. It also excludes

“revenue from BPI approved national promotions and discounts”. So I
what does that mean?

I was told that when BP has a national sale for $10 and the regular price was
$15, the full $10 comes into franchise sales. That is good I was afraid (from
reading the definition of franchise sales) that such national sale items were
completely excluded from the franchise sales. But they also said that the $5
discount is included in gross sales. That seems odd, the $5
discount is not paid by the customer and it would not be revenue, so how would
it be in gross revenue? I have asked BP for a further explanation. What it
illustrates is that there seems to be no end sometimes to unexpected accounting
methods. I guess if Boston Pizza International is reimbursing the individual
restaurant for that missing $5 as a marketing expense then I can see some logic
to counting it as gross revenue. Otherwise if they just simply count the
discount as if it were revenue that does not give me a warm and fussy feeling
about that.


November 30, 2009


Nothing overly interesting happening with our Stock Picks today…


I just sent an e-mail to Shaw Communications asking if they have access to
their owners list. It’s curious isn’t it that companies don’t market to us
owners, perhaps give us a discount. I don’t know of any Canadian company that
does. It may be because companies don’t even know who owns their shares.
They use some kind of share registration companies that actually keep track of
the owners…


Or it may even be that there is some idiot law against publicly traded
companies giving a discount to their owners. I supposes such a program might
encourage people to buy shares to get the discount (horrors?).


In the U.S. Berkshire Hathaway gives a discount on GEICO insurance to its




November 29, 2009


Performance figures for 2009 are updated.


November 28, 2009


Boston Pizza is updated and
rated Buy. The yield is quite good but will reduced by about 28% with taxation
2011. It appears to be a reasonable investment. Same-store royalties are
currently declining but this has been offset by advantageous unit buy backs.
However, there is also some risk regarding how the Trust will be restructured to
deal with becoming taxable in 2011 and shorter term risk regarding how the
market will react when the distribution is cut when taxation becomes effective.


November 26, 2009


Groupe Aeroplan is being removed
from the TSX 60 index on December 2. . This appears to be simply because EnCana
is splitting into two large companies and so some company had to be kicked out
of the index. This has no long-term impact on the value of Aeroplan but in the
short term could cause Aeroplan to drop.


Far Eastern markets are down in Friday trading and it seems likely that
Friday will be weak in North America as well.


Dubai has debt problems… I guess I would ask what is the bigger surprise,
the debt problem or is the bigger surprise that one of the most modern and
spectacular cities in the world arose rather suddenly in the desert and featured
extremely expensive real estate (and I will admit my knowledge of Dubai is
pretty skimpy indeed). There is some truth to old sayings about the faster the
rise the harder the fall.


November 25, 2009


Stocks in general continue to push higher… proving conclusively that last
Spring was a good time to buy… so was this Summer… But it’s much less clear
if now is a good time to buy…


Remember last Spring when Buy and Hold was declared dead and buried? It’s not
looking so bad now. I believe  it is possible to beat the market, but it’s
not all that easy to do.


We will be updating most of the stock picks by December 31… Hopefully in
that process we will identify some interesting bargains…


November 24, 2009


I had placed an order a couple of weeks ago to buy 500 shares of Wells Fargo
if it fell to $27.50 that was filled today. I have not updated our analysis of
Wells Fargo for since February and overall it is a complex company and hard to
predict. So I bought more on the confidence that Warren Buffett has displayed in
this stocks so many times than anything else.


Regarding my complaint to the Investment industry regulatory Organization
about companies that release earnings during the trading day… (see yesterday’s
post just below)… IIROC has now indicated that they will be getting back to me
with a more detailed response.


Melcor fell today and that does not
bother me. I am hoping for a further (short-term) drop to say $9.80 and then I
would add somewhat to my position.


November 23, 2009


Recently I made a formal complaint to the Investment Industry Regulatory
Organization (IIROC) regarding (of all companies) the TMX Group which on October
28 released it’s earnings during the trading day without a halt in trading. They
are supposed to halt if the news is material. The news was I think material in
that they missed earnings estimates by 8% and the stock fell quite a bit in the
next three days after that.   IIROC responded very quickly. However in
my opinion they tried to brush me off with a quick e-mail indicating that
basically there is no problem and the policy was followed appropriately by the
TMX Group.


I don’t mean to single out the TMX Group. It was just the latest example and
it looked like a good one to complain about given the earnings miss and the lack
of a trading halt to let everyone digest the news. The big banks routinely
announce earnings during the trading day like this. Most smaller companies do
not. IT seems the big guys play by different rules.


I immediately e-mailed IIROC and indicated that their response was not
satisfactory and they are going to respond again. I am not particularly
expecting them to admit for one moment that there is anything wrong with
companies issuing earnings during the trading day with no halt in trading.


I hope I have not made an enemy out of IRROC. If so however, so be it.


Meanwhile, it was another good day on the markets. Markets rose because home
sales were strong in the U.S. last month. But I have to wonder… At one tie a
statistic like home sales or vehicle sales was probably a reliable indicator of
the economy. But these days the government stimulates those items and then
economists still interpret the result as positive. But it looks like


You can keep garbage in the air for a while by blowing hard enough on it. But
eventually gravity prevails. Is the U.S. economy garbage being kept aloft by
blowing on it, at least in the short term? Quite possibly, yes. This is part of
the reason I remain cautious.


November 22, 2009


The stock market this week will focus on economic reports as earnings season
is about over in the U.S. In Canada we will get Q4 bank earning reports starting
this week.


I was in Saskatoon for the weekend for my son’s bantam hockey tournament.
Although we did not stray far from the rink and Hotel, the economy looked
reasonably strong. We did descend on a Tony Roma’s on Saturday just after lunch
and had the  place almost to ourselves. Same thing at an Italian restaurant
around 4 pm Friday… off-peak hours but still it was quiet.


In the hockey rink however, the spending continued apace…


There was a lot attention in the news about the huge mortgage foreclosure and
delinquency rates in the U.S. That could lead to the dreaded double dip


My though is to be cautious in the markets but still look for bargains…


November 19, 2009


Yesterday (Tuesday) we had the news that Manulife would raise $2.5 billion in
equity by selling shares at $19. One of the beneficiaries here will be the
TMX Group who charges a fee for
such “secondary issues”. In fact TMX has been collecting plenty of these fees
this year as companies have issued shares to improve their balance sheets. Due
to mis-guided accounting rules (that fail to reflect economic reality) TMX gets
the cash now but must book the revenue from these fees over a 10 year period.
The point is; these fees will improve the cash flows but not really the GAAP
profit at TMX this quarter.


I then decided to add fairly significantly to my TMX position today.


I also decided to follow Buffett (and our own analysis) and bought 200
Wal-Mart shares today.


My strategy is to keep a fairly large allocation to cash in order to take
advantage if the market “corrects” but meanwhile I am definitely interested in
raising my equity proportion when I find the right investments.


Over the years we have all seen advertisements for bank accounts that pay
better interest than our brokerage accounts. I just checked and my TD Waterhouse
account is officially paying 0.00% on cash, so anything beats that. ING Canada
currently pays 1.05%. Ally bank apparently pays 2% and offers (although I
suspect there is a limit how much you can deposit at that rate.).


The problem has always been that you could not (as I understand it)
access these competitor bank accounts from within your brokerage account and
certainly not from a discount broker RRSP account. The best option for cash was
usually a money market mutual fund of some type. An outfit like TD Warehouse did
not provide you with the ability to invest in a TD bank account paying a higher
interest rate. There may have been regulations that prevented it. Or it may have
been that since your cash was somewhat captive in your brokerage account, the
brokerage had no incentive to offer a better interest rate.


(Strangely, I missed any memo from TD alerting me to the fact that I could
earn a higher interest rate this way)


Now with interest rates on brokerage accounts and money markets at or close
to zero, there is more interest in finding something better. Combine that with
the fact that “stock market refugees” having been burned int he market are
tending to sit on a pile of cash and there was probably  a competitive need
for brokerage accounts to start offering something better in order to attract
and keep customers.


And so now you can in fact make deposits into certain bank accounts from
within your discount brokerage account. TD Waterhouse has available Renaissance
High Interest (CIBC) Manulife Bank (mutual code MIP510), RBC, Dundee and
McKenzie banks all paying about 0.75% per year and CDIC insured to $100,000 and
with the ability to cash out in 1 day. 0.75% is not a lot but it beats zero and
if for example you otherwise would have say $100,000 sitting idle in your RRSP
(earning 0% in the case of TD Waterhouse) then that is $750 in your pocket and
you have lost no flexibility since you can cash out at any time. With TD you
have to call in by phone to makes these deposits except for the Manulife one you
can buy online like a mutual fund using code MIP510. I will be giving this a try


And if you are with one of the non-bank entities like e-trade I would think
that the CDIC (Canadian Deposit Insurance Corporation) coverage might offer some
peace of mind.


I would never have had any concern what so ever that my cash in a TD
Waterhouse account would ever be at risk in the event of a bankruptcy of TD
Waterhouse but given the events of the last year, who knows?


At the bottom of the stock list above I posted a quick note about these bank
deposit accounts now being available.


November 18, 2009


Melcor is updated and rated
Speculative Buy at $10.60. It’s lest quarter was quite strong. It remains
somewhat risky if oil prices and the Alberta economy were to falter badly. But
overall buying Melcor at this price should be a good long-term investment. It
seems likely too that Q4 will be reasonable strong for it.


November 17, 2009


Walmart was up today on news that
Warren Buffett’s Berkshire Hathaway has added to his stake in it. Buffett also
added to Wells Fargo. Some will say Buffett is buying after the big market
rally. Not true of Walmart which is actually down on the year and Buffett in any
event was buying in the summer as opposed to necessarily this week. Berkshire
added to other stocks but people should keep in mind that Buffett allows Lou
Simpson to independently invest the funds of Geico and so the smaller buys may
not be Buffett’s. ( say the piddley stuff – like under $100 million!, that’s my
kind’a piddley)


The point is a person could do worse than following Buffett into Walmart.
Some of Buffett’s investment in the past year were preferred shares and special
deals not available to you and I. But with Wal-mart you get the same terms as
Buffett. (Although he likely grabbed it a few dollars lower than it is now).


Also Walmart is not a complicated company and our last update called it a
(higher) Buy. I would be tempted to add to my Wells Fargo stake as well on
Buffett’s move. But I do note that Wells Fargo as a banking business is more
complex – loan losses are very difficult to predict. But if the great man is


November 16, 2009


I took advantage of Aeroplan being up 30 cents this morning  and sold
most of my shares. For richer or for poorer, for better or for worse, sickness
or health… that remains to be seen regarding Aeroplan and my decision to sell.
But I was not married to these shares and I’m movin’ on.


In other news, United States loan delinquency figures for Q3 were recently



also similar figures for bank write-offs of loans



These figures continue to climb even though the economy is supposedly on the


This data only goes back to the late 80’s but most categories are at record
high delinquencies. Almost 1 in 10 real estate laons in the U.S. is apparently
in delinquency (more than 30 days late). In Canada we have Residential
delinquencies measured on a different basis, 90 days late. But our bank figures
indicate that less than 1 in 200 residential mortgages are in arrears as of
August. I find that very hard to believe. Surely before this is over the
Canadian delinquency figures will rise.


Canadian credit card delinquencies for July were running at just 1.27% more
than 90 days late with an annualized loss rate of 5.37%, (up from 4.72% in April
(pity the banks). (Is my theory proving true that the unemployed are living on
credit cards but now the they are having trouble paying the MasterCard with the
Visa and vice versa?)  This 5.37% 90–day rate in Canada compares to the
30-day credit card delinquency in the U.S. at 6.58% 30-day delinquent.


The bottom line from these figures is that losses on loans continue to
grow. Therefore on this basis caution is warranted regarding the economic


November 15, 2009


The TMX Group is at about $29,
down from about $36 prior to its Q3 report and associated increased concerns
about competition. It is diffcult to say how much competition TMX will
ultimately see. I have described its profit levels in the past as obscene
(that’s a good thing for investors) and so clearly if it were subject to normal
competition its profits would fall precipitously.


The competition that has been in the nes has been for the trading of TSX
listed stocks. It has definitely lost market shares there. At last report
competitors had gained a total of about 26% of the trading volumes. That
definitely puts substantial downward pressure on trading fees. However we need
to keep in mind that TSX trading represented “only” 20% of the Groups revenues
in 2008, down from 20% in 2007 and is running at about 18.5% in 2009. Meanwhile
initial and ongoing listing fees and data subscriptions represent larger revenue
sources. As long as the TSX is still the dominant exchange there may be little
pricing pressure on those services – but that cannot be guaranteed. Furthermore
it is possible that such fees could be regulated in the future.


I believe the TSX mayl announce its 2010 initial listing and ongoing listing
fees sometime in December. At that time it may become clear if competition is
starting to drive these prices down.


Currently the 200 or dealers are required to send their business to the stock
exchange with the best price. In 2011 it will instead be up to the exchange to
re-route orders to their competitors if the competitor has a better trading
price. This latest change for 2011 may not be of concern to the TMX Group given
that the dealers are already supposed to going to the exchange with the best
stock price at any given moment. It was not clear to me if this “best price” was
after considering trading fees or not.


It would seem to me that competitors could take business on pre-arranged
block trades. However for small retail trades it may be that the exchange with
the most traders will tend to have the best price. This could continue to be a
natural monopoly.


The bottom line is that while TMX Group remains highly profitable we cannot
be certain that this will continue. It does appear to continue to have the
ability to charge highly profitable fees for the privilege of listing on the TSX
or for obtaining its data subscriptions. Therefore I like owning it but I
recognize that it comes with uncertainty.


I’ll now be back to posting comments about five days per week… last week I
was traveling and the internet connection ended up being very weak.


AeropPlan is updated and rated
Speculative (lower) Buy at $10.03. I have cubed my enthusiasm for this company.
As with most companies and investments it’s got its good points as well as its
bad. You should always try to read our full reports here if you are interested
in a stock because it can be very difficult in some cases to boil all the
different factors down to a rating. We do boil it down but we also give you a
lot of data and text so that you can see if you agree with our rating.


The main reasons I have lowered the rating are:


Looking since April 1. 2009 insiders are not buying shares and in fact two
sold small amounts. Insiders seem to own few shares though some have lots of
options given to them by AeroPlan. The CEO paid $3 million last year invested
only $25,000 in their 7.9% bonds. I mean for $25,000 why even bother?


Another quarter of declining cash revenue from points sales. Yes that may be
expected in a recession but I had hoped Aeroplan would continue to grow.


Their policy of expiring points on one year of inactivity or after seven
years no matter if the collector is still very active grates on me every time I
read about it. I consider it to be shabby treatment of collectors and if
management treats collectors shabbily why should investors not fear the same at
some point?


I note a new claim by Air Canada for $49 million that Air Canada claims it
under-billed for seats sold to Aeroplan over a period of years (another example
of how brain-dead Air Canada is). It is a bit of a worry that they get in a
legal argument with their main partner and former parent like this.


They mention a class action law-suit by collectors regarding the expired
points could possibly be moving forward (or not). They book zero liabilities for


Finally, indications from the Carlson acquisition are that they will take a
$16 million write-off on computer system costs in this Q4.


So… while I still like their business model I concluded that the rating
should be lower. Aeroplan is one of my largest investments and I intend now to
sell perhaps half or even all of this. I’d rather start moving the money towards
stocks that I currently rate higher than AeroPlan.


November 9, 2008


Well the markets continue to confound anyone who is bearish or even cautious.
It seems to keep going up -signaling good times ahead for the economy.
Personally I remain happy to sit with most of my 2009 gains in cash and bide my
time and invest only slowly in the best opportunities I see.


November 8, 2009


The unemployment numbers Friday morning were quite bad but the market
shrugged it off (so far). As of 7 pm Easter time tonight, the Futures appear to
be suggesting not much change at the opening in New York tomorrow.


I don’t have any updates this weekend and I may not have much to say the next
few days. Starting in a week or so however, i expect to have a number of updated


November 5, 2009


TMX group continues to decline. It appears that the market is signaling that
it believes TMX will be hurt by competition. It may be prudent to consider it to
be a somewhat speculative investment since the impact of competition is
difficult to judge. I am comfortable holding it but would not want to get
over-exposed to it. When it sets its listing fees for 2010 later this year, it
may become more apparent if that part of its business is starting to be impacted
by competition in addition to its actual trading revenues.


Aeroplan continued to rise today.


U.S. markets were very strong on positive economic news and job news.


November 4, 2009


Aeroplan rose today as it seems the market decided it lied the news of its
acquisition announced yesterday.


Melcor reported what appears to be good earnings after the close today. The
dividend however may be a bit disappointing. at the total dividend in 2009 is 25
cents compared to 42 cents in 2008 and 40 cents in 2007. From my view it shows
the company is being prudent. It makes sense to reduce the dividend is the
profits are down.


November 3, 2009


It seems I was not invited to the little party on Bay Street today. While the
TSX was up 1.4%, my stocks were hurt by the continued drop in the TMX group and
a drop in Melcor (but Melcor is volatile on small volumes that is probably just
“noise”. )


Aeroplan is buying an American loyalty marketing business for some $188
million. It’s hard to say if this is a good move, I would have preferred that
they hold on to their cash. Yahoo shows a press release of this news at 10:09
Eastern time. There was a conference call at 10:30 am. There was no trading
halt. Now luckily the share price did not move much on the news (at least not
down). Then again it moved down a little the past few days. It just seems to me
that this kind of middle-of-the-day disclosure is extremely unfair to retail


There was big news today with Warren Buffett’s Berkshire Hathaway buying the
remaining 77% of Burlington Northern at $100 per share (60% cash, 40% Berkshire
stock) Burlington had closed Monday at $76. So that’s a big premium and a big
vote of confidence in the U.S. economy.


In contrast to Aeroplan’s approach, Buffett released his news before the
market opened.
That meant that the Burlington Northern shares opened at $97. Retail investors
were not disadvantaged. No one got to buy ahead of others, because the market
was closed when the news came out.




November 2, 2009


Note that you will start seeing a few
ads on this site including on this page.
  A bit of background about
the ads.


Over the last ten years I have almost never ran any ads. I briefly tried
Google ads but they showed advertisements for get rich quick schemes and that
was not a good fit. And I have had a few ads from Amazon on here for the last
three years or so in the recommended books page. I have made all of about $35
from that but they are not going to send me a cheque until I hit $100. I recall
I also tied another ad system briefly through Click-Bank but I don’t think I
ever received a single dime. The point is I have and will experiment a bit with
ads but will not do much with ads until I get the right sort of ads that are a
good fit. Right now I am trying out a company that will show ads for certain
Canadian credit cards and similar mainstream financial products. I think that
could be a good fit for this Site.


markets were mixed today and I think will continue to gyrate with different
bits of bad or good news. I remain comfortable with a more cautious stance and
am not in a powerful hurry to buy anything. But I do have a few buy orders in
and will buy if those are hit. (Just checking and I see I picked up 300 Shaw
Communication this morning at $19.10.). With Aeroplan down to $8.90 I am tempted
to buy more of it but it’s probably safer to wait until after they report


November 1, 2009


I added a couple of more sentences about competition to the TMX update from
yesterday. So far, the drop in earnings appears to be related more to the
recession and financial crisis than to competition. Still, the ultimate impact
of competition is unknown and adds to the risk of TMX.


Canadian National Railway Company (CNR
Toronto, CNI New York) is updated and rated Weak Buy at CAN $52.30. I like the
company long term. But at the moment the valuation is not at all compelling
under conservative assumptions.


October 30, 2009


The TMX Group X on TSX)
(which runs the Toronto and Montreal stock exchanges) is updated and rated
(higher) Buy at $29. The recent trend for the company was negative. But initial
and secondary listings have increased sharply now. And annual listing fees
should be higher in 2010 driven by higher stock prices. There is a concern about
increased competition which has hurt profits. But overall, TMX looks like good
value at this price.


The composition of my own portfolio is
updated. I am currently about 52% in cash and and 48% equities. But 6% of the
equities are bear funds (9.5% after considering some of that is double bear) for
a net exposure to equities of about 38%. Normally over the years I have been
close to 100% in equities. However, this year after more than regaining my
losses from 2008, I adopted a rather cautious stance several months ago. Also as
explained at that time, I decided to basically clean out some older positions in
order to re-group and to be able to invest in newer Strong Buys as I identify
them. I am currently well positioned if the market continues to “correct” (that
is decline). However, I run the risk of being somewhat left behind if the market
pulls ahead.


Our performance figures for 2009 are


October 28, 2009


TMX Group released somewhat weak earnings today and the stock fell 8%. I am
dismayed that they released during trading hours which I believe disadvantages
retail investors. I have written a complaint to the TMX president and asked that
the Board members be informed of my complaint. I have complained to them before.
Maybe it’s a waste of time but I feel like someone has to stand up for the
retail investors. I have not completed an updated analysis but on the surface I
don’t think the earnings are that bad. And their fees in this Q4 have probably
started out strong since there has been a lot of offering of stock lately. My
analysis is not done but my sense is that the stock is still a Buy or perhaps
(higher) Buy. Perhaps no rush to buy but I am going to add to my position
tomorrow if it opens at $31.40 or less. (I entered a buy at $31.40 it closed at
$31.05, if it opens lower than $31.40 I will get the lower price). I continue to
view TMX as having a certain amount of monopoly-like advantages.


Another monopoly, VISA rose almost 3% today on strong earnings. Ya gotta love
investing in monopolies. When they are available at reasonable prices they are
monopolicious.  (Is it really a monopoly? well every retailer has no choice
but top accept their cards and pay their fees, with MasterCard they are not a
duopoly, rather they are dual monopolies.)


Another 500 of my HXD shares sold today on an order I placed last night at
$14.80. So I have now placed an order to sell another 500 if it gets to $15.80.




October 27, 2009


Today was a weak day in the markets with the financial sector being
particularly weak.


I added to my position in Canadian Oil Sands Trust as the price fell and hit
a buy order that I had placed last week.


Regarding the U.S. housing market. House prices have risen in almost all of
the surveyed Cities in August and as well in July and June. The most notable
area where prices are still dropping is Los Vegas.


You can find the latest Case Shiller Index Report here.



October 26, 2009


The TSX fell 1.3%. Those of you positioned more cautiously with lower
exposures to equities were well positioned today. However a low exposure to
equities has resulted in lost opportunities over  the past months.
Personally I don’t worry much about lost opportunities – those will always be
infinite in hindsight. I focus on the opportunities I am in or can get into
rather than the ones I missed, which can’t be helped now.


I remain comfortable taking a more cautious stance at this point…


An order I had placed a couple of weeks ago was filled today and I sold 700
of my 2700 HXD Double bear shares. I still hold 2000 HXD but it is not a large
percentage of my portfolio. I also have 1200 shares of HIX the single bear TSX


Earnings reports continue to be generally stronger than expected. Today’s
market decline was reportedly due to a rise in the U.S. dollar.


October 25, 2009


Shaw Communications
is updated and rated (lower) Strong Buy at $19.95


October 22, 2009


The market today shook off its late day losses of yesterday.


Economic news remains mixed.


Shaw Communications is doing well perhaps in anticipation that its earnings
release tomorrow morning. I have often described this company as being
essentially an unregulated monopoly and so I will not be surprised if their
earnings are strong.


Melcor fell 4% on thin volume which may represent a buying opportunity.


October 21, 2009


Stocks fell late in the day today on concerns about certain financial stocks.
It is possible that after the huge gains of late the market is vulnerable to a


Oil is at $80. Canadian
Oil Sands Trust has not risen with this recent gain and even slipped back a
little. I may buy back some shares I sold in this … I have an order in at
$27.75 but that is probably far too low given the rise in oil prices. COS closed
today at $32.47. Melcor has been doing well although on small volumes. With oil
up and gas at least off its lows, that is positive for Alberta and
Melcor is worth considering as a “play”
on Alberta.


We will have one or more updated reports by Sunday. The Q3 reports are
starting to come in quickly now.


October 20, 2009


An order I had placed some days ago to buy 300 shares of the TMX Group if it
fell to $34.05 was filled today. I suspect they will report reasonably good
results for Q3.


The earnings season is now getting started for Canadian firms which tend to
report a little later than the U.S. firms on average. C.N reported apparently a
13% earnings decline. That sounds like excellent performance given that car
loadings were down about that much. Usually profits fall much faster than sales
given fixed costs.


In economic news, wholesale trade fell in seven provinces in August.




However the leading indicators are up.




Tourism to Canada from the United States was flat year-over year.


http://www.statcan.gc.ca/daily-quotidien/091020/t091020d1-eng.htm That is
actually good performance considering the recession and the tighter security at
the border. But this was before the recent surge in the Canadian dollar.


Overall, the messages regarding the recession are mixed, some good news, some


October 19, 2009


It appears that the Q3 earnings reports are mostly better than expected,
which is pushing stock prices ups.


Still, there are things to be worried about.


Some banks are canceling the credit cards of perfectly good customers for no
apparent reason. Banks are experiencing heavy credit losses on credit cards and
in some cases may not longer wish to be in this business.



Railcar traffic is often seen as a good economic indicator and is something
that Warren Buffett watches. U.S. rail car loadings are down 17% from year ago
figures. Intermodal (container) car loadings are down 11%. I wonder how
Christmas sales can be expected not to fall quite significantly given this drop
in traffic.


Canadian rail car traffic is down 13.6% with containers down 9.5%.


The high dollar is no-doubt pummeling many Canadian exporters/manufacturers.
On a delayed basis this tends to lead to job losses and then credit losses for


October 15, 2009


Canadian manufacturing figures were out today. Sales fell 2.3% for
manufactures in August (seasonally adjusted). More dramatically these sales are
down 20.4% year over year. That is one HUGE drop. It’s a bit difficult to
understand how the recession can be over, based on these figures. Most
manufacturers have lots of fixed costs. When sales fall 20% profits tend to turn




In other news today oil has been climbing rapidly, up over $2.00 today and we
are now near $78 and its only about two weeks ago we were under $70. Where does
it go next? I have no idea. I don’t attempt to forecast such things.


News from Alberta includes a two-year wage freeze for managers in the
government and a hope that the whole civil service will get on board. Most have
union contracts so not sure those contracts can be touched. I expect to hear a
LOT more of this kind of news. At some point governments will be cutting back.
Earlier this year Alberta government announced a hiring freeze and no bonuses
next Spring.


October 14, 2009


Earnings reports for Q3 so far have been mostly good which has contributed to
strong markets.


The Canadian dollar is once again reaching levels that will badly hurt some
sectors of the economy. I wrote on this subject in the newsletter of
November 3, 2007. when the Canadian dollar was
at U.S. $1.07. What I said then still applies (except back then unemployment was
low, and this time we are “only” at 98 cents…so far.)


I am continuing quite a cautious investment stance. A lot of money has been
made in stocks in the past 7 months. Stocks still seem to have momentum and
could go higher. But looking at things like the P/E ratios they generally don’t
seem compelling.


Based on orders I had placed some days ago I did buy a small amount more of
the TSX single bear ETF, “HIX’. On the other hand I also have a sell order in to
get rid of some of the double bear HXD if it rises to $13.70 from the current


Yesterday, also based on an order that had been placed some days ago, a small
portion of my Melcor shares made good on their escape from my account, replaced
by cash. I did not notice this had happened until today. Buy and sell orders
placed “off the market price” (buy lower than the market or sell higher than the
market) like that can be a way to sell or buy without the emotion of the moment.
It can automatically sell for you on an up-tock (assuming you want to sell)
whereas if you wait to do the trade live and in person you may change your mind
about selling as the price rises.


October 13, 2009


The TSX was down slightly today despite oil being up strongly today and over
the weekend. Earnings worries regarding U.S. banks pushed markets down.


With oil up a 100 shares of my Canadian Oil Sands Trust was sold on a
pre-existing order. Really I would have preferred that oil fall to $65 or lower
and then I would have bought more instead of selling…


This week I expect markets to bounce around depending on earnings. Intel
announced strong earnings tso that may spur a rise tomorrow…


October 12, 2009


My article that calculates the Fair Value of The
Dow Jones Industrial Average under various assumptions about growth,
expected future P/E level, and investor required returns is updated.


I was surprised to calculate that the Dow Jones can be considered to be
under-valued. The reason for this is that its earnings look pretty good. And
part of the reason for that is that the Dow at this time does not include many
financial stocks. Apparently only one of the Dow components had negative
earnings in the past 12 months (with the Sept quarter being estimated). In the
case of the S&P 500 there are lots of big companies with big losses, so the DOW
looks more attractive than the S&P 500.


You can get “exposure” to the Dow index by buying the Exchange Traded Fund
DIA on New York. Unfortunately for Canadians that exposes us to currency risk.
If the Canadian dollar keeps going up that will hurt Canadians who buy U.S.
stocks. (update, I have now added DIA to our

Global ETF article)


Today oil is up about 2% and the Canadian dollar is up to 96.6 cents. It
seems now almost everyone has (after noticing the dollar has long since bolted
upwards) now joined in calling for it to rise at least to parity. That may be,
but these things have a habit of turning around unexpectedly as well. If you
have plans to spend money in the U.S. in the foreseeable future, it might not be
a bad idea to buy your U.S. dollars in a few separate transactions starting now.
Sure, it may go higher in which case you win by waiting. But that is not


If our dollar is to reach parity then I think Canada could well see a double
dip recession. We still export a lot of manufactured good to the U.S. and each 1
cent up in the Canadian dollar takes about a full percent off the revenues
coming back from the U.S. That can mean Canadian factories shutting down in a
hurry. And tourism… forget about it. And Canadians streaming across the border
for vacations and to shop in the U.S.? Absolutely. That helps pull the U.S. out
of recession and Canada into it.


I am not hoping for a higher Canadian dollar. I don’t think this country can
afford it.




October 11, 2009


Our reference article regarding  Global or
International Exchange Traded Funds (with ETF symbols and P/E ratios and
much more) is updated. Unfortunately, at this time, we find NONE of them to be


October 10, 2009


Alimentation Couhe-Tard is
updated and rated Buy at $19.04. This is a well-managed company in a simple
business and has been growing strongly for many years. I don’t currently own it
but I may place an order to Buy.


October 8, 2009


Tomorrow (Friday), Statistics Canada will report unemployment numbers as well
as export statistics. If these numbers are positive, perhaps we will see yet
another day of market rises. With
Canadian Oil Sands
Trust up 5% today I sold 100 shares and hope to buy back at a lower price. I
also placed a trade to buy some more TMX Group if it drops about $1.00.


American mortgage rates are again at almost record lows with 30-year
mortgages available at under 5%. And keep in mind that under federal laws
Americans are allowed to refinance at modest cost and so they are not really
locked in. There has been another surge in refinancing and this will generate
cash that will help the economy. With such very low interest rates it is strange
that the U.S. house prices can stay so low. The problem in the U.S. is that
those homeowners who are “underwater” are often allowed to “walk away” and then
the houses tend to get sold at low-ball prices which is what is keeping house
prices down in the U.S. And all indications are that lots more foreclosures are
coming in the U.S..


With the Canadian dollar up close to 95 cents I may transfer some additional
cash to U.S. dollars soon. Then if the Canadian dollar drops I can transfer back
at a profit. A high dollar hurts Canadian exporters and soon there will be
increasing pressure to bring the dollar back down.


October 7, 2009


Wednesday was another good day on Toronto, up 102 points of 0.9%. This
despite oil being down slightly and the Dow was down slightly.


After the close Alcoa came out at the first earnings report for Q3 and
surprised with a profit  instead of a the expected loss. This is quite a
positive development. On this news its quite likely that markets can continue to
go up – until that is some piece of important negative news catches attention –
and that could happen anytime. As always markets remain unpredictable.


None off the trades that I have entered were triggered today. I have a trade
in to buy a bit more of the single bear if it falls to $12.80 from the current
$13. I continue to hold some of this bear and double bear as a hedge against a
market fall. But it does get annoying to see losses on this seemingly day after
day Although with occasional nice gains on it as occurred late last week). I am
tempted to clear out that bear position but so far I keep it.


Boston Pizza has resumed
buying back shares. It did so early this year but had used up its allowed limit.
Now it is again allowed to buy back shares and is doing so. I think these units
should continue to do well and the Buy back may help the process a little. Not
only might it push up the share price through the buying but the buying is
accretive to earnings per unit.


October 6, 2009


It was another very strong day in the markets. It makes me glad I was never a
momentum investor. With the market lurching around so much, I don’t know how
people can tell when an up-trend has ended and when a down-trend has started.
Also I am not interested in knowing (partly because it is probably unknowable)
There are hundreds of investing styles. I stick to fundamentals and it has
worked well for me.


Oil prices have continued to be quite volatile lately between $72 and $67.
This is part of the reason that the TSX is so volatile.


Ob days like today my cautious stance (high cash allocation as well as a
modest TSX bear position in addition to an allocation to equities) costs me
money. But overall I am comfortable with that approach at this time, happy in
the knowledge that unlike last year I am not going to see 15 or 20% of my
portfolio melt away in the last few months of the year.  Riding out the ups
and downs does tend to work out in the longer term but I was just not prepared
to stay 100% equities this year after the big gains we have had this year.


I saw figures from CIBC today that indicate consumer loan delinquencies
continue to rise in Canada. Yet we don’t hear much about the banks and finance
companies that are on the losing end of that statistic. At least not yet we
don’t. Canadians on average have increased their debt load in the past year. I
am not surprised because it seems to me that the unemployed person is often
going to run up debt on his credit card before he will really cut back on
spending. At first he continues to make his payments too. But eventually he
starts to fall behind. I believe multiple sources of credit has deprived banks
of early warnings when a customer loses his job.


In the old days once there was no job the bank probably saw the impact
quickly. Now the unemployed person can often run up a lot more debt while
keeping up with payments with borrowed money and the bank does not find out
there is a problem until it’s a really big problem. And I don’t really blame
people for doing this. If I had no money and needed groceries for the kids, I
would charge them on a credit card and hope to figure out a way to pay that back
later. My point is the banks may be in for some very nasty surprises before this
unemployment problem gets solved. All indications are that even if the recession
is officially over unemployment would keep rising for another 6 or 9 months and
will not recover to pre-recession levels for some years. Meanwhile expect to see
lots of delinquent loans.


Oh, and our dollar is at a record high for 2009, that will not help out the
many manufacturers in this country who face costs in Canadian dollars and
revenue in U.S. dollars that converts to fewer Canadian dollars than before.


All in all, I am remaining cautious in my approach to investing…


October 5, 2009


Markets had a strong day today. This would seem to show that investors have
confidence and were not spooked by last week’s losses.


For the last few weeks various economic reports were what caused markets to
gyrate. We are now entering the third quarter earnings season and I expect
markets to gyrate based o various good or bad earnings reports and outlooks from
key companies.


In my own trading I had an order in to reduce my
Melcor position if it rise to $9.75.
That price was hit today and so my Melcor position was reduced somewhat. I also
had an order in to buy Melcor at $8.55 so I am just trying to take advantage of
volatility in this stock.


October 3, 2009


FirstService is updated and
rated a Weak Buy at U.S. $18.39 and CAN $19.75. Like many stocks, the price has
done well since Spring and has doubled. Also this year they had a large and
unusual accounting revaluation that almost wiped out their common equity. The
valuation is now much less attractive than it was in the Spring and there is
also the uncertainty of the recession. We would not be buyers at this point and
if we held it we would consider selling in order to buy higher-rated stocks.


FirstSerive Preferred shares
are updated and rated Buy at U.S. $18.75 The 9.3% yield is attractive but we
also consider this to have some risk given that FirstService itself has been
hurt by the recession and given that it now has almost no common equity. This
was due to an accounting revaluation, but still, according to the accountants it
has almost no common equity.


Our performance and the
composition of my own portfolio have been


On Friday as the market dove early in the trading session, a 1000 shares of
my HXD double bear were sold on a pre-existing order at $14.75. My HXD position
is now down to a more reasonable level and I may hold in orde to benefit if the
market falls. Overall though I personally hold over 50% cash at this time and so
I will have some protection from any possible market decline with or without
this HXD position.


One stock I am considering buying is Boston Pizza. I have had orders in to
buy for quite some time if the price falls. But O may decide to simply pay the
current market price.




October 1, 2009


Not a great start to Q1 as the TSX was down 2.8% and the Dow was down 2.1%.


No one should be surprised given the big stock recovery we have had since the
lows in march and also given recent signs that the recovery is tepid at best.
Even if the market is going to rise through the rest of this year (which is far
from a certainty) it can be expected to have its down days.


I took the opportunity to sell about 20% of my double bear HXD position and I
have orders in the sell more if the market continues to fall.


My plan is basically to add to positions on dips and sell parts of positions
on rallies just to take some advantage of volatility. I tend to set these buy
and sell orders 10 to 15% off the market price. Mostly I will just be holding
what I have.


As I post this at close to 11 pm eastern time, Hong Hong and Japan are down


U.S. stock futures appear to be suggesting the market will open down only a
tiny fraction.






September 30, 2009 (and end of Q3)


The TSX  market ended today unchanged from yesterday. But at various
points during the day it was up 50 points and then down 100 points. The U.S.
market was similarly volatile. Markets are reacting to various bits of economic
news trying to figure out how strong the recovery from the depths of the
recession will be.


Officially a recession is over as soon as the economy is confirmed to be
climbing back out of the hole. But for practical purposes such as jobs it is
really over when GDP grows back to its previous peak. And that seems likely to
take some time (a year or two?).


Our stocks mostly did well today particularly Aeroplan which remains one of
my largest holdings.


Oil was up over $3.00 today. That drove Canadian Oil Sands up 2.5% to $30.75.
Seeing that I decided to sell 40% of my Canadian Oil Shads (400 shares) . But I
then placed an order to buy that back at $27.75. This is RRSP money and I figure
why not advantage of the volatility. If oil keeps going up I will lose that
potential gain but at least I have the cash.


The double bear HXD was up nicely at one point this morning to $13.84. But my
order to sell some of that would only trigger if it gets to $14.10. I would not
mind seeing a temporary dip in the markets so I can get rid of some of the HXD.
The markets have almost been on a one-direction move up for months now with no
major dips. I expect taht even if it is to keep rising, there will be some
sizable dips. In the next couple of weeks it will react to various economic
reports and then after that it will be Q3 earnings season. There is always the
possibility of “geo-political” events having an impact. (Things like Terrorist
activity and various saber rattling by the U.S. and its many enemies.


In Canada we also have the dollar moving around fairly wildly which also has
an impact…


Sept 29, 2009


While the Canadian market rose today, the U.S. stock market was down due
to lower consumer sentiment. Investors are continuing to be bold and accept more
risks. This tends to drive markets up until and unless bad news puts fear back
on the front burner. My more cautious stance in my personal investing has cost
me lost opportunity but I can’t complain too much since I have the cash to
invest now or at anytime I see better bargains.


A subscriber commented as follows:


(Why) the sudden dropping of five stocks because you ” have no plans to update
them.”  I would at least like to know why you have no such plans.  Furthermore,
if they are no longer worth following they are presumably not even weak buys.
And if they are not worth buying then they are sells.  Yet one was updated as
recently as April and three were last listed as higher buys.  Shouldn’t you have
signalled that they had become at least weak buys if not sells some time ago
before just dropping them?    Also, it makes one wonder whether Berkshire, CN,
Costco, First Service, Wells Fargo, Canadian Tire, Dalsa, Ing, TSX, and First
Service preferreds might get dropped because they have not been updated for six
months or more.


Response: As noted below, I did remove

Thompson Reuters, Loblaw, IGM Financial, Starbucks, and Home Capital
Group. Basically their ratings were out of date and I did not think they were
stocks that I would likely update within any reasonable time period, if at all,
and so they were removed.


Some times I comment on stocks
in between ratings and I do indicate if I have sold. I had sold Starbucks
earlier this year. Generally it is hard to comment on a stock without a full
update and there is just not time to update them all. Usually we keep following
certain stocks for years. But at some point there has to be some culling to make
room for new ideas. If anyone has a particular interest in any of these then we
can try to update it.


One thing about the last six
months is that markets soared incredibly fast and that meant  a lot of
ratings got very much out dated very quickly. We have always said that the
ratings were our opinion on the date of publication of the rating. Usually there
is little reason to think the opinion would change unless the stock price
changes a lot or there was significant developments at the company like a poor
earnings report or a very good earnings report. This last six months the stock
prices soared and that meant out ratings naturally went out of date very
quickly. While we were not able to continuously update things, subscribers were
kept informed as I sold any stocks that I owned.


Some reports are still out of
date but the company was not removed from the list because we do hope to update
those within a reasonable period of time.


Many companies might be “worth”
updating, but we hope to focus out efforts on the better propects hence, again
the need for some culling.


A subscriber also


notice you are clearly trying to predict the direction of the market with your
high cash double bear positions.  Isn’t that contrary to your oft stated (and
Buffet’s) policy of buying good companies at a reasonable price at staying with
them as long as the basic story hasn’t changed? 


Response: I have made a lot of
comments on my HXD double bear position which can be searched below. It was
meant as more a hedge than a bet the market would fall. Lately I have been quite
disciplined in cleaning up my own portfolio. Reluctantly selling some positions
at a loss because overall my portfolio is at a record level and I felt it
prudent to lock that in partially and protect capital.


We all are at different stages
of life, have different incomes, different portfolio levels, retirement plans,
pensions, risk tolerances and on and on. For my own personal situation I decided
it was prudent top adopt a defensive strategy and HXD was part of that. As I
have now sold a lot of stocks I honestly probably should sell some of that HXD
but have essentially not been able to get myself to do that (it’s hard to sell
it at a loss). Instead I place orders to sell some of it if the market falls. (A
bit got sold on Friday). But in general the market has risen and As a result the
HXD has not been sold. But I have also benefited from the rise in the market.


I am a believer to a large
extent in buy and hold, but I also see logic in selling the weaker rated stocks
to buy the higher rated ones. This is particularly true in the RRSP accounts
where capital gains, are not a concern.


And I do see a risk of the market falling. There
is always that risk. Looking at my overall situation the lure of possible gains
was out-weighted by my fear of a pull-back after the huge market rally and given
the weak economy. Losing about 22% (on a good-sized portfolio) last year was no
fun and I am up close to 40% this year and I am happy to try to keep that rather
than swinging for the fences. HXD has been part of my insurance against losses.


September 28, 2009


Markets were very strong today on the news of several corporate take-overs.


I decided to sell my Canadian Western Bank shares today (based on our recent
updated report) and look for better opportunities.


In Canada the news was that the the number of people collecting unemployment
fell about 3% in July. But I wonder if that is simply because benefits have
started to run out?


September 26, 2009


Subscribers should be aware that
(as has always been posted in our disclaimer) neither InvestorsFriend Inc. nor
Shawn Allen are registered investment advisors.


Securities Commission

legislation (See section 8.25) provides that:


The adviser registration requirement does not apply to a person
or company that acts as an adviser if the advice the person or company provides
does not purport to be tailored to the needs of the person or company receiving
the advice.


I have deleted some companies from the list above where the
report was out of date and where we have no plans to update the report. This
includes Thompson Reuters, Loblaw, IGM Financial, Starbucks, and Home Capital


Canadian Western Bank
preferred shares are updated and rated Buy at $27.03 and yield 6.7%.


Canadian Western Bank is
updated and rated (lower) Buy at $19.47. It’s a good company but I do worry
about it’s exposure to loan losses. So far it has had no increase in its
expenses for bad loans but it could happen. It’s lending profits are lower at
time of low interest rates because it can’t make a big interest spread on some
of its low (even zero) cost deposits. Paying nothing on deposits and lending
them out at say 7% is a great business, but lending them at 3%, not so much.
While it could continue to do very well, I am not a buyer at this time and in
fact I may sell my shares to redeploy in higher-rated stocks.


September 25, 2009


FedEx is updated and rated Sell at
$75.70 (subsequent to our analysis date it has already dropped to $73.80 as we
post this). Formerly FedEx was highly profitable and appeared to have cost
advantages in  terms of scale and also had top of mind brand awareness.
More recently it’s costs seem too high for its reduced level of business due to
the recession and possibly the industry has become more competitive. It will
likely return to strong profitability if the economy recovers to previous levels
or if it can adjust its cost structure for lower capacity. However based on the
recent earnings level and the fact that a recovery is speculative, we rate it a
Sell at this time.


Tim Hortons is updated and
rated Buy at Canadian $30.22 or U.S. $27.68. It is a very high quality company
and is fairly priced although it is not a compelling bargain. I have placed an
order to Buy but decided to try to buy a bit under the current price. A good
strategy would be to buy a partial position now with a view to adding if it
sinks in a possible general market correction.


A friend of mine suggested that this is just about the only business he sees
that shows no sign of any slow-down due to recession. I can’t argue with that.


September 24, 2009


Today my insurance against a market decline paid off (HXD the double bear).
Oil was down a couple dollars today and is at $66.34 down from about $72 earlier
this week. This could spell more weakness for the Toronto market, although oil
is up slightly in overnight trading as I write this.


September 23, 2009


It was interesting that the market reacted somewhat negatively to the Fed
meeting news release today. Some times it seems like the market “wants” to focus
on good news and other times on bad news. With the market up so much recently we
may be entering a phase where the market will be particularly skittish on any
sign of bad news.


September 22, 2009


While my account was up today, I did no where near as well as the 1.4%
advance in the TSX.


My performance has been hurt by my double short position in the TSX which I
used to partially hedge my portfolio against a loss. Since the market has risen
rather than dropped my insurance has cost me plenty. But then just like when
your house does not burn down you lose your “bet” with the insurance company and
it costs you money. Your house burning down is a very unlikely event and
therefore fire insurance is cheap. A market decline is a very likely event at
any time and certainly is now when the market has recovered do much. Therefore
logically insurance against this risk is costly.


There are certainly days when I considering saying “uncle” and closing out my
double bear position. But I remind myself that I bought it to hedge my gains and
that if I am patient there will come a time when this insurance pays off.


September 22 , 2009 (pre-market
opening comment)


Yesterday I sold my positions in Visa and Microsoft. It was not really that I
wanted to sell these. It was more that I wanted to sell something to continue to
position my portfolio more cautiously (more cash) and these were stocks that I
was less committed. Also our recent update on Visa was lukewarm at best.


September 20, 2009


My personal portfolio composition is
updated. I am 37% in cash and have a double bear position of 12% for a net
equity exposure of about 38%. Part of my reason for caution is that my portfolio
has become equal to about four times our net annual family income. As a result
if the market had a deep correction, any new contributions would not be large
compared to the portfolio size. I need cash in the portfolio in order to be in a
position to take advantage of a correction. Another reason for my large cash
allocation as I explained below was that I sold a number of long-held positions
in our RRSPs to clean up the portfolio and be ready for new ideas.


September 19, 2009


Target is updated and rated Weak
Buy at $47.15 (it closed last at $48.79 subsequent to our analysis date). This
is a strong company with a 15% ROE, however earnings have been declining and the
P/E at 17 is not cheap. We would not buy at this time and if we held it we would
sell to move into higher rates stocks or into cash. The Weak Buy rating means it
would be worth buying for the longer term although certainly not a compelling


Visa is updated and rated (lower) Buy
at $73.79. It looks expensive on a P/E basis at 26. But is has been growing and
we like its duopoly near-monopoly characteristics. I hold it personally but
would probably wait for a pull-back before buying.


Staples is updated but remains
rated (lower) Buy at $23.29. Given the economy and its recent declines in same
store sales the next couple of quarters may show lower earnings. Possibly it
acquisition of Corporate Express from July 2008 will offset this but that is a
more speculative possibility. Given that markets have risen so fast recently, I
would consider selling this to move into cash or to move into higher rated
stocks. ((lower) Buy rating means we think the share price is more likely to be
higher in a year but there are better used for the cash in our opinion.


September 17, 2009


Regarding the economy and unemployment.


Figures from the

Canadian Bankers Association on Mortgages in arrears indicate that only
0.42% of Canadian mortgages are in arrears as of June 2009 (but the number is
trending up) That is less than 1 in 200!. Hard to believe. But part of the
explanation is that this only counts mortgages at least 3 months in arrears.
Still, it seems low given the unemployment and given the number of people who
seem to take on the largest mortgage they can get leaving no wiggle room if one
spouse loses a job even temporarily. My theory is that there are a lot of people
out there paying their bills by borrowing even more money. Heck this is actually
good for your credit rating until the day comes you are tapped out and can’t
borrow any more to make your payments.


I suspect lots of consumers are running up more and more debt, especially the
recently unemployed. They really have little choice. If the job is lost and the
payments are large, there is no way to cut back spending enough to make the
payments. Borrowing more to pay the bills can be the only option. But it can
only work so long. These consumers are basically running their own personal
ponzi scheme against the lenders. And the lenders keep sending out invitations
to get another credit card. And if an unemployed person has a line of credit
available, they are not likely to tell the bank of their new situation. Instead
that line of credit becomes emergency cash. But only for a while.


Markets were down a bit today. We have really had an incredible market rally
here. I don’t think we can expect to keep going without at least a correction.
So I remain cautious.


September 16, 2009


Our last update for Walmart called
it a (higher) Buy at $51.79 on August 15. Today the stock was at $50.04 so it
has fallen back slightly in a month when the stock market has roared ahead.
Walmart’s price is down this year and it is not much above its $46.25 low back
in February, while the general markets are some 50% above those lows. So, I
added to my Walmart position today.


I also entered some orders to trim a few positions if/as prices rise.


Canadian Manufacturing data came out for July today and was up 5.5% from June
(boosted by cash for Clunkers). But it was down a eye-popping 22%
year-over-year. While certainly there are signs of life in the economy, there
are also lots of scary numbers like these.


We have had a large increase in the number of unemployed in the past year. My
theory is that most unemployed people obviously don’t stop spending or paying
their debts. They probably don’t tell their bank that they are unemployed and
having trouble adjusting to lower incomes, many will rack up additional debt
during this period. If they are still unemployed after 9 months or so then
things get ugly. They are forced to really curtail spending and they can’t pay
all their bills. I wonder if we are now going to reach that stage where a lot of
unemployed people can’t pay the credit cards or the mortgage? I never see any
figures on Canadian home foreclosures. Surely that must be happening?




September 15, 2009


Another strong day in the markets. It does seem people are more interested in
buying stocks now that they are up 50% from the lows. Personally I continue to
be selective and cautious.


I did think about selling more shares today, to take advantage of the higher
prices, but decided to keep holding what I have.


September 14, 2009


Markets continue to do well despite the fact that they have risen so far from
their March lows.


I saw data today that suggests that while spending on necessities is about
flat year-over-year, spending on discretionary items is down about 7%. This U.S.
data. August consumer spending data will be strong with the (moronic) cash for
clunkers program but auto sales at least will probably fall off a cliff in


I’ve given up substantial return in September due to the reduction in my
equity exposure (replaced by cash and double bear on the TSX but with still a
substantial equity exposure). Still, I am comfortable with my cautious stance. I
think it makes sense to be positioned for a possible decline and to buy slowly
and selectively rather than buying into the market indiscriminately.


I did buy some shares in the TSX Group. They could do well based on all the
recent public share offerings.


September 10, 2009


Last week I mentioned I had bought the Natural Gas ETF that that trades on
Toronto under the symbol GAS. I bought at $3.92. This had been on a steady
down-trend but I figured why not buy Natural Gas when it was at a seven year
low? But I was too cautious to buy a lot, figuring I would average in. As it
turned out it started to rise. I placed an order to sell if it got to $4.95.
Surprisingly, that happened today and my shares sold for a quick 25% or $1500
profit. If it goes back the $4.00 level I will buy again. Possibly there is a
lot of upside in gas, but I don’t know enough about it, so I am happy to get out
with my quick gain.


Another order I had placed some time ago also got filled and so my Energy ETF
shares in XEG were sold.


While there is much talk of recovery, there is also lots of talk that the
economy has many challenges ahead. These would include consumers who are no
longer on average borrowing to spend but must instead re-pay loans. That alone
could be a big swing in consumer spending. Then there is more money being
diverted to pensions and healthcare and probably soon to higher taxes. The
strongest companies will probably do well, but overall the market has already
priced in a lot of recovery. At some point the market will likely decide it has
moved up to far to fast and we will likely see a correction. Longer term the
population in Canada and the U.S. keeps getting older and for the bulk of the
population, prime spending years may be behind them. For all those reasons I
remain a cautious investor and am not in a hurry to buy. My strategy is to buy
certain stocks on dips. Of course, if I identify a new Strong Buy I will
definitely buy that.


September 9, 2009


I mentioned Melcor under September 4.
Today the somewhat recovered housing starts in Alberta were in the news. I
placed an order to buy more Melcor but got only a partial fill. As a small
thinly traded company I don’t usually like to just accep0t the asking price, but
putting a price below asking of course runs the risk of no fill. (But then you
retain your money so lack of a fill is usually not a big deal).


I am also thinking of adding to my TMX Group position (symbol X). The Barrick
Gold share sale and others like West Jet all adds to their revenue. It arguable
faces more competition these days but it also continues to wield considerable
monopoly-like power. Canadian companies have no real choice but the list on the
TSX. New competitors are grabbing some of the trading but TMX still gets the
lion’s share.


My HXD double bear position came in handy today but still has been a loser
the alst while. I think of it as a hedge against my equity exposure rather than
a bet that the TSX index will drop, but it’s hard not to regret the loss on HXD.
Selfishly, I am somewhat hoping for a drop in the index and then I can both cash
out my HXD at a gain and deploy cash at lower stock prices. I don’t really like
to cheer for a market drop, but if it is going to happen (and markets seldom
move up in straight lines) we may as profit from it.


September 6, 2009


The latest edition of our free
newsletter has just been posted.


September 4, 2009


The TSX Group has just come out with its August statistics. Their volumes
were way up from last year. Stock values are down from a year ago due to the
crash but overall it looked like another good month for them. The stock price
would be higher except people think they will lose their near monopoly position
to competitors. So far the competition has not hurt them much. I don’t own it
now but it is a company I am interested in buying.


The Edmonton Journal today states that new house building is on the rise in
Edmonton and that Home Builders are scrambling to buy lots while land developers
like Melcor have stopped producing new
rates. If true, this could mean that Melcor is experiencing quite a strong Q3.
On that basis I have placed an order to add to my Melcor position. The other
thing I hope to see in Q3 for Melcor is that that they have hopefully been
collecting on receivables from builders as the builders sell houses. (in this
industry it is common for builders to pay for the lots only after they sell a
house on that lot, which leaves Melcor with substantial long-term receivables.


The order for HXD that I mentioned yesterday was filled near the close today.
While HXD the double bear has hurt my performance of late, I think we will have
some down days and on those days HXD will offset my losses. If HXD gets back up
to  $15.45 and then $15.750 I will reduce the position based on orders that
are already in place.


My purchase of the Natural gas ETF symbol GAS which I made yesterday has
worked out very nicely as of day 1. It was up 14.8%. This is impressive as the

chart shows it had been in a strong downtrend until today. Well one day does
not make a trend but it does whet my appetite to buy more of this.


September 3, 2009


Non-farm payroll data out on Friday morning may set the tone of the market as
positive or negative.


My account was up today but would have been up lots more if not for my
position in the double bear HXD. But overall I can’t complain. Having sold 800
HXD at $15.45 I have now placed an order buy it back if HXD dips to $14.45.
Possibly I am just being stubborn here, in some ways I would just like to get
out of this HXD and stick to my traditional long-only style. Right now I
continue to play both sides of the street as well as the middle. Some stocks
(north side) some HXD (call this south side) and some in cash (middle of the


I have added the
Claymore Natural Gas Commodity ETF trading symbol, GAS, on Toronto to the
Reference Article. With natural gas at a seven-year low, I wondered if it
might not make sense to buy. So I did buy a small amount today. However the
price has been trending down and so I suppose I should expect to lose on this in
the short term at least. What I plan to do is enter another order to buy if it
falls to say $3.25 from the current $3.92 ETF price.


September 2, 2009


Canadian Western Bank will report earnings Thursday morning before the market
opens. This stocjk declined 3.5% today to close at  $17.60 versus a recent
high of $18.80. Depending how the earnings look and assuming the price does not
rise, I will consider adding to my position. This should prove to be a good long
term investment.


September 1, 2009


The first day of September featured a 1.6% drop in the Toronto market and
about a 2% drop in the U.S.


As a result a small amount of my HXD double bear got sold based on an order I
had placed previously. I markets continue to drop my intention is to hold my
stocks but sell more of the HXD as it rises in prices.


Wells Fargo which I own and which is a Buffett favorite fell almost 5%. I
will be looking to add to my position in it if the price keeps dropping.




August 31, 2009


Aeroplan was up 5% today to $9.16,
which was a nice performance given the market being down.


I sold my Wi-Lan shares today. Basically just to clean up my portfolio to
focus on fewer stocks. I’d been holding on to this company hoping to get back
what I lost on it. But it makes more sense I think for me to sell it and focus
on companies I am more familiar with.


August 29, 2009


Our popular reference article on
Exchange Traded Funds is updated. This included equity ETFs as well as bond
ETFs and even two gold ETFs. This is truly a wealth of information and contains
links for updated and additional information regarding each ETF. This reference
article now includes Exchange Traded Fund symbols for Silver, Oil and Natural
Gas and added symbols for Gold. Also some newer single Bear ETFs are added.


