Friday 7 June 2013
2 Speculative Issues
Recently I bought shares in 2 speculative issues. For me this represents a rather dramatic departure from my usual buys. Maybe writing this blog has encouraged me to diversify my interests.
They are:
1) Genworth Financial - The Symbol is GNW on NYSE. GNW is primarily involved with mortage insurance in the US, Canada and Australia. This stock is basically a turnaround story. With a new CEO the company is slowing making a comeback based on the turnaround in the US housing market. They reported solid profits in the latest quarter with good forward guidance. The forward earnings is about $1.40 per share for 2014 giving a forward P/E of 7.5. Yesterday the company announced cost cutting measures. Recently the rating agencies upgraded the company.
2) Essential Energy Services Ltd. The symbol is ESN on TSX. The company is an oilfield service company located in western Canada. I bought this stock based mainly for the financials. The dividend yield is a very nice 3.8%. Forward earnings for 2014 is $0.36 for a P/E of 7.2. Obviously, the company is vulnerable to the oil markets. Reviewing all the reports gives me the impression of a good management team. The stock trades less than $5 per share which is riskly by my standards.
Thursday 6 June 2013
Today's Chess Problem June 6 2013
Today's Chess Problem
June 6 2013
White to Play and Win
1. Re2 Bg3 2. Be1 Bf4 3. Re4 Bh2 4. Bf2 Ke6 5. Rh4 Nf3 6. Rh3++
1. Re2 Bg3 2. Be1 Bf4 3. Re4 Bh2 4. Bf2 Ke6 5. Rh4 Nf3 6. Rh3++
Wednesday 5 June 2013
Today's Chess Problem June 5 2013
Today's Chess Problem
June 5 2013
White to Play and Win
1. Ra1 Bb7 2. Ra5 Bc8 3. Be2 Nc7 4. Rc5 Ba6 5. Bh5 Ne6 6. Rc6 Ng7 7. Rf6+ Kg8 8. Bf7++
Bill Ackman and CP in the News (and Hedge Funds)
I see in the Financial Post that Bill Ackman is selling 30% of his stake in CP Rail. See CP Rail. Why is he selling now? Beats me. There could be many reasons. An obvious reason is to take some profits after a huge runup in the stock.
If my memory has not deserted me this whole CP/Ackman adventure began in mid 2011. Here is the latest chart of CP Rail. I will also include CN Rail just for reference.
Since late 2011 CP has advanced from the $50's to over $120 per share. That looks like over a 100% gain (dividends excluded) over 1 1/2 year period to me. Ackman claims he tripled his money so there appears to be a discrepancy there. In any case it is a very nice return. From the stock price movement I would conclude Ackman, Harrison and the CP team deserve a great deal of credit here. Keep in mind the market and CN Rail have also done quite well. CN is up about 55% over the same time period. Currently CP has a high P/E (over 40) but does have a strong earnings forecast into 2014. My source GlobeInvestor Gold) has an EPS at $7.86 for 2014. Thus, the forward P/E is about 16. In the most recent quarter the company reported excellent results at $1.24 per share. Revenues were up about 9%. The operating ratio dropped to 75.8%.
What are the long term propects? Obviously, I don't know for sure but I do NOT see a natural competetive advantage for CP - in fact maybe the reverse in true (based on the rail routing). Over the long haul I see mean reversion between the two companies. I realize that's not a difficult call to make. Right now CP (and CN) are doing well due to the shipment of oil by rail car from the Bakken oil field in North Dakota and the oil sands in Alberta.
A couple of days ago RBC downgraded CP based mainly on valuation metrics. On the other hand I just read a piece that JP Morgan forecasts $12.50 per share in 2016 and a $200 share price - that seems optimistic to me. At some point we will have a recession. I cannot prove it but it looks like there is a lot of hot money in this stock (momentum players). That worries me and I stay away.
Has Pershing the hedge fund and Harrison added value? After a couple of years I think the answer is clearly yes. Many established Canadian companies have a disease which I refer to as CountryClubitis - this is a malady that seems to affect the most established of blue chip companies (and government). Ackman and Harrison broke the pattern and brought value to the shareholders.
BTW, Ackman in recent years has had some mis-adventures in JC Penny and Herbalife. I don't know much about those investments other than he did not do well (so far). The CP play should ease the pain.
The whole thing with CP/Ackman started me thinking about hedge funds in general and their performance and so on. When I first started getting involved in the markets in the mid 80's hedge funds were viewed as high risk speculative investments. They were mainly an investment vehicle for the wealthy who could afford the fees and also afford the potential losses. (BTW, if you need a backgrounder in hedge funds please see this article Hedge Funds: Past, Present and Future here. or for a more basic explanation see the web site Investopedia here) Nowadays they seem to have evolved to be an "alternative" investment. Even pension funds are investing in hedge funds.
I find the whole hedge fund issue an interesting area of investigation. Do hedge funds outperform the market? Do they have an intrinsic advantage over other market participants? Are hedge funds worth the high fees they charge? Does their collective actions threaten the economy as a whole? Maybe in a future post I might look at these issues.
Disclosure: I have no position in CP or CN (or Pershing Square)
Tuesday 4 June 2013
Book Review - Winner Take All
I just finished Winner Take All by Dambisa Moyo published in 2012. Amazon here.
