More articles like this one makes me feel like it’s 1999, where anybody could make a buck by flipping securities. It replaced casinos as the primary venue for gambling.
My financial proverb is the following: Your skill in finance is not based on how much money you can make while the markets are good; it’s based on how little you lose when markets turn sour.
Now that the battle in the House of Commons appears to be settling down, the attention should now go on the Senate.
There are 105 seats in the Senate, so 53 senators are required for a majority. There are precisely 53 Liberal senators at present, 46 Conservatives. The remainder are 2 Progressive Conservatives, 3 Independents, and 1 “unaffiliated” senator.
Senators must retire at age 75.
The next senator to retire, Joan Cook, will do so on October 6, 2009. This is when the Liberals will no longer have a majority in the Senate.
The Conservatives, however, do have to wait to obtain their majority in the Senate; they will have to wait until May 13, 2011 before appointing the 53rd Conservative senator.
It appears there won’t be a federal election this autumn, despite the timeline that I had thought would be the case in March. I never anticipated that the NDP would have stopped an election. Probably the only people crying about this will be political junkies and the media outlets that would stand to receive a ton of money from the political parties through advertising.
There are seven opposition days that have to be scheduled between now and December 10. They have to be spaced 4 to 7 sitting days apart, with the last opposition day being at most 7 sitting days from December 10. The strange mechanics for opposition days (which the timing is usually at the government’s discretion) is explained by the June 19th deal that was cut between the Liberals and Conservatives.
Between now and December 10, the Liberals will likely receive 4 opposition days, the Bloc 2, and the NDP 1. While it is possible for the government to fall between now and then, it would take extremely offensive legislation that would cause it to occur, such as cutting federal funding for political parties. Right now on the order paper is relatively routine material, such as the Canada-Colombia Free Trade Agreement, An Act to amend the National Capital Act, An Act to amend the Canada Post Corporation Act, etc.
I’m starting to take the view that Javascript calls that force connections to sites that aren’t the source of the script should be disabled by default. This would include calls to sites like Google Analytics.
I notice that the National Post is using a web service called Tynt to notify them what people cut-and-paste (or copy-and-paste) from their web browsers. Users are not informed of this other than the fact that you can see a connection occurring whenever you copy-and-paste something.
There is no way that the National Post (or Tynt) should know what the heck I copy and paste from my web browser.
It’s also just a matter of time until malicious sites just grab whatever is in my clipboard buffer, without solicitation or notice.
Anyhow, I use a Firefox plugin, Blocksite, that you have to manually hack to get to work with the 3.5 version, but otherwise it is a simple and very functional plugin that I have blocked *.tynt.* with.
The abstract notion is that anything that I believe is local to my own machine (e.g. Task Manager processes, data, screenshots, etc.) should not be accessible remotely.
I know my talent is with analyzing and determining core variables of situations, which is hardly fitting for a television show.
But some people have amazing talents in ways that I never would have thought of, and this video is one of them, from Ukraine’s Got Talent.
Just for those not aware of the history – Ukraine is a country that is roughly situated east of Poland and west of Russia. As a result, they got absolutely killed in World War 2, and became part of the USSR afterwards. When the USSR collapsed they became independent again. This is the depiction of World War 2.
Markets will always be there to meet demand.
Apparently in South Korea there is a belief that turning on fans in enclosed rooms will cause death by asphyxiation or poisoning. This is termed Fan Death. As a result in the belief in fan death, fans are equipped with an auto-shutoff timer.
Anthony makes a great post about how entrepreneurs seek to be risk-minimizers. I distinctly recall him making this point to me in person a couple years back, and I still remember his comments to this day. It is good to see it in writing, just in case if I get old and senile.
My two cents on the matter is that most people that (unsuccessfully) get in business for themselves get in trouble with capital assets – they tend to be involved in businesses that are capital intensive (e.g. restaurants) and the ability to convert the fixed asset infrastructure into cash flows is not as easy as it seems on paper, as it requires a lot of operational expertise to be able to do so.
Source document: BC Budget Update, Q2-2009
When the BC Government announced that it will be incurring a larger-than-expected deficit for the 2009-2010 fiscal year, I was the least surprised out of all of the pundits. I have already been quoted on the public record (March 13, 2009) that the deficit will be closer to $2 billion if we see an unemployment rate of 8-8.5% (it is currently 7.8%, but is rising). It turns out that I was a little low with my projections back then, since natural gas prices (which is a significant volatile input) crashed even further since last March.
I do not believe Colin Hansen’s claims that he was not informed by his ministry staff that the $495 million deficit projection was low before the election. Anybody that was awake would have realized that the province’s performance on the revenue side would be far below the expectations presented in the February 2009 budget.
The actual deficit number for 2009-2010 is budgeted to be $2.525 billion, not counting in a $250 million forecast allowance. This number also includes $750 million of the $1.6 billion the province will be getting from the federal government for implementing the HST, so in essence, the projected deficit is closer to $3.3 billion. The total capital budget for the year is $7.4 billion, so the total increase in debt will be about $10 billion. This is a massive increase in debt.