Our performance figures for 2009 are


I sold a small portion of  my Melcor
and all of my EL-Financial yesterday. This was based on orders I had placed
overa week earlier to sell if the price rose a bit. In the case of Melcor I hope
to buy this back at lower prices. In the case of EL-Financial it is a Canadian
insurance and investment conglomerate. I like the company but I had not analysed
its shares in quite some time and decided to sell as a “clean-up” measure to
redeploy into other stocks or in the meantime hold as cash. In both cases these
sales were in non-taxable accounts where I don’t have to worry about any tax
impacts of such trading.


With the better-than-expected earnings from the banks and with oil remaining
high it is certainly possible that the Canadian market will keep rising. One of
the inescapable facts of investing is that markets are ALWAYS unpredictable in
the short term. I continue to take a cautious stance with my own money. It may
mean I forego gains in the Fall. However with about a 37% gain this year the
pain of foregone gains will be minor compared to the pain I would feel if I let
those gains slip away. I will definitely be investing when I see compelling
bargains. But right now I don’t see the overall market as compelling.


August 27, 2009


Aeroplan tonight announced it will
issue $150 million of 5-year bonds paying 7.9% interest and rated BBB minus by
S&P. $125 million will be used to repay existing short-term debt and $25 million
for general corporate purposes. This seems like a mildly positive development in
that it means they don’t have to worry about refinancing this short-term debt.


Also the 7.9% for five years might be a reasonable investment for those
interested in bonds.


August 26, 2009


Markets were flat today overall. I notice
Aeroplan down to $8.67, appears to be
good value at that price. I am continuing to bide my time and am in no hurry to
re-deploy the cash I raised of late. But I do have some orders in to buy some of
the higher-rated stocks listed above if prices fall.


August 25, 2009


As always seems to be the case, another interesting day in the markets.
Canadian markets were up in part due to a good earnings report from Bank of
Montreal. More bank earnings to come this week.


My double bear position is costing me money so overall my portfolio is pretty
stable. It crosses my mind to say “uncle” and sell the double bear but so far I
am still waiting for the market to go down and the double near to go up before I


The Case Shiller index indi8cates the housing prices in the U.S. may have
bottomed a couple months ago. But brother, what a bottom, a huge drop and its
impacts are still being felt.


Buffett always says you can’t predict markets and the best you do is buy
quality companies at good prices. Simple companies with good profits, a
competitive advantage and a management you trust. Also keep some cash for
bargain hunting. And he says don’t borrow to invest.


I see news tonight, the U.S. postal service wants to cut 30,000 jobs.


My suspicion is the economic news will continue to be mixed and markets will
likely lurch around based on the latest bit of news.


The word is that an awful lot of people are working on paying off debts.
Before people borrowed to spend. If they now turn to saving and also as the
North American demographic keeps aging, that is a LOT of spending that won’t be


Lot’s of stocks will suffer but some will do well and that is what we will be
searching for.


August 24, 2009


Markets opened strongly today, Monday. This meant more losses for my double
bear (HXD) position and I was wondering about my wisdom in owning that as the
market has done so well lately. But then again despite this HXD My portfolio has
done very well. By the end of the day, Toronto was down 50 points. If HXD gets
back around $16, from $15.13 today then I have orders in to trim it a bit. If
the market does fall I will start to make money on HXD but will probably sell
out most of it by the time it gets back around $18 if that does occur.


Last year I had some double bear S&P and as the market rose I had losses and
I finally sold out of it way too early and it would have been a winner as the
market fell last winter.


Tomorrow, (Tuesday) Bank of Montreal reports before the market opens. Their
results and any surprises around such things as  their bad debt losses any
plans for their dividend or to sell more shares, could set the tone for the
market. There has been some speculation results will be worst than expected
(even though that is an oxymoron).


Oil remains strong and that could keep the Toronto market going up…


Far East markets as of Monday night (Tuesday in the far East) were giving
back most of the gains they made last night.


August 21, 2009


Western Financial Group
Preferred shares are updated and rated Speculative Buy at $73. These yield
9.2%. However the company is in the middle now of issuing another series of
prefs that yield 9% and are more attractive in a number of ways. Therefore
logically the price on these A shares may have to drop to yield 10% or more to
compete with the new 9% issue.  Although I rate this a speculative Buy at
$73, I would be more interested at $65 or less. I have tried to buy these shares
at lower prices as they have traded as low as around $50 at the bottom of the
market in March but I was unable to get any as I bid below the market price.
These are thinly traded so be aware of that. These is a very small company and
these shares should not be considered to be anyway nearly as safe as the
preferred shares of large corporations. The trading price of these could be
quite volatile as well.


Canadian Oil Sands Trust
is updated and rated Buy at $27.15 (subsequent to our analysis price it closed
Friday at $28.75. The prospects for this investment are of course driven by the
price of oil. Commodity investments like this are not well suited to our
financial-statement-oriented methods. Therefore keep in mind that the
interpretation of things like the P/E ratio are more difficult for this type of


The composition of my personal portfolio is
updated. This has changed significantly in the last few weeks as I have raised
cash and sold a number of positions and reduced many positions.


My selling continued yesterday. Since Western Financial was up a bit and
given my recent analysis of the company I sold the remainder of my position. I
had earlier placed an order to lighten up on Melcor if the price rose and that
trade was triggered on Friday. I’d like to buy that back at a lower price and
have an order in.


Telus is updated and rated (higher)
Buy at $32.50. It’s basically not pricing in any growth. While earnings are
expected to be down 6% or so in 2009 and while competition is stiff, it seems
likely to continue to grow in the long term. Even with no growth it might not be
a bad investment given the 5.8% yield.Based on the low price I will consider


Telus was trading at almost this same price (it was $31.70) way back in
November of 1999. At that time I rated it Weak Buy. In the past ten years it has
certainly grown a lot but the share price has been exceedingly variable.




August 20, 2009


I ended up buying 1000 Aeroplan
today based on an order I had placed a couple of weeks ago when the price was at
least $1.00 higher. I’ll buy more too if the price keeps falling but I’m in no
big rush to buy it.


Western Financial Group
surprised today by issuing convertible preferred shares. I view that as negative
and the market seems to agree. I may just bail out of my remaining position in
this company. I am not impressed that they have an earnings conference call on
Tuesday and then pull this two days later. Why not announce this together with
the earnings?


News tonight was that mortgage foreclosures are up again in the U.S. It seems
to me that one of these days the market is going to glom onto some of this
negative news and we could easily get a noticeable drop in the U.S. markets.
Canadain markets are harder to predict as they are driven so much by oil and
resource prices.


August 19, 2009


Western Financial Group is
updated and now rated Weak Sell (i.e. close to a Hold but leaning towards sell)
at $2.25. It had a good quarter in Q2. And it looks quite good on a price to
book basis. However the worry is that bad loans to its banking customers could
tear a major hole in its results at any time given the recession. About one
third of the loans are on Recreational Vehicles like travel trailers. Often
these type of loans are  no–money down. They may be for up to 20 years as
well. And the recoveries if one is repossessed tend to be pretty dismal.
You really have to pray that the customers continue to pay the loan. And I ask,
what kind of person buys a trailer on a 20 year loan (although I don’t know if
the WES loans are indeed 20 year terms or not, maybe they are much shorter)?
Seems to me the person who does this is often (sure not always) a pay-check to
pay-check person who will be in trouble if his job is lost.


And it is seems quite likely that they paid too much for the Agri-Financial
business. They priced the deal back in August ’08 before the value of all things
financial plummeted. Yet they proceeded to close the deal in January. I would
have thought paying a cancelation fee might make more sense.


I have always worried about the bad loans but now in the recession this
risk seems a lot more real.


Over the past year or so my faith in this management has really waivered.


If all goes well these shares could be back over $4.00 before long.
Certainly the low price to book value is a big plus. But I see it as risky at
this point.


August 18, 2009


My Selling mood continued today. As noted recently my reasons for selling


I stated from a very heavy allocation to equities


The simple fact that we have seen a recovery of about 50% from the March
market lows.


Given the recession there is certainly a risk that markets could again dip


To build cash for future share purchases as I identify companies that I am
most attracted to


To clean up some old positions where I have not looked at the financials in
quite some time


A wish to preserve capital.


The fact that I have a healthy portfolio as well as pension and I simply
don’t need to “swing for the fences”. (I need to avoid the downside more than I
need to get the upside that I may be missing out on by being more heavily in


The fact that almost half of “my” portfolio belongs specifically to my wife
and to the kids RESP and it makes sense to be conservative.


Most of my portfolio is non-taxable so I don’t have to worry about tax
impacts of selling.


The fact that I have an excellent gain already in 2009 and one does not want
to get too greedy


So… the sales today were


I sold more Western Financial as it rose today to take gains. Sold some
additional Boston Pizza, but have orders in to buy back at lower prices. Sold my
remaining small position in Dalsa just to clean up this small position.


Regarding Western Financial I am near completion of the update for Q2 and
will likely rate it a Sell or Weak Sell. Basically it still looks risky on bad
debt although it looks good from a book value perspective. I have reduced my
position quite a  bit (obviously should have waited for this price hike) If
I still held my original large position of a few weeks ago I would reduce at
this recent price.


I have orders in for:


To sell some of my Melcor if the price rises marginally.


To sell the rest of my First Service at $21.50 if the price rises…


To sell some of the double bear HXD if the market falls (HXD rises)


To buy more Melcor, Aeroplan, and Boston Pizza  if their prices dip
another 10 to 15%


Sorry if all this selling is confusing. My overall position is that I have
made a strong return in 2009 and right now I want to focus on preserving that
and cleaning up my portfolio and then re-grouping to buy based on the latest
updated stock reports here (through the Fall) and based on the market possibly
dropping. Obviously this is a strategy that would have worked well in August of
2008. Only time will tell if it is the right strategy for 2009.




August 17, 2009


For the reasons indicated over the past week or two of these daily comments,
I continue to be in more of a selling mood than a buying mood. (But I am
certainly prepared to buy when I see something compelling and especially if I
don’t already own it.


Today I decided to sell the small positions in gold and silver that I had. I
had made money on the silver in U.S. dollars and I think about broke even on the
gold. I am in no way a gold bug and also my whole approach to investing is
suited to companies and not to commodities. Selling these gave me more cash and
cleans up my portfolio a little.


Western Financial Group released earnings on Friday morning and they were
reasonably good. I will evaluate it again after their conference call tomorrow.
With their low share price they are probably an okay investment. My worry of
late has been bad-debt and really no one knows how much bad debt they might face
on loans owing to them (maybe little, maybe a lot – they don’t have much
experience in lending especially in what happens to loans during a recession.).
so.. given that and combined with my penchant for cash of late I ladled off a
bit more WES today, reducing my position.


If I thought about WES as an individual stock I would perhaps not have sold
because “it owes me money”. But thinking about my portfolio as a whole, I am
happy with my gains year to date and in the interest of the overall portfolio I
let WES go despite the fact I have taken a loss on it and that it may very well
turn out to be a good investment. The idea is to do what is right for the
overall portfolio.


I also sold today just over half my shares in First Service preferred at
$20.50 U.S. (update – corrected
figure here)  I had bought around $15 and figured why not… Unless the company
buys these back they may not go much higher… although at last check were
yielding 8.1% which is attractive.


I had neglected to mentioned on Friday evening’s update (August 14) that I
had sold a bit more Aeroplan and also some Canadian Tire.


The way I have positioned my portfolio right now, declines like today are not
a big deal. I did lose overall today, but my losses wee under 1% as compared to
the market at a 3% loss. My double bear HXD had gains and my cash of course was


Walmart is updated and remains
rated (higher) Buy now at $51.79. (it closed today at $51.57). This should be a
good long-term investment and should be a defensive stocks (likely to fall less
than the overall market in the event the market “corrects” downward.


August 15, 2009


Boston Pizza is updated and
remains rated a (higher) Buy now at $10.20. I recently reduced my position
mostly ahead of the Q2 earnings as I feared a drop in same store sales would
drive the price down. But the drop was offset by a unit count that was reduced
by a substantial program of buy backs in late 2008, early 2009. Also market
yields in general have come down and so BP’s yield at 13.5% (that will drop to
10% with taxation in 2011) is still attractive.


This looks like a good long-term investment. In the shorter term I suspect
same store sales in this current Q3 will be down 5 to 15% and even with the
lower unit count this could hurt the price. Still, I may add to my position
particularly if the price approaches $9 or below.


August 14,2009


(Groupe) Aeroplan is updated and
rated (higher) Buy at $9.69. The latest earnings released today were roughly in
line with expectations in that gross sales of aeroplan points were moderately
lower due to the recession (and this is despite some new partners buying points
to issue to customers). Adjusted profit was 14% lower year-over-year. Still, the
valuation is attractive and this appears to be a good cash generating business.
It’s accounting however is quite complex. I had a large exposure to it but
recently reduced that back to a more reasonable exposure in order to take
profits and rebalance my portfolio. There may not be much reason to think this
will rise in the next few months. A reasonable strategy would be to buy a small
position and then add to that if the price declines towards the $8 (which of
course it may not do).


August 13, 2009


When it comes to the forecast earnings on the overall S&P 500 index and
therefore the fair value of that index, there has been an interesting
Standard and Poors Site that provides these earnings forecasts has suddenly
changed the forecasts to “under review”. I have been using these forecasts in my
valuation of the S&P 500
for about five years and never seen the earnings become unavailable and placed
“under review”.


It sounds to me like S&P is intending to revise the forecasts upward.
Whatever they do, up or down, if it is a significant change to previous
estimates then when they make the revision it could move markets in the same
direction that they revise the earnings forecast.


Aeroplan earnings come out tomorrow (Friday). I notice that this time that
the conference call is at 1 pm eastern time. The Canada corporate earnings
schedule says the earnings will come out before markets open. Earnings before
market opens could indicate that there will be some surprises. Earnings released
during the trading day are supposed to include no material surprises. My guess
it that things will look a little weak due to the recession, but we shall see.


They are going to start giving Aeroplan points at Western Canada Rexall drug
stores. That is a small plus. (It looks to be around only 200 stores so its not
a big deal)


I noticed in a recent visit to Ontario that Airmiles are available at a lot
more places than Aeroplan. Unfortunately one can’t buy shares in the airmiles
company as a separate company. I see these two as something of a duopoly, they
probably don’t compete against each other all that aggressively. But the
competition is to sign up a partner. One a partner is signed up it is unlikely
to switch. Both of these compete with Bank credit cards that have travel points.
But the bank must get all its revenue from the credit card fee whereas Aeroplan
and Airmiles get significant revenues straight from the retail partners on top
of also making money with their credit card partners. Both of these probably
also are in a stronger position with tighter partnerships with the airlines as
compared to the banks.


Ironically Aeroplan actually owns the world-wide rights to the Airmiles brand
and I believe earns some small commission from Airmiles Canada but is otherwise
not connected to Airmiles in Canada. (I wonder if the competition bureau knows
of these arrangements? possibly Airmiles Canada has some grand-fathered deal
where commissions to Aeroplan are close to zero).


The market shrugged off the fact that retail sales fell slightly in July.
What surprises me is this drop was reportedly unexpected. Where do these
forecasters live? With all the lay-offs and people starting to save that has to
cut into spending.


We’ll have some updated reports over the weekend.


August 12, 2009


U.S. markets were up as the Fed released a statement indicating that interest
rates would stay very low foor an extended period and that the economy was
leveling out. Personally I think this is pretty lukewarm and may not justify the
recent market rally.


I continue to play both sides letting most of my money ride but also have
moved some of it into cash and have my double bear position which will ease the
pain substantially if the market happens to decline materially. Meanwhile if it
keeps going up I am still making money although not as much as if I was fully
invested. Aeroplan will be out with earnings on Friday morning.


August 11,2009


Markets were down today, Tuesday. Wednesday could see a rise if the results
from the Fed meeting are positive. But for tthe moment I think the bigger
probability is for a pull-back and I continue to want to protect against.


Today I sold most of my Dalsa shares. I am feeling comfortable with my
decision to build up some cash. And I may continue to do so. At the same time I
do have orders in to buy Melcor and Boston Pizza on more significant dips. Also
note that I trade mostly in two RRSP accounts where I don’t have to worry about
triggering capital gains tax. Usually I treat my smaller taxable account as buy
and hold and do little trading. I did however raise some cash in that account as
well this past few days.


August 10, 2009


I further reduced my equity exposure today by selling some Aeroplan, Boston
Pizza, Berkshire Hathaway and Western Financial Group.


My thinking is that on a portfolio basis I have made a very good gain in 2009
at 36%. More importantly my portfolio is at a level where its important for me
to protect it. At 49 it is time for me to perhaps back further away from my
usual approximate 100% allocation to equities. Certainly in my wife’s RRSP which
is our best performing account, it seemed appropriate for me to lock in some of
the gain.  And with the huge rise in the market since early March and with
the real economy still in recession I fear a fall in the market more than I fear
that it will rise without me being 100% invested. In addition I was arguably
over-exposed to the three stocks which I trimmed today. (I also entered an order
to trim Melcor but it was not filled and an order to sell most of my Dalsa which
also was not filled). By moving into cash my portfolio becomes more balanced and
I am positioned to move into any bargains that I decide I want to own.


The composition of my own portfolio is
updated and now has about 23% in cash and a further 11.6% in the double bear
which all told leaves an exposure to equities of just 54%.


August 9, 2009


Microsoft is updated and rated Buy at $23.97. I own a small position and have
no particular plans to buy or sell.


I continue to think about protecting my portfolio at this point and for that
reason I may trim positions even of stocks I like.


Western Financial as an example seems cheap but I worry about the
impact of the dry weather on the farmers in Western Canada and whether this will
lead to bad debts at Western Financial.


Our latest free newsletter was sent late
yesterday, you should have received it by email.


August 8, 2009


Our analysis of the S&P
500 valuation is updated and indicated the index is moderately over-valued.
This article attracts a lot of traffic through Google and I believe it is an
important and valuable article.


August 7, 2009


Melcor (Alberta residential property
developer and owner of commercial rental buildings) is updated and rates
Speculative (lower) Buy. It’s share price had absolutely copplased due to a
slow-down in new housing construction in Alberta but has since regained some
ground. It offers good long term value. However in the short term it could fall.
I am comfortable with a fairly large position in this stock and would add to
that position on a dip to about $7 if that occurred. If new housing sales rise
then the stock price could easily move higher.


It was a very strong week for our Stock Picks and our
Performance figures are updated.


August 6, 2009


The TSX index fell   2.3% today. However our picks did well as
Melcor was up 5% (on small volume) and Aeroplan was up another 1.5%. In my own
account my double bear position HXD was up 3.7% as the market fell.


I decided to further lighten up on my large position in Aeroplan to protect
my gains and to potentially take advantage of volatility and buy it back if the
price falls. Similarly although I like Melcor I sold a small amount of my
position in it today.


Boston Pizza will release earnings tomorrow, presumably before the market
opens. Aeroplan will release in another week on Friday August 14.


It certainly seems possible that we will get a market correction and if so I
am positioning myself with cash to invest. If not and if the market continues to
go up then I will have lost some of the up-side. But basically I am not at a
point where I need to be greedy and swing for the fences.


August 5, 2009


Canadian Western Bank Wells Fargo and Berkshire Hathaway all did well today.
Financials in general had a good day.


Aeroplan is hanging in there. I am very tempted to further reduce my
large position in Aeroplan. I suspect it had an “okay” Q2 but possibly Q2 could
show weakness as people cut back on credit card usage. Also flights were cheap
and so people may not be cashing in their Aeroplan points that hurts GAAP
earnings and lessens the motivation to accumulate points though it is good for
cash flow short term


Boston Pizza will be out on Friday with earnings. I have to think same store
sales will be down. That will not hurt the earnings all that much but still it
could send the stock down at least temporarily. But I do think they can maintain
the distribution until taxation hits in 2011. In part they used share buy backs
to increase earnings per share (unit).


The Canadian stock market average is always harder to predict than the U.S.
since in Canada we are so driven by oil and resources. In the U.S. it seems
likely that we could see a market dip as consumer spending is hit. Lower house
prices and job losses in the U.S. have got to show up in lower consumer
spending. Overall I am trying to be more cautious on the markets. It does not
seem like a bad idea to take some money off the table.


The Canadian dollar at over 93 cents is back to about 30-year highs (save for
the brief surge above $1.00 last summer when oil was way over $100). On that
basis it seems reasonable to think that the risk to the dollar now is more to
the downside than up. I may buy some U.S. money market funds which will see a
gain if the Canadian dollar falls.


Also if the Canadian dollar stays this high then watch for even more layoffs
and manufacturing cuts in Ontario. Even Alberta is hurt as a high Canadian
dollar is bad for the oil and gas industry and natural gas prices are already
quite low. Selling gas (or anything else) to the U.S. suffers when our dollar


A winner from a high Canadian dollar would be Canadian Tire which sources
much of its wares in U.S. dollars.


August 3, 2009


With Aeroplan up again today I decided to sell some of it, It makes up 17% of
my portfolio and so I can certainly take some of it off the table but still
benefit greatly if it keeps going up. They will release earnings on Friday.
(Update, actually it was Boston Pizza I was thinking of that will release


I bought more of the double bear HXD as its price fell today. As the market
rises the HXD loses money but also provides me with added protection for the
next inevitable pull-back.


I will have some updates soon. First will be Melcor which I think is a good
long-term stock.


August 2, 2009


The composition of my own portfolio is
updated. I hold my stocks in five portfolios, (two RRSP, an RESP, A TFSA and a
Margin account). I find it necessary to have a spreadsheet to add it all
together so that I can see my total exposure to each stock across all of the
five accounts.


With the market up so much recently and with my own portfolio at a record
high, it is easy to get over confident at this time. I find myself thinking
about how much higher my account can go at this rate. But then I think about the
risk of a pull-back. I think about the fact that it may be very wise to protect
what I have (or at least a chunk of it) rather than risk it for further gains.


For me personally some combination of leaving most of the accounts at risk
but also taking some money off the table by selling shares and also by buying
the TSX double bear (or the S&P 500 bear or double bear ETFs) is what I will do.


Everyone needs to think about their own risk tolerance both financially and
emotionally and to act accordingly.


The strong markets may continue but certainly a lot of analysts think it will
not continue. I believe markets are always unpredictable but it is fairly
certain that they don’t move in straight lines. There is ALWAYS the risk of loss
in the market even if the loss do tend to eventually be recovered.


Risks can be lowered by investing in high quality companies at bargain or at
least at reasonable prices. But risks cannot be eliminated especially when risk
is defined as short term dips (of any magnitude and where short could be a
couple years)  in the account.


July 31, 2009


The week just ended was exceptionally strong for our Stock Picks. Our
performance figures are updated.


I did sell just a small amount of Aeroplan today just to lock in a bit of
that gain and I have an order in to sell a bit more if it hits $10.45. Soon
Aeroplan will report Q2 earnings and they could do better or worse than expected
and so even though I like Aeroplan it can certainly  unpredictable in the


I would not mind if Melcor fell in price, since I would then buy more.


July 30, 2009


The markets were kind to me today with a 22% jump in Aeroplan which is my
largest holding. The stock traded higher all day and ended near its high and so
possibly the rise will continue tomorrow.


Melcor released reasonably good earnings after the close today and should
continue to rise in price.


July 29, 2009


Air Canada has lined up its needed borrowing and this should be a positive
for Aeroplan as well as Air Canada.


Dalsa had a poor quarter and this current quarter will be hurt by the higher
Canadian dollar.


July 28, 2009


Boston Pizza continued to rise. Aeroplan continues to dip perhaps mostly on
fears that Air Canada will seek a better deal from it. That may be, Aeroplan
will support Air Canada to the extent it can. Possibly Aeroplan will have to pay
more for seats. But on the other hand Air Canada has been willing to sell extra
“classic reward” low priced seats to Aeroplan.  Air Canada covets badly the
business it gets from Aeroplan and Aeroplan clearly has the upper hand in any
negotiation, so I don’t see why this should turn out badly for Aeroplan.


July 27, 2009


Today was another strong day in the markets. With Boston Pizza up again I
decided to reduce my position in it in the hope of buying back at a lower price
because I think its Q2 may show reduced same store sales. Not a concern for the
long term  but a weak Q2 could create a buying opportunity.


Vacationing in Peterborough this week I see little or no signs of a weak
economy. The stores are busy. But the Boston Pizza here did not seem too busy
and with poor weather I understand their business is down this year. Most of
Canada has had a rainy summer and that can hurt sales at Boston Pizza in terms
of patio sales especially.


July 26, 2009


eBay is updated and rated speculative
(lower) Buy at $21.11.


Air Canada’s moves to suspend (past service) payments to its pension plan for
21 months are proceeding and so the chance of bankruptcy there is less, which is
a positive for Aeroplan.


July 23, 2009


A very strong day in the markets. With Melcor up strongly I sold 1000 at
$7.45 and placed an order to buy it back at $6.45. Other winners today were
Dalsa and Canadian Western Bank and Aeroplan.


I lost on my HXD double bear today but that is the price of insurance.
Possibly I should be be buying more HXD as the price falls.


July 22, 2009


While markets were down today, we did well Melcor was up 7% although on small


I am waiting to see how most of our stocks did on Q1 earnings before I do
much further trading.


July 21, 2009


I did not make any trades today and don’t have any in particular planned. I
am basically waiting now to see how the Q2 earnings reports come in for my


Small Investment Fund Information


Today I met in Toronto with a successful  investment professional whom I
have known for about 8 years.


A former broker and stock analyst for Sprott Securities and others, he has
now started his own small investment fund in the form of  limited
partnership structure.


His fund specializes in value-oriented investments. Often smaller companies
with high profitability but low P/E ratios. No start-up type companies. The
early track record on this new fund is quite strong. He describes this as an
aggressive growth fund.


This investment fund is not suitable for the average retail investor because
of the following criteria which must be met:


1. This is not set up for RRSP / RESP investments, therefore this is only for
taxable investment accounts.


2. Investors must be accredited meaning that they have either in excess of $1
million in financial assets (which can be together with a spouse) or personally
have an annual income of greater than $200,000 or an income together with their
spouse of greater than $300,000 per year.


3.   Minimum investment is $50,000.


So… this is certainly not for everyone. However if you are in a position to
meet the criteria and you are looking for this type of small investment fund as
an Alternative Investment, then email
me and I can pass along further information about this fund and how to
invest in this fund.


Update July 26, you can see the info on this fund here:


Update: DonvilleKent
informed me the morning of July 27, that this fund is now up 50% year-to-date.


I have occasionally toyed with the thought of establishing an investment fund
of my own. However, the regulatory requirements are very onerous and for that
reason and others, I have no plans to establish an investment fund, at least not
in the next five years (and quite possibly never). Also most of you are
do-it-yourselfers who may have little interest in funds of any kind. You like to
pick your own stocks with some help from services like this one and perhaps
other stock “newsletter” services. But some of you may wish to make some use of
investment funds. The best I can do in that regard is to point people in the
direction of certain funds where the stock selection style is compatible with
the approach at InvestorsFriend inc. and where I judge the fund managers to be


However, if you happen to be interested in this Alternative Investment Fund
described above, I can pass along the contact information to you and answer a
few questions. This company has indicated that it may compensate InvestorsFriend
inc. in some way for referrals. I did not bother to ask the details of that at
this stage. Any investments would occur directly into the fund and
InvestorsFriend Inc. would not be involved with that process.


Bargain Hotel Tip


I am currently holidaying with my family in down-town Toronto. Our Hotel, the
Hyatt Regency is at 370 King Street West. This about 3 blocks straight North of
the baseball stadium. We have a magnificent view of the CN Tower. The Subway
Station is about 3 blocks East on King Street. So, the location is absolutely
ideal. We were here three nights and leave tomorrow morning to visit family in


How much did we pay for this 4 star Hotel room ideally located in down-town
Toronto? Would you believe $74 U.S. per night? (roughly $91 Canadian at the
exchange rate when we booked.) The regular rate is $259 per night.


I booked this in May through www.hotwire.com
They provide excellent discounts but there are a few catches. You pay up-front
to hotwire and there is no ability to cancel. They tell you the quality of the
Hotel in advance and the general location but will not tell you the name of the
Hotel until after you book.


I found it has worked out wonderfully. A friend of mine used this service
last year to get a deep discount on a Hotel in New York City and was also highly


I am not advertising for hotwire, I just wanted to pass along a useful travel




July 21, 2009 11:20 am


I have bought back most of the HXD double bear that I sold Friday July 10 at
around $18.95. As the market has risen these double bear shares fell and I bout
back at $16.53 and $16.02. This position will cost me money when the market
rises and make money when the market falls and I am using it to partly hedge my
heavy exposure to equities. My itention is to add to this as the market falls
and then sell slowly as the market rises.


The Canadian market is doing well partly as oil has turned around and and
gained about $7 to $65 in the last week or two.


North American markets have risen as the Q2 earnings reports have come in
generally better than expected. With the recession still on I think the market
is always vulnerable to falling as any bad economic news might be announced. And
I don’t expect all the nes to be good. But note that I still maintain a heavy
exposure to equities even with my double bear HXD position. I continue to think
stocks will do well in the long term.




July 16, 2009


Markets continue to do well based on good earnings reports. But some analysts
are predicting this won’t last. Eric Sprott who has been an extremely astute
investor over the years believes we are in for a serious crash. See



I see the figures that show manufacturing in Canada is way down. And the
recent surge in the Canadian dollar will add to that problem. Natural gas prices
are way down which will hurt the energy sector. Exports seem to be way down
around the world.


So… while markets could rise int he short term, they certainly could fall.
Having now built up a portfolio that is several multiples of my annual income
and many multiples of what I could save in a year, I am more of a
“protect-what-I-have” mood rather than “swing-for-the fences” mood.


Last Friday I sold 2000 of my 5100 HXD double bear shares for almost $19 per
share. Today these HXD shares closed at $ $16.69. It might be argued that I
should have sold all the HXD. But I bought HXD as a partial insurance against a
market drop. If I had sold it all I would not have had the insurance this week.
It turns out the market rose this week and so I paid a dear price for that
insurance. With markets being volatile insurance against price drops does not
come cheap.


Tomorrow I may buy back some or all of the HXD that I sold last week.


I will also think about any other shares that I can reduce my position on.
For example , Boston Pizza is probaly well worth is current price. But it seems
likely that they will report lower same-store-sales in Q2. That could be offset
by the lower share count due to their buy-back. But in any event there is a
reasonable risk of a (probably) temporary drop in the share price when the
earnings come out so I could sell some now with the intention to buy back. But I
may not bother since trying to get cute that way could mean I sell and then
never buy back. There is really not much in my portfolio that I am willing to
sell. That was the reason I bought HXD. It allows me to protect somewhat against
losses (at the expense of missing out if stocks rise) without having to sell my


I mentioned the “old” GM shares traded last Friday even though they were
worthless. They had jumped last Friday when (new) GM emerged from bankruptcy.
Clearly some investors did not understand that the old GM shares had nothing to
do with new GM. The media did a very poor job of pointing this out. It seems
almost criminal to announce GM was out of bankruptcy while its old shares were
still trading and yet the old GM was still in bankruptcy and was worthless.
(liabilities far exceed equity). The symbol for old GM has changed and it is now
down to 39 cents (still 39 cents more than it is worth). Partly this reflects
“the lottery ticket mentality”. This is a phenomena whereby some stocks with
very high risks will trade higher than they should as retail investors will
throw a small amount of dollars at it something like buying a lottery ticket.


It goes to show that the market does offer up irrational prices from time to
time. Sometimes the stock price will be irrationally low and other times
irrationally high. Rational investors may therefore be able to take advantage of




July 15, 2009


Another strong day on the markets. Oil was up strongly which is a positive
for the Canadian market.


But I find it hard to get too optimistic. Consider the following chart from
Statistics Canada showing May manufacturing.

Manufacturing sales fall in May


I mean this chart of manufacturing output is downright ugly and scary.
Exports world wide have really plummeted and its hard to understand how that can
turn into the end of the recession.


I’m inclined to take at least some profits as they arise and be ready with at
least some cash in case we see the next down-turn in the market.


In trading today I managed to pick up 400 shares of Melcor (out of an
order for 500) at the low price of the day $6.05 later in the day but it closed
at $6.45 although that may have been on just a few shares at the end of the day.
It goes to show that on relatively thin traded sticks it can pay to be patient
and enter orders below the market.


Goldman Sachs is much in the news regarding its Q2 profit. I printed
out its official financial report filed as form 18-k. Amazingly enough the
practice in the U.S. seems to be to release financials without a balance sheet.
Now investments banks are all about the strength of the balance sheet and yet
none is provided. I far prefer the reporting we get in Canada where full
financial statements are standard fare with almost all earnings releases. Warren
Buffett at Berkshire of course always provides the full financials. I don’t see
why other companies can’t as well.


July 14, 2009


I was just looking at the graph of the performance on the Home page of this
Site and noticed it showed a dip for my portfolio in 2002 and yet the table on
the Home page showed 8% that year. That should have read minus 8% for me in
2002. The minus 8% was properly used in arriving at my cumulative return of 194%
since 2002 but the table showing the 8% in 2008 was wrong. Sorry for that error
it was a manual data entry.


And the fact is you don’t need to make positive returns every year to make a
strong return over the years. The Table shows I lost money in two out of the
last ten years and also only about broke even with a 1% gain a third year. Yet
overall the result was a 194% cumulative return in ten years.


Markets were strong today based on a few huge companies that reported
earnings that were above expectations. While that is good news there are also
lots of reports of export trade being down around the world. So I suspect the
market will continue to be volatile.


The best approach is to watch for certain stocks to become almost no brainer
investments. Companies with good earnings ans low debt that fall below book
value for example will likely turn out to be good investments.


Melcor was down today on light volume. I have an order in to add to my
position here if it drops a bit more toward the $6 level.


One stock that has hurt us badly over the years is Kingsway Financial. There
are now some signs of brain activity at the company as former apparently
brain-dead managers have been turned. Today they announced they are buying back
up to $31 million of their own debt at 54 to 62 cents on the dollar in an
auction process. I am not sure what value this debt is held at on the KFS
consolidated balance sheet. My first thought would be that it is on the boos at
$1.00 on the $1.00. However under the wird and wacky world of mark-market
accounting it is possible that the debt was already reduced below a dollar. If
it is at a $1.00 (and looking at the balance sheet I think it is) then Kingsway
will make a large profit by buying back debt at about 60 cents which
extinguishes $1.00 of liability. They had previously announced a similar program
to buy back $12 million of debt units of a subsidiary at just under 50 cents on
the dollar.


They also indicate there may be share buy backs later in the year.


It does seem somewhat surprising that they have the money to do this. The
company is in Shrink mode. But perhaps by shrinking they can free up some cash.


Overall Kingsway is still very speculative but it may be on the road to at
least an improved share price. Perhaps the new management can finally do
something with this frustrating company.


I guess the only reason I would consider buying is because of some probably
irrational wish to get back some of the money I lost on it. Overall I am
probably better to stick with higher quality companies and to forget this one.
Logically I should look for the best investments, not the one that happens to
“owe” me money. However it is difficult to keep emotions completely out of the
investment decision.


And I just wanted to mention that Kingsway is now doing at least some things




July 13, 2009


A strong day in the markets today. My purchase on Friday of Wells Fargo and
my sale of some of the double bear HXD so far looks good after just one day.


I looked into shorting the old GM shares today, the worthless ones that were
up on Friday. TD Waterhouse does not allow shorting of stocks that trade on “the
pink sheets”. No matter, it looks like they are halted now. No trades shown
today. Possibly the stock symbol has changed but I can’t see any indication of
that. 73 million of these worthless shares traded on Friday along. The number of
shares is outstanding is or was 610 million. As of Friday this absolutely
worthless company had a market cap value of $702 million. That is close to a
billion dollars for a totally worthless company. In fact as its debts far exceed
the remaining assets (the good assets were sold to new General Motors Company,
not to be confused with the old General Motors Corporation, now renamed
Liquidation Motors Company. The mis-guided souls who bought shares in old
General Motors on Friday or anytime before that and who are still holding have
lost their entire investment.


These old GM shares should probably have been halted a long time ago. I think
it was well known these shares were to become worthless. New GM did not offer
any kind of bone such as 1 new GM share for a 100 old ones. The creditors and
unions and government will own new GM, old GM shareholders get nothing. Which is
kind of what you expect in a bankruptcy.


Aeroplan is my biggest holding and has not done well recently. When I think
about how Q2 might look I consider the following:


There were essentially no insider buys (a neutral to possibly negative


Aeroplan point sales to credit card companies are probably down with the
economy due to new credit card competition and lower spending by credit card


Point sales to other retail partners could be fairly strong as many partners
have been promoting double aeroplan points.


Revenue booked as people book trips may be down with lower travel and the
fact that flights were so cheap that people may have used cash rather than
points. Then again Air Canada opened up a ton of classic point seats this Spring
and that may have sparked use of the points.


There could possibly be a gain as the cost of buying seats may be sown as
airline fares have come down.


Possibly there could be further write-downs of goodwill.


This is probably another case where we simply have to wait and see how the
quarter went.


Logically the value of Aeroplan is not decided by one or two quarters but
rather by the longer term. Long term it seems like a strong cash generating
business model.


Meanwhile Air Canada is expecting a union vote tomorrow, the results to be
released on Wednesday and the result could be a financial reprieve for Air
Canada and that could send Aeroplan shares higher in the next week. We shall


Another large holding of mine is Melcor. Quite probably their building lot
sales were slow in Q1. Hopefully though as housing starts are up they will have
some good news such as faster collection of moneys owed from past lot sales.
Builders often don’t have to pay for the lot until they sell a house on the lot.


Look for markets to continue to lurch about with each new grain of news, good
or bad…


July 12, 2009


Fedex is updated and now rated Sell
at $54.07. its Q4 just ended was a disaster with a 20% drop in revenue
year-over-year. We may revisit this one later, but for right now we rate it a


The latest edition of our free newsletter
was recently emailed and you should have received the email.


There was news on Friday that illustrates that a little knowledge is a
dangerous thing.


1. GM has emerged from bankruptcy


2. GM shares were up 37% to $1.10 on Friday.


It does seem logical that the shares would rise now that the company is out
of bankruptcy.


But the shares that trade are the old General Motors Corporation. This is the
old GM. It is still in bankruptcy and does not own the new GM. This old GM is
now re-named Motors Liquidation Company. I have not analyzed it but my
understanding is that these shares are worthless. The new GM is General Motors
Company and has no trading shares.


In fact, the old GM states on its Web Site


Management continues to remind investors of its strong belief
that there will be no value for the common stockholders of Motors Liquidation
Company in the bankruptcy liquidation process, even under the most optimistic of
scenarios. Stockholders of a company in chapter 11 generally receive value only
if all claims of the company’s secured and unsecured creditors are fully
satisfied. In this case, management strongly believes all such claims will not
be fully satisfied, leading to its conclusion that the common stock of Motors
Liquidation Company will have no value.


These old GM shares trade only on “Pink sheets”. It was halted on New York
some time ago.


In all the press coverage about this so-called emergence from bankruptcy I
saw not one mention that the old GM shares had NOTHING to do with this company.


The old GM shares should be a no-brainer short, they will be going to zero.
But the last time I tried a similar short was when Air Canada was going bankrupt
and the worthless AC shares kept trading over a dollar and eventually TD
Waterhouse forced all shorts to cover and I made no money on it. So, I am not
sure I will try to short this. But I just might throw a few dollars at it
tomorrow morning if it is still trading over $1.00.


July  10, 2009


Performance figures for 2009 are updated.
Our Picks from January 1, 2009 are on average slightly behind the TSX but well
ahead of the American stock indexes. My own portfolio is up 20% which easily
beats the TSX, The reason for the better performance is that my own portfolio
incorporates modest trading throughout the year based on the analysis of this
Site and my portfolio is more heavily weighted to the picks I like best and I
recently benefited from a double bear position equal to about 28% of my
portfolio (14% in HXD times the two factor).


I decided to sell about 40% of my HXD double bear position today. Partly it
was because I had a gain on this and it had risen nicely in the past couple of
weeks as the market fell. Also selling this would give me cash to invest. In
addition a number of articles have pointed out that leveraged ETFs work best for
very short term bets and not so well in long term. If the market rises and HXD
falls then I could buy this back but for now I took my profit.


I also bought today additional shares in Wells Fargo.


Also I entered orders to add to Shaw Communications and Melcor. I entered
these a bit below the market price.


July 9, 2009


It is always dangerous to try to predict the markets. CIBC says hold stocks
for small gains by year-end.


On the other hand we see that California is basically paying people with
post-dated cheques now that bear a bit of interest. We see unemployment
continuing to rise and we see retail sales down. Q2 earnings reports are
expected to be quite weak in most cases.  In this environment it hardly
seems safe to be very bullish. A more rationale outlook would be somewhere
between cautious optimism at best and rabid fear at worse.


Personally I am heavily invested in equities but have hedged (albeit
imperfectly) about a third of my position using the HXD double bear. I am always
of the view that my stocks will do better than the market on average.


July 8, 2009


We are now into earnings season. (Firstly the U.S. then Canada) Therefore
markets could lurch around due to earnings reports as well as due to the usual
economic reports.


I am tempted to buy Canadian Western Bank and Wells Fargo on this dip. I may
do so or I may wait and see if the market continues down. I don’t have anything
in mind to sell at this time. Possibly I will lighten up on my HXD double bear
if it keeps rising but in general it makes to sense to keep this as my partial
hedge against a further market drop.


July 7, 2009


A down day today… An order I had placed yesterday to sell some Boston Pizza
was filled today.


I bought a bit more Aeroplan on its dip as well as more Shaw Communications.
I can’t guess how far teh market will drop but I do hope use the opportunity to
add to positions at lower prices. Meanwhile my position in HXD the double bear
has somewhat protected me from the decline.


July 6, 2009


One stock that bucked today’s down-draft was Melcor Developments. I read
their 2008 annual report yesterday and they continue to strike me as an honest
and well managed company that will do well over the years.


Boston Pizza also did well. I placed an order to sell just a few shares here
at $10.25 to take advantage of the shares moving up.


July 4, 2009


Walgreen, the huge U.S. drug store
chain, is updated and rated Buy at $29.80. It closed last at $28.70. It should
be a good long-term investment. Our strategy would be to average into this one.


July 2, 2009


A bad day in the markets and my guess is that we will see more bad days than
good days in the next couple of months. If so, it will be an opportunity to add
to positions in strong profitable companies.


July 1, 2009


Canadian markets were closed today.


Air Canada has more trouble since a union voted against a plan that would
have relieved Air Canada from some pension payments. This leads to talk of
bankruptcy and could hurt Aeroplan shares.


Regarding Western Financial Group, all this talk of drought in the West is a
worry given that they bought a Agri-financial a firm which lends money to
farmers. I may sell more of my Western Financial to reduce my risk. However this
risk may not materialize until late in the year if and when it turns out that
farmers can’t pay back their crop loans.


June 29, 2009


Aeroplan announced today a
loan to Air Canada I guess this does illustrate how weak Air Canada is and also
the fact that Aeroplan does rather depend on Air Canada to be there. I mean
Aeroplan could I think easily survive another bankruptcy of Air Canada as I
expect Air Canada would keep flying but still it would hurt Aeroplan for a
time. I am not sure if this loan will be viewed s a positive or a negative
overall for Aeroplan.


I bought 500 shares of Shaw Communications today at $19.50. I may buy another
500 if the price falls to say $18 or so.


Kingsway is buying back a portion of its Linked Return of Capital units (KSP.un)
They will buy back at $1, while the units have a face value of $25. Given the
risks of Kingsway these recently traded around $11. But ultimate if Kingsway
survives they are supposed to pay off at $25 in 2016. If Kingsway is confident
it will survive then this is a smart move and I believe they will book a gain as
a $25 liability is extinguished at a cost of $12. One of the investors of
Kingsway is tendering at $12 but since he owns a lot of both Kingsway
corporation and these linked units he may be indifferent plus he may be trying
to prime the pump. I am not sure that I would tender. Probably if I held these
units I would tender half and keep half.


This could be a positive indicator for Kingsway itself but I have about given
up trying to understand this company. It’s former management was it seems
totally inept. It will be hard to turn around a culture of stupidity like that.


June 27, 2009


Aeroplan is updated and rated
(higher) Buy at $8.30. The most recent quarter saw no growth in gross sales of aeroplan
points as people cut back on Aeroplan credit card spending possibly due to the
recession. Adjusted earnings were down substantially partially due to income
taxes and currency fluctuations. The share still look attractive. I have a
substantial position and will wait to see the Q2 earnings in late July or early
August before I will buy additional shares.


Shaw Communications is updated and rated (lower) Strong Buy at $19.77. This
company appears to be good value. It’s revenues and growth have so far been
unaffected by the recession and growth should continue. I hold shares but intend
to increase my position.


I have updated the composition of my personal
portfolio to reflect recent trades (which individually had been previously
disclosed in the daily notes since the last update of this composition).


This Web Site was started 10 years ago in June 1999.  At the end of 1999
our portfolio totaled $92,888. Ten years later we have contributed an additional
$198,043  and made market gains of $320,547 bringing the portfolio to
$611,478. Which is exceptional performance especially when we consider the two
huge market crashes of the past decade.


June 25, 2009


Most stocks were up today. I lost on my HXD double bear, but that is the
price of having insurance against a market decline. I suspect there will be lots
of days when the bear does protect me.


June 24, 2009


Stantec is updated and rated
(higher) buy. While the stock has been variable the company has steadily
increased earnings.


June 23, 2009


I am quite tempted to add to my Melcor position now that it is back under
$6.00. This is thinly traded and can be volatile and is linked to housing starts
in Alberta. But ultimately I think it will be a good investment.


I was mildly tempted to cash in some of my HXD double bear to take profits on
that but prefer to keep it as insurance though I may enter an order to sell a
little at a higher price.


June 22, 2009


A nasty day with the TSX down 4.4%. The savings grace for my own portfolio
was my double bear position HXD that cushioned the blow. I may wait and see if
this pull-back continues before looking to do any bargain hunting.


June 20, 2009


I may purchase shares in the TSX
Group, there seem to be a lot of IPOs and secondary share offerings and this
helps TSX. The recovery in the market also helps.


I would sell Manulife.


I am removing Manulife from the list above. It has been a long time since I
updated. Also I have always said it is a very complicated company to analyse.


In today’s news I see that the Ontario Securities Commission is investigating
Manulife in regards to it not disclosing the risks it was taking when it sold
certain investments that protected investors from stock market declines.
Manulife shareholders took the risk on those products and huge losses have


The long-standing CFO at Manulife, Peter Rubenovitch is retiring from
company which the company says is an unrelated event. It probably is unrelated
given that Rubenovitch is staying on for a transition period.


Given the news of this investigation I would be inclined to sell Manulife (I
don’t hold any).


Prior to Manulife’s toubles in the last year or so, it was a high-flyer but I
was always a little leery that it was too good to be true. For example picking a
date a few years agai here is what we said under Accounting in my update of
February 20, 2008 when the shares were much higher at $40.28.



ACCOUNTING AND DISCLOSURE ISSUES: Life insurance accounting is complex and
based largely on estimates and smoothing as explained under quality of earnings.
We found the disclosure to be extensive but not very helpful or user friendly.
See also comments under quality of earnings and quality of assets. The company
reports in Canadian dollars although about 75% of the business is outside
Canada, this can distort results. We find it extremely hard to understand why
the company was not hurt badly by declining long-term interest rates over the
past few years. Now they are saying that higher interest rates in 2006 will help
them which only adds to our confusion regarding the lack of impact of lower
rates in the past. In the Q4 press release there many statements that various
divisions were assisted by higher equity markets, but this impact was not
quantified in any way in the press release. The Assumed discount rate applied to
policy liabilities is hugely important and seemed optimistically high at 8.25%
in Canada and 8.75% in the U.S. This was the same as the assumed equity return
which also seems moderately high. It seems strange they would use an equity
level discount rate when most of their investments are bonds.


Under Risks we said  (and we said this for many years)


RISKS: A full analysis of risks is well beyond the scope of this report.
Earnings are dependent on stock market performance of investments to some
degree. Earnings are also very much subject to actuarial estimates. In fact this
company is potentially susceptible to
ENRON-like surprises
since the balance sheet is largely based on
actuarial estimates. However ENRON like surprises are not that likely due to
insurance company financial regulations. In fact, the company appears to be
indicating that the balance sheet is conservatively stated. The
way the earnings have trended up so smoothly, in Canadian dollars, seems almost
too good to be true
given so much of the revenue is earned in U.S.
dollars and given the increase in the Canadian dollars and the decrease in
interest rates over the past six years. But we have no indication that earnings
are being improperly smoothed… (high-light added)


Under Earnings Quality we said:


Quality of Earnings Measurement and Persistence: Lower certainty of Earnings
Measurement and Persistence. Earnings are determined by actuaries who must
estimate liabilities due to future death and health benefit claims. Also many
gains or losses on investments are smoothed into earnings.
Clearly then earnings are estimated
rather than observable.
However, these estimates are subject to
regulations. The pension obligation is not that large compared to the size of
the company but the pension accounting has not been very conservative and causes
earnings to be over-stated. One danger
might be a temptation by management to smooth and manipulate earnings
Substantial income taxes are being deferred which adds to quality. Experience
gains accounted for 26% of pre-tax earnings in 2006 and 16% in 2005. We are not
all convinced that this is sustainable.



My point is that Manulife is possibly also susceptible to investigations of
how it calculated earnings. I have not heard any suggestion or made any
suggestion that any such investigation is warranted. But my thought is that
given they are one investigation it could always expand. I find this company
very difficult to analyze and personally would sell and invest in something
easier to understand at this point.




I am also removing Kingsway from the list above as another company that is
very difficult to analyse.




June 18, 2009


wal*mart is updated and rated
(higher) Buy at $49.00 (it closed today at $$48.68). This company appears to be
relatively cheap based on past performance. It had powered though most of the
recession. It is a chance to own the world’s greatest retailer at a a reasonable


Target is updated and rated Buy at
$38.92 (it closed to today at $39.00) Target seems reasonably priced but its
earnings have been declining with the recession. I prefer Wal Mart which has
grown despite the recession.


Staples is updated and is rated (lower)
Buy at $20.05 (it closed today at $20.30). At this point with the recession
still on, this is not a stock I am interesting in buying. But it is worth
keeping an eye on.


No trades for me today.


June 17, 2009


Melcor dropped 9% today on modest volume. This may have been because it was
dropped from the “Dividend Aristocrats Index”. That kind of thing can cause a
stock to drop but does not change the true value of the company. With oil around
$70 and with Melcor’s book value at around $9.61 it seems to me that this will
be a good investment and that the pull-back is an opportunity to buy. In the
short term this depends on building lot sales mostly in Alberta and I am not
clear as to whether the recent stronger housing market is leading developers to
buy lots.


My portfolio is defensive but can still suffer large volatility (polite word
for losses) since I have a high exposure to illiquid small stocks like Melcor
and generally have a concentrated portfolio.


A couple of orders I had placed a few weeks ago were filled today.


First a sale of a small amount of my double bear HXD as it rose today. My HXD
position gained nicely today as the TSX fell. HXD gave me some protection today
but I still lost ground due to my large position in Melcor and Aeroplan.


Second I bought 200 shares of Visa as its price fell.


June 16, 2009


An interesting day as markets were first up, making my double bear look like
expensive insurance for an event that was not happening, but by the end of the
day the market was down while Picks like Aeroplan were up and so my insurance
paid off on this day at least. I plan to have some updated reports by Sunday.


June 15, 2009


Markets were down about 2% today which high lights the fact that it pays to
take a defensive posture at this time. I sold more of my Canadian Western bank
and also added to my TSX double bear HXD position.


June 14, 2009


The Toronto Stock index is up an amazing 42% since the lows of around March
9. And the S&P 500 index is up the same 42%.


And markets don’t usually go up in straight lines. For most investors it is a
good idea to take a serious look at teking some profits and generally adopting a
more defensive position.


After these gains, even though they were from deep lows, it is easy to start
feeling somewhat “fat and happy”. And it can be hard to take profits for fear of
missing out on the trend to gains.


Personally I think it is time for me to look very hard at taking some money
off the table. On Friday I sold about 30% of my Canadian Western Bank shares and
did so with mixed feelings. But I think it was definitely the right thing to do.


I do find it hard to choose which stocks to see since I do like all of my
major holdings. So what I may do is simply add to my “insurance” position by
buying more of the HXD double bear. I will lose on that if the TSX continues to
rise perhaps pushed up by oil, financials and resources. But there are also lots
of scenarios under which the TSX can fall and since I built up a worthwhile
portfolio, and my stage of life I am now in bigger need of insurance against
loss than I am in need of gains.


Investors should think about their own need for gains versus need for
protection against loss and think about the fact that the market has risen 42%
in three months and consider if somewhat less exposure to equities is
appropriate at this point.


June 11, 2009


This week I have been enjoying the ride upwards. Hoping it keeps going.
Aeroplan and Canadian Western Bank were both strong today. My double bear
position taken out as a modest insurance against a market fall has cost me some
losses. But I can’t complain given the strong gains and given that the bear does
smooth things out so that my losses on the bad days are lessened.


I will have a number of updated stock reports within about 1 week as a number
are “in the hopper”.


June 10, 2009


Oil is now over $72. Canadian Oils Sands Trust has not risen accordingly and
seems attractively priced at about $28.61.


Portfolios have done well lately but now is not the time to get complacent.
The only certainty in the markets is as always, uncertainty.


However, possibly in a sign that I am getting too complacent however, I
removed my order to sell some of my Aeroplan at $8.40. I prefer to wait for a
higher price before selling any.


June 9, 2009


It was another good day for our stocks picks, which was nice on a day of flat


The rebound since March 9 has really been quite huge. The money I lost in
2008 (and who didn’t lose in 2008?) I have now almost fully recouped in 2009.
However I expect to be in for my share of volatilty both up and down as 2009


I took a look at insider trading on most of the Canadian stocks on our list.
(AER, CWB, WES, Shaw, Melcor, Dalsa, BP, COS, CTR.A and CNR). In none of these
cases did I see enough recent buying or selling to give any particular signal.


Oil is over $70 and i suspect that will help Melcor and Canadian Oils Sands,
and Western Financial and others with activity inWestern Canada. I had an order
in to sell some Melcor if it gets to $7.39. It hit $7.38 tody but I have now
decided not to sell.The idea of selling was to take advantage of volatility. But
I feel Melcor could be on more of a trend higher rather than just volatility and
so I figured i would regret selling.


June 8, 2009


Canadian Western bank had continued to rise and closed at $15.96. That is
close to a double since we last updated it as A Strong Buy on Mar 6 at $8.40.


One stock that did fall much back in march and which has not risen much is
Shaw Communications. I continue to like this company and may add to my position.


June 7, 2009


The Performance figures for 2009 are


June 4, 2009


Any subscribers living in Alberta and looking for a mortgage , new or renewal
including for investment purposes should consider Alberta Treasury Branches.
Insanely enough they are offering 3.5% locked in for five years. This is on
right now and ends on June 15. It was supposed to go all month but they are
increasing to 3.7% on June 16. I believe the money can be arranged now and has
to be taken by around early September. They also offer an 10 year rate locked at


The contact at ATB is


Brian Koziol

ATB Financial

(780) 422-8430


I don’t know Brian but I have friends at ATB and they recommended this contact.
I am not benefiting in any way from referring you to ATB, I just think this is a
great rate.


For those in Canada but outside Alberta one of the best mortgage rates in the
market is always at ING Direct. They are offering 3.79%.


I am almost tempted to take out a couple hundred grand from ATB (my house is
mortgage free) and invest it. It would not seem hard to beat the 3.5% cost…
and there are five year corporate bonds and various preferred shares where you
could almost) lock in a good profit. There would always be the chance that your
investment tanked so it would make sense to try and find about four investments
to spread this around in.


the advice is to avoid borrowing to invest. It would be ugly to do this and then
lose your job. Even if the investments were paying the mortgage it would be
added stress. But a 3.5% five year mortgage is not normal. For those who can
take the risk of borrowing to invst it definitely has possibilities.


The other route is to borrow on a line of credit
secured which you can get at about 2.75%, but I like the idea of locking in.


If you live in Calgary and fear a house price
drop and are mortgage free, consider mortgaging up 80% (the limit to avoid CMHC
insurance) then if in the unlikely event that houses drop 50% you lose 20% and
walk…If it is a CMHC mortgage you cannot walk, you would still owe the money.
Non-CMHC I understand you can legally walk, although it may stain your credit
rating somewhat. Not something I really recommend but it is a thought for those
sitting on say a million dollar house and scared of a price tumble. (Don’t tell
ATB I suggested this!) And if you do this with the intent to invest the proceeds
and then prices happen to tumble like that…


Oil was up almost $3.00 today and is now just under $70. It seems to me that
Canadian Oil Sands Trust is attracive at around $28, given this oil price. This
oil price will also help Melcor and Canadian Western bank and Western Financial
Group which depend on a strong Alberta economy.


Canadian Western bank released earnings today that while lower than the same
quarter last year were reasonably good given the financial market conditions
this year. They expect improvements ahead.


June 3, 2009


A pull-back on Toronto today of a noticeable 2.8%. I would not be surprised
to see a trend to a market decline but then again short-term market moves re
impossible to forecast.


