Double Blind

The choices you have for a self-directed RSP are rather limited – they all charge commissions of at least $29 per trade and they hardly give you returns on cash balances.

At BMO Investorline, you also have the option of rolling cash into a GIC which is cashable at 30 days. Since interest rates have been rising recently (although they are expected to peak about now), I have been cashing-out and then re-buying a GIC in 30 day intervals to capture the maximum rate. Right now you can get 4% for a 1-year, cashable in 30-day GIC. I was doing this while keeping a few stocks on the watchlist that I would want to buy in the event their price dropped. It’s been a painfully patient process to watch 30% of your portfolio in cash earning 4% (which is not a bad return) when you know it can be earning that much in a dividend yield plus capital appreciation.

The “capital appreciation” bit is the important thing – when putting your money in a GIC you are effectively loaning your money to the bank. When putting your money in equity, you are buying the promise of future dividends from a business, which is strongly linked toward the success or failure of the business. A well-made equity decision of course is worth a lot more than loaning money to the bank.

But when the price of equity investments you’re looking at isn’t at a price you consider acceptable, despite the yield, there’s nothing to do but wait.

The point of this post is that now my cash is locked in for at least another 30 days, if one of those stocks I’m looking at manages to dip below my threshold price (one of them is 6% away from it), I can’t do anything until August 24th. By then, knowing my luck, they’ll all have skyrocketed out of my price range. I guess I am frustrated by the fact that they pay so piddly on their cash balances (1.5%) that you’re forced to roll over the money into a GIC when playing the waiting game.

The long-term performance goal for my RSP has always been 10% above inflation. You can generally realize such a return by investing in stocks that have good return on asset/equity (should be at least an inflation-plus-10% ROE), giving out a dividend yield that is increasing over time and in an industry that you can see still existing 20 years out. Also the companies have to be large enough to be relatively stable, but small enough so that they have room to grow, which is why the midcap area (companies capitalized between $1 and $5 billion) are very attractive.

Financial services firms and insurance companies are two sectors that fit the mold fairly well, but they are difficult to research since insurance companies have liabilities that are very difficult to research correctly – you generally don’t know whether an insurance firm has sold policies on liabilities that give them income for 19 years but on the 20th will end up with a bankrupting liability. This is why companies that deal with super-catastrophe insurance have to be individually analyzed. Companies that sell stuff like car insurance, however, are a bit more safer as it is unlikely that automobiles could cause billion-dollar losses.

Technology companies rarely fits the criteria since the product lifecycle is so volatile and most companies don’t pay dividends.

Telecommunications and Pharmaceuticals both seem to fit the profile well. The only constraint there is growth – since the top dogs are so large, they can only expand at the pace of the growth in the underlying commodity – bandwidth and viagra-poppers, respectively. Still, these two are good exceptions to the rule in that they both offer good ROE and increasing dividends.

The end-goal is that by the time that you retire, the investments inside the RSP will be giving a healthy yield relative to what was originally invested. For example, a $1000 investment 20 years ago in the world’s largest tobacco company (Philip Morris, now known as Altria) would have yielded you about $95 in dividends over the next 12 months. Now, that $1000 investment would be yielding you $1290 annually, not to mention the initial investment being worth about $32,000 if you sold it.

Of course, 20 years ago Philip Morris was not the world’s largest tobacco company and such an investment probably would have been “risky” with all the contingent risks of tobacco. But the idea is to find these sorts of firms that are middle-class warriors that turn into the top dog.

Declan wrote three articles on transportation (Transit 1, Transit 2, Transit 3) that is worth reading. There are parts that I agree and disagree with, but I will comment about it at a later date.

I have had a draft entry on the BC Gateway Project for ages, and I will try to complete it since road transportation planning is once again a major issue in the Lower Mainland – the last major road project to be completed was the Alex Fraser Bridge (and the Highway 91 extension) back in 1986!

It’s very easy to see political polarization at work when people discuss the government’s Universal Child Care Benefit (UCCB).