Of note, it is projected the province will be losing $5.46 billion in provincial sales taxes in the 2011-2012 fiscal year (the first full fiscal year after HST implementation), while taking in $5.884 billion from HST. Of note is the elimination of the Hotel Sales Tax (10% in BC), which represents a loss of $157 million. The province will be preserving the 7% sales tax on private used automobile sales, which will net them $101 million extra (despite the fact that private used automobile sales will not incur HST charges).
The net conclusion is that the province will be taking in about $366 million more after the implementation of HST. The province will also be “giving back” about $184 million of this in the form of an increase in the basic exemption (income you can earn without paying provincial income tax) in the same fiscal year. I am still not happy about the HST implementation.
I have read a document that suggests the BC Government will adopt a zero percent small business tax rate in the next budget (it is currently 2.5% provincially, up to $500,000 of small business income earned); if this is the case, then I will be significantly more happy about the government’s performance.
In terms of the expenditure side of the budget, I have prepared a small schedule that outlines the percentage of money spent, by ministry (click on the picture for a full sized version, or here is the Excel file):
As you can see, the Ministry of Health is projected to consume 47.5% of this year’s budget, and is projected to spend 50.7% of the budget in two years. The health ministry is the only ministry that is projected to grow at any significant degree.
Another way to look at this is that the Ministry of Health consumes almost as much provincial resources as all other ministries combined. By 2011-2012, it is expected to consume more than all other ministries.
If the province is to retain any semblance of fiscal conservatism, the only area it can really target to keep spending in line is the health ministry. They have not done this for political reasons, but their hand is likely to be forced in the upcoming years as this ministry continues to consume most of the money the government takes in.
For this reason, I support the government’s policy of increasing MSP premiums to match the increase in healthcare spending. In fact, I do not think they have increased MSP premiums enough. Currently MSP premiums collect about 11.5% of what the Ministry of Health spends; this percentage should be increased over the next five years, and this should be clearly communicated to people that this is linked directly to health spending in the province.
The futures markets are implying the following 3-month interest rates in Canada:
December 2009: 0.45%
March 2010: 0.54%
June 2010: 0.95%
September 2010: 1.45%
December 2010: 1.93%
March 2011: 2.37%
June 2011: 2.75%
September 2011: 3.03%
December 2011: 3.32%
One of the most important aspects of investing is determining relative risk. If you can get a higher return with the same amount of risk, all things being equal, the higher return investment is better.
The example I will use is Holloway Lodging. They trade as a broken income trust (“broken” meaning that they no longer give out distributions to trust holders), but they also have two convertible debentures (HLR.DB and HLR.DB.A). The salient financial details of the company are the following (June 30, 2009):
1. Current Assets: $9.2M, current liabilities: $25.1M; observe this is a distressed situation, and should be treated as such.
2. Property and equipment, net: $346M
3. Mortgages and loans payable (non-current): $149M
4. Convertible debentures (non-current): $65M ($72M face value)
5. All other liabilities: $4M
6. Unitholders’ equity: $137M
The bottom line ($137M) implies that if the company can liquidate its asset base for the book value ($346M), they will be able to pay off all debts (including the convertible debentures) and have $137 million left over for their unitholders. Since the trust has about 40 million units outstanding, and the per-unit trading price is $0.45/unit, it has a market value of $18 million – significantly less. So there is a discontinuity here – the market is saying that the assets are over-valued by roughly $120 million, or that a distressed sale of the assets would result in capturing less value.
If the assets are sold off, the mortgages and loans payable get first crack at the money, followed by the convertible debentures. As there are $164 million in mortgages (current and non-current), it would stand to reason that the convertible debentures would have some sort of recovery if Holloway were to default on its debts.
The two convertibles have the following terms:
HLR.DB – Maturing July 31, 2011, 8% coupon, $20.3M outstanding, market value 74%;
HLR.DB.A – Maturing June 30, 2012, 6.5% coupon, $51.8M outstanding, market value 52%;
The important point is that the two debentures are equal to each other in subordination, but in the event of a default, that you would want to be holding the cheaper debenture. The only market justification for the differing price (other than the coupon rate) is that investors believe that the July 2011 debenture will be paid off first, while the company will have trouble paying off the larger debenture due in 2012.
As such, you are effectively taking the same amount of risk purchasing either debenture, which leads to the conclusion that the cheaper debenture is the better alternative. Another way of thinking about this is that your maximum upside with the first debenture is 35% over 1.9 years, while your maximum upside with the second debenture is 85% over 2.5 years.
Accordingly, I have sold my holdings in the large priced debentures. Because the market for the debentures are so illiquid, it took forever to get the order out the door at an acceptable price. I still own some of the cheaper debenture, and will not mind holding it even if the underlying income trust defaults – they should be made whole even if the underlying properties get sold for two-thirds of book value in a liquidation.