In my own account my double bear position in HXD cushioned the blow. And I
picked up some more Canadian Oil Sands trust from an order I had placed a few
days ago at $27.10 when the “company” was trading at about $29.50. So it goes to
show that “cheaping out” can work at times. I did not want to go too cheap
though since I could use a larger position in oil.


June 2, 2009


Notable winners today were Melcor (but very small volume) Dalsa and Canadian
Tire, Western Financial Group and  and First Service Preferred. Quietly my
own portfolio has reached its high point for the year and that is despite some
losses on mu HXD position the double bear that I took out as insurance against a


I remain cautious and would not be surprised to see a pull-back.


June 1, 2009


So the market was up strongly today in spite of the GM bankruptcy.


This goes to show how very difficult it is to predict the short-term
direction of the market.


It also reflects that fact that the market reacts to unexpected news and not
so much to expected news. Expected news tends to be “priced in” and it the
deviations away from expected that drives things.


In my own trading I added a little more to my double bear position in HXD on
Toronto as its price declined.


Overall a good day for our stocks…


With oil around $68, I am wishing I had more oil stocks. I entered an order
to buy more Canadian Oil Sands Trust but decided to cheap out and only buy if it
falls to $27.10.


May 31, 2009


Apparently General Motors is officially bankrupt. After circling the drain
for some years it will sink into bankruptcy tomorrow (Monday) but hopefully will
not make an awful gurgling sound as it goes down the drain since this has been
totally predicted for some time now.


Asian market are up tonight… It’s hard to imagine we will have a positive
week for the markets with this news. I mean we knew it was happening but
tomorrow we may focus on the job loss numbers. Some of GM will still be open but
many plants are closing.


Unemployment is nasty and can certainty lead to even more layoffs when you
get enough layoffs in one area…


Oil at $66 U.S. is good for Alberta, not so good for most of North


May 30, 2009


A subscriber had the following question on
Boston Pizza Royalties Income


The yield looks amazing. Can you please tell me what you think the worst
case scenario would be for bpf come 2011.


Here is my answer:


Investors should  would count on about a 29% reduction
in the distribution at that time so we should consider the yield to be about 70%
of what it is now. That’s probably not so much a worse case but almost a
certainty. This Trust by in unusual nature (it just receives a royalty and
distributes it, it actually has no assets to take capital cost allowance on…)
will have no ability to avoid the tax. Even if they convert to a corporation I
think the same 29% will apply.


Even with a 29% drop in distribution, Boston Pizza would
yield 10.2% which is very attractive.


(Our last report indicated 26% tax rate which may be what
the company stated but for worst case assume about 29% reduction at that time
due to taxation)


In our intrinsic value calculation we cut the distribution/
earnings by 25% (slightly lower than the actual expected cut because it is in
the future…)


The other issue is will the economy cause a distribution
cut? Again by the strange nature of this one where it skims a royalty (like a
franchise fee) off the top of eligible restaurant sales (excludes booze) it is
far more certain than the profits of the restaurants. Imagine same -store sales
drop 10% due to the recession, Profits for the individual restaurant owner could
drop very substantially and profits for the Franchise company Boston Pizza
International could drop substantially and yet the profits of the Trust
available for distributions only drop with same-store restaurant sales or 10%.


Of course if recession drives sales down by 20% then the
distribution would have to cut about 20% but that seems unlikely.


Keep in mind that new restaurant openings add almost
nothing to the distribution because the Trust has to give units to Bston Pizza
International such that it almost eliminates the gain from new restaurants. On
the other hand The Trust deducts from the new units owed to Boston Pizza
International, an amount of units to make the Trust whole for any closed
restaurants. So, closures do not affect the distribution UNLESS the revenue loss
on closure exceeds the revenue gain on new openings. In summary new openings
don’t really benefit investors except by a very tiny amount and closures don’t
hurt investors unless they exceed new openings.


In past yeas distribution were growing along with same
store sales. The current outlook is probably for little or no growth in
distributions, maybe even a small cut due to recession. And then the 29%
tax-related cut is layered on top of that.


I think in business there is always some non-zero but very
tiny chance of a doomsday event and so no one can guarantee that some strange
event would not cut distributions. For example if restaurant owners saw their
profits evaporate and demanded a cut to the royalty payment. Or the Trust get
sued for some reason. Or the next Flue scare really scares us and people avoid
restaurants in droves. The small chance that these things could occur is part of
the reason we diversify. We should never put too much in one company given these
type of possible but very unlikely doomsday scenarios. I have about 8% of my
portfolio in Boston Pizza.


Another consideration is the unit price. It had fallen very
briefly to the $7 range from an historic high of around $18. In recently spend
several months in the $8 to $9 range and is currently at $9.60 having briefly
risen to $10. prices are always volatile on the market… It could dip if it
announces exactly what it will do in 2011 or could drop then when it cuts the
distribution. Maybe it won’t since the distribution cut is well know to be
coming. But chances are it would dip at that time. But meanwhile if a
distribution cut comes early in 2011 we will have collected around 21% in
distributions by them.


Yet another consideration; for those who hold Boston Pizza
in an RRSP / RESP account the cut in distribution would be a loss. However, for
those who hold in taxable accounts, the new lower distribution in 2011 would be
eligible for the dividend tax credit and the after tax income to the investor
would not change much at all. Current distributions are fully taxable like


May 27, 2009


Markets continue to gyrate with a drop today that went a long way to
eliminating the gains of yesterday. In my own portfolio,  Melcor rose on
thin Volume and triggered a sell order on a small potion of my holdings in
Melcor. This is not a company I want to sell but I am using a strategy to sell a
small amount of various stocks on rallies. Also An order I had placed the
previous evening to add to my bear fund HXD was filled. The bear fund protected
me from losses today.


May 26, 2009


A good day in the markets. My own gains were offset by losses on my double
bear position. I entered an order to add to my bear position if the market is
still at about the same level or higher tomorrow. Stocks went up because of a
surprising surge in U.S. consumer confidence. The latest house price index
results show house prices were still declining as of March.


May 25, 2009


I sold about 20% of my Western Financial Group shares today. I hated to sell
now after the stock is way down. But at least it is up from its lows. It should
do well eventually but my latest analysis indicated it is risky and so i sold to
reduce risk. I have an order in to sell more if it rises to $2.15. If it should
go the other way back to the $1.70 range I might buy back.


May 24, 2009


In order to reduce risk I have placed an order to sell a small portion of my
Western Financial Group at the last traded price, also to sell more if the price
rises modestly which would reduce my position in it by about 40%.


To hopefully take advantage of volatility I also have placed orders to sell
small amounts of Canadian Tire, Aeroplan and Boston Pizza but only if we see a
gain of roughly 10%.


May 23, 2009


Western Financial Group
is updated and now rated only a Speculative Weak Buy at $1.88. This is based on
a weak although not disastrous Q1. The common equity is highly leveraged (about
five times) and therefore this has the potential to be a winner but also could
be a total loss if job losses result in too many loan defaults at its banking
operation. Its core brokerage operation is stable however. Personally I allowed
myself to get over-exposed to this stock by buying on the way down. I will plan
to reduce my holdings especially if the share price remains about $1.85 or


It’s preferred shares are a safer
investment but lack the potential upside of the common shares. I have had an
order in to buy the preferred but have tried without success to get them at a
price lower than the current offered price. (I was hoping the price would dip
and my order would be filled).


I notice Quest Capital which is no longer included on our list is up around
$1.02. This company lends money mostly on condo construction projects. The
attraction is that the boo value per share is about $1.95. However it appears to
be in somewhat of a panic mode and is reducing costs. It is lending little or no
new money and is trying to collect on existing loans. The CEO has just left.
This seems highly speculative. If I held shares I would sell. In fact I did sell
earlier at a somewhat lower price, but I have no regrets.


May 21, 2009


A negative day for markets in Canada. And that was in site of oil being up
lightly today.


My HXD double bear position cushioned some of the blow.


I notice Sino-Forest is issuing shares at $11.00. I no longer follow it. It
often seemed to be reporting strong profits but I was uncomfortable with changes
in its business plan. (First the profit was supposed to be in planted trees that
would grow in seven years or even five, last I checked that profit never
materialized but they started making a lot of money by selling trees on the
stump that they had bought but not grown themselves – curious why there would be
big profit in that. At one time they were supposed to have a bunch of mills to
make lumber and that never worked out. At one time their reports implied that
they had mills to chip wood, later it seemed to be revealed that the chip mills
were not owned, they paid to have logs chipped. For a variety of such reasons I
simply felt I personally was not willing to trust them. On the other hand they
had an S&P debt rating and so one would think they could be trusted.


I would make the point that they are supposed to be a high profit company yet
they have never paid a dividend and now they need cash. Sure they are growing
but when will cash stream out of the company?




May 20, 2009


No trades for me today. This evening the Far East markets are down just over
1%. It seems to me that markets are looking vulnerable at this time.


The pathetic saga at Kingsway continues. Their CFO “has left the
organization”. whether she left on her own or was escorted out the door, they
don’ say.  As they have an outsider as interim CFO it sounds like they
pushed her out. That’s okay since she was part of the old guard, I think it is
best for her to be gone. But it somehow disgusts me to see that the company does
not even offer the usual perfunctory best wishes or any thanks whatsoever for
past service. Ms. Gobin believed in Kingsway and was a buyer of shares over the
years.  On a similar note on April 23, this POS company announced it had a
new CEO and did not even have the courtesy to mention the name of the departing
CEO, Shaun Jackson. As poor a manager as Jackson was he deserved the courtesy of
some kind of mention. Over the years he was likely only doing the bidding of the
founder one Bill Starr.,


Overall it seems that Kingsway continues to be a pathetic excuse of a company
and I am now sorry I ever thought that they were a good investment. Now having
said that with the shares at $2.50 or so and under half of book there is
potential for t to be turned around. But I don’t see any hopeful signs yet. I
mean they apparently just finished selling off all their equity investments at
just about the very bottom of the market. How dumb was that?


Buffet says don’t invest unless you respect management. In my reports I
believe I indicated for a very long time that management was  weak, but I
failed to count that as a deal-breaker, I invested despite a lack of respect for
management. Lesson learned.


May 19, 2009


At the opening this morning I bought back the Canadian Oil sands shares that
I had sold on May 7 and April 2 . I sold at $27.99 and $26.53 and bought back at
$25.55. A rather small profit but still I took advantage of volatility and now
have the shares back and expect them to do well long term.


Today the Canadian market was strong as it caught up to the big U.S. rally on
Monday when Canada was closed.


My outlook is moderately defensive, mostly fully invested with little cash
but I have a small position in the TSX double bear to partly hedge my position.
In buying I am inclined to be patient, place a bid below market. In selling it
may not be a bad idea for those with little cash to trim positions on rallies
and build cash.




May 18, 2009


I sold my eBay shares this morning. I have mixed feeling s about that since
it should do well long-term. I could have kept some and sold some but decided
just to sell it all. The Canadian markets are closed today. The one U.S. stock
on our list that I am considering buying is Visa. But rather than pay the ask I
may place an order a few dollars below the market. Markets were strong in the
this U.S. this morning but I suspect the gyrations in both directions will


May 17, 2009


Reitmans is updated and rated
Speculative (lower) Buy at $11.10. It closed Friday at $12.59. On a trailing
basis its valuation look s good. However the latest quarter reported being the
quarter ended January 31, 2009 was very weak in terms of earnings. At this point
we would wait to see the earnings stabilize or begin to climb on a
year-over-year basis before investing. (It’s rated a Speculative (lower) Buy
which means we expect it would be a reasonable investment but there are lots of
higher rated stocks on this Site and therefore I personally would not buy this
one at this time.


MicroSoft is updated and rate
Buy at $20.11. This may be an opportunity to acquire a very strong company at a
reasonable price. However the earnings trend was recently negative and therefore
the share price may be volatile in the near term. As our last update on February
25 it had dipped down to $16.42 and we rated it strong Buy and that did prove to
be a good buying opportunity. Since then while the longer-term outlook is good,
the earnings did decline in the latest quarter versus the year earlier and the
price has also risen and our rating has decline to “Buy”.


Canadian Oil sands Trust
is updated and rated Buy at $25.62 (subsequent to our analysis the price dipped
and it closed Friday at $24.07). The direction of this stock is of course
heavily driven by oil prices. I am very much inclined to increase my position in
this “stock”.


May 16, 2009


eBay is updated and rated
Speculative (lower) Buy at $17.28. It closed Friday at $16.91. It’s very strong
positions in PayPal and its ebay marketplace site are attractive competitive
advantages. It’s trading at a relatively low P/E but earnings are dropping. At
our last update on February 25 we liked it at $11.73. But we are cooler to it at
the $17 range. Also their recent decision to effectively re-price stock options
is despicable. Their Skype division seems to be gaining traction and I think the
fact that Oprah is using it on her show is a very positive indicator. It is
being sold off in an IPO in 2010. As long as they don’t sell too early into a
weak market that is a big plus. While I like eBay for the long-term, the
short-term could see a lower share price and I plan to reduce my personal


Visa is updated and is rated Buy at
$64.14, (it closed Friday at $65.07) no significant change since our last update
of this one which was only a few weeks ago on April 19.  The reason for
looking at this is that it clearly has oligopolistic and even some monopolistic
characteristics (If you own a store you are all-but forced to accept VISA).
Companies like this are almost always somewhat expensive in terms of value
ratios. And that is the case here it does not seem like a screaming buy. But it
may be worth buying given its characteristics. My strategy would be to
establish a smaller initial position, or wait and see if the price dips.

It will release earnings at the end of this month which may (or may not) show it
was hurt by the recession. I would be particularly interested in buying on a dip
back below $55 which is certainly very possible. Given that there are many
bargains in the market and that markets in general could easily pull-back, it
makes sense to be patient and selective with your buys.


May 14, 2009


Markets continue to gyrate. With
stocks up today I added somewhat to my hedge by buying more of the double bear
HXD fund.


Western Financial Group reported first quarter results after the close today.
The bottom line is poor, they basically broke even and made zero cents per share
down from 4 cents last year. As feared they had higher loan losses though not as
high as I feared it might be. The biggest problem appears to be their recent
Agri Financial acquisition which saddled them with expenses but which apparently
makes most of its revenue in Spring and Summer. Revenues were up 6% in its main
business – the insurance brokerage offices. Revenues (including investment
income) were down very slightly in life insurance.


Overall not a good result in Q1. I suspect the shares will dip again on this
news. Longer term it may still be a good investment but it certainly is going to
have to get back to making a profit before the market is going to push the
shares up. If the market reacts quite negatively to this news then it might be
an opportunity buy some of its preferred shares. (See bottom row in our stock
tables above). I might buy some of those if they come down towards $50 from the
current $58 range.


May 13, 2009


The market decline was expected after the big run-up and appears set to get
worse. Portfolios can still be partially hedged by buying the double bear ETFs.


I view the decline in Aeroplan as a buying opportunity although there appears
to certainly be ne hurry to buy.


The silver lining of this decline is that there are or will be opportunities
to pick up bargains. For the moment I am not in a hurry to either buy or sell.


We’ll have a number of updated reports to post this coming weekend.


May 12, 2009


Aeroplan released earnings this morning and they were definitely not as good
as I hoped. With all the Aeroplan promotions including bonus miles for new
credit cards and things like triple aeroplan miles at Home Hardware and with the
addition of Sobeys I had though that the cash sales of points would be up.
Instead it was down very slightly. In Canada this appears to be due to lower
credit card use as consumers retrench with the recession. In the much smaller
European segment point cash sales were down due to currency impacts and due to
the loss of two partners at Nectar.


Redemptions of Aeroplan points remained surprisingly strong. Redemptions are
good for GAAP earnings although they hurt cashflow.


GAAP earnings were down substantially due to operating factors but also due
to the currency impact and the fact that Aeroplan was a taxable entity this
quarter but not in the same quarter last year. The drop in GAAP net income
overstates the extent to which ongoing profits are down.


I was being optimistic to think that Aeroplan could keep growing in this
recession. However with its gross cash sales of points down only 5% in the
quarter and that partly due to currency impacts, it is not such a bad
performance. Aeroplan is ultimately in the business of promoting sales for Air
Canada, CIBC, AMEX and other partners. In this sense Aeroplan competes against
other forms of promotion such as advertising. While Aeroplan’s billings were
down 5% the billings of advertising businesses like newspapers and television
have been devastated. Therefore on relative terms Aeroplan is doing well.


However, with the ongoing recession it appears that things will continue to
be slow. At this point I cannot expect to see increases in earnings in Q2
(although the currency impact in Q2 will likely be positive rather than


The share price could still rise if valuations in the market generally rise
(higher P/E ratios, lower dividend yields) as the credit crisis eases. If that
does not happen then the share price could fall if Q2 is another somewhat weak


Overall my outlook for Aeroplan has dimmed somewhat but it still pays a good
dividend and it remains a strong cash generating company. Personally I am
over-exposed to this company and so I will have to be inclined to hope to reduce
my position on any price increase. If I was not already so heavily invested in
it then I would be looking to add to my position on dips.


Other News


Meanwhile Melcor and Western Financial Group did well today but those two can
be quite volatile and so day to day price movements mean little. Western
Financial Group seems a bit late releasing earnings compared to last year.




May 11, 2009


I did buy a ,modest amount of the double bear ETF HXD, to try and protect the
recent gains. This position is not that large, one reason being that there was
not that much cash in my account to buy the bear fund.


I sold another 50% of my Wells Fargo to take profits and because this stock
could easily pull-back after it recent huge run.


I had an order in to sell a small amount of my Melcor and that did sell today
when the price rose.


Tomorrow, Tuesday, Aeroplan will release earnings. Apparently they plan to
release before market opening and the expected earnings is 26 cents versus 31
cents last year. My belief is that in the case of Aeroplan for a variety of
reasons the GAAP earnings are not reliable and we need to look at adjusted
earnings compared to the prior year. In any event we will see where it goes


May 10, 2009


Given the big run up in the markets, we should not be surprised if the next
move is down.


Also, with this surge my own portfolio is back to being in decent shape,
still down from its peak but still with a good return over the years. Therefore
I am thinking a bit about how to protect against a decline. I tend to find it
hard to sell what I own since these stocks still seem to be at good values. One
possibility is to buy some HXD on Toronto which is the double bear fund that
declines if the TSX 60 index goes down (Basically 60 of the largest stocks on
the TSX). I find it a bit hard to do this as well since fundamentally it is a
bet that markets will decline. But is one looks at it as purely being insurance
and not a “bet” then it may make sense at this point.


The stock market has certainly been doing better than the real economy, and
therefore the gain could seem over-done. On the other hand stocks fell a lot
harder than the real economy in 2008 and so it makes sense that they now
out-perform. My worry is that major bad economic news like lower world trade
could certainly cause the market to pull-back.


Over time I am still confident that markets will do well, but for short-term
purposes we certainly can’t count on the rally continuing or that stocks will
not pull back. I have never claimed to predict where markets will go in the
short-term. But by trying to select individual companies that appear to be
strong and well-priced, then I hope to continue to out-perform.


Aeroplan will report on Tuesday. On a GAAP earnings basis I am not sure if
they will show an increase. GAPP earnings are driven by the cashing in of points
(mostly for flights). Air Canada traffic was down some 10% and so it may be hard
for Aeroplan to have had an increase in points usage versus last year. But then
again I believe Air Canada has opened up a lot more reward seats this year and
has been more than willing to accept the cash from Aeroplan when Aeroplan
members use points. (In fact Air Canada has been desperate for such cash)


Aeroplan, I am almost certain will report good cash flows from the issuance
of aeroplan points. This flows to earnings on a delayed basis. But certainly all
the aeroplan partners have been running specials trying to lure shoppers in by
giving extra aeroplan points. This should improve the cash flow from sale of
points. On the other hand I don’t know what has been happening in the U.K. with
its Nectar points in that market or its small Airmiles operation in the arab


Overall I am hoping for good results from Aeroplan. What really counts is
whether they do better ort worse than expected by analysts.


Regarding Wells Fargo, it jumped a LOT last week to $28.18. This is despite
announcing a large share issuance at $22. Buffett has been saying this is a
great company for years and repeatedly in the last six months or so. People
ignored him as it plunged as low as $8 in that period when it looked like more
large banks might go bust. Now everyone is on the band-wagon. Personally I find
I am not about to buy it at $28 having watched it soar from $8 (I did buy some
at much lower prices but sold half too early around $18). I would buy more if it
came back to say $20. Banking is somewhat of a commodity business, although it
does have the advantage that customers tend to be somewhat sticky. What Buffett
likes about Wells Fargo is it has among the lowest cost of funds (it gets cheap
funds to lend through its huge branch network). Second and perhaps most
important its management, unlike apparently most bank managers, are rational and
mostly did not participate in most of the idiotic mortgages that have crippled
the U.S. banking sector. Buffett has not mentioned it but I note the also tend
to be in highly profitable lending. They have a lot of high interest loans out
to customers.


The week ahead is likely to bring lots of new surprises and volatility. As
usual, hold onto your wallets…


May 8, 2009


2009 performance figures are updated. My own
portfolio is up 19.1% in 2009 to date.


The percentage break-down of my own portfolio
composition by individual stock is updated


May 7, 2009


Melcor released earnings after the market close. Earnings were low at only 1
cent per share but, surprisingly ,single family lot sales were actually higher
than the year-ago period. Overall the earnings and outlook appear to be mildly
positive. This combined with the recent rise in oil prices makes me more
confident about Melcor especially for the longer term. The semi-annual dividend
however is reduced to 10 cents versus 25 cents last year. This is a cyclical
company and management is being prudent by cutting the dividend when business is


I will wait and see where the stock goes before making and trading decisions.
If the price drops I would view that as a buying opportunity.


Wells Fargo announced it will sell $6 billion in common equity. The stock was
down only very slightly in after-hours trading on that news. But overall I think
the prospect of share sales by most of the big U.S. banks will likley cause
these bank shares to dip.


In looking for some position to trim I decided to sell a portion of my
Canadian oil sands shares today. I hope to repurchase at a lower price.


May 6, 2009


With the stocks soaring it’s easy to get complacent and forget to look for
opportunities to take some profit. I clearly sold half my Wells Fargo too early
and that makes me reluctant to sell anymore especially given Buffett’s
reiterated endorsement on the weekend. still, that might be one where I will
sell 100 shares and hope to buy back on a dip. At some point there will be a
scare regarding U.S. banks including the stress test and Wells, as good as it
is, could easily have a significant pull back.


May 5, 2009


The markets were flat overall today but our stock picks had another good day.


If worried that the rally could be over, (as I am) rather than selling
positions another option is to keep your stocks but buy some of the double bear
ETS to hedge the position See our
ETF article
. (HXD for TSX 60)


May 4, 2009


Today was a day for enjoying the ride as almost all stocks rose. I certainly
expect market to be volatile meaning that we will likely see some of these gains
lost in the days and weeks ahead. I will continue to look to trim a few
positions to take profits. But mostly I will be holding what I have. I did sell
1000 Dalsa shares today.


May 3, 2009


Buffet held his huge annual meeting this weekend in Omaha with about 35,000
in attendance. He spoke quite favorably about Wells Fargo. That to me is a
strong buy signal. I may add to my position even though I had recently reduced
it in the hopes it would dip and I would buy it cheaper.


April 30, 2009


Markets were surprising strong this morning but turned somewhat negatve by
the end of the day. It’s probably anybody’s guess where the market will head
next. Personally I may continue to trim a few positions here and there but also
look to buy argains as well.


Dalsa reported earnings after the close. Reading the press release the
earnings look quite bad. This company should do well longer term, but in the
short term the stock could certainly
sink significantly
. One positive is that the lower Canadian dollar helps
versus 2008. They have signed some recent significant customer contracts as


Melcor continued upwards, but on a thinly traded volume. This will also
likely continue to volatile and it could report a rather weak Q1.


Aeroplan is jumping around partly due to swine flu. It continues to be a
strong cash generating company .


I will be traveling the next 6 days and I am not sure of the extent that I
will be able to update the site, but hopefully there is a working wireless
connection available to me at my destination in (Sydney, Nova Scotia.


April 29, 2009


The market continues to show surprising strength… A Dalsa has shown recent
strength I had an order in to sell 1000 of my 5200 shares at $6.20, just to take
some profit and lower my risk.


Visa which was added to the Site as a Buy on April 15 at $58.24 is now at
$63.51. It came out with better-than-expected earnings after the close. I think
if we updated right now it would still be a Buy although I have not read the
earnings release other than the headline.


Canadian Oil Sands Trust was out with earnings. Earnings are way down from
last year. I would not mind at all if this pulled back because it is a good long
term stock.




April 28, 2009


I bought some additional FirstService Preferred today. I should have bought
earlier at cheaper prices but there is no point dwelling on that.


Aeroplan fell on the swine flue impact but recovered. So far this swine flu
is looking like a false alarm but we shall see.


Dalsa has been rising from the depths but on low volume. Hopefully its Q1
report will vindicate the rise.


At this point I don’t see much reason for overall markets to rise, and
individual stocks should move according to the extent their Q1 earnings releases
are higher or lower than expected.


April 27, 2009


This swine flu could hurt the markets especially airlines and perhaps
Aeroplan. If it gets serious I guess it would hurt food service including Boston
Pizza. But so far there seems to be little evidence that this flue is going to
turn into anything serious. Hopefully we learned something from the near-panic
about SARS a few years ago that ended up killing I think less than a handful of
Canadians. Still as they say perception is reality and so there could be a
market reaction.


I sold a bit more Melcor today as the price rose. Bought some additional
Aeroplan as the price fell to a buy I had previously placed at $7.35. Also added
to my Wal-Mart today.


Currency Risk: A subscriber emailed to ask:


I see conflicting opinions about the Canadian/US dollar
rate expected movement both short and long term. I’d like to see your take on
the expected short and long term movement of the CAN/US dollar exchange rate.
This is an important consideration for us Canadians when buying US dollar quoted


When Canadian invest in U.S. stocks a fall in the Canadian
dollar boosts the value of the inventmenta nd a higher Canadian dollar reduces
the value of the investment. Therefore it is appropriate to consider the
currency risk.


I don’t have any real basis to make a prediction. Four
years ago in April 2005, our dollar was at U.S. 80 cents . By April 2006, it had
risen to just over 90 cents, which was the highest in a couple of decades. By
April 2007it was back down to 85 cents. It then rose to 95 cents by the summer
of 2007 ( about a 30 -year high!) . Finally it soared to just above $1.05
at the end of October 2007. Then it slid to the 95 cents in August 2008. The
next move was a very swift crash back to slightly below 80 cents by October
2008. Since then it has gyrated several times between 78 cents and 84 cents. For
chart, click below.





I think it’s fair to say that no one accurately predicted
all those extreme moves in the dollar. In fact it was fairly apparent that
Canada could not opreate with the dollar at parity, that was unsustainably high
– still it went well above $1.00 although only briefly.


As the dollar went to 87 and above in 2007 I thought it was
a good time to buy U.S. stocks even though I indicated the dollar COULD go
higher. And certainly by the time the dollar got to 30 year highs of 95 cents I
felt it was prudent and wise to invest in U.S. stocks rather than be greedy and
wait for parity. See comments below of March 27, 2007, April 212, May 2, May 17,
May 30, Une 4, July 16 and July 24, 2007. The dollar was a preoccupation in 2007
because of how it had soared and how that was devastating our export businesses.


My view is that we can’t know which way the dollar will
head. It’s now just above the lower end of its range from the past four year.
This might suggest a risk that it will move up and hurt our U.S. investments. On
the other hand it is already much higher than where it was for most of the past
15 years or so, which suggests it could go lower. The direction of oil prices
plays a role. It tends to rise with higher oil prices.


My view is that most Canadians will want to diversify and
have some investments in the U.S. One way to do this is to (more or less)
“permanently” allocate some percentage of your investment s to the U.S. Most of
us will want to spend money in the U.S at some point so it makes sense to have
U.S. dollars.


So all things in moderation. If there is a stock you really
like in the U.S. it probably makes sense to buy it and not sweat the currency
movement. If the dollar does go much higher be happy and move more money into
U.S. funds.


In theory the currency risk could be hedged. Practically
speaking that may not be feasible for most investors. However if you invest in
ETFS or mutual funds it is possible to buy hedged funds.


April 25, 2009


Yesterday I moderately reduced my holding in Melcor. The price was up and I
simply wanted to moderatly reduce my high exposure to this company.


Our reference article of global / International
Exchange Traded Funds is updated. For this update I added links to ishares
where you can check the latest P/E ratios and much more additional information
for each ETF. I also added links to Yahoo Finance where you can quickly see the
latest price as well as their view of the P/E ratio and yield. Note at both
these links the P/E ratio and yield is shown as of a prior month end and if the
ETF price has changed materially then you have to consider that the P/E ratio
and yield need to be adjusted for the price change.  I also added two new
ETFs which are corporate bond ETFs. I am not aware of any corporate bond ETFs in
Canada and so these U.S. corporate bond ETFs may be of interest. I am interested
in the high-yield corporate bonf ETF, the last one in our table.


April 24, 2009


Our performance figures for 2009 to date are


April 23, 2009


Out Stocks did well today. I decided to take some profits on e-Bay. I will
buy back if the price drops. Q1 earnings are mostly higher than expected.


April 22, 2009


My strategy right now is to have some buy orders in on case stocks fall and a
few sell orders to trim some positions if prices rise.  Just trying to take
advantage of volatility and waiting to see how the earnings come in.  In
particular I would like to see Wells Fargo come down to say $17 and then I will
buy, but my order currently is at $15.75 which may be too low.


eBay earnings were better than expected. I may add to my position in eBay.


Today there was the sad news of the suicide of the Freddie Mac interim CFO.
Turns out he was previously in charge of accounting policy for some years.
Sounds to me like he knew he was about to get blamed for some of the bad moves
and bad accounting. Why would they have put him in a CFO when he was part of the


Apparently he was a family man and also had the most brightly decorated house
at Christmas. Well, this is very sad for his family but it sounds like maybe he
liked to decorate the Freddie Mac earnings as well.


These messes are not behind us yet and when the dust settles there will be
some executives going to jail.


April 21, 2009


I picked up some Shaw
Communications on the dip today. I’ll add to that again  if it dips to
say $17. Wells Fargo closed yester at $17. I had a bid in to buy at $15.75. It
traded as low as $16.14 near the open and closed at $18.81. With the volatility
in the markets is seems wise to throw in a few “stink bids” and see what
happens. Volatility should be especially high in the next couple of weeks due to
earnings releases.


Aeroplan announced today that Air
Canada just opened up 250,000 new classic reward seats. (Classic rewards are
25,000 points for anywhere in North America – return, while the non-classic
rewards which are available after the classics fill up can be easily 100,000
points for the same seat.


What this point-sale suggests to me is that Air Canada has excess seats and
is desperate to fill them by in effect selling them cheap to Aeroplan. If this
encourages people to use their points then Aeroplan will report higher revenue
and earnings since they only can book the revenue when the points are used.
Aeroplan makes its cash as opposed to booking revenue when it sells points to
Air Canada and others. I am seeing lots of promotions for double Aeroplan miles
and so the bottom line is I expect Aeroplan to have had a good Q1 and that Q2
willl be good as well.


The down side of Air Canada’s desperation is that it is nearly broke and if
it goes broke Aeroplan shares will suffer from both losing money that Air Canada
owes it and from investors assuming Aeroplan would be a lot less viable without
Air Canada, although that second impact could be only temporary as Air Canada
will likely continue to fly even in bankruptcy.


April 20, 2009


The market was down significantly today. Earnings releases in the next few
days may whip the market in one direction or the other.  I am tempted to
add some positions but will try to be patient because certainly a larger market
dip could be underway.


The Far East markets as of about 10:30 pm eastern time are down even more
than North America was today…


April 19. 2009


Visa Inc. is added to the Table
above as a new company rated Buy at $58.24 (It closed on Friday at $58.00). The
reason for looking at this is that it clearly has oligopolistic and even some
monopolistic characteristics (If you own a store you are all-but forced to
accept VISA). Companies like this are almost always somewhat expensive in terms
of value ratios. And that is the case here it does not seem like a screaming
buy. But it may be worth buying given its characteristics. My strategy would be
to establish a smaller initial position, or wait and see if the price dips.  It will release earnings at the end of
this month which may (or may not) show it was hurt by the recession. I would be
particularly interested in buying on a dip back below $50 which is certainly
very possible. Given that there are many bargains in the market and that markets
in general could easily pull-back, it makes sense to be patient and selective
with your buys.


We had previously looked at VISA on a Quick Analysis basis and called it a
Strong Buy at $52 in early September and a (higher) Buy at $48 on December 1.


Remember that Canadian investors face currency risks on American companies (a
higher Canadian dollar causes you U.S. companies to be worth less money in
Canadian dollars).


April 18, 2009


The Stock table now includes links to
check the current price on Yahoo Finance.


Walgreen company is updated and is
rated Buy at $28.89. Subsequent to our analysis date it has risen to $30.06.


Home Capital Group is
updated and rated Speculative (higher) Buy at $26.21. Since our analysis date of
April 14 it has now risen to $28.00 At this point given the Speculative nature,
I would prefer to wait and see if there is a pullback (to say $24) or wait until
after the next earnings release on May 6.


April 17, 2009


Shaw Communications is
updated and rate (lower) Strong Buy at CAN $18.56 or U.S. $15.26. It has
continued to grow in the latest quarter despite the economic slow-down. I view
it a quite recession resistant. Telus has so far apparently not made much of a
dent with its competing TV offering. There is however some risk of a price war
with Telus which could hurt profits quite significantly if it happened. I have a
modest position in it and may add to that especially on any further price


I trimmed my Aeroplan position very slightly today selling at $8.35 some
shares I had recently bought at $7.35.


April 16, 2009


So far the stock rally continues. But I certainly still expect lots of
volatility. We could certainly see a pull-back at any time. Aeroplan could fall
(hopefully temporarily) if Air Canada should fail or have labor trouble.
Hopefully Air Canada can look forward to a reasonably busy summer season. I
think Air Canada would continue to fly even in any bankruptcy but still Aeroplan
would likely dive at least for a while. But I think the value is definitely
there and so I have placed a substantial bet on this one.


We’ll have a number of updated reports by Sunday.


April 15, 2009


I took some profit by selling half my Wells Fargo today.


April 14, 2009


We are now into another earnings release season. This will be yet another
reason for stocks to bounce around. With Aeroplan down about 50 cents today I
placed an order to buy but it did not get filled. TD Securities reiterated their
target of $17 for Aeroplan.  I did buy a modest amount of Shaw
Communications today.


April 13, 2009


I have purchased a few shares of Wal-Mart based on our recent update and
(higher) Buy rating. A good start to the week with Canadian Western Bank up 4.3%
to $13.77. Possibly one should take some profits at this point if there is a
large holding in it. Personally I am still smarting from having  sold about
25% of my shares in this at just under $12 (as mentioned under April 2) so I
have been a bit hesitant to take any further profit.


Goldman Sachs was out with unexpectedly strong earnings after the close (well
after the close of regular trading, that is, but while the oxymoronically named
after-hours trading session was open). But they also will sell $5 billion in new
shares and cut their dividend. These shares were down slightly after hours.
Overall though this looks like a positive indicator for banks. I have to wonder
though what the average America will think when this company that received
bail-out money is now making big profits already.


Shaw Communications came out with earnings last week that were strong. I am
planning to buy shares.


April 10, 2009


Our reference article on
Exchange Traded Funds is updated. This reference article has the trading
symbols for numerous Canadian ETFs. What is unusual is that it gives you the P/E
ration and dividend yield of each ETF as of now and with links to updated
information so that the article is still useful between updates. I have added
six Bond ETFs for this update. When it comes to bonds I would be interested in a
higher yield fund, but no such ETF appears to exist in Canada. AGF has a high
yield bond fund. I looked at TD Waterhouse and could not see any high yield
bonds funds that I can buy in my TD account.


April 9, 2009


The performance figures for 2009 are
updated. It was a very nice day for Wells
Fargo, up 31%. Despite having taken some profits too early, and lots of
other mistakes, my own portfolio is up 9.0% on
the year to date.


April 8, 2009


Moody’s has downgraded Berkshire
Hathaway from is highest rating to its third-highest. Berkshire owns a large
amount of Moody’s. So it will be interesting to see what happens. Buffett likes
being number 1 and having a AAA rating. I wonder if he won’t find some reason to
sell those Moody’s shares. If Berkshire falls on this news it would be a buying


TD Bank was out with a report yesterday (I saw it today) that puts a $17.50
target on Aeroplan. So that is encouraging. I’ve put quite a few of my eggs in
the Aeroplan basket and a double there would be very nice indeed.


I’ve mentioned before that I am attracted to monopoly-like companies that are
unregulated as to price. True non-regulated monopolies are perhaps non-existent
but some companies approach it. If you can buy them at a reasonable price, they
should make great investments. My theory is that Aeroplan has something of a
monopoly-like characteristic in that there is probably only room in the market
for two or loyalty plans that are accepted at many merchants (People will not
carry more than a couple collector cards… stores can usually offer only one
plan, once all the juicy retail partners are signed up its very tough for a new
competitor to  come in. A few strong store loyalty plans exist like
Shoppers and Canadian Tire but they don’t compete that much with Aeroplan. Free
flights are the most popular reward and Aeroplan and Air Miles have the only two
national Airlines in the Country ties up. Lots of credit card loyalty point
plans exist but they only get revenue from the credit card fee whereas Aesopian
can double up with revenue from the credit card company and the retailer.


I also consider Shaw Communications to be a near-monopoly situation. Down the
road Telus TV may have an impact but not so far.


The TMX Group has been a monopoly. New competitors are emerging but so far it
looks a lot like a monopoly. I would buy it back if the price fell (sadly I sold
too early to raise cash).


Other near monopolists are Visa and Master Card and I will consider buying
especially on dips.


One Monopoly that we can’t invest in is Airports. (other than bonds)  In
Edmonton the Airport is raising its “improvement fee” from $15 to $20 per
flight. This is disgusting. The Airport is an absolute monopoly in Edmonton.
While Air Canada is near broke and Airlines are offering $99 flights we have
these monopolists grabbing for more to build their empire. (in the mioddle of a
recession yet). We actually had a competing Airport downtown Edmonton and these
greedy monopolists pushed to have it closed to commercial flights some years
ago. The downtown Airport was incredibly more convenient for the short flights
to Calgary but who cares about customer service when you are a monopoly? I mean
just look at how passengers are treated in security checks a airports.  I
drive to Calgary these days rather than fly. The downtown Airport was allowed to
have small planes with up to 10 passengers for a time but then the big Airport
was jealous of even that small traffic and put a stop to it. Silly politicians
had put the City Airport under the management of the International Airport,
rather than run it independently and allow competition.


April 7, 2009


Yesterday I mentioned waiting to see if better bargains emerge… Aeroplan
was down about 8% today. I added to my position. Not sure I should have,  I
have enough of it and one should never get too wrapped up in one stock. There
are lots of cheap stocks and so there is no need to put too many eggs in one
basket. Aeroplan is probably still suffering due to fears about Air Canada.
Aeroplan also will suffer lower growth or maybe some cashflow decline in a
recession, but the stock price reaction seems over-blown.


Earnings season has kicked off with a loss reported by Alcoa. The figure that
is shocking is that their revenue was down 44%. But price was down about 44%.
Prices were down 26% and therefore it appears volumes were down about 18%. That
is a tough business to be in when prices drop like that.


April 6, 2009


No trades for me today. I am waiting to see if better bargains emerge as the
markets gyrate.


April 5, 2009


Costco is updated and rated (lower)
Buy at $46.20 (it last traded at $48.91). It earnings took a rather sudden
tumble in its Q2 ended at the end of January. It operates on purpose at very
thin margins. The problem there is that a slight decline in revenue can turn
into a big decline in earnings. I personally would wait to see how Q3 goes
before buying.


Wal-Mart is updated and rated (higher Buy ) at $52.63 (it last traded at
$53.80). This is well worth considering. I don’t own any but have often thought
of buying.


FedEx is updated and rated Weak Buy at
$52.02. With earnings still dropping it does not look like a bargain at this
time. But it’s worth keeping an eye on because it will likely recover strongly
when the recession is over.


April 3, 2009


My article on the fair value of the Dow Jones
Industrial Average is updated.


April 2, 2009


Western Financial Group
was briefly halted today but there is no indication of why. I notice also that
CFO Catherine Rogers and Chairman Jim Dinning bought shares on Tuesday March 31,
2009 at $1.81. 16,293 and 33,247. Both purchases according to the SEDI.ca were
“in the public market”. So that looks like a nice vote of confidence.


But the amounts bought look “odd”. Why the odd number of shares. Also it
would be coincidental that both bought the same day at the same price. In
reality on Tuesday, according to Yahoo there were only around 10,000 shares
traded and all at $1.69 and not $1.81. I conclude that these share were not in
fact bought in the public market and more likely were some kind of compensation
payment from Western. That’s maybe a positive sign but no where near as positive
as if they had actually bought with their own money. This sort of thing seems to
be part of the landscape when dealing with small companies, they don’t seem as
carful about how these things are reported. But meanwhile both of these
individuals own a fairly significant amount of sahres, 125,000 and 95,000
respectively. And at least they are not selling.


A strong day particularly for
Canadian Western Bank, Aeroplan (a rebound from
yesterday) and Canadian Oil Sands Trust.  Last week when we had a big rally
on Thursday I not think to trim any positions that day and then much of those
gains slipped away over the next few trading days. So today I was thinking about
trimming some positions. Then I looked at insider trading on Canadian Western
and saw that a vice president had sold about 11,500 shares last week at $9.50 to
$10.50 to now hold just 1675. That seemed odd because this individual had been a
buyer over the past year or more. Another insider also sold 1000 shares last
week at $10.50.  Maybe this is no big deal and there could be many reasons
for the sales. But with the shares close to $12 today, I decided to sell some of
my position, about 25%. I also sold 25% of my Canadian Oil Sands Trust on the
hope of buying it back later at a lower price.


Hopefully the volatility will continue, because volatility and fear leads to
some stocks becoming under-priced. On March 9 I suggested Canadian Western might
be a no-brainer at $7.91 and 71% of book value. Today it closed at $11.55, which
is a pretty good gain. I had a a good position in it as of March 9, but I should
have bought more but instead cheaped out and tried to buy more below the market
price and instead of dipping further it ran away to the upside. But it could
easily pause now or reverse on the next piece of bad news. Long term though it
is a winner.


April 1, 2009


Aeroplan took a nasty tumble
today, it was down 14% at one point and was down 5% at the end of the day. So, I
added a bit to my position.


March 31, 2009


Air Canada dumped its CEO and got a new one who is reputed to be a cost
cutter and perhaps preparing for a bankruptcy filing.


The question arises, how does this affect Aeroplan? One would expect Aeroplan
stock to decline on the news, at first it held firm but later in the day it did
drop ending down 4%. Another bankruptcy of Air Canada would certainly depress
Aeroplan for a time. But I would expect that Air Canada would keep flying
through any bankruptcy. Air Canada desperately needs the cash it gets from
Aeroplan and so most likely Aeroplan could continue to offer reward seats.
Unless it was thought that Aeroplan would be cut off from buying seats on Air
Canada then it seems likely people would continue to accumulate Aeroplan points
and Aeroplan would get that cash. Overall it would seem logical to be a bit
cautious. I am not selling any shares. I will buy a bit more but I will not rush
in too fast because clearly this turmoil could cause Aeroplan’s stock to fall
from here. Also Air Canada owes money to Aeroplan and in bankruptcy it would
likely lose some of the receivables and the loan it recently made to Air Canada,
but I don’t think it would be too big an impact on Aeroplan. And it’s not yet
even clear that there will be any bankruptcy of Canada.


Air Canada of course went through bankruptcy about five years ago. It emerged
as Ace Aviation which had subsidiaries of Air Canada, Jazz Airlines and Aeroplan.
The Air Canada pensioners are going to be extremely bitter because the structure
allowed Ace to sell off good assets like Aeroplan, Jazz and other business
units. Most of that money went out as cash or shares to Ace shareholders. Air
Canada somehow ended up with huge debt even while Ace was hiving off the good
stuff. I am no fan of Robert Milton and the havoc that he wreaked. He apparently
now may preside over the second bankruptcy of Air Canada on his watch. Then he
will slide off with millions while pensioners get roasted. Milton whom the media
seems to like, has been a total disaster in my view completely incompetent. I
would say the same of departing CEO Monty Brewer, how can it be otherwise?


Ya gotta love the headline from Air Canada too in their news release. “Air
Canada announces appointment of Calin Rovinescu as President & Chief Executive
Officer; Michael Green appointed to Board of Directors”
I mean clearly, the
real news was that their President was retiring or (let’s be honest) was being
fired. Or maybe the real news was that they were thinking about a major
restructuring or bankruptcy. Clearly the main news was not the new CEO but the
departure of the old one. Does no one even have the decency to be honest and
forthright in a press release headline? It is disgusting, companies are
constantly trying to gloss over reality.


March 30, 2009


I used the lower prices to add to my Aeroplan. Also have
orders in to buy Boston Pizza and the Western Financial preferred shares and add to other
positions on further dips. This latest dip was mostly a reaction to the auto industry
news. I suppose the markets will continue to lurch around on various pieces of
good or bad news.  I already probably have too much Aeroplan but I keep
seeing companies running specials for double Aeroplan points and so it looks
like Aeroplan is still bringing in the cash steadily.


March 29, 2009


We have added a preferred share of
Western Financial Group to the analysis, rated Speculative Buy at $55. These
trade thinly and so be careful how you price any order. Do not enter an order to
buy or sell at the market since the offer price at times can be hugely higher
than the last traded price. These preferred share yield over 12% at this time.


Regarding higher yield stocks, remember that higher yield can certainly mean
higher risk. (But partly it can also reflect low trading liquidity and the sher
obscurity of a particular share.


Of the higher-yielding shares above I think
Boston Pizza is very
interesting. It’s yield comes from over 300 restaurants paying a royalty. Once
the yield is received this Trust unit has almost no expenses and distributes the
yield to unit holders. If sales at Boston Pizza restaurants drop that could hurt
profits at the restaurants a lot. Consider that a 10% sales drop could devastate
profits at the individual restaurants but for the royalty payment it is just a
10% drop and 90% continues. From my experience Boston Pizza continues to do
well. Yes some restaurants will definitely see slower business this year. But
it’s hard to imagine the royalty payments will drop by anything  close to
10% overall, which would not be so bad . (Although, yes the unit price would
drop, perhaps a lot). Now if things got so bad that many restaurants were really
struggling to pay the 4% royalty then maybe it would have to be reduced and that
would be quite devastating for the Boston pizza units. But that seems like a low
probability scenario. I would also mention that there are entities between the
restaurants and the Fund that also have to stay healthy. I have not looked at
that closely at this time but I have seen no indication of any problems. I
intend to increase my position in Boston Pizza Royalties Fund.


March 28, 2009


Canadian Tire is
updated and rated (higher) Buy at $42.80 (it closed last at $43.46. The Stock is
down about 50% from its peak levels but earnings are down only modestly. Based
on book value and past earnings the stock is cheaper than it has been in many
many years. There are risks given the recession (in particular it is at risk for
bad debt on its credit cards and loans operation) therefore we don’t rate it a
Strong Buy. Our strategy would be to take an initial position (which I already
have) and then consider buying more over a period of time.


As investors we should understand the Canadian economy in terms of the
percentage that various industries contribute to total GDP and also to
understand Canada’s imports and exports. Are we still hewers of wood and drawers
of water? See our
updated short
article on the composition of the Canadian economy. This year we made it
graphical so that you can see the contributions by segment at a glance.
Understanding how each industry contributes to GDP is particularly important
this year as subsidies are being made by government.


March 27, 2009


Quest Capital is updated
and rated Sell at $0.89. Formerly this was rated Speculative Strong Buy at
$0.80. However, loan losses and impaired loans increased dramatically in Q4 and
the generous dividend has been suspended. Given it has little debt it should
survive and in fact may still be a reasonable value. However, at this point we
would sell and move on. Subsequent to the last update I had noted some concerns
below and had sold my shares as reported on this page. (Do control-F and search
for quest cap if interested to see the past comments on this company.) Quest
appeared to be a good business but is being mauled badly by the real estate
bust. It’s saving grace is that unlike almost all other lending institutions it
has very little debt. It should be in no danger of going under but it may be
quite some time before it regains its footing.


Our performance figures are updated. Stocks
gave some gains back today but still it was a strong week.


March 26, 2009


Our stock picks were up nicely today. With the markets up about 20% since the
March 9 lows it would be easy to get complacent. But it may be a good idea to
take some money off the table in stocks that are up. But I find that hard to do
given that most stocks still seem like they are bargain prices. My cash position
is not high but is higher than normal and I will continue to try to be patient
in buying. The market is not likely to go up in a straight line and of course it
could turn down on the next piece of bad news.


March 25, 2009


As Aeroplan fell today I added to
my position based on a bid I had in. I have not seen news that would indicate a
reason for the fall in price. It may be fears of the financial health of Air
Canada. I note insiders are not apparently buying nor are they buying back
shares. The lower price now seems like an opportunity to buy but we should never
get too greedy and individual stocks can always surprise us with negtive news.
Still, overall I am comfortable holding this. I still see American Express and
many other companies doing special deals offering aeroplan points to their
customers and that is cash for Aeroplan.


Melcor was down today but it is very
thinly traded and so is volatile by nature. I like Melcor especially as oil
prices rise and the Alberta economy is staying fairly strong.


Western Financial group
was also down. It looks like good value although I have some concerns noted in
the recently updated report. No sign of insider


Wells Fargo continues to bounce
around, they  just got a bond rating cut, preferred shares now cut to a
junk rating. Hopefully Buffett would not let it fail but then again Berkshire is
not that flush anymore and facing its own slight bond rating downgrade.


So, certainly lots of volatility out there. On that basis I continue to be
inclined to sell a little on stocks that rise and buy patiently on stocks I like
that are down.


March 24, 2009


A bit of a pull-back after the rally… no unexpected. Where next who knows.
I just keep trying to be invested in good quality companies at reasonable
prices. I did sell 3 of my 9 Berkshire B
shares today just to take some money off the table. I hope to buy back cheaper
and this was in an RRSP account where I don’t have to worry about the tax issues
of buying and selling.


March 22 2009


Reports on Sunday Night indicate that Suncor will offer to take-over Petro
Canada in exchange for Suncor shares and at a value that initially is 30% over
the Petro Canada price (although Suncor price could fall on this news).


This is indicative that there are some bargains out there and that we can
expect to see take-over deals in that environment.


Western Financial Group is
updated and rated Speculative Buy at $1.75. It’s Q4 did not have as much
investment write downs as I feared because most of its investments are actually
Government treasury bills or one year notes. But is did suffer in some aspects
in late 2008. The biggest worry now is that significant loan losses could
develop. Management does not seem worried about this. But it could happen if the
Alberta economy gets worse. If the Alberta economy turns around however this is
a stock that could do quite well.




March 21, 2009


Berkshire Hathaway is updated and
rated Buy at $2,753.


March 19, 2009


Canadian Stocks were up today but U.S. stocks were down, perhaps indicating a
bit of sober second thought about yesterday’s announcement of massive stimulus
and creation of money from thin air.


The U.S. dollar has weakened about 5% in the past two days against the


U.S. mortgages are available to good customers at an average of 5% locked in
for 30 years! And it is not hard to find this at 4.5%! (Wachovia, for example)
(In Canada we can’t lock in more than ten years and the current rates for that
is 6.45% from ING Direct and that is likely  one of the lowest rates for
that term). It’s hard to understand how U.S. banks can make money at these
rates. After paying the going interest rate to attract depositors to lock in for
30 years there would not be much spread, if any, left. Or do these banks just
use short term deposits to fund these mortgages and then pray rates don’t
change. Or do they package up the mortgages (putting AAA ratings lipstick on
these pigs) and sell quickly to foolish investors? ( I thought that game was
over). Or maybe Banks hedge the interest rate risk (with whom? AIG, the
disgraced investment banks?).


In the U.S. my understanding is that some Federal law allows homeowners to
refinance when mortgage rates drop. There are fees but the fees are often not
that large compared t the interest rate savings. Now, if home owners have been
winning by refinancing all these years as interest rates dropped and dropped,
who was losing? You never hear about this. Banks were not booking losses on
these refinancing to my knowledge. Maybe the losses were mostly passed off to
the hapless investors who bought the AAA (lipsticked pigs) mortgage backed
securities. Or did Fannie and Freddie eat much of this loss? (Actually these
would not be horrible losses, with refinancing it just means that a mortgage
that an investor bought that was to pay 8% for 30 years, is paid off early and
the investor loses the opportunity to earn at 8%. But these are real losses.


It beggars belief to think that U.S. banks can now make money by lending it
out for 30 years at 4.5% all the while facing refinancing if interest rates are
driven yet lower. Maybe the government is giving the banks deposits are
essentially 0%, if so that would explain the profits. But is the government
going to keep lending money to banks at low rates for 30 years? I hardly think


I will be looking into these issues further.


In my own trading I have some orders in to buy Canadian Western Bank, First
Service Preferred, and Aeroplan. Also an order to sell some Melcor if its price
rises. But I am being patient. I don’t mind keeping some cash and waiting to see
if better opportunities emerge. But certainly with stocks this cheap I am
comfortable with a high weighting in stocks.


March 18, 2009


A bit of a longer post / rant


Regarding AIG bonuses this Treasury Secretary does not get it. He has agreed
to let the bonuses stand, $165 million but will deduct that from the next $30
billion welfare infusion into AIG. He fails to understand that the President and
the people want the bonuses canceled. $165 million may be NOTHING compared to
tens of billions in aid, but the average voter knows that that million dollar
bonuses to these idiots stinks. Some have voluntarily turned back their cheques.
Congress is preparing a law to tax them at 90%. Treasury Secretary Tim Geithner
may be fired over this. (At which point no-doubt he will pass Go and collect $2
million or so…)


Big company executive compensation has NEVER been about market competition
for talent. The best people are not motivated by whether they make 1 million or
2 million. This compensation has always been an old boys club, I vote you a
raise when I sit on your Board and then you sit on my Board and vote me a raise.
Then call in the toady compensation consultants to trump up a report that the
your million dollar raise is justified (and which will lead to the other guy
asking for a raise to match you). Then when offered a 2 million job, the company
also throws in a clasue that it will pay you 4 million if they fire you for
incompetence. Again, this is not about what is good for shareholders. Was the
CEO going to turn down the big job if he only got $3 million instead of five???
When it comes to companies on government life-support these bonuses to retain so
called talent is complete garbage. Who would hire these idiots? in this economy?


An interesting day with announcements of stimulus from the U.S. Fed sending
markets up.


Wells Fargo was up 17%. I had
unfortunately sold almost half of my Wells Fargo earlier today before it really
jumped. Still, I am ahead on this stock and and the sale gives me cash for other


I was almost going to say yesterday that although market timing is not my
thing, I suspected the rally would soon be over. Well that would have been bad
timing given the rally today.


I certainly can’t claim to understand very well what the FED is up in terms
of buying back long-term U.S. treasuries and buying certain Fannie/Freddie
securities on the market. Especially I don’t understand what the impact of this
will be. I’m not sure anyone else understands it either. If the FED really knew
what it was doing, we would not have gotten into this mess.


Maybe there will be a sober second look tomorrow at what the Fed has done. It
really does not look like such good news to me. And they are doing it because
the economy is so horrible. And stocks rally on this news???


My understanding is that when and as the Fed purchases the planned $300
billion (for context this is almost exactly $1000 for every man, woman, and
child in the country on this program alone) it will do so by printing money. As
it buys the bonds on the market it uses a cheque drawn on an account with no
cash in it but the cheque clears anyhow and more money is created. The former
holder of the bonds will use the money to pay debt or will deposit the cash in
banks. This will help banks gain deposits. The Fed will be buying bonds that
have increased in market value due to lower interest rates. In effect the
Treasury issued these bonds and received $1000 when their yield was say 4% and
the market yield was 4%. but the Fed will buy ’em back for say $1250 now that
the market yield on these long term bonds is closer to 2.5%. Selling bonds at
$1000 and then buying ’em back at $1250 or so does not exactly sound smart.
Ultimately this move is inflationary. But we may not get inflation because there
are other deflationary effects happening now. I understand this $300 billion
will not be considered to add to the deficit. It will not add to the debt
because it actually reduces the debt being treasury bonds owed. It may be
neutral to debt if the new spending on bonds is considered to be spending (which
I don’t know)


The other big program is to buy $750 billion of Fannie/Freddie mortgage
backed securities. This works a lot like the treasury bond purchase but amounts
to $2500 for every, man, woman, and child in the U.S. Therefore just on today’s
announcement alone we have $3500 per man woman and child being spent (after
creating on a printing press). This is somewhat related to the toxic assets that
the Fed was supposed to buy last Fall but changed its mind. But these Fannie/Freedie
securities were government guaranteed and so not very toxic at all. This may
have a similar effect to the purchase of treasury bonds. If banks own these
assets then the purchase is like a loan being paid back to the banks. The banks
get cash that they can lend to others. But it does not add any immediate profit
for banks or give then additional equity.


