January 21, 2015 Comments

It really does seem that there is never a dull day in the markets. Today we got the surprise interest rate cut followed by a steep drop in the Canadian dollar which in turn was seen as positive for stocks.

The S&P 500 rose 0.5% and Toronto was up 1.8%

Notable gainers included, Canadian Western Bank up 4.3%, CNR up 2.6% and Couche-Tard up 2.5%

And, the Bombardier preferred shares gained 8.4% even though the Bombardier B shares were down another 5.7%. Bombardier CEO and (not coincidently) member of the controlling family Pierre Beaudoin is reportedly “refusing to panic”. Hopefully there is no need to panic. Current conditions certainly make it harder for Bombardier to borrow more money or to issue shares. But if it can generate cash flows such that it does not need to do that then the lower share price is in theory not a real concern to the company. In theory a company is not really affected when its owners start trading their shares with other for less money. But in reality there probably are some impacts. Moral suffers. Employees have lost wealth in terms of stock options and stocks. Certain suppliers may be reluctant to even offer normal payment terms on accounts payable. Air plane customers often have to pay large deposits and progress payments in advance of an airplane being delivered. Airlines will be reluctant to do so if Bombardiers credit gets too weak. The CEO really can’t say he is worried. A lack of confidence on his part would surely make things worse.

We really need Mr. Buffett to come and buy this thing but as I have said before he probably would not like the industry economics or management even though he would, I am sure, love the products. His NetJets already buys a lot of planes from Bombardier. And the family might never sell, but then again the main family shareholders are elderly now and who knows if the third and fourth generation would want to try to keep this beast going given its troubles. Still, I imagine its a lot of fun controlling a huge important company like this, so that would be hard to give up.

With the lower Canadian dollar I transferred some more cash from the U.S. side to the Canadian side in my RRSP account. So far, I have been too early doing that but I figure selling American dollars as they rise is not a bad strategy. And I originally transferred that money from Canada to the U.S. when eh American dollars were considerably cheaper than today. And some of what I am transferring back to Canada is gains from the likes of Wells Fargo. Also this RRSP had gotten over weight to the American side due to the exchange rate change and partly due to very strong performance on that side and weaker performance from my Canadian stocks. One down-side as I have mentioned before is that I have to pay a relatively hefty (although hidden) fee through TD Direct to make the transfer.

Leave a Reply

Your email address will not be published. Required fields are marked *