I was over at Indigo the other day and I saw the book in the investment section. I generally don't go for this kind of book but I figured what the hell. The book is focused on the China effect on the global commodity markets. The book is relatively easy read at just over 200 pages.
To be blunt this book is a decent read but nothing more. The first 200 pages or so concentrate on the many issues around global commodity markets. The emphasis is on the China influence. Many facts and figures are quoted to back up the author's point of view. The author also covers basic workings of the commodity markets including the futures markets. One issue the author does not cover is the leverage employed in the commodity markets. This is an important economic factor. There are huge amounts of borrowed money at work. Trying to figure out how this factor plays out over the coming decades is very difficult (BTW, that is the main reason I generally stay away from commodities).
The problem with economics books is that eventually you will hear the ideological view of the author. This becomes clear in last chapter(s) of the book. If I understand correctly he would like to see a massive collectivist type of action on a global scale to deal with the commodity "imbalances". To quote the author "This fight is about life or death".
Give me a break. This book reminds me of the doomster books that came out at the end of the late 1970's. I lived through that commodity boom and the world turned out just fine. As far as I remember there was never any collectivist action to "correct" commodity markets. The market was essentially left to its own.
While I have sympathy for many of the views of the author I am skeptical of many of his suggestions. Global collectivist actions is like herding cats - in theory it might be done but very difficult to achieve.
Today's Chess Problem June 4 2013
Today' Chess Problem
June 4 2013
White to Play and Win
1. Rf3+ Ke4 2. Rxf2 Kxe3 3. Re2+ Kd3 4. Re8! Bf1 5. Rf8 Be2 6. Rd8+ +/-
S. Isenegger 1947
S. Isenegger 1947
Monday 3 June 2013
Reader's Digest June 3
Some interesting reads this afternoon:
Social Security on Econbrowser
Are You too Smart for the Stock Market?
Slow Start (Tim Duy's Fed Watch)
Swedish Housing - 140 years to pay off the mortgage
Doyle Brunson and Investing
Currency Wars - Peterson Institute
Jeff Saut Weekly Commentary
Pershing to Sell 30% Stake in CP
Sunday 2 June 2013
Today's Chess Problem - June 2 2013
Today's Chess Problem
June 2 2013
White to Play and Win
Solution: 1. Bd5 Ba8 2. Rg6 Bb7 3. Rxd6+ Ke7 4. Bxb7 Kxd6 5. Ba6 ++
J. Marwitz 1941
J. Marwitz 1941
10 Year Yields Are Up and Readers Digest
In case you have not noticed 10 year yields have gone up over the last month or so. It is probably the hottest subject on the investing net right now.
Here is a chart of the US 10 year note over the last year:
However, it does not look like a big deal when viewed over the last 5 years:
The Japanese 10 year is also acting spastically:
The Canadian 10 year is also up a lot (from Bank of Canada):
In nominal terms the moves in 10 year yields are not that large as can be seen in the charting. In raw percentage terms the moves are substantial. The Canadian move is about 25% is percentage terms. Pretty big move considering it is only 1 month. The reason is clear. The FED will be easing off the gas pedal soon and the market is front running this information. Higher interest rates will probably an effect on the real estate market although other sectors are vulnerable as well (such as the consumer).
For me the more important question is how far can this bond move go and what impact will it have on the stock market? The worst bond move I have ever seen coming out of a recession is the 1994 "correction". Bond yields went from about 5.5% to 8% over the course of 10 months. Here is a chart from FRED:
How did the stock market do over the same period (1994):
The S&P 500 was basically flat for the year which is how I remember it. A significant rise in interest rates can certainly have an adverse effect on the economy but I am not going out and selling any stocks. Usually the only time I sell is if I find something good to buy and I need the money or if I think a recession is coming.
Speaking of recessions the Federal Reserve of Cleveland has a great web-site for following recession type indicators:
Cleveland Federal Reserve - Financial Stress index
Basically the stress index is a composite measure of yield spreads. Right now they are indicating virtually no risk of recession. I check into this site about once a month.
Another web-site I visit about once a month is the Philadelphia Fed where I find the Aruoba-Diebold-Scotti Business Conditions Index.
Philadelphia Fed - ADS Index
The ADS index bounces around quite a bit and is more focused on economic indicators. Right now it is neutral.
Of course the main Leading Indicators are published by the Conference Board but they are copyright protected. Also the ECRI (among many others) has a weekly leading index which is free to view.
Some interesting reads over the weekend:
Bob McTeer on Bank Reserves
Calafia Beach Pundit on Corporate Profits (Marty says be careful when investing based on long term charting). Good blog.
Jason Zweig at the WSJ (Scary stuff. Do not buy on margin and use limit orders!)
Sober Look - Emerging Market Review and etc. (good site in my opinion).
John Mauldin on Japan (this is a good one on Japan by Mauldin)
Bonddad on Weekly Economic Indicators (Bondad is a good site but be careful - don't get lost in the forest).
Wells Fargo on Canadian Economy
Wells Fargo - US Capital Flows and the Dollar
Learn Bonds - Good Overview of US Bond Market
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