Speaking of banks, I am getting mixed signals. In the U.S. they cheer low
interest rates and bank shares rise. Buffet has said that Banks are highly
profitable now, making big “spreads” on new loans. But In Canada, we have
Canadian Western Bank
indicating that the low interest rates are really squeezing their margins. For
CWB is may be because much of their deposits are not low-cost branch deposits,
but rather are sourced on the broker network where they have to compete with
interest rates offered by other banks. In branch deposits tend to be more a
captive customer business and often little or no interest is paid. If no
interest is paid, then the spread decreases on floating loans. Maybe Canada and
CWB have more floating loans compared to the U.S. banks should be doing well on
older fixed interest loans.


It may be the case that Canada has evolved a more competitive banking system
compared to the U.S.


Mortgages and deposits should in theory be an extremely competitive business
since it is a pure commodity, we can do electronic banking and we have deposit
insurance to some level. Yet certain barriers including inertia and lack of
knowledge seem to limit competition.


As of March 7, ING Direct had a five year mortgage at 4.24%, just a skinny 39
basis points above its 5 year GIC rate of 3.85% that it is paying depositors
that lock in for five years. Canadian Tire Bank had a 4.44% five year mortgage,
just 69 basis points higher than its 3.75% GIC rate. Canadian Western Bank was
at a 5.79% (posted rate) 5 year mortgage, 209 basis points higher than its 3.70%
5 year GIC. Royal Bank was at 5.79% posted a fat 3.59% spread over its 2.20%
five-year GIC rate.


Would you like to
turn the tables on the Banks?


Consider that  secured line of credit with floating rate can be had for
around 2.5%. You can take out a large line of credit secured by house equity and
invest in bank preferred shares and earn easily 6.5%. You have a 4% pre-tax
profit. But you do risk that the preferred shares fall in value. Line of credit
rates could increase too but then you could simply sell the preferred shares and
pay off the line of credit. Te usual advice is to not borrow to invest. But if
there was ever a time to do so, this many be it, especially if you have a very
secure job and lots of equity in a house. I have not done this strategy but I am


March 17, 2009


Stocks were up nicely today. In particular
Canadian Oil Sands Trust
and Wells Fargo did well today.


I have never had much luck timing the market, instead my strategy is to try
to be invested in good companies. If the company can grow its earnings per share
at a good rate, the stock price tends to take care of itself in the longer term.


Regarding Aeroplan, I had some correspondence with the company. Apparently
the insider selling was all related to tax liabilities. Some executives received
a vesting of shares when thee share price was higher. They could not or did not
sell at that time but a tax liability was triggered at half the share price. Now
it is tax time and so these executives had to sell extra sahres to pay taxes. So
perhaps I was hasty to sell since Aeroplan really seems like a good cash
generating company. But I was over exposed to it and I don’t mind having the
cash for other investments. I still have around 10% of my investment portfolio
in Aeroplan.


Aeroplan also just signed up a new retail partner for their Nectar points
program in England. Apparently this is a pretty big home improvement retail
chain. So that is a positive for their growth.


It is interesting that Aeroplan was willing to explain to me the reasons for
the insider selling. They also apparently on their own notified big investors of
the reasons. But there was no press release. So some investors find out more
than others. Is that just a reward for being in touch with the company. Or is
that an unfair distribution of information?  My sense experience is that
this kind of thing goes on at companies all the time. Some people get access to
information that the small investor is certainly not getting. Is that fair? I
will let you be the judge. Overall though I am not sure that talking to IR
departments is a good idea. I rarely do. They will all give you a rosy picture.
And if an analyst becomes buddy buddy with the IR department and dependent on
them, then it gets hard to say negative things about the company.  For the
most part I prefer to let company financials results do the talking. Listening
to conference calls can also be a waste of time usually. Sometimes there are
nuggets of information but mostly it consists of analysts lobbing in soft
questions, hardly ever anything embarrassing to the company. Nevertheless, I
listen to some of the calls.


Aeroplan Points.


I have also collected the Aeroplan points over the years mostly with the
Aerogold credit cards. It’s a nice way to pay for air travel.


It used to be it was hard to collect a free flight on Aeroplan points, the
points seats were sold out early. But now that Aeroplan is no longer part of Air
Canada, every seat is available on points. Only so many seats are at the classic
reward level of 25,000 points anywhere in North America. But with Air Canada
desperate for cash they have been releasing more of these cheaper seats to


You can join aeroplan at the following link:


https://www.aeroplan.com/enroll.do (this is not a paid advertisement, just a
recommended program)


Regarding the AIG bonuses. I think they are shameful, no one at AIG should
get a bonus at this time. This is legalized theft from taxpayers and from the
AIG shareholders. I guess the cheques already went out. Well, I think they will
be giving the money back or facing a special tax that grabs it back. The same
thing happened with Enron, believe it or not retention payments were made as the
company slipped in bankruptcy.


March 16, 2009


Another good day for our Stock Picks.


Regarding Western Financial. I have been asking when their earnings would
come out and they said the 12th, as they did not appear then I asked again and
was told on Friday (march 13) it would be the 17th and a press release about
this would be issued Friday. It did not appear,


Today they tell me the auditors are looking at the financials still. That’s a
bit scary. Anyhow, maybe it is no big deal earnings and  may come out by
Friday. Meanwhile if the stock stays up at $1.80 or past that I may lighten up a
little though I hate to do that at what seems  low price. But I worry what
their balance sheet will now look like as they no doubt took some hits in Q4
regarding investment values and possibly goodwill impairment, not to mention
loan loss provisions. Hopefully all that bad news is priced into the stock. They
just closed another small acquisition and that may indicate they still have a
sufficiently strong balance sheet.


There was bad economic news today in terms of capacity utilization. I
wonder if this stock rally is over for now.


Buffett advises that we should only invest in companies that (among other
tests) are led by management that we trust and that is smart (acts rationally on
behalf of shareholders) and energetic.


With a lot of companies it is hard to get any basis to form an opinion on
whether they can be trusted. Some red falgs that management is not trustworthy
or is not acting rationally for shareholders would include. Obscene executive
compensation, a refusal to acknowledge that stock options are a real cost,
buying back stock when it is already over-valued, taking on stupid acquisitions
and management personally selling shares.


When I think of companies that I believe are particularly trustworthy,
competent and hardworking, the following come to mind:


Canadian Western Bank



Berkshire Hathaway (obviously)




Probably Stantec and Canadian Tire as well.


There are probably others as well, but these are the ones that come to mind
more easily.


As you read each individual stock report you will note that we always comment
on what we think of management quality.




Aeroplan posted some insider trades on Friday.


About 12 insiders exercised rights and acquired shares on March 3. It look
like standard procedure was to then turn around and immediately sell 1/2 the
acquired shares. This could be partly to cover income tax that would be due on
the gain and so is not such a negative signal. 1 insider who had received a
smaller amount of shares kept all of those. But Six insiders sold at least an
amount equal to the just-acquired shares (often in a subsequent sale after the
first half were sold). Most notably the CEO sold enough to reduce his holdings
from about 100,000 prior to the rights exercise all the way down to about 16,000
now and he sold at $8.45.


I have to take this as a definite negative signal even though in the past I
have seen insiders sell and then the share price rise. Maybe they are just
selling to raise cash but no matter what it is a negative signal.


I was already over exposed to Aeroplan. On learning of this news today I sold
about 1/2 my shares. This will give me cash to move into other ideas like
First Service Preferred and
Canadian Western Bank.  Also
I had a profit on these shares and that made it easier to sell and it was in an
RRSp account where income tax is not an issue. The Aeroplan shares did hold up
well most of the day however.






March 15, 2009


I have been waiting for Q4 earnings from Western Financial Group. They had
told me they would be out Thursday of last week. Then on Friday they said it
would be Tuesday and their would be a press release on Friday. I have seen no
press release. Small companies sometimes struggle with these matter more than
the big ones, hopefully we will see the earnings on Tuesday. I am worried about
loan losses and asset write downs. If so, and combined with two recent
acquisitions, they would be low on cash and equity I would think. I would sure
hate to see a share sale at these low levels. They indicated they have renewed
their authority to buy back shares. But I doubt they have any cash for that.


Target is updated and rated Buy at
$29.97. This may be a chance to accumulate a high-quality and growing retailer
at a good price. However, given the recession and recently lower profits, we
would prefer to average in as the price may drop as the recession deepens.


March 14, 2009


Watts Water which had been on the list above is removed because based on its
Q4 numbers it is still only about a Hold. It is best to remove some companies in
order to focus on better ideas.


Staples is updated but is only
rated (lower) Buy at $15.95 (closed at $16.20). While it does not seem
attractive at the moment it does seem to be a high quality operation and we are
keeping it on the list in case the valuation improves.


Our articles on the performance of all-stock approaches versus a balanced
approach to both
saving and in retirement
are updated for 2008 data. The future is not the past but still, in deciding how
much of a portfolio to allocate to bonds and cash it is useful to see how this
has worked out in the past.


For the 2009 update of this article, which originated in 2007, I add in data
from 2007 and 2008. It is particularly useful to include the data from the crash
of 2008.


In the 2007 articles I assumed a fully balanced approach of 1/third to each
of stocks, bonds and cash. Since then I came across information that suggested
that a more traditional balanced approach is closer to 60% stocks, 35% bonds and
5% short-term cash. So that is what I used in the update. With this more
traditional balanced allocation that still features a majority of the allocation
in stocks, the balanced approach no longer trails the all-equity approach as
badly. Still, an all equity approach was better 93% of the time based on this
past data.


March 13, 2009


Our year to date performance is updated. The
markets rose significantly this week.


March 12, 2009


Wells Fargo was up nicely today. I was
tempted to take partial profits but given Buffett’s favorable comments about
Banks (On Monday’s CNBC interview) I decided to hang on. No sign of the expected
earnings report from Western Financial Group.


March 11, 2009


A good day for Canadian Western Bank… Based on an order I had placed a few
days ago I ended up reducing modestly my position in Aeroplan at $9.30.


I understand that Western Financial Group will release earnings tomorrow
(Thursday). I expect some market to market losses, and probably a loss overall
in Q4. But still if the balance sheet looks reasonably healthy the news could be
positive. They just made a small acquisition after closing a larger acquisition
of Agri financial. I am worried that they are taking on too much debt and so it
is the balance sheet that I will be most interested in. (Thought the balance
sheet will not show these latest two acquisitions)


Two Canadian Western bank insiders have bought 1000 and 5000 shares on Monday
the 9th (the 1000 is shown at $7.75. This is positive. One director sold 33,000
shares. Price not indicated. He still owns 254,000 shares. He apparently sold on
Feb 25 and 26 which is about a week before earnings were released and I believe
he is not supposed to be selling then. It was only reported today. I believe
this may have been something of an unintended sale (possibly margin call) He did
the same thing in early December before the earnings release. I think we can
ignore his sale and focus on the two buys. It is a bit disappointing to see only
two buys yet but hopefully more to come. Also a number of insiders recently
bought the pref share issue at $25 and so may not have funds available for


March 10, 2009


Yesterday in a long interview on CNBC, Warren Buffet mentioned that the
banking system problems have largely been solved, that banks can recover their
capital over a few years by eliminating their dividends (as most have) that
banking is a profitable business. He did say Citi group might be a special case
(not as healthy). Today Citi indicated it was making an operating profit in
January and February and the financials soared.


Berkshire B shares were up a stunning 19%. (I sold some of mine today when it
was up about 14% to take profits) Wells Fargo, a Buffett favorite was up 18%.
A reasonable strategy may be to trim positions on big moves to lock in some
gains. With the state of the economy we could certainly lose these gains and so
taking at least some profit seems reasonable on big moves.


March 9, 2009


Canadian Western Bank closed at $7.91 after being as low as $7.52 today. At
$7.91 it is about 71% of its book value. In a distress scenario as we saw in the
U.S. a bank’s book value can evaporate with bad loans or bad assets. But there
is no indication that Canadian Western Bank is at any great risk of suffering a
large decline in book value.


To my mind we have here a profitable bank that has been built up over 25
years. CWB has normally sold well above book value and that you can now buy at a
significant discount to book value. If Canadian Western Bank is actually worth
book value then you can buy for 71 cents on the dollar. If in fact it is really
worth a more traditional 1.4 times book value, then we can now buy for 50 cents
on the dollar. Of course after we buy it is not likely to soar back up. But over
time it is likely to return to a more normal multiple of book value of at least
1.0 times.


Canadian Western Bank is not without risk, but I think it has an excellent
risk/return tradeoff. Quite possibly a “no-brainer” investment.


In my own account I have placed an offer to buy FirstService Preferred. I
already have a large position in Canadian Western Bank but have placed an order
to buy more if it happens to fall to $7.26 (which I see no reason it should do).


March 8, 2009


FirstSericve Corp is updated and rated
(high) Buy at U.S. $7.39 and $CAN $9.78. We could have rated it Strong Buy but
hesitated to do that given a weak outlook for 2009. However it would seem that
the stock price has probably already more than fully accounted for a weak 2009.


FirstService preferred
shares are added to this site and rated Strong Buy at U.S. $14.26. These are
yielding 12.3%. This high yield could be indicative of high risk. But to us they
do not look very risky. If I can free up some money I intend to buy.


March 7, 2009


I have update my personal portfolio
composition. I do this for my own knowledge as well as to disclose it on
this Site.


March 6, 2009


Canadian Western Bank is
updated for its earnings that came out Thursday morning (March 5) and is rated
Strong Buy at $8.40 (Actually it closed today at $8.25). The earnings were not
bad but after deducting an unusual gain were about 23% lower than last year at
this time. However with the stock down about 60% from this time last year, one
might argue that a 23% lower earnings was not that bad. But the outlook is for
earnings to probably continue to be down in the next few quarters and growth
would not likely resume until interest rates rise and/or an economic recovery
begins. Losses on bad loans have remained very low but there is a risk these
could increase substantially. The stock got hammered down about $1.00 on
Thursday (yesterday) to $9.33, then went down approximately another $1.00 today.
This seems quite over-blown.


Canadian Western Bank now looks significantly cheaper in relation to Book
value than it has been in the last ten years, perhaps ever. We first looked at
this stock in August 1999 and rated it a Strong Buy at $4.94 (as adjusted for
subsequent stock splits). Price to book at the time was 128%, ROE was 13%, P/E
was 9.8 and the dividend yield 1.4%. The stock subsequently rose in “fits and
starts” and reached a high just over $30. Now the trailing ROE is similar at 14%
and the other ratios are substantially better, Price to book 76%, trailing P/E
5.6, dividend yield 5.2%. On top of that the competing alternative of investing
in a safe interest bearing deposit has a much lower rate today versus 1999. The
key negative at this time however is that the earnings are currently trending
down and loan losses are a threat. But overall the stock looks more attractive
now than ever.


Bank profits tend to decline when interest rates are lower. Part of the
reason for this is that some deposits at a bank earn zero interest and so the
spread on those funds is the borrowing rate. As the the borrowing interest rates
come down, margins decline. The Bank also has many borrowers that pay interest
rates that float with the Prime rate. The Prime rate has declined dramatically
in the past year but the interest that the Bank pays to attract deposits has not
come down as much. Canadian Western sources about 52% of its deposits from
independent financial advisors who sell guaranteed investment certificates to
investors. This market has become increasingly competitive and so Canadian
Western’s margins are getting squeezed there.


When the recession ends, interest rates will rise and Canadian Western’s
earnings growth should resume. For example CWB is modifying new floating rate
loans to include a floor on the interest rate. While residential borrowing rates
are at all time loans, CWB is not offering those same low rates to commercial


In my own trading I added today to my position in Canadian Western Bank.




Canadian Western also now
has  a preferred share issue. We rate it a Buy at $21.80. This yields
about 8.2%.


For more aggressive investors, Canadian Western Bank now also has options


Warrants to purchase Canadian Western Bank common shares recently began
trading on Toronto as CWB.WT. Each Warrant allows the purchase of one common
share of CWB at $14.00 at any time until March 3, 2014. The Common shares closed
today at, March 6, 2009 at $8.25 but have a 52 week high of $27.79. The warrants
closed today at $1.55. While the warrants are now far “out-of-the-money”, it
seems to us that there is a reasonable probability (although not a certainty)
that Canadian Western Bank’s shares will rise back into the 20’s within a couple
of year. We would consider making a small speculative investment in these
warrants. With a five year life, these may be attractive despite being far out
of the money at the moment.


March 5, 2009


This market is enough to severely test anyone’s resolve…


Negative news like layoffs and plant closures is causing more negative news
like more bad loans for banks…. It would seem like markets have already moved
down more than enough to reflect an awful lot of bad news. At the same time it’s
hard to see what catalyst can send markets up right now.


I took a look to at insider trading for a number of companies subsequent to
their recent earnings releases.


Dalsa’s chairman as well as the company itself bought shares. Kingsway had a
bit of insider buying. Boston Pizza had a few insiders buying. The Stantec CEO
bought shares. None of these were very large buys but still it is a vote of
confidence for these four companies. The Telus CEO bought 12,000 of shares and
one other insider bought a 1300 shares.


Manulife, IGM, Canadian Oil Sands and Home Capital and Shaw Communications
did not have insider buying. (But generally had insiders exercising options and


I added to my Canadian Western Bank position today as the shares dropped 12%
after they released earnings. partly the drop may have been due to U.S. banks
dropping. At a quick look, their earnings looked reasonably good although they
did discuss that times are tough now.


March 4, 2009


I saw today that the TMX Group
(i.e TSX) released its trading statistics for the TSX exchange February.
Transactions were up 15% over 2008 which is very positive. While IPO financings
were down 69%, total financings including secondary and supplemental are up 38%
year to date, which is excellent growth. The value of trading was down 30%
reflecting the market crash and this is of course bad for the exchange. The
market value of listed companies was down 42% from February of last year.


The lower market value will likely substantially hurt the TSX’s ongoing
listing fees. I believe there are floor prices on these fees but that partly
they float with market value. Overall these figures do not suggest that the TMX
group will suffer much of an earnings decline (if any) in Q1. But this does not
include the venture exchange and the Montreal exchange and also its not clear
exactly how the lower market values will affect fees. But overall I found these
statistics to be positive. (I mean we already knew the market values were way
down, but the reported higher transaction volumes and financings will offset
that to an unknown degree).


I then looked at Insider trading statistics for the TMX focusing on the last
few weeks since it released earnings on January 28.


I was disappointed to see that six executives had sold shares. In two cases
this was associated with an exercise of options and that is not usually
considered to be negative. But the other four appeared to be clear sales and
that is a negative signal. There was one insider who bought 1000 shares.
Sometimes insider selling means nothing but to me I have to count it on the
negative side of the ledger.


I had intended to reduce my TMX if the price rose. But seeing this negative
signal on insider trading, I decided to just sell my TMX position. I was looking
to raise cash and just decided this one could go. I do definitely like the TMX
given its arguably monopoly-like position. But I just decided since the insiders
sold I would do the same. Also this stock has held up extremely well in the past
five weeks when much else has tanked and so I thought, why not sell and raise
the cash for other bargains.


A previous order I had placed for Boston Pizza was filled near the close at


March 3, 2009


I forgot to mention, in yesterday’s note that I did buy a bit more Berkshire
when its price fell yesterday. I’ve now entered a few orders to trim a few
positions if prices rise a $1.50 or so. Aeroplan, TMX Group and. Previously I
had an order in to trim Melcor if it should rise to $5.30 (not looks unlikely).
The idea on the sales orders is just to trim a bit where I have a large position
and maybe take advantage of market volatility. And I have an order to buy Some
Boston Pizza at $8.15 (we got very close to that today).


I am waiting now for the earnings release from Western Financial Group. I
don’t think it will be good, but as long as they look quite solvent, then the
stock may rise. (The recent stock price seems to be pricing in losses rather


I am not sure if Kingsway is worth a speculative buy at this time. It has
disappointed me time and again. It may be in danger of having some of its
insurance subsidiaries taken over by regulators. I have been surprised that they
have not tried to issue some kind of equity even at low prices. They have some
new Board members who are trying to clean things up but amazingly they have not
yet ousted the president who was the former CFO and who was on Board when all
the bad decisions were made over the years. I emailed them months ago when the
stock was $10 and said issue equity. I also questioned what competitive
advantage they have (apparently none) and given their lack of any advantage
suggested they consider winding the company down or selling it to better
management. For some reason they did not agree with me. I know we rated it a Buy
but for a long time we also said it was speculative and was a cigar butt type
company i.e. looked attractive because it was cheap but it was clear it was not
a high quality company. It still could come back. But it will not be a quality
company. Kingsway has been a nightmare.


March 2, 2009


Aeroplan (Groupe Aeroplan) is
updated and rated Strong Buy at $8.45. This is my largest holding. I added to my
position today. Possibly I am over-exposed to it. But I like its cash generating
abilities. I believe its accounting GAAP earnings does not reflect “reality”/.
The company itself provides adjusted earnings which we use in the analysis. Like
just about every company it will be affected by the recession. People may use
their Aeroplan credit cards less as they cut back on bigger ticket spending. And
its merchant partners could tire of spending money to buy the points from
Aeroplan. But so far CIBC and American express continue to promote the aeroplan
credit cards heavily. And some of its partner stores like Home Hardware are
offering double Aeroplan points. Points collected in Canada in Q4 were up about
4%. Even if growth stalls for a time, the value of this stock seems compelling.
As always though there are risks and if the market in general continues to
decline, aeroplan could be pulled down with it.


Today’s market action was of course discouraging. (Except for young people
just starting out investing, they should be joyous at the bargains). There seems
little doubt the recession is worsening. Stocks seem cheap. The trick may be to
find those cheap stocks that are recession resistant. For example I think Shaw
Communications is recession resistant (not immune but resistant). It is not as
cheap as I would like but may be a good one to nibble at. Boston Pizza will not
grow in a recession but as a “top line” entity (it collects a revenue royalty
and is not dependent on the profits at the restaurants) it should do okay.
Similarly I think Aeroplan is somewhat recession resistant.


March 1, 2009


Aeroplan reported on Friday. Apparently they intended to release earnings
before the opening of trading. On Yahoo Finance, the first news of the earnings
release did not appear until a couple hours after trading started. But the
company says they released four minutes after trading started. Clearly this is
not the way to release earnings.


Aeroplan had a very large non-cash write-down of goodwill. (I mentioned this
was a risk in my posting below of Feb 20, although I was not particularly
expecting this). In substance Aeroplan made money in Q4. We have not completed
the analysis but have read the release closely and partially completed the
analysis. Aeroplan is trading at about 6.7 times “adjusted earnings”. The bottom
line is we still think this is an excellent investment. If the price should drop
Monday morning I will be looking to buy. The accounting for Aeroplan is rather
complex, but it’s clear that it is still generating a growing amount of free
cash flow per share.


Regarding Berkshire Hathaway, it had a bad quarter as expected. But that bad
news was already reflected in the stock price. I suspect the stock will rise on
Monday, if not I will be looking to buy.


latest Free newsletter has been sent to those on the list for it. This list
is separate from the paid subscriber list. To check if you are on the list just
add you email to the list on our home page and the system will indicate if that
email is already on the list. (It will not add the email address again if it is
already on the list).


February 28, 2009


Warren’s Buffet’s letter annual letter is out and is available at


Our performance figures to the end of
February are updated.




February 26, 2009


MicroSoft is updated and rated
Speculative Strong Buy at $16.42. It looks cheap based on the latest 12 months’
earnings. But the outlook for 2009 is weak and so it is considered Speculative
for that reason. This may be a chance to buy into a this market leader at a low
price. But we would average in. Buy some now and then evaluate again after the
next earnings release.


In my own trading today I sold my ING Canada shares and took my profits for
the reasons indicated under February 23. Basically I had too much exposure to
financials and wanted to raise cash. I also sold 1/3rd of my Wells Fargo given
that the price had risen. Again just to raise cash.


February 25, 2009


eBay is updated and rated speculative
Buy at $11.73. I like the business model of its ebay auctions since it has a
strong advantage of being the market leader. (Buyers and sellers like to be
where the main action is so this is a barrier to entry of competitors). However
this auction business has seen a 16% decline in revenue in Q4 and it appears Q1
2009 will show a significant decline year over year. The PayPal business also
enjoys an incumbency advantage and is still growing. Skype has 405 million users
and may have tremendous potential but so far has little revenue. On 2008
earnings this looks like a strong buy. But noting the late-breaking declines in
earnings we are a bit cautious. A reasonable strategy might be to take an
initial position now but realizing the price could continue to drop. We would
re-evaluate after Q1. Obscene executive compensation and a refusal to recognize
that stock options are a real expense are also a concern here.


I sold almost half my ING Canada shares today when a previous asking price I
had placed was hit. The reason for this is I had used my cash to buy ING in the
recent secondary offering at $26.35. I was not necessarily looking for a long
holding period given my high exposure to financials. I do like ING Canada but I
may sell the rest if the price rises to build some cash for better ideas that
may come along.


Regarding Aeroplan I continue to see that companies are doing double Aeroplan
point promotions (Home Hardware, Esso) and so this indicates companies are
willing to buy the points from Aeroplan (though we don’t know if Aeroplan sells
the points at a discount for these special deals). On the flip side we do have
to worry that if consumers really cut back spending then not as many Aeroplan
miles will be generated through their credit card partners. No-doubt this will
happen to some extent but my theory is that this will be offset by new Aeroplan
partners including Sobeys. With a big exposure to Aeroplan I eagerly await their
earnings report on Friday morning.


Regarding my analysis of Melcor’s assets, I have obtained a better estimate
of the value of developed commercial acres and this affects the calculated book
value of the residential lots. I made some edits to the analysis so if
interested in Melcor, please read again the analysis just below. Edits are marked in
yellow. (minor typo corrections are not marked).


Melcor was up nicely today but I notice much of the sales were at lower
prices and not a large volume at the higher price but still..


February 24, 2009


Melcor failed to rise today after its strong earnings released yesterday.
This could be because the company foresees a weak 2009 and possibly weak 2010.
But partly it may be because no one is looking at this stock. Only about 9500
shares traded hands today. This is under $50,000 worth and that is pretty typical.


Melcor is financed about 1/2 debt and 1/2 equity.


Earnings for Melcor are uncertain and are likely to be
quite low in the next two
years. (But perhaps not that low compared to the low stock price).


But let’s look at Melcor on an
asset basis.
Here is what you get. (I had to calculate the following
and cannot guarantee the accuracy, but I think it is reasonably correct)


The following figures are the book value of assets.


18% of the assets are developed land; 161 commercial acres at about
per acre book value and 1112 residential lots at a book value of about
$73,000 per lot. (the division of
costs between the acres and the lots here an estimate –
I obtained an estimate of  $300,000
for the acres and the lots are a residual calculation.)


7% of assets are pre-development costs at about $5,770 per acre


35% of assets are undeveloped lands and capitalized interest at  $27,800
per acre.


Therefore land inventory accounts for 60% of assets and the risk is that the
market value of this land will fall if
(perhaps when is a better word)
the recession takes hold in Alberta (the
great majority of the land is in Alberta with some in Kelowna and Arizona). The
company states at Note 4 of the financials that the net realizable value of the
land exceeds the carrying value above. For example, the sale price of lots in Q4
was $139,000 per lot versus our estimated book value of $73,000
per lot. But this sale price is likely to fall in 2009.
Edit, well more like certain to fall in


17% of assets are retail and office rental buildings at about $80 per square
foot cost (mostly buildings only a few years old)


3% is deferred costs consisting of other investments in buildings


3% is commercial rental property under development


2% of assets are three golf courses at $5 million each book value.


15% of the assets are payments that are due from
house builders when they sell a
house and lot plus some accounts receivable. (These funds may take several years
to collect and in a deep recession we could see higher bad debt but overall this
should be a good asset although probably not worth 100 cents on the dollar in
present value). Actually there may be an
outer limit of a year or so where the lot has to be paid for by the house
builder even if he has not sold the building lot to a customer.


I don’t know much about the value of lots and rented space. But my suspicion
is that these assets have a realizable value that is certainly greater than
carrying cost shown here. It might be reasonable to assume it is currently worth
say 125% of book value (but that’s a rough guess).


Meanwhile with the shares around $4.50 we get to buy at 46% of the equity
value, but after considering the debt you can buy these assets at about 76% of
book value. And if they are really worth 125% of book then you are getting the
assets for about 60% of their realizable value. Of course you are not in a
position to have the company sell off the assets. But the point is if we can buy
assets at 60 to 76 cents on the dollar that will probably be a good investment.
But we also have to consider how fast the value will come back up to say book
value or more. It could easily be a few years.


The debt gives us leverage here too. If the total value of debt plus equity
rises to book value, that will mean the equity shares have doubled.


There are no guarantees but I feel like this is a very solid investment. But
don’t expect the share price to jump quickly. In fact it could easily go lower.
But there is every reason to suspect these shares could be at $10 within three
or four years. And if oil goes back up around $90 then certainly much higher
than $10 is possible.


The dividend yield is also good at around
7.5% but if they need to conserve
cash as lot sales are slow in 2009, they could cut the dividend as they already
have cut it in 2008.


February 23, 2009


Melcor released earnings today,
after the close. But they only released a brief press release, no financials and
very little detail. It looks like Q4 was good with earnings of 47 cents per
share that’s a lot lower than last year’s 82 cents per share – But this is a
stock that is only at $4.70. It could have very low earnings in 2009 as lot
sales could certainly be very low. The press release also stated the following:


“Management expects that markets, in general, will remain depressed
throughout 2009 and start to show improvement in 2010. While the recession will
continue to cast a shadow over real estate markets, we believe that the basic
fundamentals (low interest rates, strong employment in Alberta, above average in
migration into Alberta, business friendly government and the expected
implementation of Federal Government programs which should stimulate spending)
will have a positive affect on the real estate markets.”


I think Melcor is well managed and conservatively managed so I am sticking
with them. It would be nice to see a pop in the share price tomorrow and if so I
might lighten up my position a little but still keep the bulk of it. This stock
is very thinly traded and so it tends to be volatile and even on a price
increase it might not be possible to sell much of it.


ING Canada is increasing its
dividend. Only by one cent from 31 to 32 cents per quarter. Still, in this
environment that is a positive indicator. ING is no doubt taking some hits on
its investment as the market falls, but its insurance operation is probably
doing reasonably well. (Competition is likely less aggressive.)


February 22, 2009


My personal portfolio composition is
updated. My largest position in Aeroplan.
Aeroplan is a vehicle to prmote sales by Airlines, CIBC Aerogold credit card,
American Express Aerogold credit card, Sobeys (excludes Atlantic Canada) and
many other smaller partners. Given this Aeroplan may be classified or lumped in
with advertising business. We know that many advertising businesses like
Television and Newspapers have suffered major revenue losses. Therefore we might
think Aeroplan will suffer too as its partners cut back on promotion. However a
promotion like Aeroplan which costs the “advertiser” money only when he is
making a sale may be less likely to be cut. From all indications the credit card
companies in particular find that offering Aeroplan points brings them business
they would not otherwise have. So I don’t see any major cutbacks.


Furthermore, a company cannot all that easily cut back on its spending with
Aeroplan, it is either in the program or out. Once in it is the Aeroplan card
holders who trigger revenue for Aeroplan as they use their card to collect
points. I am not aware that any partners have pulled out. I suppose one way for
a partner to cutback is to give fewer Aeroplan miles per $ of purchase. That in
fact may be a danger if the recession gets worse but so far I am not aware of
that happening.


The bottom line is that I am expecting good earnings from Aeroplan when they
report on Friday morning. However, a negative surprise is certainly always
possible. We shall see on Friday.


Costco is updated and rated
(lower) Buy at $42.76. This is a great company. But is is expected to release
weak results on March 4, 2009 and therefore there may be better buying
opportunities ahead.


Canadian Oils Sands
Trust is updated and rated Buy at $20.26 ( it closed at $20.18 on Friday).
The performance of this company and the unit price will depend mostly on where
oil prices go. My thought is that it is a good idea to own a piece of the “Tar
sands” and buying now at the lower range of recent oil prices seems a logical


I have mentioned Wells Fargo a few times lately and bought it after Buffett
indicating he was buying at prices around $26 and it then fell and has now
reached the $11 level.


Well Fargo is added to the site and rated
highly Speculative Buy at $10.91. It is extremely difficult to be confident
in any of the U.S. banks because all banks operate on high leverage and we now
have a situation of  unexpectedly high loan losses due primarily to
plummeting housing values and now due to job losses and also (perhaps most
importantly) to the lack of ability to borrow new money top pay old debts. These
loan losses have chewed through already thin common equity layers and could
erode these further. But based on Buffett’s endorsement Wells is worth


February 21, 2009


With all the bad news in the market I wanted to get a better sense of this
market crash in terms of how it compares to past crashes. See our new article on

historic annual stock market returns, year by year.


February 20, 2009


My article on whether stocks are riskier
than bonds is updated to include 2008. The conclusion remains that over the
longer term (15 years and more) it is extremely likely (based on this past data)
that a 100% allocation to stocks will beat out balanced approaches in the end.
Many investors are long-term investors and yet we fret and worry constantly
about day to day fluctuations. It is a paradox, it is hard to any human to
accept that an approach that features occasional loses in the range of 50% from
the peak is going to work out well in the end. And its easy to say we are
prepared for that risk, but a lot harder to actually live through such an event.


My article of the
estimated fair value of the S&P 500 is updated. With all the current
uncertainty around earnings, GDP growth and inflation, any estimate of the S&P
500 value is becoming less reliable. Nevertheless it is worth analyzing what the
S&P 500 is worth under reasonable assumptions.


February 20 (am)


I am adding to my Berkshire
position. Berkshire has fallen substantially recently due to an expected
significant loss in Q4 to be reported at the end of next week. Also based on the
weak stock markets it is facing large losses on its investments in Q1 as well.
My thought is to buy some now and then see what happens after Warren Buffett’s
annual letter comes out after the close next Friday. With possible soothing
words from Buffett it may rebound the following week. Ifnot, I would consider
adding again to my position.


Note, updated the following discussion in yellow assumed Aeroplan would
release earnings during the trading day. New information indicates they will
release before the market opens on Friday February 27.


Regarding Aeroplan, they are also releasing earnings next Friday. Annoyingly
it appears they plan to release during the trading day. A release during the
trading day signals that they do not believe that their earnings release will be
material enough to cause a “significant change in the market price”. Therefore
we should not expect the earnings to be  I expect Aeroplan to do well on a
cash flow basis. The GAAP basis is harder to predict. Analysts on average appear
to expect Aeroplan’s GAAP earnings to be about 6% lower in 2009 verus 2008. My
expectation is that cash flows and adjusted earnings will rise.


Our report on Aeroplan indicates
that cash flow and and adjusted earnings are strong. However we also indicate
that the most of the assets are goodwill and intangible and that “Equity of the
fund was “written up” when partnership units were exchanged for fund units”.
The book value of Aeroplan was actually increased substantially because of
partnership units being exchanged for fund units at a time when Aeroplan’s unit
price was much higher than today. This is complex but adds some risk of a
non-cash write-down on those intangible assets at some point. But as long as
cash flows are high that may not happen, ever.


Many or most stocks continue to get hammered down and appear to be bargains.
Clearly the unfolding recession and fear could drive things down further. If I
was mostly in cash I would certainly be averaging in at these prices but would  want to
avoid the temptation of going “all in” at once. I am about fully invested. I
continue to add to some positions slowly from a small amount of available cash.
Also on some positions I may trim on rallies to free up cash.




February 18, 2009


A down day in Canada but the U.S. at least was up a bit. Hopefully the latest
stimulus and mortgage plans in the U.S. will be viewed positively by the market.
I added to my Wells Fargo today. Also an order I had in for Aeroplan got filled
as that stock took its turn at getting somewhat hammered today.


Earnings season in the U.S. is about over with about 90% of the S&P 500
companies having reported. So hopefully we are relatively free of bad news on
the U.S. earnings front for the next six weeks or so. The Canadian earnings
season runs a week or two behind the U.S. so many companies here have not yet


We will have some updated reports for the Site this weekend.


February 17, 2009


A nasty day in the markets. Hopefully the Obama mortgage rescue plan to be
announced tomorrow (Wednesday) will give some lift to financials. The danger is
if he puts in place a plan that rewards people for not paying their mortgage (or
fails to punish them for it) it would be a disaster. The goal is to help out
those who cannot pay their mortgage but not encourage more people to stop
paying. My Wells Fargo got hit badly today. This stock could recover if Obama
mortgage plan is viewed to be “bank friendly”.


In my own trading an order that I had placed last week to add to my Canadian
Western Bank was filled as the price dipped today.


Recent figures on the deepening recession are scary. The world needs to
insure we do not make things worse by continuing to cut off credit and to impose
tariff barriers.


Fundamentally I believe in human ingenuity. The real wealth of the world
comes from our living standards and not from the money system. The money system
enables the real economy to grow. Right now we have managed to break the money
and credit system. But the actual productive capacity of the world has not
diminished. Wealth measured in dollars is shrinking. But in real terms the goods
and services wealth will not shrink unless we let unemployment get high. Once we
get the money and credit system fixed and world trade restored I believe science
will again deliver us the next round of break throughs in medicine and bio
engineering. These innovations will spur the standard of living higher, after
this recession, however deep the recession gets.


The stock market may obviously continue to be a very bumpy ride. The market
will rise before too awfully long, unless we expect corporate profits to remain
depressed and not recover. I think it is a poor bet to suggest that profit will
not recover. However, where the bottom of this market cycle will be is, I think,
not knowable.


February 12, 2009


The financial crisis was caused by the fact that banks gave mortgages to
people who were destined not to make the payments. When these people inevitably
stopped making payments the credit crisis arose. That led to drops in housing
prices and even more people not paying. Why pay if the house is worth more than
the amount owed?


The solution seems obvious, help out selected people to extend their
mortgages, or get lower interest rates. But be careful not to set up a system
that encourages defaults. Finally today the market reacted positively to news
that Obama intended to have a program to help people pay their mortgages.


It was idiotic to simply give money to banks while the homeowners were left
with mortgages that they could not pay.


Anyhow, I expect Wells Fargo should benefit from this news.


I received an email today from Air Canada offering 2000
Aeroplan bonus miles on certain flights overseas
flights. This tells me that AirCanada is still very motivated to purchase points
from Aeroplan. In this case the points probably cost Air Canada about $25 or a
bit less (as mentioned under December 17, the revenue to Aeroplan averages 1.44
cents per point). For the customer who flies the points may be worth about
2 to 3 cents each. (A 25,000 point flight in North America can often save you
$750). Anyhow Aeroplan gets the $25 now. An average of 30 months later they buy
a seat from Air Canada at an average cost of apparently just under 1 cents per
point. Under $20. So they expect to make say $5 on the deal plus have the use of
the cash for 30 months average until the customer redeems the points.


Checking Aeroplan.ca I see that lots of Hotels are offering double Airoplan
points. It looks to me like these businesses are happy to buy Aeroplan points in
order to attract business.


I also see CIBC and American Express offering big point bonuses (like 25,000
points) to sign up for gold cards. That’s probably $300 (unless Aeroplan gives a
sweet deal by subsiding the bonus points on signup) or more in revenue per card
going to Aeroplan, just for the sign-up – Never mind all the points as people
use the cards each month.


Then there is the new deal with Sobeys. They should be selling a lot of
points to Sobeys… (This applies in Canada except the Maritime Sobeys which are
with Air Miles)


The bottom line is , I expect Aeroplan to have a good Q4. They should have
strong cash flow in Q4 . Actual GAAP income is less important in this case but
may be strong also as people cash in points to fly.


The risk is that Aeroplan will be hurt if its partners (like CIBC, American
Express, Sobeys etc.) decide to cut back on buying the points. So far it looks
like the opposite. Its accumulation partners are buying the points to attract


Aeroplan has been a bit volatile so I would try to buy on the dips. I’m not
sure when they will release earnings but it is possible it will take a jump in
price at that time. (Of course there are no guarantees of that…)




February 11, 2009


My strategy is to continue to be invested in good companies that are likely
to do well (or at least relatively well) even if the recession gets worse.
Aeroplan was down today and I added
to my position, buying back 1000 shares that I had sold at a higher price last
week. Oil was down today. This is bad for
Melcor which is sitting on “lots” (so to speak) of undeveloped residential
land in Alberta. But my view is that buying their shares at less than 50% of
book value (which is $9.62) is likely to work out well.


February 10, 2009


I made a few trades today.


Sold my American Express and Goldman Sachs and replaced it with Wells Fargo.
I bought the two that were sold partly due to Buffett’s interests in them. But
Wells Fargo is a more recent equity purchase of Buffett and is also a simpler
company. It will be difficult to analyze due to the difficulty in estimating
credit losses. However, Wells is selling not much over its December 31, 2008
book value. When the economy turns around, Wells will show strong profits. But
until that time it could certainly suffer more losses.


I added to my Melcor and my Western Financial positions as the shares dipped


February 9, 2009


Boston Pizza is updated and
rated (higher) Buy at $8.65. I hold shares and would like to increase my
investment if it dips to the $8.00 level (I thought it might dip on poor results
from Q4). Actually the Q4 results were not very good with pre-tax earnings per
unit down 3.8%. It is disconcerting that management does not point out the
results on a per unit basis. Instead they trumpet overall growth, even when that
growth was wiped out by the increase in the number of units. Possibly when
analysts look at closer the price could dip, but then again the yield is
attractive and may support the price despite the negative growth.


Kingsway Financial out did themselves with an announcement of a truly
colossal loss for Q4. Based on past reported profits and particularly based on
their reported book value I thought there was value in Kingsway. Usually the
book value of a financial company is reasonably accurate. But the extent of
management incompetence at Kingsway is turning out to be truly mind boggling.
The profits of the past were essentially fictional, based on estimates that
turned out to be horribly wrong. (Presumably those estimates were made in good
faith, but they turned out to be horribly wrong) On top of that they got hit
with investment losses. The investment losses are not their fault but the fact
that the company was leveraged with debt made that worse – which is their fault.
(Property insurance companies probably should not use debt because their equity
is already heavily leveraged by the insurance operation). The next step will be
to get rid of the CEO and most of the Board and maybe then a turn-around can
begin. The company has no competitive advantage and so is at best a “cigar-butt”
type investment. It may recover from the current lows (possibly easily rising
100% at some point) but longer term there seems to be no reason to think it can
do well as a business. I have no current intention of even thinking about buying
it again. Buffett tells us to invest in a great company at a good price rather
than a good company at a great price. And a lousy company even at a great price
is probably not a good bet, at least not for the long-term.


February 8, 2009


Boston Pizza Income fund (last traded at $8.65) will release earnings before
the market opens on Monday. I would expect same-store sales to be down and
therefore the units could fall in price. If the unit price happens to fall
substantially toward the $7 level I will buy additional units.


February 6, 2009


Another strong day in the markets despite the bad news regarding higher
unemployment. I sold some of my Aeroplan to take profits but hope to buy it back
at a lower price.


My article on the asset class performance of
stocks, versus bonds and cash is updated with data for 2008. (I still have
some work to do to fix the size of the graphs, but the article is updated)


February 5, 2009


A good day in the markets. It’s nice to see strength in the face of continued
economic bad news. I think it’s safe to say though that we will continue to see
volatility. I continue to be patient in placing any buy orders. I am going in
below the market and if the price drops I buy, if not I keep my cash for another


February 4, 2009


I notice that Visa came out with very strong earnings after the (regular
hours) close today. The stock rose about 8% in after-hours trading. I had
mentioned a number of times I like the idea of Visa. It’s pretty much an
unregulated (as to price) monopoly…


ING Canada is updated and
rated (higher) Buy at $28.85. (see also comments from earlier today just below)


This morning I have sold the 2 Berkshire B shares that I had in my RRSP
account. I still hold 2 in a non-registered account. I had last bought 2 shares
when they were  $200 cheaper only about a week ago. I think there could be
a better opportunity to buy Berkshire after it releases Q4 and 2008 results
which I think are going to be horrible. We will hear lots about how Buffett is
losing his touch, but that is not true. His approach has not changed. I will be
looking to buy Berkshire if it slumps with the Q4 earnings report.


Yesterday I got an email from TD about ING Canada shares being sold in a
secondary offering at a big discount to the market. This offer was snapped up
yesterday and opened and closed within about 30 minutes or so.


What was interesting was this was not ING Canada selling shares to raise
money. This was the parent of ING Canada (ING Groep of the Netherlands) selling
shares in a distress situation because it is in bad shape. So, this was a chance
to buy shares at a distress price of $26.35, while they had last traded at
$33.79. I placed an “expression of interest” for 1000 shares and today I am told
I will get 900. Meanwhile the shares of ING Canada have moved down to $29.88.
This is probably still good value, and I will be updating our report on ING
Canada to hopefully confirm this.


If I held ING Canada shares at the time of this secondary offering, I would
be rather mad. It’s horrible that the parent had to sell at a distressed price
and knock the share price down like this. But at least this is not the doing of
ING Canada. This was the result of a weak parent. It would have been nice to see
ING Canada participate by buying some of these shares as well.


One thing this illustrates is that the so called “market price” can at times
not be that meaningful. The market price at any given time can show you how the
proper price at which one could buy or sell a few shares (and this assumes the
bid/ask spread is tiny as it usually is for popular and well-traded stocks, but
certainly is not-true for thinly traded stocks). The market price may tell you
little or nothing about the price that would apply if you wanted to buy or sell
a huge amount of shares. Companies are noiw required to “mark-to-market” any
shares they hold in other companies. Usually that is probably fair but at times
this market to market value is not all that meaningful.


We should remember value and price are often two different things.
Occasionally the value of an individual stock based on fundamentals will be
vastly different than its price in the market. If you don’t believe that then
you should not invest based on fundamental analysis.


February 2, 2009


Dalsa slumped again this morning. I had placed an order to buy and I got my
fill, but had I been patient I could have got a lower price.  I was
surprised it fell so much. But that is what happens in a market like this. Dalsa
is a small company and so it does not take many people wanting to sell to push
the stock price down.


I mentioned yesterday I might lighten up on TMX group and I did so today. I
would have liked to get a higher price but with the market slumping I decided to
take what I could get in order to trim the position. Also the NYX Euronext
exchange stock sank today on analysts  downgrades and so that was probably
putting pressure on TMX group.


February 1, 2009


Dalsa Corporation is updated and rate (lower) Strong Buy at $5.86. After
adding back very large recent write-offs on its Digital Cinema division, it
looks quite profitable on its ongoing business. But that business is somewhat
unpredictable and has been hurt by the world economic situation. The current
adjusted P/E of 5.0 is “pricing in” a decline in earnings in 2009. However, even
considering an earnings decline in 2009, this stock looks quite cheap. I plan to
add to my position, particularly if I can buy below about $6.


I placed an order to slightly reduce my TMX Group position if its stock rises
towards the $33 mark. I may also decide just sell it closer to about $32


January 31, 2009


The TMX Group (formerly the TSX
Group) is updated and is rated (higher) Buy at $32.07. Due to an uncertain
outlook and uncertain competition this stock could be quite volatile. A
reasonable strategy would be to buy or hold a modest amount but be prepared to
add at lower prices. It is one of my larger holdings and therefore I may trim
that to invest in higher rated stocks and/or in the hopes of picking this up
cheaper if the market sends the price down.


Performance figures for 2009 are updated.


January 28, 2009


Aeroplan has fallen $1.00 in two days to the $9.00 level. Partly it may have
been due to a press release about a staff contract not being ratified. I was not
able to understand how important that issue is since the press release was very
sparse. I still intend to buy more Aeroplan on weakness. I continue to look at
my positions with a view of moving toward the best quality companies with
sustainable advantages. I may use market increases as an opportunity to move out
of any stocks that I own that are rates low.


January 26, 2009


I had a small position in an ETF (HTD on Toronto) that shorted the U.S.
30-year Treasury (hedged for Canadian currency movement as well). This position
was mentioned under Dec. 21. I had a 17% gain on it in just a few weeks and I
decided to take that profit. There is some talk that the Fed would buy U.S.
treasuries which would force their value up and hurt my position. So I just
decided to get out of that position with my small profit.


I had an order in to Buy Berkshire and picked up a couple of B shares today.
I may buy more as the price falls but I am expecting a terrible Q4 from
Berkshire. Still, I think Berkshire will be good value for the long term.
(Although ultimately I should look for the best values and not merely good


I have order in the buy Canadian Oil Sands Trust and CN if they should drop
about 5%.


Today markets were surprisingly strong for most of the day in the face of a
lot of bad news regarding layoffs and lower earnings. But at the end of the
day markets were up only slightly. Many American companies have not yet reported
Q4 earnings and the Canadian companies are just starting to report and most will
report in February.


For those who check in here for daily comments, I will be offline tomorrow.
No comments until Wednesday evening.


January 25, 2009


Canadian National Railway Company is
updated and rated (higher) Buy at CAN $41.69. This company is very well managed
and it has very attractive economics in terms of limited competition. The only
hesitation to buying now would be the possible chance to buy at lower prices due
to the recession and the fears and realities of what that will do to rail
transport. But ultimately that should be a temporary issue. I would be
comfortably buying now but would want to be prepared to add to the position if
the stock falls in price and would be prepared for the stock to possibly be
lower in 2009 before ultimately reco0vering and growing in price.


January 24, 2009


So far in 2009 our eight Strong Buys are up an average of 2.8%. My personal
investments are up 4.5%. This beats the TSX which is down 4.5%. The Dow and the
S&P 500 are both down 8%.


Reitman’s is updated and rated Speculative
Buy at $11.07. Based on its profit in the past year it looks quite cheap.
However its profit will likely decline somewhat due to the recession. It does
have a 6.5% dividend and the dividend should be very safe considering that it
has cash on hand to cover the dividend for up to five years and it has almost no
debt. In the short term the stock could drop but it should be a reasonable
long-term investment. A reasonable strategy might be to put in a bid at about
$9.50 or less.


January 22, 2009


Warren Buffett was recently
interviewed on PBS Nightly Business Report. The transcript and a link to video
are here:
http://www.cnbc.com/id/28800287?__source=RSS*blog*&par=RSS I am thinking of
buying some Berkshire. I believe it had a bad Q4 and bad year and that the stock
is a bargain but may become an even better bargain when the earnings come out.


I mentioned Aeroplan yesterday. I did go ahead and sell a small part of my
position there today to lock in some profit. I’ll be looking to add to some
positions like Canadian Oil Sands but first I want to review the earnings
releases and will post my thoughts about that.


January 21, 2009


Yesterday we got a bit of a nasty haircut, but today it all grew back and
then some. We may see gyraions like this as the earnings come in. Layered on top
of that is the news of more layoffs and such so it’s hard to picture the market
getting much momentum to the upside at this time.


I am tempted to trim a position like Aeroplan which is my largest position
and it has done well lately. On the other hand I may just let it ride since it
seems to be trending up. It reports earnings on the 28th. I expect it should
have a reasonably good quarter. On the other hand the slowdown in consumer
spending will slow people’s use of the Aerogold credit cards and this company is
not immune to the recession. Still, I like the business model and if I trim
Aeroplan somewhat I will still be keeping a large position.


I will have one or two updates by the end of this coming weekend and am also
working on an edition of the free newsletter.


Oil rose today in the February and March market but fell in the longer term


January 20, 2009


Today ended up giving almost all stocks a nasty haircut… While it does make
for more bargains it is also painful. It seems that hopes that we were past the
bottom of all this may have been premature.


An order I had placed to buy Canadian Oil Sands was filled today at $18.25.
It may be trending down but it seems to me that if I want to own oil when it
next rises, I have to buy it sometime.


The price of oil is confusing. The February contract was up $2.23 to $38.74.
Meanwhile the market is now focusing on the March contract which was only up
$0.32 to $41.16. The future prices of oil 6 months to several years in the
future has been much higher than the spot price. One would ask why anyone with
oil in storage would sell it now when they could sell in the futures market and
deliver in the future for a much higher price. Today all the prices past July
’09 fell by over $3.00. Therefore it is difficult to say if oil rise or fell
today. Obviously the price movement of the February or the March contract does
not tell the whole story.


As housing prices fall, mortgages rates are their lowest level basically
ever. Houses are therefore more affordable than they have been in some years. At
some point this could bring more buyers into the market.


January 19, 2009


Our stock picks overall were up today although some of these on light
volumes… With the price of oil down, its going to be tough for Melcor and
Western Financial to do well in the face of lower oil prices and the consequent
impact on the western economy. Therefore I worry about my large exposure to
these two. Melcor I worry about less since it has good assets and low debt and
can weather, I believe, any storm and come out higher when the economy improves.
Western Financial as a small financial that is leveraged could conceivably be in
real trouble if the western economy really tanks. They could face substantial
bad loans in that scenario as well as mark to market losses on investments held
in the life insurance part of the company. I like Western Financial and think it
will do well but nevertheless I worry about too high an exposure to it. The last
of my shares I bought around $1.50, therefore I placed an order to sell that
portion at $1.99.


I like the idea of buying oil companies at these lower prices. I placed an
order to buy Canadian Oil Sands Trust if the shares drop another dollar or so. I
also have an order in to buy XEG, the energy exchange traded fund, if it drops
to $11.75. (Possibly I should just buy some of these now and then look to add on
further weakness).  However, patience is probably a virtue in this market.


January 17, 2009


Walgreen company (large U.S.
drug-store operator) is updated and rated Buy at $26.76 (closed last at $26.91).
This company has an excellent history. Like most retailers it has been hit
somewhat by recession. It should do well long-term but the near-term is less


January 14, 2009 (pm)


Down a good day in the markets as stocks declined due to poor economic news.
One bright spot was aeroplan which
has done well. I was hoping to buy more although this is already my largest
position. I’m being patient. I suspect with market volatility there is little
reason to chase stocks and instead it seems wise to place bids somewhat below
the market and hope for volatility to work in our favor. The Canadian market is
likely to be even more volatile than the U.S. because it can be driven up or
down quickly with oil prices.


January 14, 2009(am)


With oil prices down it may be a good opportunity to average into some energy
stocks like the energy ETF, XEG.


Stock market direction will now be impacted by earnings season which has
kicked off. earnings are sure to be generally lower than last year but the the
impact on markets will depend on whether they are even lower than expected.


January 12, 2009


In my own trading I have placed orders to buy more Aeroplan if the price
falls to $7.75. 12, 2009


CV Technologies released earnings today which looked quite positive. However,
the company was late filing these earnings and is currently looking for a new
CEO (not positive factors). In addition they have a habit of releasing the
earnings press release (not full details) and then only later posting the full
financials. The delay this time was only a couple hours, but still it’s
annoying. I decided to sell the small amount of shares I have to focus on other
things. I did this sale before seeing the full financials which did look quite
good so perhaps I was somewhat hasty.


Similarly I sold the rest of my Quest Capital today to focus on other things.
(Also it had recently risen in price from the 80 cent range to the $1.10 range
and I figured we might see 80 cents again before we ever se $1.50. Also while
its numbers look good it is a speculative stock)


Also similarly I sold the remainder of my EDGE Petroleum shares which was
just a small amount.


Similarly I am thinking of selling the BCE shares that I have since I have no
particular reason to own it after the deal fell through. (It’s not a company I
have looked at closely, I bought only based on the hoped for sale to Teachers
Pension plan)


These sales clear out some names which were taking up some of my attention
but which are small holdings.


January 11, 2009


I have updated my portfolio breakout of the
percentage in each stock.


I have sold about half of my
Quest capital shares due to it being a speculative (although promising)


Markets declined late last weak partly on what was judged to be weak results
from Wal-Mart. I did not think that Wal-Mart’s results were weak. Given news
that they were competing by lowering prices, a small decline in earnings does
not seem surprising.


FedEx is updated but continues to be rated
Weak Buy / Hold at $64.08. (Since the date of our analysis it declined to
$60.32). This is a great company with a continued bright future. However in the
current environment of declining earnings there are other more attractive places
to invest. At prices under $55 we might consider averaging in.


January 7, 2009


Back to reality today as bad economic news finally drove the market down
after a string of recent gains. I decided to take some profits… Sold my
Kingsway Linked Return note after it rose 10% in the face of a negative market
on low volume. It was a small position and Kingsway is no longer a company that
I faith in for the long term. Sold about 20% of my Melcor shares since I had a
good profit on it after having bought those shares near the recent lows. With
oil down and all the bad news for real estate I just wanted to lighten up on
that but still have a large position. Sold also about half of my BCE shares. I
only bought those shares hoping to profit on the buy-out and so it makes more
sense now to redeploy that money into something I am more familiar with.


On January 6 I sold half of my EDGE petroleum position (see November 24 for
more info on that).


January 5, 2009


A bit more positive progress today… I am just standing pat, no trades…
I do note that the Treasury bond yields in the U.S. have started to rise from
their insane lows…


January 4, 2009


With the recent strong gains in many stocks, albeit from ugly lows, it is
worth thinking about taking the opportunity to move some funds into cash.
Personally I am planning to hold off on that as the stocks I hold still appear
to offer excellent value. A possible exception, I may try to sell off some small
positions that are not large enough to matter. No doubt these next couple of
months at least will continue to exhibit great volatility. (Meaning we
unfortunately can’t count on any recent gains to stick around at least in the
short term).


