June 28, 2017

On Wednesday the S&P 500 was up 0.9% and Toronto was up 0.5%.

The Canadian dollar was up strongly to 76.8 U.S. cents as currency buyers and sellers reacted to predictions that the Bank of Canada might start to raise interest rates in July. My strategy has not been to predict where the Canadian dollar is headed but rather to react to where it is. When it is higher I try to transfer some money to U.S. cash or investments and do the opposite when it is lower. It’s said what level constitutes “high” or “low”. One strategy would be to consider that when it moves 5 cents or maybe 8 or 10 cents (pick a number) from where it last peaked or bottomed then it might be time to move some cash.

Most stocks were higher today. Canadian Western Bank was up 2.7% but remains under valued.

Some former Penn West financial executives were charged by the U.S. Securities and Exchange Commission today with having with manipulating earnings. I think it is unfortunate that they also charged the company itself. I am in favor of punishing individuals who break laws as opposed to inanimate corporations owned by innocent share holders. I understand that sometimes the company will have to be fined but I would go after the actual law breakers first. A corporation has no mind of its own. The company also just changed its name to Obsidian Energy in what I view as a cowardly attempt to distance itself from, well, itself.

This company also settled an earlier share holder class action law suit. I find those to be bizarre. The company (that is indirectly new and long-time owners) pay cash to some people who bought when the share price was higher due to improper accounting. Some people who sold shares to the new owners unknowingly benefited from the situation. They get to keep that benefit. But continuing share owners of long standing got no benefit yet they have to pay the class action. I judge it to be cowardly for the Board of directors to have agreed to pay share owner money to settle that class action.

The SEC described a very basic form of manipulation. They allegedly  “capitalized” expenses that were not creating assets but were just expenses. In itself that could be just a difference in judgement. But the SEC alleges they did it with nice round figures designed to meet analyst earnings targets. That’s gross manipulation. The Alberta Securities Commission had looked into this and did not bring any charges.

I believe Home Capital is now impatiently awaiting TSX approval of Warren Buffett’s equity investment. I believe that deal is OFF if the approval does not come tomorrow. (Although I suppose Buffett might extend the deadline but he likes things done fast and might just say forget it). The Berkshire $2 billion line of credit is already in place and that will not be canceled even if the equity purcahse is not approved. Home Capital is having its delayed annual meeting tomorrow.

I mentioned a while back that Home Capital’s GICs could be purchased through TD Direct. That was wrong, I was looking at Home Equity which is a different outfit. For whatever reason TDhas not offered Home Capital GICs since 2011. You can however purchase Home Trust (part of Home Capital( GIC’s through RBC Direct and Scotia itrade. I have never been a fan of GICs but the Home Capital rates (2.5% for one year 2.8% 5 year) are higher than competitors (due to their problems) and I think are safe now with Warren Buffett’s rescue. Even if Buffett’s equity purchase is not approved that would basically be the TSX deeming the company safe enough not to need Buffett’s money. In addition if you stay under $100k there is deposit insurance in case Home Capital did go bust.