Specifically, there was an article on the National Post which claims the following:

As the federal government sends out the first $100 cheques under its new Universal Child Care Benefit program, it is also cutting a $20.75 young child supplement for hunders of thousands of low- and middle-income families.

The Canada Revenue Agency says 769,000 families who received the supplement last year will no longer get it as of this month. Families with young children who qualify for the new universal benefit program can no longer collect the young child supplement paid under the Canada Child TAx Benefit Program, leaving those affected with a net gain of less than $80 a month, not $100.

I did the research and it turns out this is true.

There are two child benefit programs in play, the Canada Child Benefit (CCB) and the UCCB. You can be eligible for both and they will both give you a certain amount of money. Part of the CCB (before the UCCB came into effect) is a “supplement”, where you will get an extra $20.75/month if your child was under 7 years old. With the UCCB, the extra $20.75/month is only applicable for a child that is exactly 6 years old – when your child is zero to 5 years old, he/she will not get the extra $20.75 for the CCB supplement, only the UCCB.

Pre-tax, the family is going to be about $951/year up for one child which makes for a pre-tax delta of negative $249. After-taxes, the family will be about $748 up, which is a delta of negative $195.96 if they assumed they were going to get the full $1200. All of this assumes a combined BC-Federal rate of 21.3%.

$748 is still better than zero, although election marketing would of course have you believe that $1200 is the main benefit.

So after doing this small exercise, I am left with a couple questions.

One is that I had to wade through two pieces of legislation to come up with this information. Why the heck don’t they consolidate it into one program instead of two? Doesn’t this create extra bureaucracy?

The second question is: What if the government gave out $10,000 pre-tax dollars per year to parents if they had a child under the age of 6? Would left-leaning bloggers complain that “Parents are only getting $6500 when you consider the clawbacks on the CCB?”

I recall a lot of people complained that “the 1% GST cut was nothing”, and I see the same kind of argument with “$750 after-tax dollars a year is nothing”. At what threshold will the argument shift from “the cuts in taxes/increase in CCB was negligible” to “the government is going to run a deficit”?

I am somewhat serious in suggesting that each family with a child under 6 receive a yearly $10,000 grant, taxable in the hands of the low income parent. Using some simple math, if $6500 was the inevitable after-tax take (which accounts for any decreases in CCB/UCCB since they would be subsequently scrapped), $6500 times 769,000 families means a 5 billion dollar expenditure, which is in the financial realm of the country to actually do. What would be the counter-argument for this? “It’s too much money for parents to handle”? The only people you’d be pissing off are people that consciously decide not to have children in life because children are expensive.

Rarely does anybody talk about the benefits of global warming, but when reading articles like this about a recorded temperature of 120F/49C in Needles, California (a city I’ve passed through and there isn’t much to see!), it makes you think.

One is that with higher temperature usually comes less water in the form of lakes and rivers. Arizona has lots of ‘dry rivers’, and the ‘wet’ rivers (e.g. Gila River) they have are heavily used for irrigation. The Colorado river is extensively used for farming, as is the Rio Grande.

Water is not only critical for farming, but it is also important for power generation, both hydroelectric (which serves a dual purpose with flood control) and nuclear – all nuclear power plants are near water sources to help cool down reactor chambers.

Canada has always been plagued by cold weather winters and short growing seasons, but perhaps global warming will help thaw out the country. The last few days in Vancouver reminded me of a ‘cool’ summer day in Orange County and people can easily survive this. However, the real benefits may kick in with milder winters, especially in the boonie-lands of northern Alberta, Saskatchewan and Manitoba.

Of course there are documented issues, such as the forest pine beetle (which is still spreading because the only thing that kills them is very low temperatures in the winter, something we haven’t had in a decade), but the benefits remain to be seen. One often quoted one is the opening of the Northwest Passage – assuming we can assert the sovereignty over the area.

I picked up a copy of “Made to Measure: A History of Land Surveying in British Columbia” from the local public library. It looks interesting! I will post a review after I read it.