January 1, 2009


In preparation for the new year of trading, I have removed a few names from
the list above where the last update was  considered too old and I felt I
did not have a rating to apply for the new year. These were EL-Financial and CV
Technologies. Northbridge is also removed since it is being bought out.  In
a number of other cases as highlighted in the Table above I have updated the
rating just based on the price movement.


As in previous years, the ratings in the Table above along with the 2008
ending prices will be used to track performance in 2009.


For 2009 I wish to discontinue the
Model Tracking Portfolio, click for a discussion of the reasons.


The overall performance figures are updated for
2008 and the detailed graphs will
be updated within a week or so.


There is plenty for InvestorsFriend to do as we enter 2009. I will be
purchasing official performance data figures for 2008 so that I can update a
number of articles that look at the long term performance of stocks versus bonds
and cash. A number of our stock reports will be updated by the end of January. I
hope to do some screening for additional bargain stocks including some
high-dividend stocks. I have spent a lot of time lately reading
Warren Buffett’s
old letters.  I am a believer that in investing as in any other field,
one can never review the basics too many times. Also it is impossible to review
the writings of Warren Buffett too many times. He is, after all, by far the most
successful investor ever.


Many stocks are clearly bargains. At this time however, it is necessary to
pick through the many bargain stocks to try and find the best bargains while
concentrating on companies that we understand and that appear to have
competitive advantages.




December 30, 2008


Another good day for our stocks. It’s nice to see. I think it gives
credibility to the notion that there really are some excellent bargains out
there including the Strong Buys indicated above. Most likely we will continue to
see volatility in both directions.


Quest Capital which we
updated very recently has sold $40 million in preferred shares in a private
placement at 13.5% (and higher than that considering a fee was paid to raise the
money). It’s all a bit crazy to be raising money at 13.5% (which they must pay
back) to lend it out at about the same rate to companies that could default in
paying back. “Also, in conjunction with this financing, the Company has
decreased its bank line limit to $70 million” (from $88 million. The cynic in me
asks did they voluntary issue preferred shares at 13.5% in part to repay a
credit line that no-doubt was costing much less than 13.5% Or did the bank
require them to make the reduction. Quest is a a bit of a strange beast. It does
look like it should be good value. But I would not make a large investment given
the small size and the possibilities for huge loan losses.


I have emailed the President of this company with a couple of questions.
Personally I will not invest any further until I see what kind of response I


Another interesting fact about Quest is that it trades on the American Stock
Exchange and also on the AIM stock exchange in the U.K.  Another question
for a Skeptic would be, why does a tiny Canadian lender want to be listed on
three stock exchanges, two of them foreign. We rated Quest a Speculative Strong
Buy and I am thinking that we all need to remember the Speculative aspects of
this company. (It looks like a Strong Buy based on the numbers but note
carefully the various risk factors mentioned here and in the report)


December 29, 2008


A good day on the Canadian markets. Perhaps we can close out the year on a
positive note…


December 28, 2008


Quest Capital is updated
and rated Speculative Strong Buy at $0.80. The company trades at only 40% of
book value. Essentially a share owner buys a very modestly leveraged interest in
the existing loan portfolio and the ongoing business. Most lends are very highly
leveraged. The very modest leverage of quest lowers the risk. In addition the
low price appears to offer an ample margin of safety. The dividend is
attractive. The company could face an ugly round of bad loans and possibly the
dividend could then be cut. But even so, a 40% price to book value ratio is
capable of covering off a multitude of sins. Still the company is small and we
also note in the report that some directors had been involved with some kind of
proceeding with the securities commission in the past. It appears that some
directors have been involved and continue to be involved in numerous resource
companies. I am not sure that this is a bad thing but it is perhaps something of
a red flag. I own a modest amount of shares and may look to add somewhat to that
but will likely avoid a large exposure to this small company.


December 24, 2008


Well we did not get any Santa Claus Rally… Maybe he can bring us cash so we
can invest at these lower prices. I am not planning any year-end trading.


I am planning to set up my new Tax Free Savings Accounts. I believe it will
make sense for those who have good borrowing capacity and good cash flow to
borrow the money (if necessary) and get $5000 each into the Tax Free Savings
Account. Also for those with RRSP and or RESP room, the same reasoning applies.
If this market crash is bad for you at least it is good for any young people
just starting out. In reality it is also good for anyone with at least 10 years
of savings ahead of them although it certainly does not feel good.


I’ll probably be off-line until Monday December 29.


December 21, 2008


I have purchased a small amount of the 30-year U.S. Treasury double bear
Exchange Traded fund, HTD.TO as briefly described in the posting just below. The
30-year bond pays about 2.55% and I believe this to be a preposterously low
yield. At some point the yield on this bond will rise and the value of the
double bear ETF will then rise.


Warren Buffet in his 1984 letter to shareholders talked about how in 1946
people were buying 20-year AAA rated tax exempt bonds paying just below 1%. He
called this return “outrageously inadequate by business standards” and noted
that if it were thought of as a business that produce such a return it would be
an “abominable” business.


By the same logic, I believe that many businesses are available today, and
many corporate bonds as well, that are expected to make earnings of  10% or
more on the market value paid. While the market values of these business may be
volatile it seems clear that such business will easily beat the 2.55% return
from 30-year bonds. Therefore it seems irrational to buy those 30-year bonds and
I believe that this yield will rise over a reasonable period such as 1 to three
years and that the double bear ETF will therefore rise in price.


I’d rather put money directly into business rather than into a bear ETF.
Nevertheless I bought a small amount of the double bear.


December 18, 2008


Checking insider trading since December 1, on my personal top holdings, I
note one executive buying at Boston Pizza as well as the fund itself buying
back. A few buys at Canadian Western Bank but also one sale. Two buyer at Melcor.
One buyer at Canadian Tire. Overall not a lot happening. No insider trading in
Aeroplan or Western Financial Group.


U.S. government treasury bonds continue to go down in yield. The ten-year
was at 2.07% today and the 30-year at 2.55%. These are preposterously low yields
and they will rise although it could take some time before that happens and
meanwhile they may keep falling.


If a Canadian investor wants to bet that these yields will turn around and
rise they could buy the Exchange Traded Fund HTD on Toronto. This is currency
hedged so that you are making a bet that this 30-year U.S. government yield will
rise but you don’t take currency risk. You can find more information here.



December 17, 2008


Canadian markets were closed today due to a technical problem.


In the U.S. their dollar has weakened from U.S. $1.25 to buy one Euro on
November 21 to now $1.44 to buy 1 euro, which is a 15% weakening in less than a
month. But it is not the $1.44 that seems strange. It was the $1.25 that was
strange. The U.S. dollar had unexpectedly strengthened massively against the Euro
in the past six months. Back on July 14 it took $1.59 to buy a Euro. Most
analysts had expected the U.S. dollar to further weaken with all its deficit
spending and massive creation of money out of thin air that it ahs done in the
past few months. Now, sanity seems to be returning as the U.S dollar weakens.


Meanwhile yields on U.S. long-term bonds keeps falling, with the ten year
currently at a yield of 2.19%. That seems like an impossibly low return for
accepting inflation risk for the next ten years and tying up your money for ten
years. The value of existing bonds that have original coupon rates around 4% or
more, has soared.


My understanding is that roughly half of such bonds are held by foreign
investors and foreign governments. It’s hard to imagine why these people and
governments would not sell those bonds now since if they hold them they risk the
yield rising (sending the market value of the bonds down) and they risk the U.S.
currency weakening.


U.S. investors don’t care about the currency risk but they do care about
inflation / interest rate risk and it is hard to make a case for buying these
bonds and expecting yields to keep dropping. One theory is that the U.S. treasury
is effectively printing money and buying back its own bonds at large premiums,
sending these yields down. They can’t keep that up without causing inflation at
some point.


The point of all this is that the next bubble to pop is likely the insanely
low interest rate on long term U.S. government bonds. Consider that at a 2.19%
yield it takes about 33 years for money to double. Is there anyone who seriously
thinks there would be much return in real term after inflation if your money
took 33 years to double. And in taxable accounts you would not even get the
2.19%. It’s insane. I’m glad I did not try shorting the U.S. ten-year bond, but
that is a bet that is likely to pay off at some point if taken.


Aeroplan is my biggest holding.
Here’s part of the reason why I like it.  In the first nine months of 2008
the revenue per aeroplan mile redeemed in Canada was 1.44 cents per, while the
cost of rewards averaged 0.9 cents per mile. That is a fat gross margin. And
remember they collect the revenue an average of 30 months before they have to
buy the reward. Consider as well that along with Airmiles they are form
something of a duopoly in this business. There is the risk that if Air Canada
runs into financial trouble, then Aeroplan would likley suffer. But I keep
thinking that even if Air Canada went into receivership it would still want to
offer seats to Aeroplan and probably at a good price representing Aeroplan’s
bulk buying power. Also consider that Aeroplan’s partners like American Express,
CIBC and its retail partners are desperate to use Aeroplan as a marketing edge.
There are no guarantees but it appears that Aeroplan is well positioned.




December 16, 2008


Yet another day of seemingly unprecedented news in the markets. U’S had
a big month of deflation with prices down 1.7% in November, the biggest dip in
many decades.


The U.S. lowers the Federal interest rate on overnight money to a
ridiculously low target of 0 to 0.25%. So lets see, the fed is going lend money
at a rate such that for  1 million on this “daily rate” banks would pay
$2500 per year in interest.


The U.S. dollar finally turned around and dropped about 5% against the Euro
and against the Canadian dollar in the matter of a few days.


Federal government interest rates are preposterously low. Corporate borrowing
rates meanwhile remain quite high, in some cases way too high.


It’s hard to imagine who is investing in 10-year Treasury bonds now yielding
about 2.4%. U.S. investors face inflation risk, while foreign investors face the
risk of the U.S. currency dropping and the risk of inflation. Investors in these
bonds keep on “winning” as the interest rates drop. But they should remember,
rates cannot drop forever and therefore will not.


Stocks like Melcor Developments and many many others are going begging at
ridiculously low prices.


At some point the madness will pass…


I added a bit to my Canadian Western Bank today.


One stock that has done relatively well is Tim Hortons. It’s a great company.
But I sold my Tim Horton shares a while ago because there seemed to be so many
other better bargains. If I held it today I would sell to move into better


For purposes of the Model portfolio I will notionally sell half the Tim
Hortons at tomorrows opening price and notionally invest the proceeds in




December 15, 2008


Another nasty day for my stocks. I added to my Boston Pizza and Melcor


An interesting fact about one of the companies I like. I had recently seen
that a director sold about 200,000 shares at low prices in a black-out period
just before the earnings release. He should not have been selling at that time.
I emailed the company and they knew about and were investigating. They got back
to me today and said it was caused by a margin call this director had his shares
sold due to a margin call without his knowledge. He should not have let that
happen. I ma not going to say which company this was because the email I
received from them did not state that I was free to pass along the information,
so I will treat it as private. What I find interesting is to think about how
much selling recently may have been forced sells. People who bought stocks on
margin were forced to sell if they did not have cash to add as stock prices
fell. This can create a vicious cycle where lower stock prices begats selling
which begats lower stock prices which begats ,more selling…  If that is
the case a rational response is to buy stocks which are trading at unjustifiably
low prices. But is may also make sense to average in and not invest all
available cash at once since there may always be better bargains ahead.


December 14, 2008


Canadian Tire is updated
and rated Buy at $39.14. The value ratios would suggest a Strong Buy. However
earnings have trended down slightly with the recession and competition and this
could get worse. On the one hand we like the opportunity to buy this at book
value and a low trailing P/E of about 8. On the other hand it may be best to
wait and see how the critical Q4 earnings figures come in.


Performance figures for 2008, the
Model Portfolio and my
own portfolio composition are updated.


While it has been an ugly year, I am encouraged by the values that are
available. Stock P/Es will not stay forever at low levels and earnings, while
they may decline in the recession, will, on average recover and grow.


December 13, 2008


Boston Pizza Royalties Income
Fund is updated and rated Strong Buy at $7.15. The value here is driven by
the yield of 19%. Even after considering the impact of income tax in 2011 the
yield would be about 14% if it were taxable today. This is a very attractive
yield. The distributions per unit may not grow and could slip somewhat due to
recession, but overall the value still looks very strong. Usually share
buy-backs are not something I get excited about because they use shareholder
money to buy back the shares. In this case I am very encouraged by the share buy
back since they only started this in October when the init prices fell to the $9
range. Also they indicate that they can borrow at 4.5% to buy units and then
they save the dividends on those units at a current 19%. This suggests that the
share buy back is clearly accretive to the distributions per unit. Keep in mind
that the restaurant business is a risky business and that the Fund may be hurt
by recession. But overall the numbers and other considerations suggest that this
is a Strong Buy when it can be bought for not much over $7.


December 11, 2008


For good or for bad the bargains seem to keep getting better.
Canadian Western Bank at
$11.30 is down close to its book  value of $10.54. It will probably face
increased bad debts but overall seems like a definite bargain. The stock price
may continue to languish with low oil prices but ultimately buying a good
quality company at around book value should be a good investment.


Since their earnings came out last week, several insiders are buying
including a buy today of 10,000 shares at $11.60. Seems to me they are telling
us something… i.e. Buy…


Canadian National Railway has come down
in price and is worth considering. Buffett has been adding to his rail holding
(Burlington Northern) and so maybe we should follow suit. My strategy here would
be to average in…


I definitely like Aeroplan There
was a story in today’s financial post that Canadians are spending lots of
Aeroplan and Airmiles points to use to buy Christmas gifts this year. Its a way
of being frugal and I think there will also be lots of interest in accommodating
the points. Aeroplan should report a strong Q4.


I am being patient in terms of putting any more cash into the market. For
example I have orders in to buy Aeroplan, Melcor and TMX Groupe on price dips.


December 10, 2008


One of the silver linings to this bear market is to buy the best quality
companies at bargain or at least reasonable prices. It is often been said that
an unregulated  toll bridge would be a fantastic investment. Companies that
have to some extent the characteristics of an unregulated monopoly. I have
always thought of the TSX Group that way.
(One of my clue’s being its unheard-of-in-the competitive-market ROEs of up to
around 50% (on a GAAP basis) over the past few years. Right now it is facing
some competition from new electronic exchanges. But nevertheless it still seems
that every big Canadian company is almost forced to be listed on the TSX and to
pay the listing fees. Recently, new listings at the TSX had dried up. But now
secondary offerings of  $2 billion or so each have come from three major
banks. The TSX charges fees for this and therefore these big offerings will help
their cash flows. Under mis-guided accounting rules these non-refundable frees
are deferred and booked into revenue over ten years . But in terms of economic
reality they are almost pure and immediate profit. (At one time thse fees were
booked as immediate revenue).


For the model portfolio for 2009 I intend to place a priority on choosing
mostly stocks with some level of strong franchise or quasi-monopoly power like
the TSX (TMX Group)


December 9, 2008


I got rather hammered on
Western Financial Group today. As a small company it can tend to get
buffetted in share price. At my last update on Nov 16, I said:



Western Financial Group is
updated and rated Speculative Buy at $2.60. The stock price has come down
considerably and I had recently added significantly to my position in this
company on that basis. However risks are also up and earnings have fallen
somewhat. They have recently committed to $27 million in acquisitions. This is
significant given a current common equity level of $129 million. It’s not clear
that they have the cash to finance these and one shudders to think about trying
to issue more equity or debt in the current environment.

While the stock is not
expensive it does not seem compelling given the risks.
I am inclined to reduce
my (too large) position in this company and redeploy into companies that we have
rated in the Strong Buy range. The company will host a conference call on Monday
at 3 pm eastern and the market reaction to the earnings released on Thursday of
this past week may become more clear only on Tuesday.
(highlighting added)



No insider selling has been reported recently. These wild swings down could
just be due to a few traders wanting to get out and take a tax loss. Maybe they
are having difficulty financing that acquisition. I certainly hope they don’t
issue shares at this low level.


Aeroplan has been volatile, perhaps partly due to Air Canada which does have
serious problems and which I believe has been put under a negative credit rating
watch and its credit rating was already only “B” which is very low indeed. But I
remain confident in Aeroplan. What I am seeing is that Aeroplan’s partners are
eager to buy the aeroplan points to use in marketing promotions. It does appear
that Aeroplan benefits from buying cheap seats from Air Canada. But even if it
was in receivership or went into receivership and back out, it would probably
still be desperate to have all the business that Aeroplan can delver and would
likely continue to sell to Aeroplan on a volume discount basis. I suspect
Aeroplan also gets good deals when it buys seas on its partner international
airlines. In this airline business, it is the customers (including Aeroplan) who
have the upper hand (because they have cash and the airlines need it).


Melor is also volatile and I was hoping it to pop down a bit more as I have
an order in to add at $3.51


Canada lowered interest rates today. Seemed to be a non-event.


Yesterday I comments on Exchange Traded Funds, I just edited one sentence
there where I indicated that I could only find info on ishares up to 2002. That
was by looking under Barclays. Under ishares the more current info is given. You
can find the securities filings for the ishares funds on SEDAR.com under Funds
and then under ishares.

or go direct to:





December 8, 2008


A good day in the markets. It might have been a good day to have had some
offers in to sell part positions on anything that was up say 10 or 15%. If you
have 1000 shares of something, maybe place a bid to sell some if it rises a
certain amount. In some cases stocks jump temporarily and you can cash out a
little at a good price and buy back in later.


A couple of subscribers recently asked some technical questions about
Exchange Traded Funds ETFs.


One subscriber wanted to know if we can trust the sponsor of the ishares ETF,
Barclay’s. Could they fail and could the exchange traded funds go to zero?.


That is a big question and would take a lot of research to fully answer.


I addressed it partly last January 16 on this page in regards to Horizons
Beta Pros shares where I said:


while HXD is
probably a safe product (I have not checked the financial strength of Horizons
Beta Pro, but suspect it is good), the subscriber makes a good point in
realizing that thee could be some risk there. Presumably Horizons Beta Pro has
taken investors money raised through HXD and has made some kind of double
leveraged bet that the market will fall. When it falls I imagine that counter
party has to pay up. So we have to hope this counter party is strong
financially. And recently we have learned that even AAA parties can suddenly
develop solvency problems. I suspect that this would be a very small risk and I
don’t think I personally would worry about that risk with HXD. The risk is
probably much smaller than for the vast majority of investments out there.
Possibly the TSX and or the Ontario Securities commission has something in place
to mitigate any risk of default by  Horizions Beta Pro Inc. But nonetheless
some risk exists. The risk I speak of here is the risk that Horizons Beta Pro
Inc. does not make good on its obligations for HXD. The much bigger risk, is
that the markets in fact rise rather than fall. Then, you lose 2% for every 1%
the market rises.  Markets do of course rise on average over time. So
anyone buying HXD has to be very confident that the market will fall.


The point is that the ETFs are to a greater or lesser extent “financially
engineered” products. The double bear products would have more financial
engineering than a straight “long” ETF. Financial engineering probably involves
buying derivatives and options of some kind and this introduces some counter
party risk. Normally I would have thought that counter party risk was too small
to worry about. But in a world where Lehman’s has failed, maybe such risk is


When you buy an ETF on the exchange you usually buy from a trader who is
selling. But I believe in some cases and at the outset of the fund and as it
grows some of the money would go directly to Barclay’s. I would think that money
would go into a trust of some kind.


You can find the securities filings for the ishares funds on SEDAR.com under
Funds and then under ishares.

or go direct to:







Overall it is very difficult for investors to check out the risk of a fund
company like Barclay’s. Personally I would probably just trust that the
Securities Commission is doing its job. But investors who are heavily into these
funds might want to do research starting with the prospectus.


Another subscriber emailed me and warned about tracking risk with the Horizon
beta pro double bear and double bull funds whereby they do not seem to deliver
the 2 times gain or loss on the underlying index as they “promise” in their
marketing material. It would be worth viewing the graphs of the price on Yahoo
before buying to try and see if it has performed as promised. I believe a
certain amount of tracking error is reasonable. Also the management fee might
cause some tracking error. But it is a definite concern if the tracking error is
large. Other than warning investors in these products to do some research, I
can’t add much to this.


The point is again these are complex financially engineered products.
Personally I have rarely invested in them and only breifly and so I just don’t
have experience with these. But I pass along the subscribers warning. Investors
might want to check the bulletin Board at stockhouse.ca where I did see some
similar concerns when I checked there is reponse to the subscribers email.


December 7, 2008


The yields on U.S. long bonds have dropped to seemingly irrational levels. If
an investor believes that these will rise they can buy an Exchanged Traded Fund
TBT that (I am told) makes that “bet”. I’m tempted to do so. But interest rates
may remain irrationally low…


Will the market keep going down?


Warren Buffett has always said that he can’t predict markets in the sure
term. But he has said that one can form opinions as to whether the market or
individual stocks appear to be under-valued. He has said that if you can buy
good businesses at great or at least fair prices then you will do well in the
long term, no matter where markets head in the short term.


We have just updated an important
reference article on the P/E ratios and dividend yields of the various segments
on the TSX. We also give you the trading symbols for the Exchange Traded
Fund (ETF) where one exists for a particular segment. This article is now a much
better reference site because we have included links that (in most cases) show
you the latest P/E ratios based on the previous days trading. We also provide
links to quickly check the latest price for each ETF. With this information you
can easily see which ETFs appear to be a bargain prices. Of course you also have
to think about how the recession and lower energy prices might affect each
segment.  There are always risks but it is still very useful to know which
ETFs at least look like bargains.


December 6, 2008


Our analysis of the fair value of the Dow Jones
Industrial Average is updated.


Canadian Western Bank is
updated and rated Speculative Strong Buy at $12.30. The recent price decline
reflects a weaker outlook for 2009 and possible credit losses. Still, the value
ratios have come down to levels not seen in many years. I should be considered
somewhat speculative due to its high leverage (all banks have high leverage) and
due to uncertain loan loss development as the recession takes hold.


December 4, 2008


Canadian Western Bank got hammered down 14% today apparently because of
earnings outlook for 2009 is lower. I would have thought that would be a given
and already reflected in the stock price. We’ll update the report on this
company by Sunday.


I notice that long-term government bonds are in a bubble state now. Returns
on 10-year U.S. bonds are down around 2.6%. On Canadian 10-year bonds, around
3.15%. These are insanely low returns. As James Grant said today, people think
that these are the safest of assets but demand for these safe bonds has driven
their prices to insanely high levels and made them very risky. It’s true
long-term government bond investors have made unexpected gains time and again as
interest rates fall. But that can’t go on forever. In theory these interest rats
could keep going down. But they are already insanely low. It seems crazy to keep
betting that these interest will go lower. When something can’t go on for ever,
it doesn’t.


As much as losses in the market hurt, lower prices means a better chance of
higher returns ahead. This applies to most equities, preferred shares and
corporate bonds.


December 3, 2008


Canadian Western Bank released earnings tonight. Earnings per share were down
17% from the same quarter last year. But partly this was due to lower income
taxes last year. Earnings before taxes were down only 10%. They are growing
assets more slowly and their margins on loans are lower. However overall they
are still very healthy and have not experienced any material problems with loan
losses.  Given how much the stock has dropped these earnings do not seem
too bad. The earnings conference call is tomorrow morning. I added to my
position in this stock today in the hope that earnings would be good. Apparently
analysts were expecting earnings unchanged from last year and so this news could
actually send the shares down. If so, it could be a buying opportunity.


TMX Group released trading statistics
for November. This is the first month where they faced some competition from a
new exchange owned by the banks. At a quick look the trading statistics look
reasonable good. Volumes are up cversus last year although down versus October.
Secondary offerings are down from last year but way up from the almost
non-existent numbers of October.


December 2, 2008


Aeroplan is my largest position.
Part of the reason that its stock price has fallen so much is because Air Canada
is not doing well. Air Canada has an equity value of $202 million. Aeroplan a
spin-off of the old Air Canada has an equity value  seven times larger at
$1446 million.


Air Canada does face a lot of difficulties and was recently losing money. It
is now apparently facing huge pension expenses in 2009 due to the market crash.
It is not able to take full advantage of lower fuel prices because it hedged
fuel costs.


In the current quarter, 56 per cent of the airline’s
fuel needs are hedged at between $90 and $95 a barrel. Next year, 31 per cent of
its forecast fuel requirements have been hedged at between $95 and $102 a
barrel. (oops!)


If Air Canada were to go broke that would certainly
impact Aeroplan negatively. But it would likely be a short-term impact. Even if
it went bankrupt it is likely that Air Canada would keep flying and come out of
receivership as it has in the past. It just does not seem likely that West Jet
would take over as the only Airline in the Country. If Air Canada went out of
business, it is likely a pension guarantee corporation would be faced with some
of the pension costs. It is in everyone’s (well except West Jet) best interest
to keep Air Canada at least limping along.


Aeroplan has cash from selling Aeroplan points to Air
Canada, CIBC, American express and many others. Aeroplan has recently paid Air
Canada in advance $70 million for flights booked in the future. To me, the point
is Aeroplan had the money to do that. If Air Canada were to disappear and be
replaced, Aeroplan could buy reward seats from the new airline and no doubt
could sell reward points to the new airline.


Aeroplan reports revenues only when a customer claims a
reward (like a flight). In past years when Aeroplan collectors were using “old
points” from before about 2002, Air Canada had to simply provide the seat, it
did not get cash since it was Air Canada itself that had collected the cash for
those points or given away the points years ago. Anyhow in that scenario Air
Canada was inclined to have only a minimum amount of “free” seats for reward
flights.  Now, almost all of the old pre-2002 points are used up and so
when an Aeroplan customer books a free flight, Air Canada gets cash from
Aeroplan. I believe Aeroplan has a sweetheart deal on a certain amount of
Classic reward sets so Air Canada only gets a discount price for those. But
Aeroplan now offers seats that cost three and four times (and more) the amount
of points as classic rewards. Air Canada presumably gets close to regular fare
or full fare for these seats. Air Canada is incented to sell as many of these
more expensive (cost more points) seats as possible to Aeroplan. Air Canada is
also now desperate to fill planes and is willing to offer more classic reward
seats as well.


The point is Air Canada is very eager to sell seats to
Aeroplan and Aeroplan can offer more classic rewards and in general Aeroplan
should be able to book more revenue. Meanwhile Aeroplan continues to sell points
to sponsors and collects the cash now but only has to buy a reward when the
point collector cashes in some points.


Certainly there is a risk of Aeroplan’s stock price
going lower if there are more negative announcements from Air Canada. In my view
Aeroplan is a very strong business and any further stock price drop on such news
would be a buying opportunity. Still it may require patience and investors may
not want to get over-exposed to this stock.


The last I checked TD still had a $20 target price on
Aeroplan but I did see that other analysts were worried about the Air Canada


Based on the Quick Analysis
section I bought shares in NYX, the New York Stock Exchange / Euronext.




December 1, 2008


Over the weekend I was thinking about Canadian Tire, it closed Friday at $45
and I was lamenting not having bought when it was under $40 or at its low of


At some point this bear market will end. It may end quickly (not necessarily
soon, but quickly when it does end). And it seems certain that many investors will
kick themselves for missing out on bargains.  But meanwhile it does take a
certain bravery to buy in this market.


Buffett would say forget about where the market might go. If you get the
chance to buy great businesses at bargain prices, do it and things will work out


Some aspects of the market are certainly very strange.


The yield on the 10-year treasury bond plummeted  24 basis points to
just 2.72% today.  This means that investors are willing to lock away their
money and earn just 2.24% for ten years. This will be good return only if there
is deflation overt that period. right now there may be deflation. But its hard
to imagine that there will not be inflation over the next ten years given all
the borrowing the U.S. government is doing and their deficits.


Meanwhile the dividend yield on the S&P 500 is about 3.3%. Unless earnings
are going to be lower in 10 years than they are today, stocks are almost
certainly going to return more than the 2.72% offered by Treasury bonds.


Stocks have crashed quite massively in 2008. But the crash has made stocks a
lot cheaper. The probability of a favorable long-term return on stocks is much
higher now that stock prices have fallen.


Our quick analysis section has been updated.


In my own trading I sold most of my position in Berkshire today to free up
cash and because I believe their Q4 could be pretty bad. I hope to be patient in
making any buys.


The best investment lately has been long-term government bonds. As market
yields on government bonds go down, the value of existing bonds, issued at
higher interest rates goes up. Now that long-term government bonds are down to
what would seem to be ridiculous lows and what are the lowest yields in at least
50 years, it does not seen rational to expect government bonds to continue to be
a good investment. The slightest hint of higher interest rates or inflation
could send the value of long-term government bonds down fast.


Corporate bonds have been a terrible investment as their yields went up due
to credit concerns. Going forward, corporate bonds will almost certainly be a
better investment than government bonds if held for say five to ten years.
Stocks purchased now are also extremely likely to out-perform long-term
government bonds on average.


November 29, 2008


Wal-Mart is updated and rated
(higher) Buy at $56.69 (it closed Friday at higher than our analysis price at
$56.69). This is the undisputed biggest retailer in the world and has an
exceptional history of profit growth. The shares are up 19% this year (but up
48% in Canadian dollars). Canadian investors face the risk that the Canadian
dollar will rise.


Berkshire Hathaway is updated and
rated Weak Buy at $3,500. Longer term I would like to accumulate Berkshire
shares. However, as indicated in the report, we believe Berkshire could report a
large loss in Q4. It has already reported that its book value fell $9 billion or
about 8% in October due to investment losses. While those losses may be
temporary, they may have grown slightly in November as the market has declined
further. Barring a huge market rally in December, the Q4 book value loss will be
large. It is not clear how much of this will be reported in earnings and how
much will be reported in other comprehensive income on the balance sheet.
Combine this expected loss with the fact that Berkshire’s shares have recovered
substantially from recent lows and it seems that now is not the best time to
buy. I intend to reduce my position to move into better bargains but would want
to buy back if the share prices falls under about $2700.


November 28, 2008


The S&P 500 index fair
value article is updated. Previous versions calculated the fair value of the
S&P 500 based on its current earnings. At this time with huge losses from
General Motors and others it is much harder to know what the current earnings of
the S&P 500 index are. Therefore in this update I added a second table with a
second “current” earnings level.


November 27, 2008


Melcor and
Aeroplan both did reasonably well
today. Aeroplan is ,my largest holding. It’s accounting is complex but it
appears to be a very strong cash generating machine. The way I measure
free cash flow, it looks to me like it is trading at around four times free
cash flow, which is very attractive. Regarding Melcor, a member of the Melton
family as well as the CFO have been buying shares this month and continued to do
so this week. Melcor is my second largest holding. I believe that Aeroplan will
continue to report good results. Melcor may report bad results for a year or two
(due to a probable dearth of building lot sales)  but it appears that its
assets are worth far more than the stock price indicates.


November 26, 2008


The BCE deal took what may have been its final nasty turn today. Took the
market by surprise. In hind-sight it is easy to say it was obvious the deal
would never close in this credit crisis. But all indications were that the
buyers were prepared to go ahead. Most commentators now believe the deal is
dead.  (Those who were so sure it would not close were short the stock ,
right?). Anyhow I had some shares. I bought a few more today, hoping for at
least a small bounce even if the deal is dead. This was always a “binary”
situation, either it would close at $42.75 or it would not and it would plunge.
There was never really any in between scenario. (So estimates of a 75% (or
whatever number) chance of closing or whatever were pretty useless…).
Probabilities like that make a lot of sense if you get to play the game many
times. On a one-time game even a 5% chance of a big loss looms large. Anyhow, it
was pretty well impossible to guess the probability. On Monday the market was
betting it would close. On Tuesday, not so much…


An order I had placed to buy more Aeroplan if it fell to $6.11 was filled
today and happily the stock then closed at $6.52. I get lots of emails from
Aeroplan indicating that its partners have deals on where one can collect
hundreds or thousands of bonus Aeroplan points. This means those partners are
buying lots of Aeroplan points.


November 25, 2008


I notice Kingsway was up today. They issued a press release quite late on
Friday (7 pm) that they will work with two advisors on “a number of matters”.
Also, someplace I read that a dissident major shareholder met with the Board and
the CFO on Saturday and he is demanding that the CEO Shaun Jackson be fired.
My bet is that Jackson will indeed go. It looks like maybe the Board is finally
waking up to take some action on the (apparently) poor management situation. I
had sold my KFS but do have a little of the debt-like instrument KSP.un. (It
trades at $5.50 pays a fat dividend of $1.25 per year and is supposed to mature
in June 2015 at $25 so it may be the better investment and perhaps safer though
it is a complex security to understand. I do not claim to know the risks of this
KSP.un security).


Couche-Tard posted strong earnings today (annoyingly posted during the
trading day) but was down on the day.




November 24, 2008


Costco is updated and rated (lower)
Buy at U.S. $48.70 (it closed today at $49.45 which is slightly higher than our
analysis price). This is a great company and is available at a reasonable price.
Might be timely to establish a small position. However, with may stocks
appearing to be better bargains this would not be a priority to purchase for
most investors.


In my own trading I have bought some share in Edge Petroleum. (EPEX on
NASDAQ). This is an unusual buy for me as it has recently become a penny stock.
(Also looks like the definition of a falling knife). I bought it for somewhat
flimsy reasons… Possibly the market believes its energy properties are no
profitable at recent oil and gas prices. It is supposed to be involved in a
reverse takeover of a private company called Chaparral Energy. If that happens
this may be a good investment. However certain takeover conditions have not been
met and are looking tough to meet. I’m really not sure I should have touched
this, but wanted to mention it as my policy is to disclose my own trading even
when I do a trade that is unrelated to the analysis on this Site.


November 23, 2008


The Model Portfolio and
my own portfolio are updated. One reason I am
updating this frequently is to have a handy table of the latest P/E and Price to
book ratios of these stocks. My own portfolio has eliminated a few smaller
positions and begun to concentrate on the companies I am most confident in.


November 22, 2008


Target is updated and rate (higher)
Buy at U.S. $29.48 (this was our analysis price on Thursday, it closed Friday at
$28.08). It looks like this is a good opportunity to buy a very strong company
at a bargain price. However, same store sales have been falling and so the share
price could certainly continue to go down. Therefore a reasonable strategy would
be to buy at initial position and then re-evaluate, with consideration of adding
to the position,  as events unfold.


November 20, 2008


My article of the fair
value of the S&P 500 is updated. That index fell to 752 today, down a
stunning 49% this year.


My view is that the markets are now definitely under-valued. That does not
mean that the pain will stop. It does mean that the odds are that investors
buying or holding stocks as of today will make an attractive return in the
longer run from this point forward.


While markets seem to in a powerful down-trend, consider the following:


Down trends usually end suddenly without warning. It is not a certainty that
the down trend will continue (though it seems like it)


This market crash is not at all unprecedented. Similar losses in the range of
50% have happened several times in the past 80 years.


Buying near the bottom of major market crashes has led to high returns in the


The probability of making a high return in stocks over the next ten years
from today’s levels is much much higher than was the probability that a high
return would be made when buying when the market was trending higher. Basically
buying at low P/Es gives a higher probability of high returns.


Many stocks are clearly at bargain levels. The last time this happened was
the 1970’s and those who loaded up near the lows were well rewarded.


With some high quality stocks at bargain levels, one strategy is to sell
stocks that are at reasonably bargain levels to buy even better bargains.


In my own account today I wanted to raise cash for bargains. I sold my
Fairfax and most of my Dalsa and also the small amount of Kingsway that I held
(the price was up 50 cents earlier today in a down market and so I sold). I also
sold my Sportsscene Restaurants a small illiquid holding. It has fallen a lot
from its high but I figured I could put the cash to better use in more liquid
bargains.  Also with sportscene I am a bit concerned about why the
year-end figures from August 31 do not seem to be out yet and also I believe two
of their executives were leaving the company according to recent press releases. I
bought additional Melcor and Berkshire Hathaway. I note that the Melcor CFO
bought 10,000 shares yesterday at $4.50 and $4.25 and he had also bought 5000 on
Tuesday at $5.10 and bought in September at much higher prices. This signals to
me that the CFO thinks that the stock is undervalued. Melcor closed today at
$3.64. This is only 38% of book value which seems like a remarkable bargain,
notwithstanding that they may have a year or two of extremely low earnings. I
suspect that the value of Melcor to someone who wanted to buy the entire company
would be dramatically higher than $3.64 per share.


Personally I will not even consider getting out of the market at these low
levels. But each person has to consider their own risk tolerance and make that
decision for themselves.




November 19, 2008


Yet more bargain at the end of today. I certainly did not think we would see
Canadian Tire trade under $40. This is a time when high quality companies are
available at great prices. I had a small amount of cash available and used it to
add to my Aeroplan and Melcor positions today.


Perhaps the end of the week will see at least a halt to the slide. We have
news of cuts in interest rates coming. Also in Alberta we have news of a cut to
planned royalty hikes for some natural gas producers. This might indirectly help


Due to how low the market has already fallen, I am optimistic that investing
at these levels will prove to be a good investment if the stock is held for at
least a couple years. As Buffet always says no one can predict where the market
will go in the short term. But in the long term it becomes more predictable.
Unless corporate earnings are about to take a severe and permanent decline in
all sectors then it seems safe to bet that markets will be higher if a few
years. Quite possibly significantly higher.




November 18, 2008


Two stocks I have been buying, Aeroplan and Melcor continued to drop today. I
added again to my Melcor position which is now at under 50% of book value on the
equity part and about 75% of book value overall. That is interesting, In Q3
Melcor sold a newer building for $49 million and made a gain of $22 million
(pre-tax). This suggests that this asset had  a book value of $27 million
and sold for 1.8 times book value.


When I look at Melcor’s assets they seem pretty solid. 23% of the assets are
investment properties. Some newer, some older. I believe none of these were
purchased from third parties at the top of the market but some may have been
constructed in the recent high-cost days.  number of the buildings have
been held for a decade or more. Overall despite  some recent decline in
investment property market values, it seems highly likely that these are worth
more than book value. 15% of the assets are developed land ready for sale. While
they may have to sit on this for a period of time and sales will be slow, there
is no indication that lot prices have fallen anything close to 25%. 36% of the
assets are undeveloped land and 10% are pre-development costs. Again they will
have to sit on this and pay interest and taxes to sit on it. But this is their
raw material for future developed land. Some of it may have declined somewhat
from the price they paid especially when we consider that book value included
capitalized interest since the land was bought. But again I don’t think there is
any indication that this land would have dropped in value by 25%.


I have certainly not made any study of their assets. But on the face of it, I
don’t see a case for these assets being worth less than book value. Being able
to buy this at 75% of book value on the assets (50% discount on equity but we
owe the full debt part) looks like a gift to me. That does not mean the share
price has to go up soon. But buying assets at significant discounts to probable
market value tends to work out in the long term. It’s always possible that land
prices in Alberta and building values are about to plummet by more than 25% but
I certainly have not seen any indication of that.


November 17, 2008


It was yet another day where we had both good news and bad news and where
both were the same news and could be expressed in just two words “more
bargains”. Whether this was good or bad depends on your existing portfolio and
whether you have cash to take advantage of bargains.


I somewhat gorged on Aeroplan
today. It fell through the day and so I should have been more patient. I also
bought additional Melcor today. And
sold a small amount of Western
Financial. Would have liked to sell more but did not want to chase the price
lower. I also decided to clear out a couple small positions, Thomson and
Shaw communications.
Thomson may have more pain to come as the financial industry sheds jobs. Shaw I
would have preferred to keep but only had a few shares and decided to clear that
out and will possibly go back in later. Thomson also may be good long-term but
its a complex company and I figured I was better off with Aeroplan.


TD has a $20 target on Aeroplan. But clearly the market in general is not
liking it right now.


I read something today that said when stocks are at high peaks investors rush
to buy and expect to make big returns. At low points they are afraid the
negative returns will continue and so they refuse to buy. The reality is that
the opposite is likely to occur. After the market races up 100% in a few years
it has basically “discounted” all possible good earnings for the next few years
and is almost destined to flat-line or pull back. Conversely at a time like now
the market is effectively pricing in big earnings drops on many stocks. If/when
earnings recover (or are expected to recover) then the market will go up.
Clearly we have a better chance of making money in the next five years buying
now (with stocks down 40%)  than we did buying at the market peak. But the
market tends to behave as if the opposite were true.


November 16, 2008


Melcor is updated and is rated
(higher) Buy at $5.22. Its revenues and earnings (adjusted to remove a recent
large gain on the sale of a commercial building) have declined in 2008 due to
much lower sales of house building lots. This slowdown appears set to last at
least through 2009. However the share price is down massively. I believe that
buying Melcor at its current price of about54% of book value is likely to work
out well in the long term. However the share price may be unlikely to rise
until housing starts resume. To some degree the share price seems to move with
oil prices.


Western Financial Group is
updated and rated Speculative Buy at $2.60. The stock price has come down
considerably and I had recently added significantly to my position in this
company on that basis. However risks are also up and earnings have fallen
somewhat. They have recently committed to $27 million in acquisitions. This is
significant given a current common equity level of $129 million. It’s not clear
that they have the cash to finance these and one shudders to think about trying
to issue more equity or debt in the current environment. While the stock is not
expensive it does not seem compelling given the risks. I am inclined to reduce
my (too large) position in this company and redeploy into companies that we have
rated in the Strong Buy range. The company will host a conference call on Monday
at 3 pm eastern and the market reaction to the earnings released on Thursday of
this past week may become more clear only on Tuesday.


November 15, 2008


Home Capital Group is
updated and rated Speculative (higher) Buy at $21.48 (it closed on Friday down
at $20.37). Despite reporting strong numbers on November 4th and giving a good
outlook, the stock has dropped precipitously during November. In part this was
due to general market weakness. Also there are increased fears of recession and
housing price drops in Ontario. Recession could possibly hurt Home badly through
loan losses. But the company is firm in indicating that its loans are well
secured with lower loan to value ratios. There is always risk, but this looks
like an excellent opportunity to Buy Home at prices last seen four years ago
when profits were less than half what they are now. I intend to purchase shares
in Home and I will look at selling other positions to do so.


Aeroplan is updated and rated
Strong Buy at $8.79. This is a company with an unusual business model. It sells
“points” (Aeroplan miles” to credit card companies, Air Canada, Sobeys and
numerous smaller partners. It receives cash for the points and then sometime
later (30 months on average) it has to buy a reward from a redemption partner
such as Air Canada. It only books the revenue when the the member uses the
points (typically takes a free flight). It’s a long story but this is a good
business model a cash generating machine. Warren Buffett did very well on an old
style points company called Blue Chip stamps back in the 70’s and early 80’s.


I believe it has competitive advantages because people will only carry so
many membership type cards and retailers will only want to give out usually one
type of points. Once established like Aeroplan and Air Miles it is nearly
impossible for a new competitor to get established. No company is without risk,
but I like the chances for this one. It released earnings on Friday and there
was some confusion whether earnings were up or down. They were up. Management
expressed some concern that members may cut back on credit card usage due to the
recession, but they indicated that from their experience the business is usually
recession resistant (not recession proof but recession resistant.


At around $9 per share you get a dividend over 5% and you are not really
paying for any growth. Even if earnings flat line for a year or two this should
still be a good investment. If earnings continue to grow it should be a great
investment. It will be interesting to see how much the new partnership with
Sobeys adds to growth. It seems to me that this could offset any weakness in
credit card usage. (Aeroplan of course is not at risk for bad debt on credit
cards, but the more people use the Aerogold credit cards, the more points
Aeroplan sells). I plan to add to my position.


November 13, 2008


Yet another “interesting” day in the markets, this time with a 6.7% rise in
the Dow. Never a dull moment in either direction it seems.


An order that I had placed to reduce my position in Dalsa if it reached $7.99
was triggered and so I sold some of that today.


Tomorrow as always is another day. I believe it was after the close today
that news came that the U.S. deficit in OOCtober was higher than expected at an
eye-popping $ 237 billion with revenue at $165 billion. Ha they spent more than
twice the revenue. Although it seems like we all knew the deficit would be a
bout a gazillion dollars, analysts were expecting less that this. I suspect the
problem is that people are confused by which things constitute “spending” and
which do not. Certain things that the FED does such as pumping liquidity into
the system I believe is done by “printing money” to buy back treasury bonds. I
believe this may not be considered spending. Other FED initiatives like buying
shares in banks is considered spending but I think there is lots of confusion
over this. I believe the U.S. dollar appears to have already weakened by 3 cents
against the Euro on this news.  I don’t think the stock markets will like
this news either.


By comparison to this U.S. October deficit of $237 billion and their total
debt of about $10 trillion. Canada’s federal government has a total debt in the
area of $500 billion. 1/20th of the U.S.


November 12, 2008


The story today was that the market fell because the FED will not buy the
tainted assets from the banks but instead will invest equity. I can see why the
market gets nervous on this about-face. But buying equity will help the banks a
LOT more. Buying junk assets at their market value does nothing to
increase the balance sheet strength of the banks. IT gives them cash. But I
believe they need investor capital a lot more than they need cash. Buying the
junk at market would actually probably have triggered big write-offs. Just what
the banks don’t need. The new plan is better (much better). The banks will get
equity and then can ride out the storm and probably collect 85 cents on the
dollar on the junk assets rather than current market value of 20 cents or
whatever. Maybe the market will figure out this new plan is better and then we
could see a rebound. But that’s only if some other bad news does not overwhelm
us first like all the job losses.  There is no doubt it is getting ugly now
on main street.


I am eager to see Aeroplan’s results which come out on Friday morning. I
think they will do well. They just signed on Sobeys and will be getting cash
from point sales to them. I just saw they are advertising bonus areoplan miles
for international flights and also offering more reward seats. Air Canada has
seats and needs cash. Aeroplan has cash and and can bargain for a good deal on
buying seats from Air Canada. Credit card companies (I believe) are still buying
tons of aeroplan points. Due to some silly accounting rules Aeroplan books
revenue only when a reward is claimed. Meanwhile they hold the cash they got
from selling the point. If the airline industry does badly that to my mind does
not mean Aeroplan cannot do well. In a recession won’t we all be even more eager
to collect points and fly free? The market has sent the stock down so maybe
there is bad news coming but I am thinking not. If it is bad news it might
relate to their international points operations which I don’t have much
knowledge of.


The Model Tracking Portfolio is
updated with today’s stock prices. Note that while the stock prices are updated
to November 12, the fundamentals are not updated to the latest quarter in a
number of cases. The column headed “Earnings From” shows which quarter the
dividends, equity and earnings in the yield  Adjusted ROE and Adjusted P/E
and the Price to Book ratio are from.


Obviously this Portfolio has done very poorly this year although not as bad
as the overall market in Canada or the U.S. Looking forward, I note that the
fundamental ratios of many of these stocks is excellent. Based on earnings as of
the last time we updated the report on each of these stocks, all but one of them
(the exception being Kingsway) have a positive Return on Equity (based on
adjusted earnings where applicable). In most cases the ROEs are above 15% which
is excellent. The P/E ratios (again based on adjusted earnings where applicable)
are attractively low with quite a number of them under 11. The Price to Book
ratios seem reasonably attractive as well and have certainly declined from those
seen for the past five years or more. For example I suspect it has been many
years since you could buy Canadian Tire at just 10% over  its book value.
Maybe Canadian Tire is about to get crushed by Wal-Mart or is about to take a
hit on its finance operations. There are always risks. But on the face of it the
chance to buy this Company at 1.1 times book value may be a rare opportunity.


My own portfolio composition is also
updated. Similar to the Model Portfolio, I believe that many of the stocks in my
portfolio exhibit fundamental ratios which appear very attractive. I added to my
Aeroplan position today and placed an order to buy Tim Hortons if it drops a
little more.


With the markets down many investors will lose faith entirely. Others will
believe that now is a time to buy stocks. Only time will tell who is right and
which strategy is correct will likely not be apparent for some time yet. Those
with cash to invest could consider investing over a period of time.


November 11, 2008


As of about midnight on Tuesday night, futures indicate the Dow will open
downs over 200 points tomorrow, Wednesday. You can check futures here


Tim Hortons is updated and
rated Buy at CAN $ $27.84 or U.S. $ 23.24. The stock price has come down with
the stock market crash and the P/E ratio is now much more reasonable at about
18. I had sold my shares to rasie cash. IT may not be the best bargain but this
is a stock every Canadian should consider owning. Its a very high quality
company but is available now at a fairly ordinary price. It has little debt and
lots of cash flow and so is unlikely to face real problems in a recession
although certainly earnings could falter. In this market any stock can continue
to drop therefore it seems wise to be patient in buying such as buying some now
and more later, if the price drops.


Watts Water Technologies is
updated and rated Weak Sell at $23.57. (it’s at $23.99 as we post this). The
timing for this company seems poor at the moment given that it sells to the
construction industry. I


November 10, 2010


Canadian Oil sands Trust
is updated and rate (lower) Buy at $29.99. The company is well managed and
has excellent assets. Its share (unit) price will depend mostly on the price of
oil. If you think oil prices will rise then this this is a good company to buy.
Personally, I own a modest amount and would be interested in adding to that at
lower prices. Oil prices may continue to slide due to recession. Or they could
take off at any time due to supply disruptions such as terrorist activities.
Longer term the arguments that the modernization of China and India will lead to
higher oil prices make sense to me.


Today I bought more Aeroplan and more eBay on price weakness. Aeroplan will
be out with earnings late this week and we will see if I made the right move.
eBay I suppose looks like a falling knife
but I am going with the courage of my convictions and our calculations.


November 8, 2008


The latest edition of our free newsletter
has been emailed to everyone who is on the list to receive it. (Note we keep a
separate email list for that, almost all paid subscribers would be on that list,
but some paid subscribers may not have a current email address on that list.
If you did not receive it, try entering your email address in the
list for the free newsletter. (If your email
is already on the system, it will tell you so and will not add it again). Also
if your email has not yet been “validated” on the free list the system will tell
you that as well and ask you to click to validate.


Our performance figures for 2008 to date are


November 7, 2008


Kingsway Financial (Canadian
based company that mostly sells U.S. high-risk auto insurance) is updated and
rated Highly Speculative Buy at CAN $6.69 or U.S. $5.90. Recently Kingsway has been hurt by some losses on
investments. That is not their fault. They are invested mostly in highly rated
corporate bonds and with about 11% in stocks and 11% in government bonds. Recent
financial events caused losses on the portfolio as at September 30. And through
the month of October and up to today’s date They will have suffered materially
more market value losses on investments. Much of this they should recover as
they hold the bonds to maturity (most under five years).


The above is not the fault of Kingsway management. However their other big
problem is a long history of writing insurance at a loss but thinking they were
writing at a profit. Now they have to book retroactive losses as the claims from
prior years insurance turn out bigger than expected.


I had thought the stock would recover, but the continued losses on insurance
combined with the unfortunate market losses on the investments means that it is
not a certainty that this company can survive. It probably will though and if it
does the share price will recover in the next couple of years. I have begun to
be well and truly tired of this company and I think most investors would do well
to steer clear. I hold a few shares and will consider selling especially if the
price improves even modestly.


I also hold a debt-like unit of theirs KSP.un This is trading as high risk
but is probably a safer investment than the equity. However, in past times KFS could have
issued equity to at least protect the debt. In today’s market that may not be
possible even if they wanted to.




TMX Group (Formerly TSX Group) is
updated and rated (higher) Buy at $28.25. To date the company has been highly
profitable and I believe that it operates as a near-monopoly in some of its
business (selling market data that no one else has, Canadian companies have no
real choice but to list with it, Canadian shares trading in New York are not
competitive to Canadian since currency exchange fees often incurred). The
company seems very attractive after its recent plunge in price. However these
is a good deal of uncertainty as to its profits in 2009 as IPO financings have
dried up, layoffs in the financial industry could reduce the demand for its
data, a competitor is set to start operation this month. Overall, I am comfortable
holding it as one of my larger positions. I am prepared for the fact that the
price could drop further and would add to my position at lower prices.


November 6, 2008


Our article of n the fair value of the Dow Jones
Industrial Average has been updated. The fair value depends on how earnings
are expected to grow over the (say) the next ten years, the expected return that
investors require and the expected P/E at the end of a (say) ten year holding
period. It is comforting to see that in almost all the scenarios the DOW now
looks under-valued. In contrast when we ran this analysis in September 8, 2007
when the DOW was at 13,113, many of the scenarios suggested it was overvalued. A
few scenarios suggested it was undervalued at that time and admittedly we
concluded it was fairly valued. (We had not expected the DOW earnings to drop,
but they have dropped some 19% since that time. MEanwhile though the DOW has
dropped 34% and now appears under-valued.




November 5, 2008


In my own trading I sold my Northbridge shares. Also a few other small
positions where I only had a few shares. Stantec, Telus and IGM. I sold to raise
cash for bargain hunting.


Melcor released earnings after the close. They did well only because of a
large gain on a building sale. Other than that it sounds like it would have been
a zero net income. It looks like they effectively cut the dividend from 25 cents
per half year to 17 cents although they did not describe it as a cut. Possibly
the 25 cents from earlier this year was not meant to be a permanent level.
Melcor will likely fall on this news even though it seems like this situation
was already priced into the stock. I have no doubt that they will return to
better profitability in the years ahead (but not likely in 2009) and so if the
stock falls it will be a buying opportunity.


Kingsway’s results were not as bad as I thought hey might be but the stock
still fell. I have not read their earnings release closely yet and will update
our analysis in the next few days.


November 4, 2008


Happy Election Day at long long last…


The markets have been up for about six sessions in a row. My thoughts are
turning now to doing some selling to raise cash. I sold a portion of my
Northbridge on its 8% gain. In many ways I hate to part with it because it is
well managed and its price seems low. But there are probably better bargains to
be found.


Kingsway will be out with earnings. These are always a chef’s surprise when
it comes to property insurance. The market has sent Kingsway up recently so
maybe some good news has leaked out. But my sense is that the results will be
most unappetizing. Through no fault of theirs, the corporate bond investments
they hold will have been hard hit with market value losses as at September 30
and even more so as as today’s date. They will have a gain on the sale of one
division. Current insurance operations are competitive and likely not doing that
well. Reserve adjustments for prior years are the wildcard. In recent quarters
the news on that front has been consistently ugly. But maybe they have good news
in that department.


November 3, 2008


It was reported that car sales were down over 30% in October in the U.S. This
makes sense, not many people really NEED a new car. Cars last a long time these
days. In tough times the old car can be made to last a few more years. This is a
sign though that Americans are scared. This recession could be very deep as
people cut back on spending.


I had entered trades yesterday to buy some eBay, Microsoft and Dalsa and
those trades were filled today. I also decided to sell some Kingsway since the
price was up. They release earnings on Wednesday morning and it could be ugly
indeed. The stock is way under book value but still, if the earnings are ugly it
would likely fall at least temporarily. I suspect they will have large market
losses on bonds and then will have to report that since September 30, bond
prices fell a lot more. They did have a gain on the sale of a subsidiary in Q3
however. Still I think overall they will unfortunately report a loss.


November 2, 2008


For purposes of the Model Portfolio I would like to buy the Strong Buy
stocks, Dalsa, eBay and Microsoft. However, it is not yet clear what should be
sold to fund this. Therefore I will wait until a few more companies are updated
for Q3 and then plan to notionally sell some of the lower rated ones to move
into these Strong Buys.


eBay is updated and now rated
Speculative (lower) Strong Buy at $15.45. The company makes large profits in
auctions and in PayPal. Skype has hundreds of millions of users but there is
little revenue from that. Skype is starting to become main stream (Ophra uses it
to reach viewers for web broadcasts). EBay seems a bargain even without Skype
and if they can start making money from Skype that makes eBay a more compelling
buy. I will likely buy shares in eBay based on this update. Canadain investors
face currency risk on this and all other U.S. investments.


Dalsa Corporation is updated and rated
(lower) Strong Buy at $6.12. The company is taking a large write-off on its
Digital Cinema division and indicates that there will be no more losses
associated with that attempted start up division after this current quarter
(Q4). Using adjusted earnings which back out those losses and focus on the
continuing business, the stock looks compelling at this price.  However
since it sells complex products to end-use manufacturers it is not a simple
business and we are really in no position to understand the likely demand for
its products or the impact of the recession. Despite the complexity I will be
adding to my position in this company.


November 1, 2008


Northbridge Financial (commercial
property, vehicle and liability insurance) is updated and rated (higher) Buy at
$29.92. This is a well managed company. The relatively high rating is based on
the fat that the stock can be purchased at book value. Unfortunately it is not
clear that it has any real sustainable advantages in this market which is
largely a commodity product. It may have some stickiness in terms of smaller
commercial customers, but the larger accounts may tend to shop their business
for the best price. A possible competitive advantage exists on the investment
side. The investments are conservative and the managers have hedged the stock
portfolio by purchasing equity swaps. In addition they made bets that corporate
bond risks would increase and this has paid off handsomely in the past year but
that investment appears to be near the end of its course now.  Recently I
had added to my position on the anticipation that its investment results would
be strong this quarter which would more than offset weak insurance results. This
came true although the stock did not rise as much as I hoped on the Q3 earnings
release (at least not yet). I have reduced my position in this stock but it
remains one of my larger holdings. I may reduce further in order to build cash
for more compelling buys.


October 31, 2008


Many stocks are cheaper on a P/E basis than they have been in years. It makes
sense to take advantage of these bargains.


Microsoft is updated and rated Strong
Buy at $23.10.  (it closed today at $22.33) It is a huge and complex
company. But at least we are all familiar with some of their main products and
can therefore have some understanding of the company. This company has often
been accused of being a near-monopoly in terms of operating systems, web browser
and office software. I agree with assessment. It may not be an unregulated
monopoly but it is about as close as we can get . A company that has the
characteristics of being close to an unregulated monopoly clearly has the
ability to earn very high returns. Now, microsoft is available at the lowly P/E
ratio of 11. On the face of it this is a very wonderful business available at a
very attractive price. I wonder if Buffett will finally decide to buy some
shares at this price even though he has claimed over the years that microsoft is
too complex for his tastes. If Buffett does not buy it may be because there are
so many other bargains out there at this time. I have never owned microsoft but
I now intend to buy some shares.


October 30, 2008


Northbridge Financial released earnings after the close. As expected they had
a loss on the insurance but hefty gains on investments. Given that investment
gains cannot be counted on the market may ignore that an punish the stock for
poor insurance results. If the stock were to drop on this news I believe it
would be a buy.


Dalsa reported that it will effectively exit its digital cinema business and
has taken a write-off on that. However this is a non-cash charge and its core
operations were quite profitable. Overall this looks like a good news report
although it is disappointing that it appears that they will be giving up most of
the potential of digital cinema. I would look to buy if the price does not rise
much tomorrow Friday.


Aeroplan did well today on no news.


With the strong gains this week, I am tempted to sell partial positions to
raise cash but have not yet done so.


October 29, 2008


The TMX Group (formerly TSX Group and trades as “X”) released earnings during
the trading day today and as I expected the earnings were strong. The stock rose
10% on the news. We will update our report on this within the next few days and
it seems likely we will rate it somewhere in Speculative Strong Buy range.
Speculative because of some looming competition and some trading rate cuts that
they announced.


October 28, 2008


A welcome rise in the markets today. My order to buy some more aeroplan
filled today. My only other order now is a below-market order for more Melcor. I
have little cash left and I don’t want to rush to spend it. Our next report
update will be for Microsoft and indications are that we will rate it a Strong
Buy. (at a $23.10 price level)


There was a story in the paper today indicating that Canada’s large life
insurers were seeking some kind of help from government. This absolutely
pathetic those companies have as their very first responsibility to always be in
a position to make good on their insurance payouts. Manulife bought back about
100 million shares in the last couple of years. Now they apparently may have
issues of needing equity because their equity is falling as the value of their
stocks and bonds falls. Maybe they should have been selling shares when the
stock was sky-high not buying shares. I have always said that the accounting on
Manulife is essentially a black box. The Q3
report will be most interesting.


The interesting thing about Q3 for many insurance companies is that the worst
hit has come after their Q3 balance sheet dates. They will have to report their
additional unrealized investment losses as of the date of their earnings and
these will be substantial. For the first time ever, we may have to adjust the
balance sheet equity as of September 30 and lop off any additional investment
losses that they tell us about as of the earnings release date. Their is no
sense relying on a book value of “X” dollars on September 30 if we know that it
has dropped substantially since then.


Kingsway on top of its problem of making losses on insurance will probably be
extremely hard hit by investment losses in Q3 and even more so in October. It’s
book value per share will come down substantially I suspect but should still be
probably double the share price. They will be hit with (mostly) unrealized
losses on stocks and on corporate bonds. One possible saving grace is that their
bond portfolio is short duration and that will blunt the damage. Long-term
corporate bond values have been slaughtered in October but they have few
long-term bonds. Another good thing for Kingsway is that the value of their U.S.
operations has increased with the lower Canadian dollar. That may also blunt
some of the market value losses. (Things may look very ugly in U.S. dollars but
look better in Canadian dollars.)


Northbridge on the other hand is in the enviable position of having mostly
government bonds in its portfolio. They probably had a weak quarter in insurance
but I suspect may have done quite well on their investments.


Q3 reports from the Canadian companies will start pouring in around the end
of this week. No doubt there will be some interesting developments.




October 27, 2008


It certainly looks like this month will be know as “Black October” or maybe
“Red October”. It’s a tough time to be in stocks. On the bright side those with
cash to invest will find bargains. The amazing thing is the world recession is
generally thought to mean a year or so of zero growth. Few people are predicting
depression and true negative growth. And yet stock markets are down some 40%.
And this time they are not down from some kind of bubble highs, they were really
not that high to start with. P/E ratios were not outrageous.


Japanese stock markets are at something like a 26 year low. Yet their
currency is high. I suspect this low level will prove to be an opportunity for
those interested in investing in Japan.


Stocks may stay low for quite a while, but ultimately buying companies at low
prices will prove to be a good investment.


Buffett was loading up on stocks starting around 1974. It took until 1982 to
really prove that he was right to do it and the rest is history (richest person
in the U.S.).


My order to buy some Stantec got filled today as the price dropped. I sold
the remainder of my Tim Horton shares to raise cash for more compelling
bargains. I bought more Melcor. It continues to fall. Maybe it now has some
over-priced land on the books and assuredly its lot sales will be poor for a
while. But I think it still has land purchased at lower prices and it has income
properties and I am just happy to buy them for about 60% of book value. This
company has been public since 1969 and with a long history of profit. And it’s
still ran by the family and the managers who made it very profitable in recent


I am going to place an order to buy more
Aeroplan shares. The shares dropped again today. Investors may fear that it
will be hurt by lower air travel. But aeroplan makes its money selling points to
credit card companies, mostly. If air travel falls it may report lower earnings
but I suspect its cash flows will be high. (Money from point sales still rolling
in, even if the revenue can’t be booked until the rewards are claimed.)


The TSX group is facing some competition
in November, but I suspect that the TSX group will continue to earn high profits
and will be a good investment. Our report is out of date and will be updated
with the Q3 results.TSX accounting is the reverse of Aeroplan, it may still book
high profits even as its cash flow drops. TSX revenue will drop due to lack of
IPO financings, but I suspect trading revenues are at a record…


Looking at some insider trade reports. Several Melcor insiders including two
of the controlling family members and the CFO bough modest amounts in October,
and this was before the latest dip in the price so that is positive.


On Quest capital1 insider bout 2500 at $1.49 which is positive. Canadian
Western bank insiders bought except the president sold a bit, still that seems
positive overall. UTS Energy  insiders were buying but in odd amounts that
looked like a pre-planned buy and not true imitative by these insiders. Most
companies may be in a blackout period with no trading until the Q3 earnings come


Hopefully we will get some strong earnings reports as well as a Fed rate cut
and this may turn things around.




October 24, 2008


Staples is updated and rate a (lower)
Buy at U.S. $16.05 (it closed today at $14.44). It’s a strong company and does
not look expensive however it is showing vulnerability to the recession


Markets slipped today on fears of world recession. The credit markets
although much improved in the past couple of weeks unfortunately tightened
slightly in the past two days.


Shaw Communications
is updated and rated (lower) Strong Buy at CAN $20.09 or U.S. $15.65. In its
fourth quarter ended August 31 it continued to exhibit excellent growth. I view
Shaw as possibly having monopoly-like characterizes since it faces little
competition for TV services (Telus TV has not made much impact as yet).
Cable customers are upgrading to digital cable and taking more channels on an
optional basis. Although telephone is a much more competitive service it has
done extremely well in this area as well. It should face somewhat slower growth
(or modest shrinkage) in basic cable service as house building has slowed and as
Telus TV gains some customers. Still, it appears set to grow revenues and
earnings at a reasonable rate in the fiscal year just started.


October 23, 2008


Today was yet another “interesting ” day in the markets with stocks down
substantially much of the day but then ending higher. An order I had placed to
buy Melcor at $6.51 was hit and I suspect that will work out well long-term.


As on 12 mid-night Easter time, the far east markets are down substantially
again. I suspect the Nikkei at these levels is quite attractive. The Japanese
Yen has matched the U.S. dollar in rising lately. You can buy the Nikkei through
the ETF “EWJ” on New York. I simply look at the fact that the Nikkei is down at
levels no seen since 1985 (other than on a brief dip in 2003)I simply don’t
think the Nikkei can continue to shrink as long a Japan still has a strong
economy and at least some growth. (I am not familiar with the growth in Japan).
The point is when you buy something at a 20-year bargain level it tends to work
out well. Unfortunately Canadian investors would face currency risk on buying
the Nikkei. If you believe in buying low, now is the time to buy the Nikkei. If
you believe in buying only what has already gone up and is trending up, then my
work is simply not for you.


US. markets are expected to open down moderately on the news of these dips in
the far east,


October 22, 2008


CN, Canadian National Railway Company is
updated and rated (higher) Buy at $49.13. I have mentioned a number of times
that I am increasingly attracted to companies that have unregulated
monopoly-like characteristics. Companies that have the ability to increase
prices without driving away much business. I believe this is the characteristic
that Buffett describes as a moat, a protection from competition (ideally no
competition). Allow me to coin the term “Monopolishous” for such companies. CN
is not a monopoly given that there are other railways and they compete with
trucks (and in Mississippi, river barges). Still, CN has only CP as a rail
competitor in Canada and I suspect many customers may not have much choice but
to use CN. Rail tends to be lower cost than trucking for many products. CN’s
prices are I believe mostly essentially unregulated except for grain shipments.
We would likely rate CN a Buy based on the numbers but given its strong
competitive position we rated it (higher) Buy. I do not own any CN but am
definitely tempted to buy.


Markets fell today on concerns of lower earnings. Given that credit markets
have improved, I am hopeful that markets may turn around especially if there are
some positive earnings surprises reported. Buffett has said it’s a time to be
brave and to buy. At the same time he always says not to be greedy and not to
use debt to buy stocks. In case the market drops further it would be good to be
positioned to have cash to buy at that time.


The Canadian dollar is now under 80 cents. This is probably a very good
thing. There was no way the Ontario manufacturers could compete at the $1.00
level. This will bring some inflation into Canada. The U.S. dollar continues to
show amazing and unexpected strength, so far. Unfortunately that will slow down
their export sector.


As of 11:30 pm eastern time , the far east markets are down but the futures
data shows the Dow expected to open in positive territory.


October 21, 2008


With the credit-crunch easing somewhat (London Inter Bank Lending Rate LIBOR-
has come down somewhat we may get some positive days in the market. Toronto as
always will depend on the price of oil. I’m looking to increase my position in
Melcor and Dalsa but I put my bids below the current market price just hoping
for a better bargain.


Amazingly enough the Canadian dollar has slid under 82 cents. The U.S. dollar
has strengthened substantially against the Euro. It now takes just under $1.30
to buy 1 Euro where as a few months ago it took U.S. $1.60 to buy 1 Euro. The
last time the U.S. dollar was that strong against the Euro was about 20 months
ago. Given that it was accepted wisdom that the U.S. dollar would weaken due its
huge bailouts and the printing of money, this goes to show how very difficult it
is to predict currency movements.


October 20, 2008


A very positive day today with the TSX up 7.2%. It was also up 3.1% on Friday
so over 10% in two days. This illustrates the difficulty of trying to time the
market. It is so very unpredictable.


Predictions are that we will get an interest rate cut in Canada tomorrow
(Tuesday). This is already anticipated and so may not affect markets much
(unless it does not happen). The Canadian market moved up because of some easing
in the credit crisis and also  an increase in oil prices.


American Express released earnings after the close (that is after the close
for us regular people). In after-hours trading it moved up another 6.5%. Isn’t
after-hours trading an oxymoron? I have never quite figured out who gets to
trade “after-hours”. I know I don’t get to. I also know the financial press
never seems to complain about the blatant unfairness. Just takes it as a fact of
life. In an electronic world is there any possible reason to exclude the retail
investor from after-hours trading? Well, at least in Canada we don’t have such a
thing, except where a Canadian company is also listed in the U.S.


Anyhow, American Express earnings were lower than the year-ago quarter but
better-than-expected. Credit card write-offs and seriously overdue accounts were
up only a little from Q2 and so that’s positive in the sense that things are
getting worse but at a slower rate (this passes for good news these days!).
However as job losses start to mount from the recession the credit card problems
will likely get worse. American Express is a good company but I would make only
a small investment in it given the risk. Visa is more expensive but I think is
safer in the sense that while Visa share price could decline, it has almost no
chance of running into serious problems. American Express has lots of debt (i.e.
about 10 times leveraged) and therefore has some chance of running into serious


October 19, 2008


In the Quick Analysis section (link below the
table of stocks) I have added Google and American Express and updated Visa.
While there are no guarantees, Visa and Google are well positioned although not
cheap. American Express is cheap but is more risky.


October 18, 2008


Alimentation Couche-Tard is
updated and rated Weak Buy at $14.58. Profits may improve for the next quarterly
report due to lower gasoline prices. The company should do well long-term but we
can’t rate it higher until the earnings start to recover. I have sold almost all
of my shares in this company to move into better bargains.


For purposes of the Model Portfolio
we will notionally sell these (Couche-Tard) shares at the opening price on Monday. The cash
will be put into Melcor and the energy ETF, XEG which reflects stocks which I
have purchased in my own portfolio.


Performance figures are updated above under “links
for members only”


FedEx is updated and rated Weak Buy / Hold at
$64.27. Its price has declined which would make it more attractive. However,
management continues to forecast lower earnings in the next year. The U.S. and
world recession outlook has worsened and this causes us to be cautious on this
company.  It is a high quality company and should do well in the long term.
One strategy would be to pace a “stink-bid” down around $54 and if it happened
to go that low, I would be comfortable buying.


October 16, 2008


When oil was $140 anyone who was not in oil stocks and had missed the big run
up was probably regretting it and may have vowed to get in if it happened to
come back under $100 or $90 or whatever. Now we are under $70 and it feels like
oil is a falling knife. Gwynne Morgan ex CEO of Encana was on TV today saying
that oil stocks have come down to unjustified low levels. Maybe these stocks
will fall a lot more yet. But at some point they likely will recover. It seems
logical to me for those that would like to be in oil the next time it rises to
at least start to average in at these levels. (I bought a small amount of the
energy ETF, XEG on Toronto today).


I was surprised to see Northbridge fall 7% today. I’m still hopeful that it
will benefit from bearish position on the market, like its parent Fairfax. But
insurance stocks are inherently unpredictable and it probably had a bad quarter
on its insurance profits in Q3 or at least not a strong quarter. It does have
some liabilities in U.S. dollars and so with our lower dollar that is hurting
it. It’s one of my larger positions and I am hanging on to see how the Q3 looks.


I had some bids in below market which were hit for buys on Aeroplan and
Melcor. I reluctantly sold some Tim Hortons to raise cash for better


October 15, 2008


For those with cash there seems to be an abundance of bargains. It’s never
going to be clear where the bottom is but picking up some bargains will tend to
work out. With oil prices down the Exchange Traded Fund XEG is cheaper than it
has been in three years. Canadian Oil Sands Trust is at its cheapest in over two
years.  Averaging in at these lower prices may be a good strategy. While
e-Bay announced a reduced forecast it came out with good Q3 results and it
appears to be attractive.


October 14, 2008


At this time with stocks in such turmoil I am interested in finding the best
bargains. Stocks that are both cheap and which seem lower risk.


NYSE/Euronext was selling at $24 and even below on Friday (a 52 week low) it
jumped on Monday to above $33 and closed today at about $30. Although the U.S.
exchange business is increasingly competitive I like NYSE give its P/E around 12
and a forward P/E around 9. I suspect is has some brand power and that some
companies have little choice but to list on the big board. Also I understood it
was continuing to cut costs. I would buy this stock particularly on weakness.


I like the TSX Group  even more because it still has a near monopoly in
Canada despite some looming competition. TSX trades as”X”. TSX has  P/E
around 9 and a crazy high ROE around 40% (as a result the P/B is 3.5). TSX is
facing much lower revenues from Initial Public Offerings and Secondary
offerings. But its trading revenues are still booming. Also the way it does its
accounting it must defer Initial and secondary listing revenue over 10 years.
This means that its cash flow will decrease with lower listings but its reported
profits will stay fairly strong due to the deferral treatment. I am strongly
considering adding to my position in this stock now before the Q3 report comes
out which I suspect will confirm it is doing fairly well on a GAAP earning basis
at least. The risk is that the price drops due to competition but I don’t think
the competition will too strong initially.


The quite cheap but (probably) safe category I believe includes Dalsa (though
as a seller to industry its sales are less predictable than a consumer company),
Melcor (could fall in short term but seems quite safe long-term), TSX Group.
Those are my top three to buy right now, next would come Canadian Western Bank.
Northbridge, Aeroplan and Western Financial Group. It might be safer to wait for
the Q3 reports but in terms of taking advantage of current weakness, these are
the one I am thinking of. I will place orders somewhat below the market and see
what happens.


The Canadian Market rose, as expected catching up to the big move in the U.S.
on Monday. But the U.S. closed down a bit and Canada closed well below the
euphoric highs at the opening few minutes of trading. The market will likely
continue to be volatile with the latest news of the moment, good or bad.


I thought today about what I could sell on this rally. With Fording Coal up
8% I sold my position there and took the profit. Also sold my Couche-Tard for no
real reason but just to raise cash. I bought some BCE on the theory that with
the bank bail outs the deal is safer.


In a strange trade, I had an order in to buy more Quest Capital at $1.11.
Although it looked like the stock opened at $1.30 and traded above that all day
I somehow got some at $1.11. At first this trade was not showing in the range
for the day but eventually it showed up. I suspect TD bought it from me “as
principal” and maybe they made a mistake doing it. It goes to show that having
some “stink bids” in can pay off. I turned around and sold the Quest at $1.45
for a quick profit.


On a similar note on Thursday night I had placed an order buy (just 1)
Berkshire at (I believe it was $3780). Berkshire had closed at $3855 Strangely
enough the stock opened Friday morning with a large volume at $3000. The way
things work at the open is the bids and asks “overlapped”. That is the lowest
ask price was lower than the highest bid price. (This does not happen during the
trading day). The exchange does a weighted average of the bids and asks that are
“overlapped” and in this case it came out at $3000, presumably because some fool
wanted to sell a lot of Berkshire fast. Anyhow a lot of shares traded at $3000
at the open and then the price shot back up to $3800, slipped to $3550 and then
closed around $3800. The point is I got a very good trade by having a bid in at
the open.


October 13, 2008


Stantec is updated and rated (higher ) Buy
at $21.50. (It closed in Canada on Friday at $19.01. But given it rose
substantially in New York today with Canada’s market closed. It ,makes sense for
us to analyze it at the higher price). Note that this is based on Q2 results. Q3
ended September 30 will available soon. This company is of particular interest
at this time because its share price has fallen substantially while it has so
far reported continued growth. We might have rated it in the (lower) Strong Buy
category but the impact of the expected recession in North America causes us to
lower the rating slightly. Assuming the earnings per share growth is 13% going
forward rather than the recent 20%-plus, it still appears to be about 30%
under-valued on that basis.


October 11, 2008


The Canadian dollar has been sinking fast and closed Friday at 85 cents U.S.
It’s worth thinking about which of our stock picks this will benefit. The
Canadian dollar averaged higher in Q3 this year compared to Q3 in 2007. For Q4
2008 the Canadian dollar now seems certain to average much lower than it was in
Q4 2007. But we won’t see the impact on earnings year-over-year until the
year-end reports. We will see some earnings benefit in Q3 compared to Q2 since
the dollar was lower in Q3 than Q2. On a book value basis the Q3 report will
benefit since the dollar dropped about 4% in Q3 and that helps a bit on
translation of U.S. assets.


Companies that will benefit as the dollar drops include CN (which also has a
huge benefit as oil prices drop), Kingsway, Manulife, Stantec, Tim Hortons,
Thomson Reuters, Alimentation Couche-Tard, and Dalsa.


Check out the many updates to the
Market Valuation Reports that are provided for paid subscribers only . Item
2. in the list above of items for Members Only. The latest update is for Global
ETFs. Stocks all over the world look cheap. It seems the marking is assuming
that the global financial crisis will continue and not be solved and/or that we
are entering a major global recession.


With the October market Crash, Canadian Stocks in almost all segments appear,
based on earnings and dividends, to be more attractive than they have been in
many years. (i.e in perhaps 30 years!). This could possibly prove illusory if
earnings are about to plummet due to recession and the financial crisis. But on
the face of it Canadian Stocks look very attractive.


I have updated an article that shows the
P/E ratios of various segments of the Canadian Market. It also gives you the
ETF trading symbols (where applicable). P/E ratios seem quite low and some of
the dividend yields seem attractive beyond belief.


This story of the last two months has been that just when we think we have
already been hit hard by the market decline, it declines further. In the last
week or two the market refused to respond to government bail out attempts and we
have ended up with a severe market crash. Whether the next round of government
action will stop and or reverse the slide is hard to say. The U.S. government
will invest directly in banks by buying preferred shares from the banks. This
will shore up the banks balance sheets, it should improve their credit ratings
and ability to borrow and also provide them with cash to loan.


Our performance figures for 2008 are


October 10, 2008


We have just experienced what will be known as the Market Crash of 2008 (and
we can only hope it has reached a bottom). The U.S. markets were down 18% this
week alone. Add in the fact that they were already well down from the prior
peaks and it amounts to a crash of about 40% since the highs of last year.


I have updated a number of
articles looking at the current market levels and where we might expect it
to go in the long-term.


October 9, 2008


Markets have fallen now on fear and panic selling and on some forced selling
(including  mutual fund redemptions, hedge fund redemptions, portfolio
management strategies that move funds out of stocks as they fall, and margin
calls), In the early 2000’s the tech stocks fell mostly because they had little
or no earnings. Now, stocks with good earnings are falling and the P/E levels
are down to levels that in many cases seem unjustifiably low particularly in a
low interest rate environment.


The market is selling stocks that may have dividend yields of say 4% and an
earnings “yield” of 8% (P/E 12.5). Now these earnings and even the dividend may
fall in the next year or so but for most stocks the earnings can reasonably be
expected to grow by 50% or more on average in the next ten years and yet people
are willing to invest in a ten-year bond which a yield of say 4% and that
“dividend” on the bond is fixed and will not grow. Stocks usually offer some
protection from inflation in the long run which bonds (except real return bonds)
have no protection against inflation.


Back in the 70″s Buffett bought stocks and shunned bonds in when stock
earnings “yields” were well above the bond yields. Most money managers were
rushing into bonds. The market continued to fall as Buffett bough bonds, but ten
years later it was clear that buying stocks was by far the better strategy in
the 70’s.


One of the biggest problems facing markets right now is that credit markets
have seized up. Banks that normally lend to each other on a daily rate basis at
something under 2% are now charging each other over 5% and are reluctant to lend
to each other. The root of that problem is that many banks are inadequately
capitalized (too little equity and debt in relation to their loan books). This
happened because the loan books are suspect due to bad debt and the equity
market value has shriveled with the market. Banks got used to operating with as
little capital as possible because that leveraged up their return. Now they find
they did not have a cushion of capital for these bad times. In retrospect they
should have issued new share equity when there share prices first started to
fall. Now they may be forced to issue at much lower share prices. They need to
do this hard and fast to stop the vicious cycle that many are in. Governments
may buy their shares when they issue them.


If companies truly are cut-off from borrowing then this would turn into a
very deep recession. Banks and governments will do everything they can to insure
the credit markets start to return to a more normal function.


It’s hard to say of course how ugly this will get before it turn around.
Those with cash will be in an excellent position to pick up bargains.


Regarding energy stocks, these may be good levels to buy at. For example
Canadian Natural Resources , Canadian Oil Sands Trust and the energy ETF that
trades as XEG. A few months ago it was accepted wisdom that Canadian oil was an
exceptionally valuable assets and people were buying at much higher prices. Now
people are afraid to buy with the share prices down roughly 40%. In being afraid
to buy are we assuming that oil prices will not recover when the economy


I bought a small amount of the Gold ETF, GLD on New York today. Also my below
market order for Western Financial was filled for 2500 shares at $2.31.


The Canadian dollar has slipped quickly now to 87 cents. This is welcome news
for most of Canada’s economy. The U.S. dolalr is continuing to show surprising


As of about 11 pm eastern time, future markets are showing the Dow to another
open 230 points down on Friday morning. You can check the futures data here:


October 8, 2008


Another day with stock prices at prices that seem like  screaming
bargains compared to a few months ago. But today the market is gripped with


For those wish cash and wanting to buy in one strategy is to place bids at
prices well under the market such as 15% low. In many cases based on recent days
these might get filled. Of course if you really want a stock just pay the
market. But bids below market are a way to take advantage of dips.


More of my small orders that were below market filled today and so I picked
up a bit of Telus and Canadian Tire and 1 Berkshire B and TMX Group (TSX stock
exchange + Montreal Stock exchange). Also sold my First Service and some Shaw
just to raise cash and thinking that while they are both good they are not the
best bargains out there. I should probably be trading a lot less than this.
These $10 trades make me a lot more trigger happy than I was at $30 per trade.


I saw Canadian Oil sands Trust at around $26 at one point today and it closed
at $31. It s always tough to buy a falling knife but I think it would be a
reasonable bet for those with little energy exposure to average in now (and
especially on dips).


The U.S. dollar gained noticeable strength this week even with all the
borrowing and printing of money. Gold and Silver bugs are confounded as to why
gold is not $2000. I have no idea where these metals will go but I don’t
particularly disagree with idea of putting something into Silver and or Gold.
Especially with talk that the physical metal is scarce. Maybe that is talk from
the lunatic fringe… but if the U.S. dollar starts to weaken on all this mess
then the precious metals would (all else equal) tend to go up.


October 7, 2008


The market started out strong today but then crumbled. It seems that fear has
really set in now and people are selling on any kind of rally. The market reacts
weakly to good news and strongly down on any bad news.


Tomorrow (Wednesday) or very soon we may get word of a Fed interest rate cut.
The Q3 earnings season has kicked off. The market will probably get yanked
around as various companies come in worse or better than expected.


Right now it feels like stocks will keep sliding, but then again the market
always seems to have a way of being unpredictable.


It seems like there has been some panic selling. I strongly believe that a
number of stocks are starting to look like “no-brainers”. As the Q3 reports come
in we will update and find some good picks based on the latest earnings and also
paying attention to balance sheets and favoring those with little or no debt.


I picked up a bit more Western Financial Group today at $2.60 on an order I
had placed some time ago. This puts the price back to where it was 4 years ago
when the company was much smaller and the earnings per share were about half the
current level. It could announce some credit losses although we see no sign of
that yet. It has some stock and or bond investments and could report a loss on
those in Q3 and has not doubt lost more on that in Q4 so far. It has substantial
goodwill and could always face a non-cash write-off there.  It probably is
somewhat cut-off from being able to finance much growth right now. But it can
concentrate on the existing business. Also the diluted share count will fall
this quarter as many options and convertible items are far out of the money. It
increased its small dividend recently, which indicates confidence.  It’s
not a certainty it looks like it would be a good investment at this price.


Canadian Western Bank has dropped substantially and I suspect this is a good
time to invest in it.


Melcor appears to be giving us a good chance to invest at this price. It will
face a slow period but it has a strong history and it will grow over the years.


The Toronto Stock Exchange and the NYX Group have both been hit along with
other stocks but both seem like great businesses that will continue to be very
profitable. With all this market volatility, market volumes are up and so stock
exchanges will do well although they will not get much IPO business.


Kingsway stock is priced as if it were headed for zero but I see no evidence
that this is the case. In this kind of market it seems that when stocks have bad
news and fall they tend to fall a long way in the panic. For at least some of
these companies, these prices will turn out to have been great buying
opportunities even if they first move even lower before recovering.


October 6, 2008


Another bad day in the markets and everyone is wondering if we are at or near
the bottom yet. Is the panic Selling now over, or only just beginning? (The fact is no one knows
the answer).


The Toronto Market has suffered a 26% drop in 2008. But more dramatically it
is down 32.5% from its peak, which was less than four months ago. The S&P 500 is
down 28% in 2008 and 33% from its peak of about one year ago.


In retrospect and in perfect hind-sight we should have sold on some of these
prior peaks or rallies in the market to buy back at the bottom. Looking back
many will claim that they “knew” the market was headed for a fall. After all,
the unfolding financial crisis was kicked off at least 18 months ago and was
front-page news by August of 2007 (the Asset Backed Commercial Paper crisis).
But the reality is that on average people did not know the markets would
decline. The average consensus in June, was that things were so bright in
Canada’s energy industry that new highs on the TSX were justified. And in the
U.S. although the market peaked about one year ago there were certainly a number
of rallies since then. The S&P 500 index today is at 1057. But it was at 1300 as
recently as August 28, 2008 and it was over 1400 as recently as early June 2008.
Certainly they buyers of stocks at those times did NOT “know” that a decline was
ahead, as much as they may now claim they did know.


At this point there is nothing to be gained by lamenting lost opportunities
to sell.


We must now focus on the situation at hand.


We have an uncertain market. Many stocks appear to be bargains. But the very
financial system of the world still seems at risk and so, yes things could get


The proper action now is very much dependent on each persons own unique


Personally, I am willing to bet that the capital markets of the world will
recover. (maybe not this week or this month or even within a year, but
eventually). I am willing to bet that on average corporations are going to
continue to grow and make money. Therefore I am more inclined to look for
bargains than to sell in a panic.


I had some Buy orders go through today that were based on orders I had placed
earlier (an automated buy on dips approach).


These Buys were for, Aeroplan, Melcor, Shaw Communications, Tim Hortons and
Boston Pizza. In addition I bought shares in American Express. Possibly, I will
regret buying today but these were automated orders that simply bought when the
price dropped to the kevel of my order placed in the past. This took the fear
out of buying today.


Without a doubt there are some bargain stocks out there.


Consider UTS Energy Corp. as a possible bargain.


The Q2 report for UTS is here:




Also, if considering investing,  be sure to see the news release
about its costs having risen dramatically




UTS closed today at 93 cents, down 22 cents. It got as low as 72 cents today.
This stock is down massively from the $5 to $6 range it had traded in for over
one year prior to starting to dip around the start of July 2008. The massive
drop came because the costs of its proposed Fort Hills Oil Sands project were
announced to have risen dramatically. This combination of a sharp drop in oil
prices puts the Fort Hills project very much in doubt. And if it is not
producing at Fort Hills by 2011 it could lose the lease there and might have to
write off substantial investments.


This company has 473 million shares outstanding, for a total equity value of
about $440 million.


According to its Q2 balance sheet it had a book value of $1.55. (or $1.75 if
a 20 cents per share future income tax “liability” is added back since on
wind-up it will not have to be paid. If we value the property plant and
equipment investment of $460 million , or 97 cents per share  at zero (in a
forced liquidation situation) there is still 57 cents per share left in net cash
after paying the accounts payable (there is no debt). And 77 cents if we add
back the future income tax liability.


Therefore it would appear that UTS is worth about 75 cents per share even if
liquidated. These shares touched as low as 72 cents today. I know almost nothing
about oil sands developments but it seems to me that UTS could get at least
something if it sold its leases and and was liquidated. It is very hard to
imagine that this company is not worth at least $1.00 per share and potentially
much more than that. If Management believes that the leases are of value and
does not liquidate then the shares may be worth considerably more than $1.00.
And if the company has no hope of moving its oil sands projects forward then it
has an obligation to liquidate which based on these figures should return at very least 75 cents to
shareholders. (Although this is based on Q2 numbers and they will have spent
some of that money in Q3. If it spent at the same rate as Q2 it may have spent
about 4 cents per share in Q3).


The second quarter financials at page 7 indicated that “orders have been
placed for many long-lead time items including the major process vessels and
mining equipment” There might be significant costs to break these contracts.
BUT, at page 9, UTS indicates that if it is decided by the partners not to
proceed with Fort Hills then the partners must pay the remainder of their $1.4
billion “earn-in”. I’m not clear if some of that earn in has already been paid
but conservatively it appears that if the project were canceled now, UTS is owed
$1 billion which should amount to about $1.51 per share. This would seem to
indicate a liquidation value for UTS o$2.25 per share less the costs to cancel
the equipment orders (which could be substantial).


If the partners Petro Canada and Teck Cominco decide to proceed, they will do
so only if they think it is viable. IF viable to the partners then Fort Hills
would be viable to UTS since it has lower costs in the project as its partners
must pay higher shares of the cost.


At the end of the day I am not in a great position to judge if UTS is a good
investment simply by this simple review of figures. But at a rough look it does
look like a good investment. In today’s gloomy market it seems entirely possible
that the radical decline in the share price of UTS has been over-done. Investors
should seek other opinions but this does look a reasonable specualtion. But do
be prepared for volatility and possible significant further decline in the share


What about insider trading of UTS?


Surprisingly enough, looking back to January of 2008 about 7 insiders have
been fairly steady buyers at prices mostly in the $5 to $6 range. They along
with several other insiders also exercised rights and bought shares at lower
prices. There was one insider who sold shares on two occasions at $6.20 possibly
to afford to buy the shares via rights at lower prices.  The buy
transactions were in odd amounts and this leads me to suspect it was some kind
of planned buy. Possibly the company paid for these shares and if so that is not
as impressive as out-right buying. There was no selling as the shares plummeted.
Possibly they were not allowed to sell due to insider information.


It seems to me that the evidence indicates that these insiders believed in
the company. They are probably totally shell-shocked to see the shares under


The bottom line here is that buying these shares under $1.00 certainly looks
like a good speculation.


I plan to look further at this company.


October 5, 2008


I may add to my position in Melcor based on the fact it is trading at about
1.1 times book value adn has a long history of success. Earnings and revenues
declined precipitously in Q2. Q3 will see a large one-time gain on an office
building sale but the revenues from building lot sales are likely to be quite
poor. The company expects slow lot sales for the next nine months until excess
inventory is absorbed. There is a risk that the share price will continue to
decline, although we may see a “pop” with the Q3 results. My view is that the
company will continue to grow in the long term. A reasonable strategy would be
to average in over a period of time. (The stock will also tend to drop if oil
prices further decline).


Another company that looks good on a price to book value basis is Canadian
Tire at 1.2 times book. It does face the Ontario slow-down and new competition
from Lowe’s and perhaps Wal-Mart. Also it has a large finance division which
adds to risks. But it has a long history of success and therefore a strategy of
using the current lower price to begin a position in this stock seems like a
good strategy.


I am planning to add to my position in Aeroplan due to its strong competitive
position in the loyalty points business.


We took a quick look at Visa last month. Since
then the share price has declined significantly and it looks like a good bet.


Mastercard also looks attractive with a forward P/E around 14. These card
companies seem to operate as oligopolies and they are not exposed to customer
credit card bad debt (The banks that issue the cards are exposed to that). They
are however likely exposed to bad debt from some failing banks. Master card
recently settled a massive lawsuit with American express for over $1 billion.
(which is not very impressive).


American express has fallen precipitously and with a P/E of under 11 it looks
attractive on that basis.


Our article on the
valuation of the S&P 500 is updated. The conclusion is that the S&P 500
index based on its current earnings level is still about 10% over-valued and
that investors might expect a return that averages 6% per year if they held the
index for 10 years (and there would be extreme volatility around the 6% with
no-doubt some negative eyars).  I
would point out also that this article in
suggested the index at that time was 20% over-valued (although it was not meant
to be a short-term indicator.


But even if the index is over-valued there are definitely some individual
stocks that are under-valued at this time.


Our similar analysis of the DOW suggests it
is actually about 11% under-valued and therefore might return an average of
about 8% per year if held for 10 years. (7% for the required return plus 1%
extra as the DOW ends up fairly valued after ten years).


The discrepancy between the two indexes (one apparently over-valued and the
other apparently under-valued) may be indicative of the level of accuracy. The
truth may lie somewhere in the middle and if so the general U.S. markets would
appear to be about fairly valued on average at this time.


October 4, 2008


Stupid Banker Tricks


Sub-prime mortgages are a root cause of the financial melt-down in the U.S.
In Canada if you get a mortgage with little or no down-payment, that mortgage by
law must be insured. The home buyer pas a hefty fee to (usually Canadian Mortage
and Housing Corporation. This protects the bank. If the borrower defaults on the
mortage then CMHC pays the bank. Also in Canada the defaulting homeowner will be
pursued by the bank and or CMHC. In Canada you cannot simply walk away from a (a
CMHC insured) mortgage by giving the house back to the bank. If the house is
sold on foreclosure, the homeowner still owes the shortfall. Without these laws
in Canada  banks would be free (as a competitive tactic for example) to
waive the need for mortgage insurance and could also make the mortgage
non-recourse (where they can’t come after you other assets on default). In our
last newsletter I explained that banks operate with extreme leverage and it
seems they need to be protected from doing anything really stupid. (Banks have
extremely low percentage levels of invested capital compared to loans
outstanding which they usually describe as “more than adequate” but which really
means “more than the legal minimum”)


In the U.S. I don’t believe mortgage insurance is mandatory (at least in all
states). And in most states the first mortgage by law is non-recourse. A buyer
is perfectly within their rights to decide to give the house back to the bank
rather than pay the mortgage.


Now consider the situation is a low-income person is offered to qualify for a
house they can’t afford. That person really ahs nothing to lose. If house prices
rise they win and build equity. If house prices fall the buyer gives it back to
the bank who takes a loss. These stupid banks in the U.S. offered customers a
situation where “heads the customer winds and tails the bank loses”. This was
incredibly stupid and banks fell all over themselves to do this. They used low
teaser rates that would increase later (what on the assumption that the buyers
income would increase dramatically in a few years???). They had a policy in many
cases of not verifying incomes. People just declared their own income. These
were know in the banking business a “liar loans”. Anybody could see this would
lead to non-payments but banks had armies of fresh MBAs to convince them that
few people would default. (Few did as house prices rose and buyers got “free”
equity. The models then predicted even fewer defaults based on low experienced
defaults. As soon as house prices fell and equity was wiped out the customers
quite logically stopped paying the mortgages (which caused a glut of houses for
sale which caused prices to drop which caused more people to have negative
equity which caused more people to hand more houses to the banks and so on in a
vicious downward cycle. At some point the cycle ends when houses get cheap
enough that people start to snap them up again..


October 3, 2008

The Performance figures for 2008
are updated. It has been a bad year in the markets. The TSX and the Dow are each
down 22% and the S&P 500 is down 25%. Our average Stock Pick is down a similar
23% while our four stocks in the Strong Buy category are down an average of 25%.
The Model Tracking Portfolio which benefited from the decline in the Canadian
dollar is down 20%. My own portfolio which has
also been well disclosed managed to do somewhat better and is down 11%. In my
own portfolio there was a times a cash component and this cushioned the losses
somewhat and as well I have an exposure to U.S. stocks and benefited from the
now lower Canadian dollar.

Naturally, I would feel better if our performance was a lot
better. But I take some comfort that we have overall not done worse than the

And, I feel quite hopeful about the future. Yes, the U.S. is in
recession and a financial crisis and yes markets can certainly fall from here.
But there are signs that the financial crisis is starting to lift given the
bailout package and given there was something of a bidding war for Wachovia.

On an earnings basis the P/E ratios of essentially all of our
stocks are down substantially and appear to be attractive. See the P/E ratios in
my own portfolio and in the
Model Tracking Portfolio. (Note that in some
cases the P/E and other ratios do not yet include the earnings from the latest
quarter(s)).  Stocks like Tim Hortons and Shaw have earlier been at quite
high P/E ratios are now at least down around 20. Canadian Tire’s P/E is just
under 10 which is historically quite low for this company. One possibility is
that these low P/E ratios indicate bargains. But we must remember that another
possibility is that these lower P/E ratios are signaling lower profits ahead.
With lower profits the P/Es would go higher and then they would not look like
such bargains.

Also consider how low the Price/Book ratios have become.
Historically most companies trade at a P/B ratio considerably higher than 1.0.
Certainly 2.0 to 3.0 has not been unusually but it does depend on the industry
and the profitability. Usually the accounting book value of assets is
under-stated because it does not reflect inflation and because accounting is
usually conservative (depreciation charged on a building even when building
values were increasing, marketing costs expensed although they may represent
investments). Now we see that the financial companies are available at around
book value in many cases due to perceived risks.  Canadian Tire and Melcor
are down around book value after having spent some years well above book (Melcor
did historically trade below book but I suspect Canadian Tire has not been near
book in quite some years). Book value ratio is certainly not a perfect
indicator, but it is at least suggestive that these might be bargains.

Overall, while I know there may be more pain ahead, I am fairly
confident that companies are going to continue making money in the long term (If
perhaps not in the short term). Buying stocks are these prices seems likely to
work out but may be a bumpy ride. We can say with certainty that buying any of
these stocks now is better than having bought at the start of this year. We
can’t be sure that better bargains do not lie ahead. Whenever the market does
turn, I will be in the market and take advantage of that because other than
pulling out a smallish amount of cash, I will be not be getting out of the

For most of the past two years it may have seemed easy to win by
buying energy and commodities. But I wonder how many people were truly able to
spot the turn around in those stocks and have gotten out? Rather than try to
follow trends on charts or follow the band-wagon, I prefer to continue to study
the actual earnings and strengths of the businesses. This year that strategy has
not done well but at least I can see the numbers and understand to a good extent
what is happening and make a judgment as to which stock is a bargain.

October 2, 2008

Economic figures are showing that the U.S. is clearly in recession and this is
part of the reason for the fall in markets today. The fear is that a global
recession will occur and push down prices for oil and commodities.

The U.S. dollar has staged a very surprising rally and has quickly jumped about
5% against the Euro. The interest rate that the U.S. government has to pay to
borrow has stayed very low for both short-term borrowing and long-term
borrowing. For whatever reason there still seems to be confidence in the U.S.
dollar. Gold and silver bugs are frustrated because gold and silver prices have
come down as the U.S. dollar rose.

I invested a small amount in the Silver ETV that trades as SLV in the U.S.
markets. It fell 12% today. I don’t know anything about what drives silver
prices. But just based on that fact taht Silver is down from recent highs and
that a lot of people may want to invest in it as a hedge, I would consider
buying more at this price. My hesitation in doing that would be to try to keep
some cash for later bargains. As Berkshire rose today I sold 1 B share. I hope
to buy back at a lower price soon.

The Fording Coal (FDG.UN) purchase appears to be going through and appears to
offer a fast return of about 8% in 1 month if bought at Canadian $86. Do not buy
in a taxable account. Only buy in a non-taxable (RRSP, RESP account). I
understand that the proceeds from the sale of Fording to Teck Cominco “may” be
largely taxes as ordinary income. It’s hard to imagine how that can be, but this
is what Fording has said. Fording suggested that if you hold these units in a
taxable account, you should sell prior to the take-over for a better tax
treatment. It may be that the reason Fording Coal still has an 8% discount to
the October 30 take-over price is that only non-taxable accounts can buy it and
taxable accounts are forced to sell. Sounds like a good arbitrage. But remember,
nothing is ever 100% sure, a take-over is not done until the money changes
hands. So I would not want to get too greedy on this one.

I looked for any bond rater reaction to Kingsway’s recent sale of the York
subsidiary that gave Kingsway $95 million and will allow it to pay off its
short-term debt (though it still has a lot of debt left). I have seen no
reaction to this. I was tempted to buy back some Kingsway that I recently sold
as the price is lower but did not do so. On a rational basis I should only be
concerned about finding the best investment I can. From an emotional perspective
I feel that if Kingsway is going to recover I want to own a reasonable amount
since it handed me so much pain on the way down. I am sure that Kingsway
management feels embarrassed about the share price and that they will work hard
to try and redeem themselves. They have shares and options and so they have a
good incentive to make things better.

I like to periodically check Kingsway’s insider trading and there has not been
much. One thing I just realized is that Bill Star who founded the company and
was president and CEO until very recently, ceased to be an insider when he was
(apparently) booted from the Board last Spring. Isn’t that great? we will not
get to see if he has had the confidence to keep his shares or instead did he
sell? It would make sense to change securities laws so that he would still be an
insider for say 24 months after leaving the company.

Well, tomorrow is another day and hopefully the house will pass the rescue bill
and stocks will move up somewhat. If so, I will some of my orders that I have in
the sell on rallies may be triggered and I would welcome the cash into my

October 1, 2008

So what is next? financial system melt-down, followed by deep recession? or will
the FED save the day and has the market reached bottom. No one knows. Buffet
mentioned today that he is picking up bargains but he advised against investing
with borrowed money (ever).

Tonight the U.S. senate passed a revised $700 billion bail-out bill. It still
needs to pass the house of representatives who voted no on Monday. The Dow
futures are actually down 70 points as of 11 pm Wednesday night. Far East
markets are down slightly.

Meanwhile Buffett (Berkshire Hathaway) has invested $3 billion in General
Electric. He gets a 10% preferred share and also has options to buy $3 billion
shares at $22.25, a 10% discount to the price today. Buffett believes that the
rescue package will be passed and he believes that the economy will get through
this period and that companies like GE and Goldman’s and Berkshire will be
around in 5 to 10 years and will be substantially more profitable than they are

In my own trading I added to my Canadian Western Bank position today. If I had
more cash I would buy mores things. I’m trying to continue a strategy of selling
on rallies and (to a lesser extent) buying on dips. Fairfax Financial which I
mentioned a few times lately but which is not on the list above has moved higher
again. I am hoping that Northbridge can move higher because I believe it (like
Fairfax) has credit default swaps that have paid off recently. (But Northbridge
did not make any announcement recently on credit default swaps, while Fairfax
did). Also its investments are mostly government bonds and so it should report
investment gains this quarter. However it is involved almost exclusively in
commercial insurance and that has been a very competitive area and I don’t
expect a strong quarter on the actual insurance business and perhaps that is
what is holding Northbridge back.

September 30, 2008

Today’s bounce was surprisingly large. I’m not sure that it will last or that we
get much more of  a bounce if the rescue bill passes on Thursday.

Kingsway announced after the close that they had closed the previously announced
sale of a subsidiary for CAN $95 million cash (and will book about CAN $44
pre-tax profit in the third quarter ended today). This will allow them to pay
off the remainder of their short-term debt. Kingsway will still have debt but
the amount will now be more manageable and more palatable to rating agencies.
The sale of the subsidiary is a negative from the point of view of growth but in
the present situation of a poor credit rating it is a good step. The price to
book they received was quite good at almost two times. This may not be at all
applicable to Kingsway’s other subsidiaries which are in the high risk area, but
still it is a very good sign when we can buy Kingsway at 0.45 times book and it
can sell some assets at least at two times book.

Perhaps tomorrow will be a strong day for Kingsway…

Moe about the Banks and the Rescue Plan

Banks that hold sub-prime mortgage receivables are in trouble partly because the
delinquencies on those mortgages are creeping up.

Let’s look at actual data on U.S. mortgage delinquencies and write-offs. This
from the Fed at:


 As of the second quarter the delinquencies (more than 30-days past due) as
an average of all times mortgages were at 4.33% of the total mortgage value
outstanding. That is sharply higher than the 1.61% level of two years ago in Q2,
2006. But these delinquencies had reached 3.36% in 1991, so we are not that much
higher than the 1991 level.

Meanwhile delinquencies on commercial mortgages in Q2 were at 4.24%, again well
above the 1.03% for two years ago. But commercial delinquencies had reached a
staggering 12.07% in 1991.

The combined residential/commercial delinquency rate was 4.21% in Q2, well above
the  1.38% of two years ago but still well below the 7.48% peak in 1991.

The problem today is not so much the existing 4.24% delinquency rate in Q2 2008
(which corresponded to an actual annualized write-off rate of only 1.13% in Q2
which is manageable). The real problem is the fear that these delinquencies have
only just begun to rise and that the peak could be very high indeed. Another
problem is that unlike in 1991, the industry is more specialized. Certain banks
specialized in sub-prime loans while others avoided that part of the market.
Therefore instead of a all banks sharing the pain, some banks will shoulder a
large share of the pain and will fail. Another problem is that unlike in 1991,
mortgage loans are now routinely packaged up and sold to investors. This means
there is a market price for these mortgage receivables. And that market price has
fallen sharply due to fears over the delinquencies to come. Investors having
been “twice bitten” in terms of seeing the market value of their purchased
mortgages fall, are now “three times shy”. They don’t want to invest in any
package of mortgages. not even the good ones that have no sub-prime loans. Yet
another problem, is that today unlike in 1991 the banks are generally forced to
write-off a portion of their mortgage receivables to reflect the low market
values of these assets.

In other words a bank may have $100 million in mortgage receivables and expect
to ultimately collect $90 million in principle (for example allowing for 1%
write-off each year for ten years). These loans may be on the balance sheet at
$90 million. And meanwhile the bank expects to collect interest on these loans
for the ten year. This scenario might be quite profitable to the bank in spite
of the expected write-offs over the years. In the recent past the package of
loans might have fetched $100 million from investors (if sold)  since
investors may have found the interest rates on the mortgages attractive. But if
the market value of this package of loans today is $50 million, instead of $100
million, now the bank may be forced to write this down to $50 million and take a
$40 million loss right now even though in fact the loss has not occurred and in
fact the bank is expecting (in this case) no loss at all beyond the $10 million
in bad debt that they have already accounted for.

(With today’s complex accounting, the bank may or may not be required to book
the $40 million “loss” now. In some cases they would in others cases not. An
accounting change was proposing to make these write-offs mandatory but that has
now been delayed).

If the bank is forced to write-off $40 million on their $90 million receivable
because jittery investors will only pay $50 million for the mortgages (if sold)
even though the bank has no plan to sell but rather plans to hang on and collect
the full $90 million worth over the years, then this is a case of counting your
eggs as broken before you even get a change to see if they will hatch.

If the bank does write-off the $40 million it may then be in trouble on its
equity side and have to rasie equity (which may be next to impossible in this
bank-panicked market).

Meanwhile if there is even a rumor that the bank is going to have to make a big
write-off (true or not) depositors may start to panic and we get a run on the

As you can see banks can be put into a dangerous scenario just on the fear that
delinquicies could rise.

Turning to the bail out package. I really don’t know how it was going to help
these banks unless the Fed was going to buy the feared-to-be-toxic mortgages at
close to full value (say the $90 million in this case). Buying these at the
market price of $50 million would give the bank cash but also cause it to bleed
equity and so I don’t see that working. Meanwhile all the people who owe the
sub-prime and other mortgages would still be required to pay them if they wanted
to keep their houses. The average person cannot understand why the program would
help strictly the banks and give zero help to the borrowers.

A more palatable recue package would have helped the homeowners by providing
some kind of relief from high payments. Possibly the FEDs could have paid up to
half of a persons mortgage (and only those people who come in and apply and
explain why they are having trouble paying up) with possibly a part of the FED’s
help being repayable by the homeowner down the road. With the Fed helping to pay
mortgages the delinquencies would fall and all would be well for the banks, the
people who invested in mortgages and the homeowners. Sure it would be complex
but this is the type of deal that makes sense to voters.

September 29, 2008

Today the markets in North America dropped about 7% after the bailout bill
failed to pass the U.S. House of Representatives. The fact that Wachovia Bank
was taken over for a pittance and that a British mortgage bank failed and a
Belgian financial company was nationalized all added to the pressure to the

Credit markets continue to be somewhat seized up and the interest rate that
banks charge to lend to each other has spiked (although it is down a little this
evening). Financial firms depend on their customers and business partners having
confidence in them. Recently it seems that we are seeing “runs” on various banks
as confidence drops. The U.S. government will no-doubt be doing things to try to
restore confidence.

Congress will now work on revising the bill and it may get passed this week.

This evening Dow futures are up about 100 points and so indications are that the
market could have a positive day on Tuesday.

At a time like this, investors need to take a breath and consider if the stocks
they hold represent good value. Perhaps some positions should be sold but in
general it would not seem wise to panic. Markets have had many past periods of
steep declines but in most cases those declines have been recovered before too
long. If we assume that markets are going to keep going down and stay down, that
would imply basically a depression. That may be possible but it seems more
likely that we will work our way out of this.

Now may a good time to read some books on value investing that give a longer
term perspective. Here is a
link to the authorized biography
of Buffett that just came out today.

I added to my position in the TMX Group today. This company is arguably
essentially an unregulated monopoly. Its revenues from IPOs will be down but in
this frenzied market its trading revenues will likely be up.

September 28, 2008

As of 10:15 pm eastern time on Sunday night it looks like our bailout plan will
not result in the stock market going up tomorrow. Dow futures are suggestion a
90 point drop at this hour. You can check out the Dow futures anytime at
http://www.cnbc.com/id/17689937. It looks like we already got all the market
“pop” we are going to get on this deal on Friday when it looked like the deal
would proceed. I had thought we would get a “pop” tomorrow though I was not at
all confident it would last. I would think the financials will up somewhat
tomorrow (Monday) however.

The latest edition of our free newsletter
was emailed out last night. This newsletter provides an explanation of the
credit crisis and discussion about the bail out.  The latest news as of
Sunday afternoon is that the proposed bail out has been agreed to and will be
passed in the next few days. You can read the 106 page draft bill here


September 27, 2008

Friday, surprisingly ended up in positive territory in New York although the
Canadian market fell 3.4%.

I will address what has happened in the banking sector in an edition of the free
newsletter that I plan to send, tomorrow, Sunday.

I have updated our 2008 performance figures and my own portfolio composition and
there are links to that above.

Regarding BCE I reduced my position on Friday due to the risk of the deal not
closing. I would have liked to wait for the U.S. bail-out deal since BCE will
likely increase on that news, but I decided it was prudent to lower my exposure.

The issue that matters with BCE is; will the buyers be able and willing to

The Buyers are:

Ontario Teachers’ Pension Plan

Providence Equity Partners

Madison Dearborn Partners

Merrill Lynch Global Private Equity

The banks that are lending billions to the buyers (and/ or to BCE, after the purchase) are:

Citigroup Inc.

Deutsche Bank AG

Royal Bank of Scotland PLC

Toronto-Dominion Bank

It seems very clear that the banks would now be better off if the deal was
canceled. The Banks had planed to transfer their loans to investors at a profit.
Now, corporate loans are seen as much riskier than they were when this deal was
first committed to some 15 months ago. The banks stand to lose billions on these
loans if they sell the loans to investors. And the banks generally have liquidly
needs and may be in no position to keep these loans on their books to hope for a
better market in which to sell the loans. These losses to the banks put this
deal at risk. So far, it appears that the banks intend to fully honor their

In today’s environment it is not clear that we can fully count on these banks to
be in a position to honor their commitments to lend billions. Certainly
Toronto-Dominion seems like a very sure bet but I don’t know what risk the other
banks pose.

An additional risk is that one or more of the buying partners will not be able
to come up with their share of the equity.

My understanding is that the buyers could cancel the deal on payment of a $1
billion fee.  Given the way that the stock market has dropped, these buyers
and banks would not pay $42.75 today if they had the deal to do over. $1 billion
between them might be a small price to pay to get out of this deal. However,
they also have reputations and I believe that they do intend to go through with
the deal if they can.

The bottom line is that buying BCE could provide a quick attractive return on
December 11, but there is certainly some chance that the deal will collapse or
be delayed.

Regarding Kingsway, it feels like this company will just not stop beating
investors up.

The common shares trade at just 45% of book value which seems attractive… but
they keep falling.

The latest problem for them was some losses on bond or preferred share
investments they held in Lehmans and possible losses on similar investments in
AIG. Kingsway’s Investment portfolio has always looked quite solid. What is
hurting them now is that they had mostly corporate bonds rather than government
bonds. Most of their bonds were AAA rated and only 6% were rate lower than A.
Unfortunately we have now seen that highly rated bonds owed by banks like
Lehman’s and Washington Mutual can become worthless. They have not indicated yet
if they had any exposure to Washington Mutual.  All of this should not have
a huge impact on Kingsway but piled on top of their other problems, investors
sent the stock lower. I would certainly not be surprised to see them take
significant losses on investments in Q3, but it does not seem like this justifies a
stock price of 45% of book value. If the insurance operations themselves have a
reasonable quarter we may see this stock rebound somewhat.

The other Kingsway investment that I recently bought and talked about was KSP.un.
This is a financially engineered trust unit that “provides Indirect exposure”
to a bond issued by Kingsway. These units are supposed to mature in June 2015
and pay $25. They also pay a distribution of $1.25 per year which has been
financially engineered to be treated as return of capital and therefore not
taxable (the final $25 may be heavily taxed as it may have a very low cost base,
but I am not at all clear on that). These units closed at $9.25 and therefore
yield 13.5% in addition to seemingly being scheduled to more than double in price
at the 2015 maturity.

Perhaps the KSP units are too good to be true.  Possibly there is a a big
risk that the distribution will be cut. The prospectus also mentions a
possibility of early redemption at a possibly much reduced price in certain
events of default.

It looks to me like these units would pay-off as long as Kingsway Financial
remains a viable business. Kingsway Financial is rated BB- by A.M. Best the
insurance rater and also BB- by Standard and Poors. These are weak ratings.
Perhaps in today’s markets, investors are holding such lower credit ratings only
at lower share prices.

One thought I had was that if Kingsway were forced to issue shares at this low
price (and at last disclosure they were talking about buying back some shares
not issuing), this would hurt the KFS share price (because of dilution)
but should help the KSP units as the company would be financially stronger and a
share issue does not dilute the KSP units.

These units trade quite thinly and that in part may explain how they have
dropped so much. But it is always possible that some investors are aware of even
more problems developing for Kingsway.



September 25, 2008

Things are looking grim tonight. Washington Mutual Bank (with $310 billion in
assets) has been seized by the Federal Deposition Insurance Corporation and then
sold for a pittance ($1.9 billion). Washington Mutual shareholders will likely
get nothing.