Back in the days of confederation, before there was Google Earth and GPS to guide people, people had to explore the province the old-fashioned way: by foot. Imagine being tasked with marking the 49th parallel border from Vancouver to the Kootenays back then!

I bet the explorers back then got a huge geography shock when they discovered the terrain out west wasn’t like marching along in a relatively flat place like Saskatchewan. Surveyers had to be very resourceful individuals even to survive their jobs.

One doctor, Anna Pou, and two nurses were right in the middle of a hospital when Hurricane Katrina struck. They are now accused of second degree murder – allegedly the patients in question were administered lethal doses of morphine. This is going to shape up to be an interesting case, as it represents a classic moral dilemma.

After Katrina struck, the hospital was without power and water. Sewage was backing up in the toilets and the bottom floors of the hospital were flooded so there was no escape. In addition, it was about 40 degrees Celsius, 100% humidity and help wasn’t at all available. At these temperatures it becomes very difficult not to get heat stroke when you’re young, let alone when you’re sitting in a hospital bed.

So you’re a doctor and you have patients that are in the intensive care unit that would be difficult to save even if you had electricity and water available. It’s apparent that your patients are gravely suffering in the environment and will die soon.

So do you give them a shot of morphine and make them feel better while they die a peaceful death with a reduced lifespan or do you let die a longer death but with significantly more pain?

This dilemma is taught in every morality and philosophy class.

What do I think? It’s one thing to be in the actual situation, and it’s another thing to be analyzing this from an armchair position nearly a year after the fact. I will try to provide a bit of analysis, however.

Please keep in mind that it is a common tactic of most district attorneys in high profile cases to smear the defendants as much as possible during an indictment, and the facts that have been released so far might not even be facts as the evidence is released in trial. I highly suspect that the Louisiana State Attorney General has embellished the actual facts in the news as this has given him a higher profile. This is done to sway juries, potentially forcing a settlement and win more votes from people during the next election.

I also am not a lawyer, so take what I say here with a grain of salt.

Strictly legally, the doctor is probably guilty – if euthanizing patients is done under ‘regular’ conditions (i.e. no hurricane outside that crippled the city and hospital), then it’s a much more clear cut case. However, the condition that the hospital was in, in a declared martial law zone, is cause for consideration.

The law is not the definition of what is moral, which makes this one a sticky issue since we have jury trials for them to judge what a “reasonable” person would do under the circumstance. If a law is morally unreasonable then juries will interpret law as such – an example of this would be what constitutes a valid self-defence if you so happen to kill somebody during an altercation.

The easy argument for the DA’s office to make is that “The doctor could have let them live as long as they could, for hopes that a rescue would have been attempted”. The defense could just as easily say that “These people would have died even if the rescue came in an hour, it was just a matter of how painful the patient died.” This also isn’t an isolated situation – what if keeping those patients alive longer caused other people to die instead? Do you euthanize one patient to save two others?

As such, jury selection will determine who wins the trial. A lot of people have strict moral thresholds, in that they would consider an extra second of life to be worth an infinite amount of pain even if the alternative choice was the human intervention causing the removal of that pain in exchange for the second of life. Likewise, there are people that would think “if I was in that situation, what would I want?” and think that the doctor made the right decision under the circumstances.

It appears no matter which way the jury decides, whether it’s a guilty, not guilty or hung jury, this case is guaranteed to not please a majority of people.

I think the result will be a hung jury.

I keep hearing news stories about how the government might be thinking of calling another election because of decent results in the poll. They would be suicidal to initiate it right now as it will likely cost them a majority government when the subsequent (i.e. the one after “this” one) election is called.

The important variable to watch is the strength (or lack thereof) of the Bloc Quebecois. As long as they are still lagging in the polls and are projected to lose seats in the next election, there will not be an election until at least next year since the Conservatives can use the Bloc’s vote to pass confidence measure legislation. The second reason is because an election now isn’t in the strategic game plan of the Conservatives when they formed government in the first place.