In perhaps worse news, the “bailout” has stalled and may not happen, although
there will likely be efforts to get the deal through congress tomorrow. This was
much in doubt tonight. Dow futures are down about 160 points but I would not be
surprised to see a much bigger drop tomorrow.

Markets have changed dramatically in the past few weeks.

Things like the BCE deal are much in doubt now since the buyers may be simply
unable to raise the money. They may have lined up the money with banks but in
this environment we cannot be sure that banks can honor their commitments even
if they want to. I believe that the Teachers Pension Plan has its money ready to
go. But there are other partners and I don’t know enough about where they will
get their money to be confident in this deal. If the BCE price is not too low
tomoorw I will reduce my position.

I reduced my position in Shaw today to raise cash. I like the company. It is due
to report Q4 in early August. I suspect it will have increased profits but that
its subscriber growth in basic cable may be down.

Given tonight’s developments, I have a strong inclination to reduce most of my
equity positions. It looks as if markets are headed lower.

A successful bail-out package tomorrow could of course send markets higher.
Given the risk to the down-side I no longer feel comfortable being in the range
of 90% invested in equities.

September 24, 2008

Today I bought 100 shares of Goldman Sachs (Symbol GS) at about $127. I figure
following Buffett’s lead on this one is a good bet. Goldman also sold late today
$5 billion in shares at $123. This could push the market price down to $123

I note that Fording is trading around CAN $80 and is supposed to be bought out
on October 30 at U.S. $82 plus 0.245 of a tech share (worth $9.07 today) for a
total of U.S. $91 or CAN $94. I also received a notice from Fording indicating
that most of these proceeds will be taxed as ordinary income and that taxable
investors may wish to sell now rather than wait for the cash on closing. I don’t
claim to understand this situation very well, but it sounds like a reasonable
investment is to buy Fording at $80 in tax-sheltered plans and then collect the
proceeds on closing. The risk is that the deal will not happen for some reason.
I bought 100 shares today. It seems like a good bet but at the same time I don’t
want to get greedy and risk too much on this.

Fairfax fell 12% today to $297 and this is down from its recent blip up to $339.
It seems cheap but could continue to fall if the credit crisis in the U.S. is
not resolved. I am interested in adding some shares perhaps 15 at $280 and more
if it falls to $250 or below (though there is little reason to expect it to do
so). It is probably a good long-term investment at the current price but it
could certainly fall further in the short-term.

One of the buy orders that I entered on the weekend got bought today, 100 shares
of TMX Group as its price fell. This is my strategy to use market volatility to
hopefully reduce positions that rise 7 to 10% and buy those that fall 10 to 15%.
I leave the orders set for 1 month although I may reset them if they become too
far out of the market (i.e. If a stock is $100 and I want to sell some at $110
and it drops to $90 I may reset the order to sell some if it recovers to $100)

September 23, 2008

Manulife is updated and rated Weak Buy /
Hold. This is a great company with “sticky” customers that is likely to earn
above average rates of return in the long run. However, the near-term will see
some write-offs of investment assets which could provide a better opportunity to
buy this stock at $32 or below.

The markets may now tend to lurch around as they await news of the “bailout”
favorable news will send the stocks up and any indication that the bail out will
not happen or will be long-delayed will send markets pounding lower.

Buffett has made a $5 billion investment in Goldman Sachs (10% perpetual
preferred shares) and this is likely to be ultimately increased to $10 billion
since he also got an option to buy $5 billion of shares at $115. The options do
not expire for five years.

With this development it is worth taking a look at the Goldman balance sheet
(from May 30). It has $42 billion in common equity and $1088 billion in assets,
so that puts the equity at just under 4% which is scary and low. On a positive
note it has about $229 billion in cash and short-term investments and therefore
is not likely to have a liquidly problem. From Q1 to Q2 it reduced its long-term
assets by almost $200 billion. This may have been a very wise move in assuring
it remained liquid. Turning to income, it has so far remained profitable and did
not report any losses although its recent profits were lower.

Goldman released its Q3 earnings on September 16 (no balance sheet was given
yet). Revenues and earnings were down but unlike the other big investments banks
this one is still makeing money.

Book value per share was $99.30. My view is that for financial companies book
value should be meaningful. Financial companies are typically always worth at
least book value (unless as in recent cases the assets are rotten to the core)
and usually a financial company is worth more than book value due to its ongoing
stream of future business. This seems like classic Buffett to grab options to
buy at not much over book value ($115) and those options do not expire for five
years. Goldman’s has a 52 week high of $250.

Buffett is is in a good position to know if the assets are solid and how much if
any is of the toxic garbage variety. Buffett is no-doubt confident that Goldman
will survive and therefore it is probably in a position to double or triple over
a five year period.

Buffett will likely encourage the company to reduce debt and build equity and so
it could take some time to return to the old level of profitability. On the
other hand with Lehman gone and some other investment banks badly wounded,
Goldman could pick up a lot of business.

Goldman closed today at $125 and was at $134 after-hours. I suspect it would be
a smart strategy to follow Buffett and buy some of this. I would be reluctant to
chase it too high though and would hesitate to buy above $135, since the next
round of pessimism in markets could easily push this stock down, notwithstanding
the Buffett effect.

As I mentioned on September 12 (and this was prior to the two recent large
Buffett Buys) Buffett is indeed in a happy place these days. Flush with cash and
credibility and he is presented with bargains galore.

September 22, 2008

The excitement over the U.S. rescue plans for the financial intuitions is
already starting to wane. The details of the plans are not known.

The U.S. dollar weakened about 3 cents against the Euro today. This was part of
the reason for the rise in oil. The Dow dropped 373 points. It seems clear that
the market is not out of the woods yet. Further deterioration is certainly
possible. Gold bugs and doomsayers have long predicted that the U.S. dollar would
sink under the weight of the U.S. debts. Recently these doomsayers are starting
to look a lot more credible. I think the U.S. will get through this mess, but it
could be an ugly ride that could temporarily pull down markets everywhere.

The market will now likely continue to gyrate with the latest news on the bail

I soled a small amount of Kingsway after an automated sell order that was about
10% above market got filled when Kingsway popped this morning. I did not get the
high of the day but in the end Kingsway closed below where I sold.

On September 5 I mentioned an insurance company , Fairfax Financial, that we
don’t cover here but which I though was a bargain at $226.50 that day. I
mentioned it again Sept 16 at $250. Today it closed at $320 and was a s high as
$339 today. I sold a portion of what I held at $336. The reason it rose so much
is that it just announced that in this quarter it has sold off credit default
swaps for gains of $521 million (proceeds were 574.5 million on an original
investment of $53 million. Fairfax had also made huge gains in this way int eh
past two quarters and in 2007. It still has a unreleased gains of $447 million.
I had mentioned and I had thought that Fairfax was a good investment given it
was trading at 85% of book value adn that it had these credit default swaps and
other bets against the market which is was fairly clear must be paying off

I had some Fairfax but wish I had bought more.
Northbridge Financial is about 60% owned by Fairfax and it also has a share
of credit default swaps and bets against the equity markets. Northbridge did not
announce its gains on these items which is strange since Northbridge and Fairfax
often announce things together. It seems to me that with Northbridge trading at
around book value, and with the possibility that it too will announce strong
gains on credit default swaps, Northbridge is probably a good investment. I
added to my position in Northbridge today. The gains on credit default swaps for
Northbridge, may not be a spectacular for Fairfax, but nonetheless I believe
they could be significant given the rise in credit spreads.

My bias at the moment is to continue to look for opportunities to reduce
positions. But also I am interested in adding to positions that like Northbridge
seem to offer good upside and little down-side at this time (though there are no
guarantees on any of this).



September 21, 2008

Far eastern markets are up as of about mod-night eastern time. However futures
are indicating the Dow will open down about 100 points. It is going to be
another eventful week. I am inclined to reduce positions this week especially on
any rallies.

The next update will likely be Manulife. This is a great company that has
continued to grow and will do well in future. However, it is a complex company
and its earnings could be become quite volatile as it deals with changes in
valuations due to the recent rapid changes in interest rates, and in credit
spreads on the corporate bonds that it invests in. It may face significant
market-value write-downs in Q3.  Although I like it long-term, at this time
I would be inclined to reduce on any rally in its price and look to buy if the
price happens to dip to the lower 30’s.

September 19, 2008

This was one of the wildest weeks in the markets since the crash in 1987.

There were amazing gains today. These large one-day gains illustrate the fact
that it is dangerous to try and time markets. Anyone sitting on the side-lines
has missed a huge gain.

Will the bail-out stop the decline? I don’t think it will. Apparently the Fed
will buy bad loans (mostly mortgages) from the banks and financial institutions.
If the Fed buys these loans at close to the actual amounts owing by the
borrowers then that would protect the banks. In that case the banks would
actually have to book gains to reverse all the write-offs they have already
taken on these loans. That will not happen. The thinking is that the Fed will
buy these loans at maybe 65 cents on the dollar.

Now picture how this works for a hypothetical mortgage bank. The bank has loaned
out $10 billion in mortgages to home-owners. The bank had $1 billion of
shareholder money and the other $9 billion it owes to its depositors. But now
the mortgages have gone bad and are only worth $7 billion. If the Fed buys these
loans for $7 billion then the bank has $7 billion in cash (great) but owes $9
billion to depositors (not great). The bank has cash (liquidity) but is still
bankrupt. Furthermore it no longer is earning anything on the loans (which have
been sold) but is still paying interest on the deposits. As we can see this
rescue is no rescue at all unless the Fed buys the loans at (or close to) the
full amount stupidly loaned to the borrowers.

I don’t know exactly how the rescue will work but I do know that any rescue
based on buying the bad loans at 65 cents on the dollar or so is not going to
rescue too many banks.

Another component of the rescue is the ban short-selling. Maybe that will give
some breathing room. When people short-sell banks and then run around saying the
bank is insolvent they can cause a run on a bank and a bank which has equity can
run out of cash and be ruined due to the panic. But ultimately short-selling was
not the problem here. Stupid Banker Tricks were the problem.

I described Stupid Banker Tricks in the free
newsletter of January 6, 2008

Time and again since the Summer of 2007 we have seen markets rise but then fall
back significantly. I don’t think the roller-coaster is over. I remain confident
that owning companies will pay-off long term. But I also want to have cash to
take advantage of opportunities. In recent months I have been more than fully
invested in equities (used some margin and hold no bonds or money market). I
used today’s big rally to reduce or eliminate a number of positions. My
personal portfolio composition is updated. My
cash position is still only 8%. Next week I will likely sell more positions. I
may have to sell companies that I like in order to raise cash as protection
against the next dip as well as to use to buy bargains in companies that I like
better than those that I will sell. Partly I will do these sales by entering
automated orders to reduce the position on any stock that jumps about 10%. In
addition I will likely enter orders to buy shares where the price dips say 15%.

Also today I bought some shares in Aeroplan and in the Kingsway Linked Return of
Capital KSP.un, that I mentioned yesterday.

Sept 18, 2008

Today markets ended up sharply higher on rumors that the U.S. government would
create some kind of rescue company to buy up bad loans from banks.

Clearly there is tremendous uncertainty. If credit markets continue to seize up
then this could cause a global recession and stocks to fall significantly from
here. Those of us who are 100% or more invested may want to sell some positions
to raise cash and hedge our bets.  Possibly this rescue plan will work but
that is far from certain. It may be wise to use any rallies to sell some stocks.

As of about 11:30pm  eastern time, the far east markets are following the
U.S. markets up in Friday trading.

There are definitely some stocks out there that are great bargains at this time.
Therefore a reasonable strategy is to sell some stocks that have little
potential to rise and move into the best bargains. Buying bargains will take
bravery. It is always hard to buy stocks that have recently fallen a lot. Of
course not all of the low-fliers are bargains. Companies with little debt and
good earnings and that are recession resistant would be preferred.

One position I added today was KSP.un on Toronto. This Trust unit provides
exposure to a debt instrument issued by a subsidiary of Kingsway. It has
priority over common shares. It recently traded at $10. I understand it will
mature in 2016 at $25 and meanwhile is yielding 12.5%. This may be a safer
investment than the common shares and it appears to have good up-side potential.
These units are very illiquid and therefore hard to buy and hard to sell. (Very
large bid/ask spread)

Other trades I made were to sell some Berkshire as it rose and sold some
Couche-Tard to raise cash.

Fording Coal units at $75.80 may be a very good investment since it is supposed
to be taken over by TECK Cominco on October 30 at U.S. $82 plus 0.245 of a tech
share (worth $8.14 today) for a total of U.S. $90 or about CAN $95. The big
potential gain does indicate there must be some fear that the deal will not
happen as planned. One opinion on BNN television today was that the “players”
who would normally buy up Fording so that the price would be close to the offer
price have other need s for cash due to all the turmoil in the markets.

Perhaps a safer bet with good potential is Western Financial Group. In effect we
are now able to buy into its network of profitable insurance brokers at about
book value and at a big discount to where the price was no long ago. And there
is no particular indication that its banking operation will be hit by this mess.
I suppose a write-off of goodwill on some acquisitions is possible but that is
not a large concern as long as the continuing earnings remain stable or growing.
One interesting thing is that with the lower share price, many options and
convertible securities are out of the money and the diluted share count will be
down which helps the reported earnings per share, all else being equal. It does
have some investment assets probably associated with its life insurance company
and it will no-doubt have some losses on those in Q3. Therefore the Q3 report
could look bad but it seems likely that any bad news in Q3 would not be
sufficient to justify the share price having fallen so much.

I like Aeroplan as a company that should be able to continue to do well. In a
recession people may cut back on travel but that means they won’t have to buy as
many airline seats. Members are likely to continue to collect points which gives
aeroplan revenue as it sells points to the likes of CIBC, American Express and
many other partners.

Buffett pounced today and is buying Constellation Energy Group for $4.7 billion.
The price is $26.50 per share. These shares were $66 three weeks ago! The 52
week high is $107. He is paying only 73% of book value. Constellation ran into
great distress this week when it was threatened with a bond down-grade that
would have threatened its energy trading business and required it to post
mountains of cash as collateral on certain derivative positions. Buffett swooped
in to buy it and provide $1 billion in cash immediately to Constellation. This
is classic Buffet and it sounds like the deal was made in mere hours and will be
finalized tomorrow. It will however take some nine months to close.



Sept. 17, 2008

Another painful day in the markets. Far East markets are down in Thursday
trading and it remains to be seen if North American markets can stabilize on

It is amazing how things have deteriorated in past couple of weeks. This carnage
is linked to the sub-prime fiasco whereby banks loaned excessive amounts to
people who could never hope to pay it back. Banks also packaged up bad loans in
complex packages and the entire investment industry far under estimated the
losses. Financial models said there was only say a 1 in 100 chance of a loan
going bad. But they forgot that lower house prices could cause many loans to go
bad at the same time. The chances of any one house defaulting were not random,
they were all linked, they would all have a higher risk in a recession or if
house prices dropped. The models assumed there was little risk but the models
were wrong.

The market has known about these bad sub-prime loans for at least 18 months and
knew the problem was very serious by August 2007 and certainly by this past
Spring. And yet the markets stayed reasonably high. Only in the past couple of
weeks have events unfolded such that the market seems at last fully aware of the

The very scary thing now is that we seem to be in a vicious cycle where problems
at one financial institution cause problems at other institutions which causes
more panic which leads to lower market prices for loans and therefore further
problems at financial institutions. As house prices decline this also adds to
the problem. With lower house prices, more customers have negative equity and
default on the mortgage causing more houses for sale at low prices causing
another round of foreclosures causing … (round round and down down we go).

At some point the cycle will end and markets can turn upwards. But its hard to
say when.

Bargains do exist but even bargain stocks can keep going down for a time.

In my own account today I sold my ING Canada to invest in a cheaper insurance
company and bought Northbridge and the more speculative Kingsway, as well as
some Western Financial Group.

I have a small amount of the Silver ETF, SLV on the U.S. markets and it did very
well today (Up 14% after recently being down over 45% from its peaks. Gold did
very well today. You can buy Gold as a speculation or a hedge against a loss of
faith in paper currency. You can buy Gold by buying GLD on the U.S. markets.

What are we to make of BCE trading at $34.05 when it is supposed to be bought
out at $42.75 on December 11? Certainly the market fears the deal will not
happen or will be re-priced, delayed etc. Just a few weeks or even days ago the
market thought a fair price for BCE was around $40. It may not be a bad
speculative pick at this new price but as we have seen lately, there are no sure
bets in this market. Has the price for BCE been driven down too far by panic
selling? or was it driven down by smart sellers who know the deal will not

There have been no insider trades reported in August or September, therefore it
seems that the people selling at these lower prices are speculating that the
deal may not happen. They may be right. Surely it is harder to come up with the
cash to close this deal given recent market turmoil. But on the other hand
perhaps the cash will be available. As investors we can only speculate. If I did
not already have a large position in BCE I would be tempted to pick some up at
this lower price.

Kingsway announced it had $17 million invested in Lehman securities. This may be
a total write-off but amounts to 31 cents per share which is not that huge. They
also have about $30 million invested in AIG companies. They may take a temporary
mark to market loss on that but ultimately I believe that is still a good asset
that will be collected upon. Overall I still believe that Kingsway’s investment
portfolio is reasonably solid. But with a poor Q3 expected there is no reason
for the stock to increase until and unless it can deliver some good earnings.
(It may be able to do so in Q4 but that remains to be seen)

September 16, 2008

As of 11 pm eastern, the U.S. government has announced an $85 billion rescue
loan for AIG. This could cause markets to rise tomorrow. (Another day, another

The U.S. market (S&P 500) managed a 1.7% gain today which is good news. The
U.S. dollar has stayed surprisingly strong. It takes U.S. $1.42 to buy 1 Euro
whereas 3 months ago it cost $1.58 to buy one Euro. The U.S. dollar had
strengthened substantially ((to $1.40) in August and the first week of
September. It has now weakened only two cents against the Euro in the last week
or so in the face of the take-over of Fannie and Freddie and the collapse of
Lehman’s and the pending take-over of AIG. The U.S. government has committed
many billions of dollars and has added billions to the money supply and yet its
dollar has remained remarkably stable in the past ten days.

While some people worry about the future value of the America dollar thee market
seems to have confidence. Investors are now willing to invest money in 10-year
U.S. government bonds for a yield of 3.5% per year (down from 4.1% about 10 days

Stocks markets certainly could fall further. However, it is almost certain that
a number of stocks represent excellent bargains at these prices. The problem is
that it is very difficult to know which are the bargains.

Here are my thoughts on a number of stocks.

Regarding BCE . A month ago it was assumed the deal was almost a sure bet to
close by December 11, and the 7% or so that could be made by buying and holding
to the close looked attractive. Now we see that BCE has fallen substantially as
the market gets nervous that the deal will not proceed. Perhaps the lesson here
is that on a deal that requires $35 billion or so to close, it’s never over
’till it’s over. It is perhaps never a sure bet that that kind of money will be
available for the close. With huge sums like that there is always a possibility
some of the buyers or  the buyers banks will fail to show up with the cash.
Today BCE close at $37.18. This means investors will get a nice 15% gain in less
than three months IF the deal does close. But if it does not close then BCE
presumably falls well back…  The market is suggesting that there is
considerable doubt that the deal will close. I suspect it will rise tomorrow but
probably not back to $40…

Berkshire Hathaway – made a nice gain the past few days. Buffet is in a great
position to capitalize on bargains. Still the stock is not cheap. I reduced my
position in it today to take advantage of the price increase. But I’m happy to
hold some of this one.

CN Rail – Probably a good long-term stock. Lower oil prices help it. A slower
economy hurts it. Has held up very well lately. Bill Gates owns a chunk. I would
hold but not buy at this time.

Kingsway at $7.24 today. Seemingly poorly managed and with no competitive
advantage its saving grace is that is sells for just under half of its book
value. Even with poor management and no particular competitive advantage it
should trade reasonably close to book value, unless the market suspects the
assets are over-stated or the insurance liability is under-stated. Its assets
appear to be good. But it will likely suffer a hit on stock values this quarter
(about 13% of invested assets are stocks). Most of its bonds are corporate. Even
though these are highly rated bonds there may be some loss in market value this
quarter due to higher spreads (the spread is the amount that corporate bonds
yield over and above government bonds – higher spreads drive down bond prices).
Although spreads are higher, government yields are well down which may save
these bonds from much of a market value loss this quarter.  Kingsway also
has some goodwill and intangibles that could be at risk of write-off. With all
of this the assets are still fairly strong and do not justify anything close to
a 50% discount from book value.

On the liability side, Kingsway’s liabilities are actuarial estimates and they
have had a bad habit of under-estimating their claims liabilities. Still , these
liabilities are approved by actuaries and auditors and a 50% discount from book
value seems unduly pessimistic.

At this point it seems the market does not trust management of Kingsway and that
is the biggest reason for the big discount.

In terms of insider trading, the CFO (actually her spouse) bought 4000 shares at
$9.00 on September 5 and this shows considerable confidence by the CFO. Another
insider bought 600 on September 11 at $8.63 followed by 2000 today at $7.99. A
third insider sold almost 2000 shares on August 27 at $8 U.S. to hold just 24
shares. The CEO exercised 10,000 options on September 3 and did not sell any and
holds 93,000 shares.

Conspicuously absent is any sign of the company buying back shares.

The insider signal is therefore positive, although the lack of share buy backs
is a moderately negative sign. Despite being rather fed up with this company it
does look to be bargain priced. But given that Q3 is unlikely to be a good
quarter (given the bad weather in the U.S. and the poor investment markets), the
shares could stay in the bargain bin the rest of this year unless there was a
take-over offer.

Shaw Communications has held up well in this market. I believe is has the
ability to earn above average returns due to the fact that its cable
subscriptions are unregulated as to the price charged and it faces only limited
competition from telco television. Further it has made strong gains in taking
away phone customers from the telcos and has massive penetration on internet
subscriptions. I expect it to report a strong Q4 (ended August 31). However
customer growth in Q4 on the cable side will probably be low due to a fewer new
homes being built. I am happy to hold it and would add on dips especially if it
sips down to the $20 level.

Canadian Western Bank does not any problem with bad mortgages. The recent lower
price provides an opportunity to accumulate it.

Northbridge Financial seems to be bargain priced at just under book value. Its
investments are mostly in Government bonds and it should report a strong gain on
these in Q3. Also it has investments which payoff as stock markets decline and
as credit spreads deteriorate. I suspect it has strong gains on these as of
today’s date. On the insurance business it does have about 10% of its business
in the U.S. and could be hurt by the poor weather in the U.S. Overall
Northbridge has been well managed and appears to be bargain priced. It’s price
could rise by the time it reports Q3.  Related to this company is the
parent Fairfax and much of this same discussion applies except that Fairfax is
mostly U.S. and international insurance and there is a greater probability of
hurricane losses. Fairfax rose today about 6% while Northbridge was relatively
flat. (I own Fairfax but it is not in the stock list above.)

Western Financial Group has fallen substantially to $2.78. Its book value is
$2.88. Although the book value includes substantial goodwill and intangibles, it
appears that the shares should be worth more than book value. P/E is about 12.
There were no insider trades since June 30. The company recently announced an
acquisition that will allow it to begin issuing credit cards. Most of the
revenues are from insurance brokerage where they earn commissions but do not
take the insurance risk (They do take the risk on their life/group benefits
insurance arm). They are at risk for credit losses on the loans they have made
on recreational vehicles but with the strong western economy they may continue
to experience few loan losses. Overall I see no reason for the sharp decline in
price except in sympathy to other financial shares going down. This company
appears to be a bargain. I added 1000 shares to my position at $2.75 today based
on a bid I had placed a few days ago that was at that time 15% below the market

Possibly some of the big U.S. shares that have been hard hit are bargains. Bank
of America could be a strong investment. YAHOO shows it at just under book
value. YAHOO shows a trailing P/E of 16 and a forward P/E of 9. (It seems
impressive that it has not lost money in the past 12 months…)

Washington Mutual could be a bargain as it may be taken over. YAHOO shows this
to be selling at just 15% of book value, so this is a highly speculative bet but
could jump substantially if it is taken over.

AIG looks to be going to close to zero as part of a “rescue” plan.



Sept. 15, 2008

U.S. markets dropped by almost 5% today on the bankruptcy of Lehman Brothers,
the problems at AIG and on Bank of Americas all-stock takeover of Merrill Lynch.
Another major development on the weekend was that 10 banks would put in $7
billion each into some kind of a rescue fund. Also the Fed would fore the first
time accept equity as collateral to give loans to banks. The Fed also “injected
liquidity” by “creating” new bank reserves in the amount of $70 billion. It is
no wonder that world markets reacted to these desperate measures by to some
extent concluding that desperate times must be upon us. For all of this a near
5% drop in the U.S. markets is a smaller reaction than might have been the case
– but it may not be over yet.

In Canada the market dropped by 5% partly in sympathy to the U.S. markets but in
part driven by sharply lower oil prices. Oil is down another 3% as of this even
at 11 pm eastern and therefore Toronto is highly likely to be down again

Far East markets are down sharply (in Tuesday trading) but that is mostly just a
catch-up (catch-down?) since the far east markets were closed Monday for a

It is obviously a very volatile time in the markets. With big U.S. financial
institutions seemingly falling like dominoes we certainly cannot rule out
further pain.

BCE was down 4.4% to $37.85 today on fears that the deal to be bought out on Dec
11 at $42.75 will fail to materialize. On the one hand a 13% gain in three
months (if the deal goes through) is quite appealing. On the other hand an
investor risks an unknown loss that could easily be 25% if the deal fails.

Over the weekend I placed a number of orders to add about $3000 to many of my
positions if the stock price falls 10 to15%. The only one that fell far enough
today was Thomson Reuters and I picked up 100 shares. Frankly I would have
rathered if some of my sell orders got triggered. It does not feel like a great
time to be buying. Still, I figure a somewhat automated process of buying on
dips and selling on rebounds is a good strategy.

Well tomorrow is sure to bring more news – hopefully it will be good news.

Sept 12, 2008

Warren Buffett must be in a happy place these days. For quite a few years his
Berkshire Hathaway has piled up billions in cash and has found few companies to
buy. Now bargains may be emerging. Buffett is in a position to buy Washington
Mutual if he wants to and to do so without checking with anyone. He is the only
person on the planet who has the cash to buy any of these large financial
institutions that are in trouble and who also has the ability to analyze the
business and the authority to make a deal on the spot if he wishes to.

I would not expect him to touch the likes of Lehman Brothers because it is
probably impossible to value. Something like Washington Mutual should be a lot
easier to evaluate. In the end Buffett may not touch any of these. For one thing
he usually insists on competent management being in place and that is not the
case at Lehman’s and probably not at Washington Mutual either.

Another possible candidate and a natural for Buffett would be AIG Insurance
Group if he likes it. I’ll be watching with interest to see if he makes any

Even if he does not touch any of these, I am certain he is out bargain hunting
and he will come up with some interesting buys before too long.

Watts Water Technologies is
updated as rated (lower) Buy at $31.74 (It closed today at $29.18, we analyzed
it at $31.74 and there was a delay in finalizing the analysis and posting the
report here). We added this stock to the Site because we wanted something in the
water infrastructure area. This one is actually in water hardware rather than
the infrastructure (it’s not about water treatments plants or municipal water
pipes). It has held up reasonable well in the building recession. At this time
we would prefer to wait for an earnings recovery before buying. (It’s rated
(lower) Buy but we would focus on higher-rated stocks.)

FedEx is updated and rated Weak Buy /
Hold at $88.03 (it was at $90.84 as we posted it – our analysis was done at
$88.03). This is a great company but recently earnings were weaker. We’ll keep
an eye on and would be more interested at under $80 or if earnings improve. A
deeper recession would hurt earnings but lower oil prices will help earnings.

Target is updated and rated Buy at
$56.57. This stock is up 13% since the start of this year. Its sales have been
hurt somewhat by the recession but an expanded number of stores and share
buy-backs has kept earnings per share from falling. It should continue to do
well in future. At this time our strategy would be to take a small initial
position or perhaps to wait for a pull-back.

Wal-Mart is updated and remains
rated (higher) Buy at $62.17. This stock is up 31% since the start of this year
when our rating was (higher) Buy at $47.53. On top of that Canadian investors
have benefited as the Canadian dollar fell this year. So far it has been very
much recession resistant. It’s a good long-term bet. In the short-term it will
not be immune to dropping if the overall market sinks and if the recession takes
hold. Our strategy would be to take an initial position at this price and then
hope to add to it on pull-backs. Regrettably. I have not bought it personally.
I’m not buying at this time because i am more interested in raising cash.

I am increasing tempted to buy some silver for a number of reasons. It has
fallen substantially from recent highs. I have read that there are expected to
be shortages of Silver as (unlike Gold) it gets used up in industrial
applications. With the banking system in the U.S. under tremendous stress it may
rise as an alternative to the U.S. dollar.

The symbol I would use to buy Silver is SLV which is an Exchange Traded Fund
offered by ishares (Barclays Global Investors). I plan to make an initial small
purchase today and then monitor it.

Sept 11, 2008

Today was yet another very volatile day in the markets with stocks whip-sawed by
waves of fear and hope regarding the financial crisis in the U.S. Many
commentators feel that things will get worse. Given the uncertainty, most
investors will likely ride out the storm with whatever allocation to equities
that they have (most investors allocate some funds to cash or bonds as well) but
will also want to be positioned to take advantage of bargains.

IGM Financial is updated and
rated (higher) Buy at $45.50. This stock will likely do better than the overall
market, but if markets decline, that does automatically pull its earnings down
somewhat. The P/E at 14 and the dividend yield at 4.5% are attractive given the
recent and traditional ROE of about 20%. At the start oif this year we rated it
Strong Buy at close to $50 but we indicated it would suffer if the overall stock
market declined, and that is what has happened (overall stock market means the
typical stock on the TSX, the typical stock is down 15% to 20% this year while
the TSX index has fared better than that due to its very high weight in
resources and energy.

Sept. 9, 2008

Canadian markets fell sharply mostly due to a drop in the price of oil. U.S.
markets also fell based on lower oil and further fears from the financial
sector. With all the troubles in the U.S., the U.S. dollar has nevertheless
risen and the yield on the ten-year treasury is only 3.60%. It’s hard to imagine
why investors are willing to accept only 3.6% on a ten-year bond given all the
talk of U.S. deficits (fueled now by bail-outs) and the inflation that is

An OPEC move to cut some production may stem the drop in oil prices but on the
other hand it seems like oil now has momentum to the down-side. If I had the
cash I would be tempted to average (quite slowly) into Canadian Oil Sands Trust
and/ or the energy ETF XEG.

Gold and Silver have confounded those that are certain that the U.S. dollar is
headed far lower. Gold and Silver have fallen in price.

It does seem clear that the recession and housing crisis in the U.S. could get
worse. (Given that the foreclosure rate on homes is already high and yet the
unemployment rate is still pretty low).

In this environment it seems wise to focus on strong companies, those with lower
debt and good profitability and which seem less threatened by recession. It
would seem wise also to be positioned to be able to invest if stock prices for
good companies continue to drop.

One of my own “automated” (i.e. one of a group of Sells I placed in August to
sell part positions on 10% gains)  sell orders was hit today which reduced
my position in Couche-Tard. In addition I decided to sell some of my Tim Hortons
today just to raise cash (I am still around 100% invested given one of my
accounts is margined).

Sept. 8, 2008

U.S. markets and Canadian Financials were up today on the Fannie/Freddie bail
out of debt holders. The nationalization has already led to lower mortgage rates
in the U.S. and this will provide some support for housing prices. But housing
prices could keep declining due to foreclosures.

The U.S dollar unexpectedly rose on this news. This is not likely to last.
Arguments that this action will weaken the U.S. dollar make sense to me.
Currency markets are extremely unpredictable. I would never suggest that any
amateur get into trading currency. But retail investors can hedge. For example
when the Canadian dollar rose over U.S. 90 cents, and especially over $1.00 it
made a lot of sense for Canadians to put some money (more or less permanently)
into U.S. dollars and investments. This is because most Canadians especially
those who are rich enough to have investments will eventually need U.S. dollars
for their travels to the U.S. and purchases of U.S. goods. When the Canadian
dollar rose to 30-year highs it was definitely time to start buying, even though
it ultimately went higher.

At this time American
investors might be wise to allocate a portion of their investments to the Euro.
Americans don’t need to diversify currency as much as do other citizens of this
World. That is because most Americans travel little or none outside of the U.S.
and their economy produces most of its goods in the U.S. Proportionately they
are actually not big importers (though they import a higher percentage than they
used to). Most countries proportionality import and export a lot more than does
the U.S. as a percentage of GDP.

Canadian markets fell on lower oil and commodity prices.

As  planned I did buy some more Dalsa today.

BCE seems like a good buy at $40. If the deal goes through as expected. you get
$42.75 about three months from now, a 6.9% gain or almost 27% annualized. But
there is always some risk the deal fails or is delayed. Perhaps the reason BCE
is not higher is it takes a lot of money to make this bet. Retail investors are
not perhaps interested in putting in say $5000 and making say $345. Sure that is
27% annualized but it’s still only $345. If you put in $100,000 you make $6900,
which is a lot more interesting. But who has $100,000 laying around? and who
wants to risk that kind of money on the deal not happening? And who would risk
borrowing money to do it? Retail investors may turn to other investments where
there is at least a chance of a 20% gain or a lot more (a lottery ticket
component). Even (reasonably) sure bets that make $345 on $5000 in three months
are just not that interesting. But if you do have the money and can accept the
risk, BCE looks like a reasonable bet. I have about 9% of my portfolio in BCE.
I’m tempted to add to it but 9% is probably more than enough….

Sept 7, 2008

Check our Quick Analysis page for brief comments
on some companies other than those in the table above.

Tomorrow (Monday) markets will react to the U.S. government’s takeover of Fannie
Mae and Freddie Mac.

I suspect there will be some positive reaction since the move was expected and
it removed uncertainty. These companies owe staggering amounts of money.
Financial companies that are owed this money can now rest easy that they will
get their money back. This could push up the value of certain financial

Possibly, the U.S. dollar will decline on this news since it effectively adds to
the government debt.

Fannie and Freddie shares have been predicted to fall because the government has
the option to buy about 80% of the companies for $1.00 per share. I understand
that the dividends have been canceled on the common shares and on the existing
preferred shares. It seems to me that the preferred share dividends would be
restored at some point and so these shares may retain considerable value.

When it comes to energy stocks it seems to be anyone’s guess as to where oil
prices will head next. There is a lot of talk about $80 oil. If I had the cash I
would consider averaging into energy companies by buying the Canadian Energy
Exchange Traded Fund, XEG on Toronto.

I don’t follow Gold or Silver but I did read some articles that suggest that
Silver would be a good investment now (and also to a lesser extent Gold). Unlike
Gold, Silver is used in certain industrial applications and therefore gets used

Sept 6, 2008

Dalsa is updated and rated (higher) Buy
at $8.05. As mentioned under Sept. 3, this stock suddenly dropped about 24% last
Wednesday although it recovered somewhat at the end of the week. The company
issued a press release indicating there were no developments to explain the
drop. The company is trying to find a strategic partner for its early stage
money-losing digital cinema division. I see that as a positive. It is always
possible that the sellers of these shares are aware of some pending bad news
such as a restructuring charge, but I’m not convinced of that. I certainly
cannot claim any expertise in digital cinema but their story that movies will
move from film to digital certainly rings true.

Dalsa had really struggled in 2007 with the high Canadian dollar and with about
zero profit I had reluctantly given up on them. But now they have posted three
quarters of reasonable profit despite the high dollar. If this current quarter
is profitable as expected then this looks like a clear bargain. Also the
Canadian dollar is now substantially below year-ago levels which helps them.

I am tempted to say that Dalsa looks like a no-brainer, it seems relatively sure
to rise from the $8 level. Our rating is (higher) Buy. There are no guarantees
but I suspect that rating is conservative. I added to my position in this stock
on Thursday and I will likely add again on Monday.

Recently I picked up a copy of Buffett  – The Making of an American
. It covered Buffet from birth through to 1995 and had just a brief
afterword in the new edition dated 2008. Buffett’s investment habits were well
established by 1980 (let alone 1995) and nothing has changed since. I have read
a number of other Buffett books but this one definitely filled in lots of detail
for me. You can buy a copy here., or at most book

Our performance figures for 2008 are updated. It’s been quite a bad year for
U.S. markets and also world markets. Until recently the Canadian market was in
positive territory due to its heavy energy and commodity weightings. Now even
the TSX is down 7.3%.

Wal-Mart has surprised many by being a star performer this year up 28% and for
Canadians up about 36% when the currency move is accounted for. Investors who
look at charts had written off Wal-Mart due to seven years of a pretty flat
stock price. We saw that earnings per
share had grown very steadily from about $1.00 per share in 1999 to close to
$3.00 near the end of 2007 and we saw that this acknowledged world leader in
retailing was trading at a pretty ordinary P/E ratio. Now, despite the recession
it has done very well in 2008. The point is, fundamental analysis works well,
though not always immediately.

Sept 5, 2008

We have updated a few companies under the quick
analysis link above.

A property insurance company that looks like a bargain is Fairfax Financial,
parent of Northbridge Financial. This is a complex company with most of its
operations in the U.S. although headquartered in Canada. It’s earnings tend to
be extremely volatile.

It’s attractive because it now trades at about 85% of book value (although TD
reported this as 90% as of yesterday). It has a reputation of being a better
than average investment manager and of being cautious. At times its CEO has been
compared to Buffett, he probably is a Buffett disciple but he has made some
mistakes… It has taken short positions on the S&P 500 to hedge its stock
investments. Also it has made a large amount of money by betting that the credit
crisis will continue (it did this by buying credit default swaps which rise in
value as the credit ratings of corporations drop). It is unpredictable but it is
also a good bet given that it is available at a 10 to 15% discount to book
value. While we can “never say never” it seems unlikely that there is much
down-side risk in the share price at this time, especially if held for a couple
of years. It is down significantly from its highs. Is it a no-brainer
investment? I’m not sure I would go that far since it is so complex, but it does
appear to be a good investment. I own shares and am comfortable holding it.

Northbridge Financial (Canadian commercial
property and liability insurance company) is updated and rated (higher) Buy at
$27.10. I chose to update this company at this time because I am looking for
bargains. The share price has fallen significantly since June.

This is a tough industry to judge. (The industry is by nature subject to more
unusual gains and losses than Oprah Winfrey’s weight over the years!) It has certainly not been a growth area in
the past few years. And profits in the industry have been declining and may
continue to do so. Still, when I consider the fact that the richest investor in
the world (Buffett) made much of his money in this industry, it is worth taking
a look. Northbridge like a number of other insurance companies is now available
at (slightly) less than book value. This is intriguing. We have a profitable
well managed business and we can buy in at less than book value.

While its profits could decline it seems likely to offer returns on book in the
10% to 15% (Management targets 15% although a return closer to 5% is also
possible) range over the next five years. That 10 to 15% on book is attractive
considering you can buy at just under book value. There is also the possibility
of a take-over. Northbridge is generally thought to have a better than average
investment management process and that makes it just a little bit like the
Buffett situation.

Overall as I look for bargains this is not a screaming bargain but it appears to
be somewhere in the bargain range. I’m comfortable holding my existing
allocation to this company. If I did not own it I would definitely be interested
in averaging in at this price.

Further to my earlier note today I should add that if anyone has money in stocks
and is not prepared for the risk of a decline then by all means pull some of
that money out, sell now if you simply are unprepared to accept further losses.
My usual assumption would be that anyone having money in stocks is prepared to
accept volatility. Also at the end of the day each of us is responsible for our
own trades. No one knows for sure where markets or any individual stock is
headed. While I choose to ride-out this decline, not everyone is comfortable
with that approach.

Sept 5, 2008
(10:35 eastern time)

As markets have fallen this week and again today, the question arises as what to
do. Trend investors and those that invest based on charts and market sentiments
will talk of stop losses and would likely advise selling. It has never been my
approach to sell into weakness (I just don’t think Buy high, Sell Low works in
the long run). Those with money in stocks presumably were well aware that stocks
often fall although they rise over the long haul. The time to think about
selling (for example reducing overall equity exposure across the board) was on any of the many rallies we have had since the whole sub-prime
situation began about 18 months ago. At this time my thoughts turn increasingly
to looking for bargains. Also I will be looking for bargains that are
fundamentally good companies that I will be comfortable holding even if the
stock price drops further.

Our stock picks have fallen this week but (and admittedly this may be cold
comfort) the overall markets and particularly the TSX has fallen much harder
than our stock picks this week..

Sept 3, 2008

Dalsa suddenly dropped about 24% today
on ten times the normal volume. No company has not released any news that would
explain this. Possibly this is the result of a large holder wanting to sell out
in a hurry for some reason. Checking insider sales reports there are no insider
sales recently that would explain this (no insider sales at all since a few
small sales in June at prices around 14. In August the company itself bought
back 309,000 shares at prices from $9.42 to $10.50. At a cost of about $3
million that is a substantial amount of buy-back for this company with equity of
about $190 million and about 19 million shares outstanding. Perhaps the share
price would have collapsed in August if not for this buy-back and it does look
like there is selling pressure for some reason.

This is a company with little debt and positive cash flow. It has over 20 Ph.D’s
on staff. I believe this management is competent and trustworthy. It has some
proprietary products and it has a valuable “portfolio” of intellectual property
due to its R&D focus and this research has largely been expensed is not shown on
the balance sheet. It is selling around 70% of its book value which is around
$10 per share. It is losing money on digital cinema but it indicates it expects
to make money on the division in future. If so, these losses are more like an
investment than true losses and they are artificially dragging profit down. A
down-side to Dalsa is that the business is complex. I can’t claim to have any
real understanding of the market for semi-conductors or its artificial vision
and camera products.

It did have some loss quarters in 2007 and at that time I thought the high
Canadian dollar might be choking it almost to death. But it then reported
profits the last three quarters. Subsequent to our last update it reported good
earnings and cash flow on July 31 (as mentioned under August 31 below). The
dollar has now dropped and is this is positive for Dalsa.

Overall Dalsa looks like a clear bargain. I do call it speculative due to the
small size and the complex technology involved.

There are always reasons to be fearful, and maybe the market is correct that it
is only worth around $7 and/or some bad news is coming. However, if one believes
that markets are always correct then there is no point looking at fundamental
analysis. Buffett (the world’s most successful investor) teaches that the market
often mis-prices things and offers up both bargains and vastly over-priced

I will likely add to my position in this stock tomorrow.

Speaking of the lower dollar, now down around 94 cents after spending a year
above 98 cents and with a a total of at least two months over par. It’s time now
to look at which companies will benefit from a lower dollar. Basically any
company that earnings revenue outside of Canada will benefit. That would include
all the companies above that trade on New York (they trade their because they
are U.S. companies or have an operating presence in the U.S. Also Couche-Tard
Companies with expenses in Canada and revenues from outside Canada will see the
biggest benefit. (Dalsa is one and to some degree Tim Hortons). If the dollar
drops further there could be some large benefits to these companies.

Sept 2, 2008

An ugly day for energy stocks. Our stocks did reasonably well today. Couche-Tard
was out with reasonably good earnings (lower than last year but better than
expected by analysts). Shaw was up. In my own account, as mentioned below, I
placed orders to sell a portion of anything that rose about 10% just to raise
cash. Today that resulted in a sale of 200 shares of Shaw (I still hold 1100

Canadian Western Bank fell with the energy stocks. I would be interested in
adding at this price. They will release earnings on Thursday. They likely are
growing slower now, but I still expect a reasonably good earnings report.

August 28, 2008

Some good gains today. As mentioned last week, I placed orders to sell a portion
of each of my stocks held in non-taxable accounts if the price rose 10% (20% for
Wi-Lan, a penny stock). These trades were meant to raise cash and take advantage
of market volatility. Several of these trades hit today and I found that I sold
some Telus, IGM and Aeroplan. I like all of these companies but I simply wanted
to raise cash and do so in a systematic way that eliminated emotion.

Something called Zoom Airlines went broke today. When will people learn? They
were competing against West Jet which is apparently a low-cost outfit and Air
Canada. The ONLY way to compete was with lower prices and it certainly seems
that Zoom did not have the lower costs that would be needed. In their business
they could expect very little customer loyalty. These customers shop for the
lowest price. It seems you have to lose money to attract customers. A clear
recipe for losses.

Porter Airlines has made a go of it by having a niche, especially the Toronto
Island Airport. These Zoom fools went head-to head with Air Canada and West Jet,
it makes no sense.

For stock investors the lesson is to remember to invest in companies that have a
history of making money and where there is reason for us to expect the company
to continue to make good returns. Investing in inferior businesses is a risky
game where you have to hope for a turn-around. It’s easier to make money in the
long-term from superior businesses with some competitive advantage (but you must
avoid paying too much even for a superior business).

The Us. economy reportedly grew 3.4% (after deducting inflation) in Q2. I
usually tend to believe government figures like that. It’s hard to believe that,
as some people argue,  the U.S. government is really manipulating such
figures. Perhaps inflation figures are under-stated. If so, it’s more likely
because inflation is hard to measure than due to manipulation. I

But 3.4% real growth for the U.S. economy really sounds wrong. It’s very hard to
believe that the house price declines and the foreclosures have not hurt growth.
f inflation is understated that could explain why the GDP seems over-stated. GDP
= nominal GDP less inflation.Meanwhile we do know that profits are down in the
U.S. and markets can only recover when people expect profits to recover.

August 26, 2008

I’m just back from a month of travels and hope to be more active with updates.

Markets continue to gyrate based on oil prices and based on the the latest
positive or negative development in the financial sector.

Kingsway was up modestly today on news that they will sell a small division
(representing about 5% of their total business). In some ways this is negative
and reflects their need to raise cash and the weak outlook for growth. They are
paying off some debt (and may not have had much choice in the matter as their
bankers are not keen to lend to them). On a positive note they are selling for
twice book value. Kingsway trades for only about 60% of book value so it is
encouraging that someone is willing to pay twice book value for this part of
Kingsway. Also Kingsway and will net a gain around $50 million pre-tax
(about 75 cents per share after-tax) which adds to book value. The market is
also likely pleased to at least see some action by management.

August 22, 2008
(8:30 am eastern)

The latest edition of our free newsletter
has been emailed out.

After strong gains in the three weeks or so prior to August 12, most sectors
have been down since about August 12. Oil was trending down and then jumped
sharply. As always markets remain unpredictable. The banking and housing sectors
in the U.S. continue to deteriorate and this will make it hard for most sectors
to improve (although the market was set to open higher today). I’m interested in
picking up some bargains but the moment I will wait and see where the market
goes and I am hoping that the orders I mentioned under August 20 will generate some
cash for bargain hunting.

August 20, 2008

In reviewing my own portfolio, I note that my
cash position is minus 9%.(minus due to the recent use of some margin)  I
would prefer it to be at least positive 10%. However, it is difficult to raise
cash given that I like the stocks that I hold.

I have mentioned a number of times that it may make sense to always have orders
in to buy additional shares on dips and sell some on rallies. Today I decided to
enter orders to sell a small portion of every stock I own (with the exemption of
those not held in RRSP / RESP accounts, since I don’t want to trigger capital
gains). In almost all cases I entered orders to sell about $3000 to $4000 of
each stock I own if it rises 10% from current levels. For a penny stock like
Wi-Lan I used a 20% rally.  Hopefully this will result in some sales over
the next 30 days to raise my cash position.

I found that by mechanically entering orders to sell a potion of all stocks on
10% rallies I can overcome my usual reluctance to sell at  a loss. These
sales on 10% rallies are not based on wanting to sell any particular stock. They
are strictly based on a desire to raise cash and also a thought that by selling
on rallies and buying on dips I can take advantage of market volatility.

If I can get my cash position to 10% or 20% I would then plan each month to
enter orders to sell a portion on 10% rallies and buy on about 10% dips. This
would be in RRSP / RESP accounts only where capital gains taxes are not



August 19, 2008

Staples has warned early this morning that second quarter earnings are weaker
than expected.

I have updated my personal portfolio composition.
I have four portfolios (2 RRSP, 1 RESP and a direct trading account). I like to
track all four as 1 combined portfolio in order to keep track of my total
investment in each company.

Oil prices continue to decline. I view oil prices as very unpredictable. With
energy companies the financial statements are less useful in valuation. I have
had essentially no exposure to energy stocks over the years. However, I do not
disagree with a few that one should have some exposure and we have included an
exposure in the model portfolio. I am tempted at the recent oil prices to begin
to average into oil and energy through
Canadian Oil Sands Trust
or perhaps Encana and/or Suncor.

August 18, 2008

Staples is added above rated (lower)
Buy at $24.37 (it is $24.55 as we post this). It is a solid retailer and
probably a good long-term investment. we would not be in a rush to buy given the
current U.S. recession and general slow-down. Our strategy (if we wanted to Buy)
would be to post an initial Buy order at say $22 and see if it dips that low.

I picked up some additional Dalsa at $9.02 today. A good strategy for stocks you
hold is to enter bids to buy below the market. You can pick up bargains just on
volatility that way (the danger though is that you pick up stocks that fall on
bad news)

August 18, 2008 (9:00 am eastern)

Western Financial released earnings early last week and had a good quarter. The
stock has risen from lows around $3.00 to $3.78. Revenue tends to grow much
faster than the earnings per share due to an increase in the number of shares.
This company is risky in that it is small and is exposed to a possible increase
in loan losses, but overall appears to be a good long-term investment.

August 13, 2008
(10:00 am)

I decided to reduce positions to raise cash. This takes advantage of the recent
increases and provides some protection if markets fall. Also it gives me cash
for new purchases. I sold some Starbucks, some Tim Hortons, some Shaw and my

August 13, 2008 (9:30 am)

After strong performance in the past couple of weeks, markets appear set to fall
based on lower retail sales and more banking losses in the U.S.

August 11, 2008

Quest capital reported
strong earnings late last week. This is a smaller, volatile and somewhat risky
company but it does have the potential to double in the next few years. I bought
some quest and sold a small amount of Tim Hortons.

The Canadian dollar fell substantially in the past few weeks. This led to higher
returns for Canadians holding U.S. stocks.

With this recent market recovery, I will look for opportunities to rasie cash
since my allocatin to equities in about 100%.

August 7, 2008

Tim Hortons reported strong earnings growth today. It’s a high quality company.
The shares have been volatile. I would buy at this price but would be prepared
to buy more if the price fell.

Kingsway reported today. As expected the earnings were not good. But they were
at least positive and not as bad as recent quarters. At this low price it seems
to offer good value. But fundamentally it is a poor quality company.

Canadian Tire saw lower earnings. It’s price has dropped a lot. It could go
lower but I am inclined to buy rather than sell at this price.

August 6, 2008

Canadian Oil Sands Trust
is updated and rated (lower) Buy  at $48.66 (it closed today at $49.53).
This company has done better than most oil companies recently. A reasonable
strategy would be to average in.

Today’s news that Freddie Mac had bigger-than-expected losses and will raise
capital is not a surprise. But it could be a catalyst for the market, especially
finnacials to go lower.

August 5, 2008

CN, Canadian National Rail is updated and
rated Weak Buy / Hold at $56.18.  I like the company and believe it has a
strong competitive position. However with the recent price increase and a weak
outlook for the near-term, I prefer to not buy at this time but would be
interested in buying below $50.

I added to my positions in Telus and New York Stock Exchange (NYX) today, in
both cases this was based on the opportunity to buy at lower prices. Telus does
face competition but I expect its Q2 report to be reasonably good.

August 4, 2008

eBay is updated and rated Speculative Buy at
$24.94 (it closed today at $24.58). The stock has not done well recently
although earnings have been good. This may be a good opportunity to average into
this company at a good price.

Microsoft is updated and is rated Buy at
$26.11. (It closed today at $25.28). I have not owned it personally but I would
definitely consider averaging in at this price.

Telus has not yet reported its Q2. The stock is down about 25% this year to
$36.09 for the non-voting shares. It does face increased competition from cable
TV companies (notably Shaw Communications). Also the wireless (cell phone)
industry expects stronger competition from the new licenses recently sold by the
government. Still, the fact that those licenses were so highly valued suggests
that Telus has strong value in its licenses. Last year Q2 was comparatively weak
and therefore Telus should be able to report a relatively strong gain this year.
I am considering adding to my position in this stock based on the lower stock



August 1, 2008

Stantec reported better-than-expected earnings but the stock fell today. It has
done well despite the building slow-down in the U.S. This stock should do well
although it can be volatile.

Dalsa reported earnings yesterday after the close. The earnings are strong. In
the first hour of trading today the stock has not moved up and is at $10.10. I
have added to my position in this stock. It could go higher if its digital
cinema cameras start to get more use in Hollywood or if they sell that division
or sign a strategic partnership to develop the business, which they are now
attempting to do.

Northbridge announced a loss for the quarter. They had impairment write-downs on
investments. Other insurance companies like Kingsway and ING Canada may also
have investment write-downs. Northbridge made a small profit on its actual
insurance. I believe Northbridge should do reasonably well in future as it
appears to be well managed.

NYX Euronext reported earnings that were up 21% but apparently failed to meet
expectations. I have not analyzed the company but on the face of it I like the
exchange business . The stock has fallen to $41 from highs of over $100. At this
price I believe it is a good investment. The P/E based on trailing earrings is
13.6 and based on forward earnings estimates is 10.3, which seems quite low for
this company. I am buying shares today at about $41.40



July 29, 2008 (9
a.m. eastern)

I’ll be less active with comments at time over the next few weeks as I am

FirstService reported today. It looks pretty good to me. GAAP earnings down but
adjusted earnings are up. Given that the stock is down a huge  amount in
the past year, these earnings look good. In the early 2000’s this stock dropped
precipitously when earnings flattened but then it recovered to new highs. Given
their exposure to real estate services the recovery could be slow but I suspect
it will recover because it is very well managed, is in cash generating
businesses and is still profitable despite the decline in real estate markets.

Starbucks is closing two thirds (61) of its stores in Australia. Hard to say if
the market will view this as good (management taking action) or bad. It seems
clear that their GAAP earnings this quarter will be ugly with all the
restructuring charges. I am not rushing to add to my position in Starbucks.

July 23, 2008

Star Bucks was up again today. It seems relatively certain that its Q2 report
will not be good as will include restructuring charges for closing 600 outlets.
And if the economy caused it problems in Q1, this will have become worse in Q2.
I would think the stock would likely dip when the Q2 is reported shortly. It may
be rising now along with the market or it may be rising due to the new smoothies
that it introduced.

Western Financial looks like a definite bargain at recent prices. I do worry
that it will have some bad loans. Also its funding costs on its banking
operation will have risen and that hurts profits. But the main brokerage
business should still be doing well. And it continues to grow. It is very small
and that does add to the risk.

If would be nice if it was easy to buy at bottoms and sell when stocks are
higher. Instead, when stocks take a dive our gut reaction is something along the
lines of “drat, why didn’t I sell when it was much higher?” at the bottom when
the market has handed us losses it’s hard to get excited about buying. Similarly
when the market is reaching new highs, we feel fat and happy, and we don’t feel
like selling. The market actually is usually less risky after a significant fall
but it feels more risky. Similarly after a big move up the market is more risky
but feels less risky. Most people agree, timing the market is near impossible.
But at least we can try to avoid selling after big drops when we probably should
be buying and vice versa.

Our analysis tries to take the emotion out of things. Absent emotion it is
easier to buy low and sell high. Of course the state of the market always has
some effect on how pessimistic or optimistic we are and that no-doubt creeps
into the process of doing the analysis and setting a rating. We give you all the
ratios and data that we used, that way you can see if our rating makes sense to
you based on the data and other information on the company.

July 22, 2008

An interesting day. Wachovia posted an $8.9 billion loss. By any standard that
is a huge loss. The stock initially dropped but amazingly was up 27% on the day
and was up a stunning 44% from its low of the day. For most of us the first
reaction on a loss like that would not be to buy, but that was the correct move
today it seems.

This recovery in Wachovia is most encouraging because it shows that the market
is less panicky about banking losses. Wachovia it seems is in good shape despite
the loss. It was downgraded by S&P today but still has a credit rating in the A
range. It was smart enough to have raised equity back in April before its stock
price got whacked down too far.

While this was encouraging, Washington Mutual Bank came out with a
bigger-than-expected loss after the close today. Perhaps what we will see is
that the market will get a little more discriminating. We may see the weakest
banks continue to fall but perhaps the stronger banks will no longer keep
dropping along with the weak ones.

The market overall was up today in the U.S. I may sell some of my star bucks on
this rebound. I think it has excellent potential long-term. But with all of its
troubles of late I don’t want a heavy investment in Starbucks.

July 21, 2008

The $7.8 billion takeover proposal for TransAlta is a positive sign. It shows
that there is private equity money available and that this money believes that
some stocks are under-valued and is therefore willing to buy companies at a
premium to the share price.

CN came out (after the close today) with reasonably good earnings, down from
last year but apparently better-than-expected. This would seem to be a good
stock to accumulate on weakness.

July 20, 2008

Walgreen is updated and rate Buy at $33.23
(this was the price for our analysis, it closed Friday at $34.18). This company
has an exceptional record of growing both revenues and earnings per share at
close to 15% annually. Growth in the first nine months of this fiscal year is
lower at 4.2%. Accordingly the share price has declined. The company is still
adding to the store count at a remarkable 10% per year and recently had 6,700
stores. The share price appears to be pricing in growth closer to only 7%, which
leaves room for the share price to grow if earnings growth is closer to
historical levels. The company has very low debt levels and this reduces its
risk. I own shares in this and will consider adding to my position. There is
some risk that recession conditions will hamper growth and that the share price
will continue to drift lower.

Reitmans is updated and rated (lower) Buy at
$14.52 (this was the price for our analysis, it closed Friday at $15.03). Based
on the ratios we could have rated it higher. However we placed emphasis on the
fact that the same store sales trend has been falling. In particular there was a
12% same-store sales drop in May, the first month of the current quarter and
this is a definite concern. Reitmans is however a very strong company with no
net debt. It appears to have an excess of cash of about $2.00 per share and
therefore the dividend is very safe and there is the possibility for a special
dividend or it could use the funds for an acquisition. Reitman’s might also be
attractive to a private equity buyer since the excess cash and borrowing
capacity could be used to finance the purchase. It appears that Reitman’s had
carved out a very profitable niche (recent profits on sales at 10.2% are high
for retail) however its not clear if recent same-store sales declines reflect a
weaker economy (temporary) or more intense competition (possibly permanent). I
would be comfortable with a smaller position in the stock at this time as it
does appear cheap but I would be hesitant to take a large position due to risk of further

Canadian Western Bank is updated and
rated Buy at $24.12. This is a conservative well managed bank. The share price
has fallen recently along with the entire financial sector due to the problems
with U.S. banks. A reasonable strategy would be to average in since it could
fall further if there is more bad news about the U.S. banks.

July 19, 2008

Alimentation Couche-Tarde is updated and rated a (higher) Buy at $10.34. Q4
profits came in lower-than-expected due to low margins on gasoline sales. In
part this is due to the fact that in the U.S. gasoline price rises tend to lag
the increases in crude prices. The recession conditions were also a problem. The
current quarter seems likely to suffer the same problems, but in the longer run
the company has a proven growth strategy and earnings growth should resume.

July 17, 2008

Markets were strong today on better-than-expected earnings from Wells Fargo and
on lower oil prices. Lots of U.S. earnings are being released now and the market
may tend to lurch one way or the other on the results. After the close today
there were some good U.S. earnings reports n but also some disappointing ones.

I was looking at some figures on U.S. mortage delinquencies and write-offs.
These figures were from the Federal Reserve at


The following figures are for the 100 largest banks.

Residential mortgage delinquencies (30 days or more past due) as at Q1 were at
3.91% of mortgages versus 2.09 % one year ago. In the early 90’s these peaked at
3.27%. So are already high at 3.91% and the Q2 numbers could be significantly
higher. In better news though Commercial delinquencies were 3.41% in Q1 way up
from 1.33% one year ago but significantly lower than the peak of 17% in 1991.
Looking at total residential and commercial mortgages the delinquencies in Q1
were  at 3.67% far higher than the 1.84% on one year ago but hugely better
than the peak of 9.91% in 1991. There was a minor banking crisis in 1991 (this
was after the savings and loan crisis of the 80’s) but it was not a huge crisis.

It is interesting that the current banking crisis is considered so much worse
than the early 90’s or even the savings and loan crisis and yet so far the total
mortgage delinquencies reported by the federal reserve are at less than 4%
versus over 9% in 1991.

Several factors may affect this. First the dropping home prices at that time ndn
the fact that house prices had sky-rocketed since about 1999 means there is more
chance of lots of hownowners owing more than their house is worth.

Second it seems clear the lending standards were much worse this time and that
many people bought homes that they simply cannot afford.

Third, the crisis this time is driven not directly by the delinquencies but in
banks forced to mark-to-market their loan portfolios. Mortgages now don’t stay
on the banks books but instead are sold to other entities like Fannie Mae and
Freddie Mac and certain big investors. This has led to a concentration of the
risk and also accounting rules are causing the loans to be marked down in value
to a greater extent than indicated by the delinquencies, simply based on the
fact that the market value of mortgage receivables is down on the fear of much
higher delinquencies.

Fourth, at this time, unlike 1991, the delinquencies on commercial mortgages are
not out of control. If the U.S. ends up in recession then this could get worse.

Offsetting all of this is the fact that unemployment is low. If we were to get
high unemployment in the U.S. then this crisis would get much worse.

Right now bank shares have dropped mostly on
that mortgages will not
be repaid (which causes the market value of mortgages receivables to drop). The
delinquency figures for Q2 will be reported around August 21. This is a key
figure to watch. Ultimately the
losses on mortgages will not be determined by accountant’s estimates
and the mark-to-market of mortgages receivables but by the actual extent to
which people actually default on their mortgages and the extent to which the
bank is able to recover the loan by selling the house.

July 16, 2008

A good day in the markets. But certainly some stocks continue to suffer.
Couche-Tard came out with disappointing earnings but expressed a lot of
confidence about the future. I will update the report for Couche-Tard within a
couple days. I suspect it will look like a bargain but with the recession and
the adjustment to high gas prices it certainly may be a while before it turns

Predictions on the overall markets range from those looking for a rebound
shortly to those who think that stocks have a lot lower to go. Either scenario
seems possible. It looks like it is going to take courage (and the financial
ability to live with the risk) to stay in the market or to buy on the dips.

July 15, 2008

Our stock picks have performed poorly lately and that hurts. The S&P 500 is down
about 15% in about the last 8 weeks since May 19. Toronto is also down 11% in
the last month after having strongly outperformed the U.S. and every major index
in the world in the first half of 2008. You might ask why I (technically
InvestorsFriend Inc.)  did not see this coming. It’s easy to say in
hindsight that this was predictable given the recession, the high energy costs,
the sub-prime crisis etc. But keep in mind that at all times  the
collective, average  wisdom of the market is that the current level of the
market is where is should be. If it was totally predictable that the market
would fall in four weeks then it would instead fall immediately.

Of course it was known eight weeks ago and four weeks ago that the markets might
fall. It is always the case that markets might fall. And I have been cautious on
the markets for over a year now and stated so many times on this page. The
surprise was that markets stayed relatively high and partly recovered from dips
over the past 15 months and especially in 2008 until recently in spite of the
evolving recession and credit crisis and high energy costs. Many analysts stated
that the market was looking ahead and was in May rising on the view that the
recession would end and the economy would grow again.

A certain level of optimism kept markets high. Now it seems that fear is the
dominant emotion and markets have fallen. The reality is that markets do that
they fall as well as rise and anyone in stocks needs to have the stomach for it.

Warren Buffett teaches that down markets are times of opportunities. That we
should focus on the fact that we own profitable companies and that low prices
are a time to invest. Most of us have a very hard time being as confident and as
brave as Buffett but since he is among the greatest investors in history, it’s
probably a good idea to consider his advice. Buffett also has an incredible
ability to avoid selecting stocks that have any real chance of declining and
never recovering. Hopefully the vast majority of our stock picks are quality
companies that will recover.

I did a bit of trading today. I sold some of my Shaw Communications. I like the
company but I thought it might be vulnerable to a dip. I bought BCE, Western
Financial Group and as an insurance some double bear S&P 500 ETF.

In good news today Intel reported after the close strong earnings and a strong
outlook. This could help boost markets tomorrow.

Melcor, after the close announced it sold a
new building for a 60 cent per share gain. That gives a nice boost to their
profit. The market may or may not get very excited about this one-time gain. But
I believe Melcor at its recent prices is a sound investment with good up-side

The big fear in the U.S. is that entities like Fannie Mae and Freddie Mac could
lose billions as homeowners fail to pay their mortgage. I took a quick look at
the Fannie Q1 report. It was immediately apparent that this is a complex
company. I did notice that they indicated that they have relatively little in
the way of lower quality mortgages. Their average loan to value ratio was 62%
and only 20% of the mortgages were over 80% of the house value. And the vast
majority were fixed term mortgages. They had very little in the way of the
adjustable rate mortgages where the homeowner faces a steep increase in the
payment. This all looked pretty good. On the other hand as house values drop the
figures deteriorate. The big question is will enough Americans actually default
on their mortgages to cause a big problem for these and other lenders? That
remains to be seen. Some of the lower quality borrowers were defaults waiting to
happen (sub-prime, adjustable rates, no doc. type loans,). The vast majority of
mortgages will not default . The problem is though even if defaults are around
3% that starts to get very ugly for the lenders and the contagion spreads to
other banks and companies that had invested in mortgages.

It may be the the U.S. government can help out enough of the border-line cases
so that the banks are not hurt too badly.  This could be a catalyst for the
market to recover if the U.S. government announces relief that will help
homeowners and banks.

July 14, 2008

This morning markets were initially up noticeably on the “bail out” of Fannie
Mae and Freddie Mac. However that was short-lived and the U.S. market ended down
for the day. Financial stocks in the U.S. were particularly hard hit. This would
seem to indicate that there is a lot of fear in the market. There is significant
fear that the credit crunch will get worse and and a number of U.S. banks will
be forced out of business.

The fact that bank shareholders would lose their money is nothing compared to
the ripple effects. Deposits over (I heard today it was) $1 million in the U.S.
are not insured. This means that some rich people with over a $million in bank
deposits , and some corporations, will at best lose some interest and and have
their money tied up and at worse could lose a significant chunk or even all of
their money after the first million. The notion that money is no longer safe in
a bank deposit would put a chill on markets.

Many small and banks obtain deposits by selling GICs on the wholesale market
through brokers. The buyers probably include some people and companies who buy
in large quantities, in the millions. But who would buy a large amount of GICs
from a small bank if banks are starting to fail?

Meanwhile, banks are going to continue to tighten up on credit. This could be a
huge negative impact on the economy. Credit is the grease that makes the economy
go around faster. (Imagine, without credit most people can not buy a car until
they save up the money – and today’s average consumer in the U.S. has long
forgotten how to save).

The bottom line of all of this fear and credit crunch is we could see a slower
economy and we could see stocks continue to fall significantly.

At this point we might hope for some catalyst to turn things around. It might
require two things to send stocks higher. First would be that the second quarter
earnings reports now arriving turn out to be much better than expected. Secondly
we would need the cascade of fear that has been happening around banks to stop.
Perhaps if a good number of banks were to report better than expected earnings
and lower than expected defaults…

At some point these lower stock prices will represent an excellent investment
opportunity. It’s just not clear when. It could be today or it could be in 12
months or more.

My strategy has to been to buy selectively and slowly. (I bought some Dalsa
today). This strategy fits my personal tolerance for risk.

July 13, 2008

The U.S. government on Sunday announced plans to shore-up the problems in
Freddie Mac and Fannie Mae. We should see strong markets on Monday as a result.

Dalsa returns to the list above rated
Speculative Buy at $10. I had taken Dalsa off the list for 2008 because it
reported several very poor quarters and I was afraid that as a Canadian
Manufacturer it’s profitability might have been wiped out by the high Canadian
dollar. The share price fell below $9. However in early 2008 the company
reported a very strong Q4 and then this spring reported an excellent Q1. It
looked like they have overcome the high dollar and so the share price went up to
$16. Now with the recent market weakness the share fell to $13 and then in the
past week or so plummeted to $10.

I know of no company-specific news to justify that. There are never any
guarantees but given its return to profitability and given the potential in its
digital cinema division and given it is selling at book value, I believe it will
be a good investment. I plan to buy shares on Monday.

Many stocks are getting beaten down in these markets. Smaller companies with
thin trading can be especially vulnerable to steep declines. Smart investors who
pick up the right bargains are going to do well, I believe.

July 11, 2008

Today the market was “staggered” by the problems at Fannie Mae and Freddie Mac.
The market later partially recovered on rumors that the Fed would allow these
two government-related companies to borrow from the Fed. As noted yesterday,
these companies have little equity and massive leverage and so their stocks
could go to zero.

Some doom-sayers note that the companies have close to two trillion in debt
between them and have guaranteed several trillion more in debts. However, it
would not take anything like trillions to shore up the two companies. It is not
a crisis if the stock holders lose all their money. It is a crisis if the debt
holders, and guaranteed parties are threatened with losing money. It would be a
crisis because while shareholders have now $15 billion worth of stock left to
lose, the debt holders and guaranteed parties have up to $5 trillion on the
line. If these parties security to be repaid is in doubt it begins to cascade
through the financial system as many banks and other companies might have to
take write-offs based on the possibility of not being repaid. The total amount
that might be written off is probably many times what is actually at risk, given
that in the end only a tiny percentage of prime mortgages may default.

“All” that is needed is new debt or equity funding that is sufficient to insure
that their debt and guaranteed parties are safe. Since the two companies
apparently were involved with prime mortgages and not sub-prime, they should not
face massive defaults. To back-stop the companies requires either a simple
guarantee of their debt by the federal government or the injection of in the
order of perhaps $20 to at most $50 billion per company. A lot of money but not

The federal government may need to announce a plan for these two companies by
Monday morning or the market could be staggered again by the risk on Monday.

EGI Financial is removed from the list above since we are no longer following

July 10, 2008

Another “interesting” day in the markets.

With steep drops in the prices of Freddie Mac and Fannie Mae, the big federal
government chartered mortgage lenders in the U.S. I was surprised the U.S.
market managed to be up.

The good news today was Dow Chemical making a $15 billion acquisition at some
74% premium to the market price. That illustrates that there are some bargains
out there. Stocks that are trading at substantially less than their value to a
private equity purchaser.

I took a look at Fannie and Freddie. The results are shocking. As of March 31
Fannie had book common equity of $22 billion and assets of $843 billion. That is
a leverage of 38 times. If assets drop by just 2.6%, (due to a drop in value of
the mortgage receivables) the common equity book value reaches zero. Now maybe
the common equity is under-stated due to conservative mark-to-market accounting,
but the point is the balance sheet of March 31 showed this company was in a
precarious position. The market value of the common equity is only $13 billion.
If the common is wiped out that is not a huge loss, it has already lost much
more than that. But the effect on the market would no doubt be ugly as investors
worried what else could go broke.

The figures for Freddie are also bad with book value of common equity of about
zero ($1.9  billion against assets of $803 billion.) It has a market cap of
$6 billion which is frightfully low for such a huge entity.

Mortgage lenders by their nature tend to be often around 20 times leveraged. All
mortgage lenders are vulnerable to major housing price collapses and in the U.S.
that is what has happened.

No wonder investors are scared of all financial stocks at this time.

In Canada the TSX Group fell to about $32.70  today. This seems attractive
and I bought 100 shares today. If the stock is falling just due to being
considered a financial then it should recover. But if it is due to
company-specific issues then it could keep going down. We will know more when it
releases earnings around the end of this month.

I sold off my bear position on the U.S. market today. I had a
gain and just decided to move to cash on that part. But it is certainly quite
possible that the U.S. market has lots of down-side left.

The best gains will come after the U.S. market bottoms but I
don’t think anyone will know when that has happened except in hindsight after
the market climbs back up.

Kingsway continues its slide. It’s hard to know if the market is
aware of more bad news or this is just people bailing out. It also has somewhat
high leverage with assets around 5 times the common equity level. But, on the
face of it, unlike Freddie and Fannie it could withstand considerable losses and
still not be insolvent. My fear is that they will need to raise equity at some
ugly low price. My hope is that the Q2 report will not be too bad. But given the
markets it will not have a great Q2 since investments may have lost money and
with recent bad weather the insurance operations will not have had a great Q2.
And there is always the possibility of more reserve losses from prior years.
Still it is selling well below book value and insiders bought in early June so
those are positive indicators.

July 9, 2008

A nasty day in the markets driven by negative concerns about
financial stocks. The Overall U.S. markets are down about 20% since highs
reached in October. (The Canadian market with its very heavy weight in energy is
about even which its highest point last Fall but is down about 9% from is peak
of several weeks ago). Declines of 20% to 35% are not particularly unusual in
markets. Unfortunately they are unpredictable and most experts argue that it is
impossible to consistently time the market.

Although the financial sector has been hardest hit, there tends
to be a gravitational force that affects almost all stocks at times like this.

Stocks that are financials but which have no exposure to the bad
mortgages in the U.S. also tend to get hit. For example the TSX Group, Insurance
companies. Canadian Western Bank and Western Financial Group are all down –
perhaps just by virtue of being financials.

I am attracted to buying these stocks at these lower prices. But
as we are seeing, just because they are low does not mean they do not move
lower. Therefore one has to be be prepared to take some losses when buying into
this market in the hope of making a good return on the rebound. Also it seems
best not to get into a rush but rather to invest over time.

I have checked insider trading and for example saw no very recent
selling for TSX Group, ING Canada or Couche-Tard. For Western Financial Group
there was only 1 small sale. For Canadian Western Bank there were a few sales at
low prices so that, all else equal, is a negative indicator for CWB. You can
check insider trading for Canadian stocks using the link at the bottom of the
stock table above. For American stocks I use Yahoo Finance.

BCE is trading around $39.09. That gives a 9% return for five
months, assuming no further delays or problems for the deal, which is to close
ob December 11. That seems very attractive. I bought some BCE today.

I notice that the New York Stock Exchange / Euronext Group (NYX,
on New York) is down to $45. This is 52 week low. This gives a trailing P/E
under 15 and a 2009 forward P/E of 11 according to Yahoo. Given the nature of
the business (surely it has some pricing power as many companies would feel they
must stay on the Big Board) this seems like an excellent price. Possibly it is
being sold off as a financial stock, but it is nothing like a bank or investment
bank. I don’t know the extent to which its fees might fall with lower stock
prices, but it has been my experience that stock trading volumes do not fall
much when the market goes down. I would be interested in averaging into this
stock. Again one has to prepared for the risk that its slide continues.

July 8, 2008

Today was a good day in the markets. Perhaps it will mark the
start of a rally of some king. This may happen if oil falls. Overall though
markets are likely to continue to be volatile.

July 7, 2008

Another rough day in the markets. And many are predicting things
will get worse as reality of bad the credit situation is in the U.S. Many
homeowners have borrowed to the hilt and now they can’t borrow anymore and many
are just treading water trying to avoid losing their homes.

Many stocks seem like bargains but that does not mean they will
not fall further before recovering.

TSX Group is down possibly because IPOs are down and also worries
about looming competition in their until-now virtual monopoly service. The lack
of IPOs will hurt cash flow but because they defer IPO fees over 10 years the
hit to reported earnings will be tiny. Also trading volumes remain strong. They
will not see the huge 30% profit gains they have often posted but should still
do well. As far as competition, so far they they have not been affected much but
I can’t say how vulnerable they are to competition. I like the stock under $40
but would buy gradually and not make too big a bet.

Hopefully Tim Hortons will do okay this quarter. I noticed a
while back that camp day revenue this year was up 8% over last year, which is
decent. For investors with no position in the stock I would definitely be a
buyer now.

Starbucks has become more speculative due to the closure of 600
stores. Although I think the brand is world class the stock price seems quite
uncertain at this time.

Berkshire is down and it seems like an opportunity to average in
at lower prices.

CN remains a great stock and I am interested in averaging in at
recent prices around $46.

FirstService has not done well as a stock. But as a company I
think it is first rate. It does have a very heavy exposure to real estate and so
may take patience but I see the lower price as an opportunity.

Canadian Western Bank appears to be available at a good price. To
date it has not had problems with bad debt and should continue to grow.

Stantec has fallen a lot and is probably a good bet but does have
exposure to housing. I would like to see the Q2 report before deciding to

Western Financial Group seems attractive at recent prices. I do
worry that they may experience credit losses on the recreational vehicles that
they financed. They won’t get a full recovery at all on any foreclosures (more
like 50%) but hopefully in the strong Western economy the borrowers will not be
defaulting. And overall Western Financial Group has a bright future of continued

As a speculative pick Quest Capital has fallen in price and looks even more

These are just some examples. In general a lot of stocks are down
and those investors with cash can consider averaging in. Given that prices may
go lower it would be good to be positioned with some cash for even better
bargains if those arise. If you believe in buying good companies when prices are
down then we have the opportunity. But along with that you would have to be able
to stomach the fact that prices can certainly fall further.

July 5, 2008

I have updated my personal
portfolio composition.

July 3, 2008

With high volatility in stocks one strategy is to enter orders 5
to 10% below the market and you may end up buying a t a good price. For example
prices were lower this morning but then recovered. I added to my position in
Canadian Western Bank and the Berkshire B shares.

Regarding Aeroplan, one question has been whether Air Canada’s
troubles will affect Aeroplan. This could hurt Aeroplan, but my thinking is with
more expensive flights people will be even more interested in building up
Aeroplan points for free flights. Aeroplan has the cash to buy tickets from Air
Canada and it seems to me Aeroplan is in a much stronger position than Air

July 2, 2008

It was an ugly day in the markets. If we look at broader market
indexes like the S&P 500 (The TSX index is not a broad index due to extremely
heavy weighting in energy and resources), the S&P 500 had plummeted to a low
point around January 21, then it climbed substantially but fell sharply to an
even lower level on March 10. It then climbed substantially by mid May but has
now reached a new low for the year. This pattern has been in place for over a
year now. The market has taken steep drops and then climbed back substantially.

The market drop cannot really be said to a surprise to anyone
given the evolving U.S. recession brought on by sub-prime issues, plummeting
house prices and high energy costs. The bigger surprise was when the market kept
coming back so often (I talked about not being able to beat this market down
with a stick).

Of course we had hoped that our particular stock picks would do
better than the market. That has not been the case this year.

So what do do now? It’s always a personal decision as to what
percentage of a portfolio to keep in stocks. Personally, I cannot see much
benefit to bailing out now even though of course stocks could go lower.

Most of our Stock Picks have lower P/E ratios than they have had
in years. On that basis I am certainly reluctant to sell at this point. (I did
however, reduce my position in Starbucks somewhat today).

Obviously buying at the low point will be a good strategy but the
problem is that the low point cannot be known in advance. I am interested in
adding to my positions but I also feel that there is no hurry. It would seem
wise to be positioned to have funds to buy if we get even lower prices ahead.

Well, no one ever said that investing in stocks would be all gain
and no pain… We have had some really good years in 2003 , 2004. 2005 and 2006.
The reality is that not every year is a positive year in the markets. Hopefully
the back-half of 2008 will be better than the front half but right now the trend
certainly seems to be down. But things will turn around at some point…

July 1, 2008

Costco is added to the
list above and rated (lower) Buy at $72.55. Costco is a high quality company. Warren
Buffett owns shares and has said Costco has cost advantages. It does not appear
to be cheap and therefore a reasonable strategy might be to start with a small
position and then hope to buy at lower prices, which could happen if sales
falter at all due to the recession in the U.S. It seems likley to do well in the
long term.

Starbucks has
announced today that it plans to close 600 under-performing locations U.S. with
the loss of up to 1,2000 jobs. (Starbucks has 7000 company-operated U.S.
locations). Previously they had planned to close just 100. There will be a
“charge” of around $350 million. (For context the latest fiscal net income was
$673 million) It also indicates fewer store openings in the U.S. At this point
it is hard to say how much of this was already expected. Despite current
difficulties I believe the world-class nature of the brand and its well-accepted
business model will allow it to do well in the long term. This will hurt the
stock price since Starbucks former status as a growth company is currently very
much in question.

In other bad news, car sales in the U.S. declined about 18%
year-over-year and even companies like Toyota, Honda and Nissan saw close to 20%
drops in sales.

June 28, 2008

Shaw Communications is
updated and rated (higher) Buy. This is a company that I have really liked in
the past few years. It enjoys close to a monopoly status in cable TV in the
Western Provinces. In addition it has shown a strong a ability to use the cable
to provide telephone and internet service. As more and more people buy new large
flat-profile televisions, they are also adding digital service and the amount
they are spending on cable T.V. is rising rapidly. As a stock it has looked
expensive. However with the combination of yet another quarter of strong
earnings growth and a decline in the share price this stock is now looking
reasonable. So far, the Telus TV product does not appear to have gained many
customers  but it could be more of a threat in future and could spark a
price-war. Overall, I am inclined to add to my position in this stock.

June 27, 2008

Shaw Communications released a strong earnings report this
morning. The stock is only up about 5 cents at 1 pm Eastern. This may reflect
higher capital spending, lower free cash flow in the quarter. Or more likely it
is just due to the current negative sentiment in the market. I would be a buyer
at this price.

June 26, 2008

With so many stocks down in price it is easy to spend time
regretting not selling ealier. But a more productive use of time is probably to
think about which stocks to invest in at the lower prices.

With high oil prices and inflation, and with lower house prices
and more job losses, worries about recession grow. On average markets could
definitely keep going down.

For those just getting started investing this is purely good
news. For the rest of us it is stressful but can be an opportunity for those
with new money or dividends to invest over time. But there is probably no hurry
to invest.

June 24, 2008

It was nice to see Kingsway and Couche-Tard up today, on a day
when the markets were down.

An interesting story yesterday was that the Ottawa airport will
reduce fees to airlines by 5%. I have always considered Airport Authorities to
be somewhat (to borrow a phrase from Kevin O’Leary of BNN) “dark evil and
sinister” because they are unregulated monopolies. In the past they have heaped
fees on airlines and passengers to build opulent airports. This during a period
when Air Canada, Canada 3000 and other airlines were going bankrupt. Meanwhile
they gripe that another unregulated monopoly the Federal Government was charging
them rent for the airport land ( who gets free rent?). Nav Canada was also in
the act another unregulated monopoly sucking fees from the air travel industry.
It’s actually a bit scary to see the Ottawa Airport actually reduce fees. Things
must really be bad in the industry and even smug monopolists recognize it.

There is one time when I will tolerate a monopoly. That’s when I
get to invest in in. An article in the Financial Post today accused CP rail and
CNR of having monopoly power. I agree with that and have called that a
competitive advantage for CNR. I suspect the current lower price for CN is a
longer term buying opportunity. The short term is hard to guess because of the
recession. But long term companies with monopoly power do well.

June 23, 2008

BCE opened, up 10% but at the end of the day was only up about
6%. After the close it announced that the final regulatory approval had been
given. There is some speculation that the deal will be re-priced lower, or even
called off. Even BCE indicated a close by September rather than June 30.
Therefore this is a highly speculative play. Possibly against my better judgment
I bought additional BCE shares today.

Regarding Kingsway. It reported some insider buying. Two insiders
bought meaningful amounts. Most notably the CFO Shelly Gobin, bought about 5000
shares at about $9.10 on June 6 to hold 48,000 shares. I consider this to be a
large personal commitment. However Shelly has been a buyer a much higher prices
and its not clear that even she really has much of an idea of what this company
is really worth or what its future holds. Director Jim Reeve also bought 20,000
mostly on June 17 at $8.30, to hold 80,000. That also seems like a large
personal commitment. Again he has also bought at much higher prices and
therefore has not been that astute in his buying. Director Fred Walsh bought
5000 at $9.89 on May 12 to hold 35,000. Insider Colin Simpson bought about 2500
at $8.20  on June 12 to hold 5400.

There was also one sale an insider Richard Slater sold 758 at
$89.71 to hold none.

Overall, the four insiders buying has to be considered very
positive indication that the shares may be under-priced.

I Notice that the CEO was not buying. He holds over over 100,000
shares and 421,000 options. Certainly he has seen a large decline in the value
of his shares although this must be partly cushioned by a large salary and the
stock options awarded. I believe he is very closely associated with the
management problems of the former CEO. I believe Mr. Jackson needs to be asked
to leave the company. Possibly it is best to hold off on that until a couple of
good quarters can be established but long term he has apparently not been on his
game and probably needs to leave.

June 22, 2008

The big story Monday will be a sharp increase in the price for
BCE. Some estimates are it could go as high as around $40. The bankers have
apparently reiterated their commitment. Maybe this will close soon after all.
Then again the bond holders are rumored to have another lawsuit ready regarding
the legality of a pension fund controlling 50% of BCE. It’s not a done deal yet.

Shaw Communications will be out with earnings on Friday. I expect
good earnings. However there will probably be little or no growth in basic cable
subscribers, given slower new house starts and some limited inmpact from Telus
TV. I like Shaw and believe it will do well, but in the short-term it could drop

A lot of value stocks are back trading at P/Es around 14 and
below. I believe these are some of the most attractive valuations since around
1999. The way the market is going and with concerns about profits and inflation,
these could get cheaper. Still, buying quality stocks at lower prices tends to
work out well in the long term.

June 19, 2008

Canada’s inflation was higher than expected in today’s report.
Given that last Summer gas prices declined, inflation will be driven higher over
the next few months if gasoline prices stay where they are because the
comparable from last year was lower.

I am of mixed mind as to whether to buy on dips at this time or
wait for better bargains ahead. If I was buying I would buy over a period of
months, I would not be in a hurry.

June 18, 2008

The Royal Bank of Scotland has issued a warning that they expect
the S&P 500 index to fall by about 30% by September on inflation worries. They
expect the plunge to begin in early July.

It seems unusual to see this kind of warning from such a large
Bank. These kind of warnings have probably been issued by somebody or other
every day for the last century or so, but I think rarely by a big Bank.

It goes to show that in the market there is always a diversity of
opinion. There is always uncertainty. I don’t disagree that inflation combined
with the U.S. recession (partly caused by high energy prices) and housing slump
could possibly lead to a big decline in stocks. For those with cash a slump
would be an opportunity. I think investing in quality businesses at reasonable
prices will always turn out well in the long run. But investors do need to
realize that it can be a bumpy ride indeed.

I certainly don’t think that long term bonds is the place to be
but I do think a partial allocation to cash and/or short term cash-like
investments is not a bad idea.

In my own trading I had an order in the buy a Berkshire B share
if it fell to $4110, which it did briefly today. I also had an order in to sell
a couple of B shares if Berkshire happened to jump to about $4600 but there is
no sign that will happen soon. I am trying to use the volatility to advantage in
this way. (I placed both orders when Berkshire was closer to $4350.)

I see where Magna auto parts is laying off a few hundred workers.
My only surprise there is that we are not yet hearing about thousands of layoffs
in the auto parts industry. If GM is closing plants I would think auto parts
manufacturers will be hit hard. And the high dollar adds considerably to that

I recently updated my article on the
Canadian economy which shows that
manufacturing is still a very large component of the economy and of Canada’s

June 17, 2008

More signs of Recession with 2000 to be laid off at Air Canada.
1700 at the Miami Herald. Car sales were down across Canada even in areas like
Alberta. My suspicion is that people hear about layoffs and high debt and
falling house prices and even people with the ability to buy start to think
twice, start to delay purchases.

We are now in the pre-announcement period for Q2, this is a time
when some companies may pre-announce major losses. Although our stock picks are
down I think they are for the most part a defensive group. With mostly lower
price earnings ratios they should do better than average in any market
down-turn. (Of course any individual stock is subject to some kind of
company-specific bad news – so there are never any guarantees).

The TSX market seems to be characterized by a few sectors like
energy and some commodities and a few individual stocks like RIM that have done
exceedingly well. But the bench strength is not really there. We have the TSX at
a record but it is driven by a relatively few large stocks and the energy
sector. Energy may not be a bubble because unlike tulips, dot.com and real
estate at the peak it is throwing off the cash flow to support the stock prices.
Still, Energy and many commodities  have to be considered somewhat
vulnerable after recent huge increases. Investors in those sectors may want to
consider some profit taking just to be prudent even though those sectors could
keep rising.

The BCE situation continues to be anyone’s guess. My guess is the
Supreme Court allows it on a split decision and with some grumbling that
companies ought not to to completely ignore the interests of bond holders. If
that happens I suppose the stock goes to maybe $37 or $38 but then the bond
holders may launch a challenge to the legality of the Teachers Pension Plan
planning to hold over 30% of BCE. If that happens the stocks probably drops
back.  Overall it is very hard to predict where things will end up. I think
if I held a large position I would trim it tomorrow. I hold 200 shares and may
hang on to see the court decision but I place an order to sell if it gets top
$36.90. I could be braver but I am in a more conservative mood.

June 15, 2008

Regarding Tim Hortons, there is a report that two franchisees are
suing them in class action on behalf of all franchisees for some $ 2 billion.
This would be very scary if a large number of franchisees are in support. The
company indicates that its franchisee association is not supporting this class
action. It sounds like just a couple of franchisees.  Their complaint is
that items like the switch to frozen donuts and all the extra menu items have
caused ed them a lot more work but little or no added profit. This could have
some negative publicity affects but so far does not sound like a serious law

I have updated my personal

June 12, 2008

U.S. retail sales were up 1% which boosted the U.S. market. But
this was driven by the government cheques that were sent out to stimulate
spending. Also Standard and Poors continues to pump out downgrades of various
mortgage backed securities and report very high default rates on sub-prime type
mortgages. I still think the U.S. is in a recession and that therefore we have
to be cautious about the direction of markets.

In my own trading I took advantage of slightly lower prices to
add to Shaw Communications and the TSX Group.

June 11, 2008

Quest Capital
is added as a small cap, and quite speculative pick. We rate it highly
Speculative Buy at $1.90.  It is basically a private lending corporation
that trades on the market. It lends short-term mortgages at high rates of 9 to
15% mostly for land which will be developed for residential use. Unlike most
lenders it has loaned mostly its own share capital. It now plans to borrow more
money which should leverage up its returns. The main risk here is bad debt from
bad loans. With little debt at the moment its risk from bad debt is reduced
since any loss would not be leveraged. The structure is a Mortgage Investment
Corporation which is like an Income Trust. The Corporation does not pay income
tax as long as all profits are distributed to owners. This structure may be very
attractive as the Income Trusts disappear in 2011. The company is intriguing. As
a small company this is effectively a bet on management. We are not in a good
position to judge management. see the report for more details. The share price
has recently been falling in spite of what seems like good news. This is a
worry… Nevertheless I have made a modest investment. Perhaps a wise strategy
would be to wait and see if the shares recover to $2.10 or so and buy at that

The recent fall in a number of our stock picks is disappointing
but also presents an opportunity to Buy at lower prices.

I think there is every reason to expect Shaw Communications to
have another good quarter when it reports in early July. Stocks like Shaw,
Canadian National, and Tim Hortons seem to have strong competitive advantages
and it seems reasonably certain they will be good investments over the long
term. Canadian Tire and Reitmans should also continue to do well in the long
term although both could be hit by the Eastern Canada recession. Couche-Tard,
First Service and Stantec have  strong growth-by-acquisition histories and
so buying at these lower prices should work out well in the long-term.
Kingsway has been very frustrating. It may be forced to issue shares and so it
seems increasingly speculative although also attractive at this low price. (I am
not adding to my position in Kingsway). I believe TSX Group continues to have
monopoly characteristics.

This is just a partial list, but I believe that buying at these
lower prices is an opportunity. However, since prices can drop further given the
economy, I would not be in too big a rush to buy but rather would (if cash were
available) average in over a period of six to 18 months. Also, I hold most of
these stocks and I am not inclined to sell.

It is wise to remember that in stocks the best time to invest is
at low points, but of course it is unfortunately impossible to know when the
bottom has been reached.

June 10, 2008

Yesterday I mentioned I am working on Quest Capital (QC, on

I did buy some shares today partly I wanted to buy before the end
of this week to be eligible for a 4.5 cents dividend. Probably not a good reason
to be rushing… I don’t like to rush into buying any stock. There are always
plenty of future opportunities and I believe that buying before doing a full
analysis is generally a bad thing. Quest appears to be reasonably priced.
However, I view it as small and risky. Quest makes attractive returns by lending
its equity on mortgage loans at 9 to 15% interest rates. It’s returns should
increase when it uses more debt. It has not faced bad debt recently. But I
cannot be sure that it will not face significant bad debt in future. I am also
not clear what competitive advantage Quest has in what would seem to be a commodity-type

company indicates that its two co-chairs were in the past involved with
companies that had temporary orders against them from the Securities Commission.
Did not appear to be serious breaches and may not mean anything, still, this is
a negative factor, all else equal.

Quest is selling for about 95% of book value and that seems attractive. It also
pays a 9.5% yield which is attractive. It is a Mortgage Investment Corporation
which is effectively like an Income Trust and under this structure the company
will not pay income taxes if it dividends out all earnings (this continues past

of late May and apparently continuing today a large shareholder was selling
substantial shares even at this low share price. The share price has been
declining. Insiders hold substantial shares.

hope to complete and post the analysis soon, but it looks like this would be
rated Speculative (higher) Buy at $1.90. I will not make a large investment in
this company but have risked a modest amount.

Also today I bought some Fairfax Financial shares (a former pick,
no longer on the list) and added to my position in
First Service.

June 9, 2008

I have entered my Order to buy Melcor but it did not fill today.
I also entered an order to Buy more Tim Hortons, but this order is below the
current price.

I note that Fairfax Financial a complex but generally well
respected property insurance company is selling at about 98% of book value. As
we have seen property insurance stocks can be volatile and can offer nasty
surprises. Still, I think Fairfax at book value is likely a good investment.

A subscriber has recommended that I look at a small lender, Quest
Capital, QC on Toronto. I have more work to do on it but the preliminary
indications look good although I would consider it speculative. I may buy some
shares. I hope to add it to the Site this week. This stock is selling right
around book value although it appears to be reasonably profitable and to have
good prospects. If the auditors are to be believed then this should be a
reasonable investment. But as a lender it is risky. It does not take too many
loan defaults to torpedo profits. So far they have not had any recent loan

June 7, 2008

The article on the valuation of the
Dow Jones Industrial Average is updated. The analysis indicates that the Dow
Index is about fairly valued. In contrast our update of the
S&P 500 index valuation
from last week showed that index to be over-valued. The S&P 500 is a broader
index is more reflective of the broader market. The DOW Index contains only 30
stocks and may not be as representative as the S&P 500.

That was certainly an eye-popping increase in the price of oil of
Friday, particularly after the large increase on Thursday. I have no ability to
guess the price of oil but I would be nervous holding oil at this price.

Gasoline seems set to get to $1.50 per liter in Canada. These
kind of oil prices have many implications. As consumers spend more money on
gasoline it stands to reason that there will be less money for other things.
Things that consumers can delay buying include all major purchases such homes,
furniture, cars, recreational vehicles of all types. Also things like clothing
and vacations. It seems to me that this would lead to recession in the U.S. (for
sure) and probably much of Canada.

Almost all stocks are hurt to some degree in a recession.
Companies that face heavy fuel buills like airlines and shippers are expected to
be hurt.

Melcor Developments is
updated and rated (higher) Buy at $14.89. The stock has declined significantly
from its high of $30. because the slow-down in residential building and an
over-supply of lots in Edmonton and Calgary has driven profits down. If oil
prices remain over $100 (much less over $130) then it seems likely that the
Alberta housing construction pace would resume. Melcor’s stock price has not
risen to reflect recent oil prices. All indications are that this is a strong
investment at this price. However there is some risk that the share price could
drift lower through 2008. I personally hold shares and plan to add to my
position. Be aware that the stock is somewhat thinly traded and therefore is
volatile for that reason.

For purposes of the Model
Portfolio I will notionally sell half of the oil index XEG on Monday morning
at the opening price and replace it with Melcor.

I note that the wireless (i.e. cell phone) spectrum auction
appears set to raise about $3 billion for the Federal Government. As far as I
can see Shaw will not bid all that much and its share price may recover as a
result. A fourth national competitor Global Live is emerging. All this spending
and the new competition could hurt Rogers and Telus and BCE but for the moment
Shaw Communications does not appear to be much affected.

June 6, 2008

Performance figures for 2008 are
updated. It would be great if we had continued our long string of positive
years. But the reality is that all investors will suffer at least the occasional
down year in the market.

June 5, 2008

Target is updated and
rated Buy at our analysis price of $54.35 (it closed today at $54.63).

I was certainly surprised at the big jump in U.S. markets today
based on strong retail same-store sales. We don’t know yet if those strong May
sales figures will be at higher profits since some of it came from price

June 4, 2008

More layoffs are in the news. Hallmark cards closing its
production in Canada. Manufacturing continues to be hard hit. Ontario Tourism is
waking up to what the high dollar / high gasoline / border hassles are doing to
keep Americans away.

For most stocks its hard to see a reason why they will go up in
the short-term. But for those with a longer term outlook cheaper stock prices
are creating opportunity.

Canadian Western Bank will be out with earnings tomorrow (around
noon I believe). I would think the earnings will be good. Possibly tomorrow
morning would be the time to buy but personally I would wait for the earnings

We rated Couch-Tarde
very highly, but I do note that figures indicate that fuel sale margins on
average in the U.S. have been very thin lately. In fact negative for independent
gasoline retailers. Couche-Tard will do well long-term but the short term is not
looking as good.

Reitmans came out with earnings that were good but the stock
still fell. They complain of losing customers to cross-border shopping. But
their profits still rose.

June 3, 2008

The four plant closures by GM is another sign of recession. Now
Lehman Bothers seems to be in some difficulty and needing to raise equity at low
prices.  Therefore caution is warranted. At the same time though there are
quality companies available at good prices.

June 2, 2008

With more bad news coming from banks in the U.S. (down-grades by
S&P of the big investment banks) ouster of the Wachovia CEO), I believe more
write-offs are coming in that area and overall I think the recession will worsen
in the U.S. and overall I am cautious on the direction of overall markets. I am
looking to trim some positions and raise cash. On that note I finally sold my
Wendy’s shares today. I had bought on rumors of a take-over at $37 that never
happened and the take-over by (of all things) Arby’s is certainly not exciting.

Apparently lululemon fell 11% in after hours trading in the U.S.
on luke-warm earnings releases. Despite having a good product, exceptional
marketing and good growth one simply has to be very careful in paying 50 times
earnings for any stock. They forecast 70 cents in earnings this fiscal year and
yet investors thought the stock was cheap at $35 and wondered when it would go
back to $50. That math simply is very dangerous.

June 1, 2008

Watts Water
Technologies is updated and rated a (lower) Buy at our analysis price of
$28.60 (it closed Friday at $28.36). We added this to the site as we were
looking for something in the water infrastructure area. But this is more of a
water hardware company.

The latest edition of our free
newsletter has been sent. You should have received this by email

31, 2008

My article on Canadian
Exchange Traded Funds and market segments is updated. This gives you the
trading symbol for selected Canadian Exchange Traded Funds and also the P/E
ratios and dividend yields. Also links to additional information on these ETFs.

My article on the
valuation of the S&P 500
index is updated. At this time the S&P 500 index looks over-valued. Since
our last update, the S&P 500 index has risen while earnings on this index have
gone lower due to massive write-off at financial institutions. Even operating
earnings that ignore much of the one-time losses have declined. With a poor
current outlook for earnings it is hard to see how the current 1400 level on the
S&P 500 index can be sustained.

29, 2008

A good day for most of our stocks, while oil was down.
Indications are that the credit crunch and bank write-offs are not over yet.
Markets are likely to continue to be volatile.


May 28, 2008


In my own trading I have sold my small position in Reitmans to
raise cash. Also a few shares I had in the ishares global ETF.


Canadian Tire is
updated and rated Buy at our analysis price of $60.35 (it is at $59.85 as we
post this). This has been a very well managed company and the value ratios look
good. However earnings in Q1 did drop and so there is some concern about the
short-term outlook. My strategy would be to Buy some now and if the price drops
I would consider buying more. I intend to add to my own position shortly.


May 27, 2008


Wal-Mart is
updated and rated (higher) Buy at our analysis price of $55.75. (It closed today
at $56.40). Many people wrote this off as “yesterday’s stock” because it the
price peaked in year 2000 and had not done much since. But that’s the “stock”.
Meanwhile the company kept on growing earnings and by late 2007 the earnings had
grown enough and the P/E had come down from prior lofty heights and the stock
was a (higher) Buy. The stock finally resumed rising with the earnings. The
stock is up about 20% in 2008 to date.


May 26, 2008


The Supreme Court is going to hear the BCE appeal regarding
the rights of bondholders on June 17. This looks positive for the price of BCE.
If the Buyers really think this is still a good deal at $42.75 and are committed
to it then they may offer to pay off the bondholders ahead of the Supreme court
decision and move on with this.


I added a small amount to my Tim Hortons position today when
an order that I had placed some time ago filled.


At this time it seems like only energy and resource stocks are
going up. However, over the longer run investing in good profitable businesses
at reasonable prices will prove to be a good strategy.


May 25, 2008


Starbucks is
added to the list above and rated Buy at $16.95. This of course was a powerful
growth story for many years. Now growth has faltered. The founding CEO has again
taken over the CEO chair after seven years of being chairman. It may take some
time for growth to resume as the company refocuses and slows is expansion. But
the stock is down about 50% from its peak. The current price may represent an
excellent opportunity to acquire shares in a company with one of the strongest
consumer brand names in the world, at a reasonable price. There does not appear
to be any hurry to acquire shares given that the remaining two quarters of
fiscal 2008 are not expected to be that strong. Our strategy would be to buy an
initial position at this price and hope to acquire more later at a lower price
(of course there is no assurance that a lower price will materialize, but if the
U.S. recession deepens that is a definite possibility). We still rate it a Buy
because we expect it to be a good investment if held for several years.


May 22, 2008


The BCE situation is interesting. If the Buyers are really
committed to buying they can probably pay-off the bond-holders and force the
lenders to honor their commitments and move on. Another possibility is a quick
renegotiation down to $39 or whatever with a new shareholder vote, although that
takes time. I doubt the buyers will really pin their hopes on a win in the
Supreme Court. Too long and too uncertain. If the buyers have buyers remorse
then they may just walk and who knows where the BCE share price will go then. I
bought 200 shares at $32.30. I don’t think I will make any big bet on it given
all the uncertainty.


Oil was down today. But I don’t think anyone can say which way
it will trend now. Financial Post article today discussed whether oil might be a
mania or not.


May 21, 2008


Some stocks that I am personally thinking of buying on recent
weakness include Shaw Communications, Melcor, Tim Hortons Canadian Tire and
Stantec. With oil at $132 I would think Melcor is going to have good times ahead
because the Alberta economy should heat up to the boil once again after lately
going on simmer for a while. Shaw continues to look like an unregulated
monopoly. It may take a drop if it bids too much in the spectrum auction but
that should be temporary. Tim Hortons is still not cheap but I still think it a
winner long term. Canadian Tire may face some threat from Lowes and a weak
economy but it is down a lot from its highs and I am keen to start averaging in.
Stantec suffers from the housing recession in the U.S. but is a quality company
also worthy of averaging into. I think all of these are proven long-term winners
where buy on dips has turned out well and further dips would be further
opportunity most likely.


Regarding Shaw I have long been concerned though about one
thing and that was how they managed to lose money back in the early 2000’s and
late 90’s to the point where they had negative retained earnings. In recent
digging into old annual reports it was due to investments in things like
Teleglobe. That was a crazy time and Shaw was certainly not alone in making bad
investments. The basic (unregulated as to price) monopoly cable has carried them
back to profit and now supplemented by the phone offering and the now-profitable
Star Choice. I am willing to forgive those old investment mistakes and focus on
their current cash cow status and their current rising dividend. I know my cable
bill has gone from $25 to $75 (as I took more channels) in the past six years.
And sooner or later I will crack and start renting movies on line and we will be at
$100 per month.


Also NYSE/ Euronext, although we have no current research
report on it.


The BCE deal may have hit a HUGE snag today when the
bond-holders won an appeal. I suppose the BCE shares will drop by an ugly amount
tomorrow. This is another example of just how uncertain this deal seems to be.
Just today Financial Post was reporting the deal seemed likely to go at full
price. Now this. If indeed the stock should really dip a lot tomorrow, would
that be a buying opportunity? Hard to say. Not clear if the bond holders could
simply be bought off in some way. If the buyers and BCE take it to the Supreme
court it’s hard to imagine this deal getting done before fall. If the
bond-holder damages were small I would think BCE and the buyers would eat the
amount. Going to the Supreme court may just be a polite way of the buyers
backing out without technically just walking away.


May 20, 2008


Another day of oil up, most everything else down. This too
shall pass.


May 19, 2008


Kingsway is updated and
rated Speculative Buy at CAN $9.95 or U.S. $10.00. Kingsway had been a bad
experience for us over the years. I was first attracted to it in 2003 because I
knew that Canadian standard auto insurance companies were making very large
profits which was hidden by their retroactive losses. Unfortunately there was no
pure-play Canadian standard auto insurer available at that time (ING Canada only
later became a traded company). Kingsway actually did do very well on its
Canadian auto insurance business but this has been more than offset by recent
large losses in the U.S.  I have indicated many times that the reported
earnings of property insurance companies are not very meaningful since they are
subject to retroactive change and also lumpy with capital gains and losses on
investment. It can be a good business if well managed. Kingsway has turned out
to be poorly managed and has reported repeatedly retroactive losses that make a
mockery of earlier profit reports. In retrospect I should have put more emphasis
on the fact that the company has no competitive advantage in this commodity


At this point however, Kingsway is trading at 0.62 times its
book value. If the auditors and actuaries can be at all trusted then it should
turn out to be a good investment. I have lost patience with them. However, I do
own shares and I don’t think it is wise to sell at the current low price. It is
possible though that they they will try to issue shares to shore up their
balance sheet and that would drive the stock down. Given recent experience it is
also more than possible that the company will have further bad news for us
during 2008. It was particularly distressing that in its Q1 report it reported
that even its 2007 trucking insurance was sold at a loss, this after it already
supposedly had corrected the problems.


There was a report this morning that the BCE deal is in some
trouble as lenders attempt to renegotiate new terms.


On New York BCE was down 5% and had leveled off at that
point. On that news I decided to sell my small holding in BCE. Maybe this would
not affect the $42.75 price to be paid, maybe it would just be between the
buyers and the lenders. So maybe I should not have sold, and in fact perhaps
this is a buying opportunity. But I just decided I did not want the risk. Some
have speculated that the deal price will be re-negotiated down. Certainly that
is not something that BCE would agree to without a fight. If the price is
lowered, then I expect it requires another shareholder vote. The point is that
there seems to still be some doubt involved in this deal. If the lenders refuse
to lend the money it may simply be impossible for the buyers to complete the
deal. I have very mixed feelings about having sold my holding…


May 18, 2008


Telus is updated and
rated (higher) Buy at $45.95 (for the T.A non-voting shares). The value ratios
look good but growth is now slowing and is more uncertain given stronger
competition. I happened to sell some of my Telus shares on Friday just because I
was looking to raise cash. This was done without knowing how this update would
turn out.


May 17, 2008


FirstService is updated
and rate Speculative (higher) Buy at U.S. $17.80 or CAN $17.88. This stock has
taken a beating on its just-released Q4 fiscal 2008 results. It had a loss in Q4
which was mostly related to weakness in commercial brokerage. The stock is down
very significantly from a 52 week high near $40. Some of the problems in Q4 are
ongoing and therefore the next couple of quarters may also be weak which is why
we rate this more speculative. But longer-term this company has grown revenues
and earnings and will likely continue to do so,


Management sounded very confident on the conference call and
certainly had all their numbers close at hand. They mentioned that they are not
going to buy back any material amount of shares because they want to use funds
to grow.


Given that the next few quarters could also be bad, there my
be no rush to buy so a reasonable strategy might be to average in slowly. A sale
of one division is pending and based on the figures available I am hopeful they
will see a gain in the order of $1 per share but management has not said that
there will be gain so maybe I am missing some figures.


A very interesting point was made on the conference call. In
commercial brokerage they were not short potential sellers or buyers. What was
happening was that buyers could not get financing. It illustrates that the U.S.
banks are very cautious in their lending at this time (or the banks have no
money to lend!).


May 16, 2008


Our performance figures are
updated for 2008. The performance this year is not good especially compared to
the TSX market which has been given a rocket-boost by oil and other commodity
stocks in the past few months.


It is remarkable to consider that at the lows of January 21
when markets had just dived steeply lower, mainstream TV news took notice and
spoke of the extreme risks in the market. A mother with a baby was featured and
she wondered if she should invest in an RESP in such a down market. The TSX is
up over 20% since that low point when fear was the order of the day. Now that we
are at record highs of course fear is nowhere to be seen.  Logically we
should be fearful of a correction when markets quickly jump 20% and not so
fearful after a 20% correction. Emotionally the opposite invariably occurs, we
are confident buying at highs and fearful to buy at the low points.


May 15, 2008


FirstService dropped 12% today on top of a drop yesterday. The
company is heavily focused on services for the real estate industry and was hit
with a loss in its commercial real estate brokerage service in this latest
quarter. I believe that the stock is attractive at this level. However there may
be no rush to buy as the next few quarters are also likely to be weak.
Historically this company had grown earnings per share  strongly over the
years. Back around 2002 and 2003 it had a period where earnings grew very slowly
(and earnings likely fell in some quarters and the stock price declined
precipitously). Those who bought on that dip were well rewarded. (I note in
looking at the stock chart in 2003 on Yahoo it shows a huge drop but that is not
correct as that was a stock split that is supposed to be corrected for in the
graphs). It may take a lot of patience but there is every indication that this
stock will do quite well in the long term. Management reiterated its goal today
of doubling sales and tripling the share price in five years and this is despite
a weak outlook for the next few quarters. On the call management was very much
on top of its numbers. I do not see a reason to lose confidence in this
management. I added a small amount to my position in this stock today.


Regarding the general markets, it is amazing how much the
market has risen since the lows of late January. It’s easy to start feeling very
good about markets at this time. But I am cautious. Now may be a good time to
look to trim positions and build cash in case we get yet another large dip in
the markets. The U.S. housing market  remains in a very depressed state and
financial companies remain vulnerable to more write-offs.


The trailing P/E on the S&P 500 is very high at 23. But
analysts ignore that pointing out that earnings were depressed by a few very
large write-offs. Based on forecast 2009 GAAP earnings the S&P 500 P/E is high
at 19 (19 based on projected earnings 21 months from now is not the same as 19
based on actual trailing earnings would be, it is much worse). However based on
operating earnings for 2009 the S&P 500 P/E is reasonable at 12.3. That looks
like a sick joke to me, usually forecast GAAP earnings already exclude
write-offs because none tend to be expected. Analysts are being very optimistic
if they are pinning their hopes on operating earnings being some (19/12.3) 55%
higher than GAAP earnings in 2009. This seems to suggest that in fact analysts
are expecting a continued series of write-offs all the way through 2009. Based
on all of this the S&P 500 is starting to look dangerously high. When it comes
to Toronto, all things are dependent on the price of oil and so its hard to say
if Toronto is too high or not.


Recession Watch


A story today indicates that it was a “surprise” that
manufacturing sales declined in March. Apparently Canada’s GDP might turn out to
have had negative growth in Q1 or at best slightly positive. I don’t know why it
is a surprise that manufacturing sales are down in Canada. Every dollar sold to
the U.S. is worth far less than it was one year ago. The competitive position of
Canadian manufacturing has declined drastically in the past year simply due to
the dollar.


There are apparently habitable houses for sale in Detroit for
unheard of low prices like $5000 and less. Many older houses are almost being
given away in Detroit to avoid the property tax and because I guess there are no
renters. Yet in Canada we think houses can stay at more like $400,000 for a
typical house? I am not suggesting a need to panic, but I definitely have a
cautious outlook. 


may 14, 2008


Canadian Oil Sands Trust
has been added to the Site and rated Weak Buy at $50.91 (it closed today at
$49.84). This is the first time we have looked at an oil company. In the past we
did not look at oil mostly because the value is so dependent on the price of oil
which seems highly unpredictable. However we have put this one through our
process to see how it looks. Also Canadian Oil Sands Trust is a little different
than many oil companies in that it can maintain its existing production with no
“finding” costs. Obviously the biggest factor here is the price of oil. Before
investing think about where you think oil prices are headed, short-term and
longer term. It’s easy to get a warm feeling about all oil stocks given the rich
rewards in the past few years, but can we expect oil to keep rising? On this
Site we claim no ability to forecast that. We do suspect however that current
oil prices are not fully reflected in the price. The market is likely pricing in
an oil price lower than the recent highs.


ING Canada came out with earnings today that were weak. Really
hat should not have been a surprise given that poor weather in Q1 and the fact
that other insurance companies were also hit with poor weather in Q1. Also there
were some losses on investments in Q1. That is not a big concern because
markets were poor in Q1 but have since recovered. I have not looked at the
earnings report in any detail yet, but overall the story of ING as a stable and
profitable insurance company has not changed.


I note that FirstService dropped late today in advance of
earnings released tomorrow. My sense is that this is a good company to buy on
any weakness or temporary problems. I believe it has bright future.


May 13,2008


I sold half my BCE today based on an order that I has entered
some time ago. ING Canada will, release earnings on Wednesday morning.


May 12, 2008


CV Technologies is added
to the Site and rated Speculative (lower) Buy at $0.55. They released earnings
early today. There was very little reaction in the market to the earnings.
Perhaps there will be more reaction in the coming days. They did lose money this
quarter but that was largely due to heavy advertising. Part of that advertising
was related to selling products to consumers that had been booked as revenue
when sold to drug stores in Q1, so there are some timing issues. Sales were up
36% in Q2 which looks good, but overall sales in the first six months of this
fiscal year are only up about 5%. Therefore it is difficult to interpret the
trend. The share price has declined very substantially  from highs of over
$4 prior to is disastrous foray into the U.S.. But the share price seems to have
stabilized. The company is intriguing because if its product continues to be
accepted as effective it does have good potential for an eventual return to the
U.S. market. Therefore it may be a reasonable speculation. It appears to have
sufficient liquidity that a bankruptcy is not  a concern. (one year ago
bankruptcy seemed to be a possibility).  There is risk here but also
potential. There