The master plan has always been about looking good in government and then calling an election in the fall of 2007 once they have completely won over the centrist vote. Although this will give time for the opposition Liberals to elect a new leader and come up with a game plan (which actually involves being an effective opposition, something they are not so far), I don’t think the effects of an election right now with a leaderless Liberal party will be all that profound in terms of the seats they would get from an election called now. I would expect the Conservatives to form another minority government if this happened, every party’s standing will be the same plus or minus 10 seats. You could be sure David Emerson would be out of a job.

Instead, the Conservatives will be trying to land a few key pieces of legislation this fall to prepare for what will be a contentious budget in the spring of 2007. Again, the marker to look for is the Bloc Quebecois – if their polls indicate strength at that time, the government will fall and we will have another election. If they look weak, the next election will be in the summer or fall of 2007.

The Conservatives know they don’t stand a chance of winning the Toronto core (which has 20 MP’s) but they do know they can win over some seats in BC, Quebec and the Atlantic, which they are hoping will take them across the 155 seat majority mark. If the Bloc doesn’t deteriorate, this will be a difficult objective as the Liberals generally have good concentration in the urban centres of Toronto, Montreal and Vancouver.

Over the past couple of days, Google Mail has let quite a few spam messages in. While ordinarily this isn’t too much cause for concern, the precision of their filter has historically been at the rate of one miss per month. This week I’ve gotten about 10 so far.

I think this is the result of a lot of “non-spam spam” messages, specifically when you receive mails from people that give you subject lines and texts out of a poetry or Shakespeare book, this is an attempt to “soften up” the filters in such a way that future spams with actual payload (i.e. a link to Viagra) can be passed as valid emails.

No wonder the method of email as a primary use of communication is slowly going out the window.

July 20, 1871 was the day that BC joined confederation. Because this day was so close to Canada day, the government made the first Monday in August as the statutory holiday. But July 20 is the true day. BC is 135 years old and has made remarkable progress in demonstrating to the rest of the country that the west is the best.

Splendor Sine Occasu (Splendour Without Diminishment) indeed! (Yes, I’m that smudge on the lower left hand side).

I have been noticing a plethora of Cobs Breads franchises popping up all over the place, including all the way down in Chilliwack. I have tried their product and while expensive (roughly 50% above comparable market value) for what you are getting, they do produce nice quality products.

That said, I think their business model has a huge flaw in terms of being sustainable. Presumably they can open up franchises at a viral pace since they are the first mover in a market that traditionally has been dominated by big-box retailers (Safeway, Save-on-Foods and Superstore). There is also a lack of perceived competition for “high-grade breads” in the lower mainland – I cannot think of any brands that would sell equivalent products except for single-shop outlets like Capers in Vancouver. However, I can’t see this trend continuing.

Specifically, I think the strategic problem for these shops is that they are going to face increasing competition (which will drive down prices and profits) and they lack a social element (which escalates price competition).

The competition is obvious – if the business is profitable, the business will face competition from other franchises. In addition, I have noticed big-box places like Safeway and Save-on foods offer very similar products at a significant discount to what Cobs would charge its customers.

The second point about the social element is a little more subtle. What makes Starbucks a very viable franchise? The answer is that people don’t go to Starbucks for coffee, they go to Starbucks to chit-chat. Same thing for Tim Hortons and half the restaurants out there. They’re not selling food or drink; they’re selling a venue for people to get together and talk. While places like Safeway and Superstore can sell coffee to people, people hardly go to these places to chat. This is why Starbucks can charge premium prices and make large margins on their product and compete without price pressure – they sell the venue.

Without the ability for a place like Cobs to sell a location to people, they are going to have difficulty charging a premium price for breads. It is very likely that a person would pick up breads at Cobs and then go home to eat, while the same is done if they went to Superstore and bought a ‘premium’ bread product there. It makes a place like Cobs redundant, which is why Cobs is going to have to change their business model.

The logical progression for them is to turn into something like Capers (where you can buy a lunch and eat it there if you wish) or the US equivalent would be Panera Breads, which gave their shareholders a really good return once they figured out the winning formula was not to just sell bread.