Alan Pasnik - Seeking Value Around the World – and Ending Up in Canada

Wednesday, March 3rd, 2010

Alan Pasnik, Portfolio Manager for Mackenzie Saxon Global Explorer Fund, discusses looking for value around the world and ending up in Canada with Dan Richards of Clientinsights.

Pasnik likes Sun Life Financial - Great Canadian and US Insurance operations, plus it distributes mutual funds via MFS - says its trading about 30% below its NAV. In the small-cap area he likes Cangene Corp. which he says is trading at about 5-6X this year’s earnings, “and should trade considerably higher than that.”

Pasnik has half of his holdings in energy and financial services. Pasnik comments that global growth in energy production has been flat for about 4 years, so he anticipates that oil prices will go higher. As for financials, they have always been a good business with a high return on capital, and a high return on equity.

Pasnik says, the growth in oil demand is probably going to come from Brazil, India, and China, which are growing in leaps and bounds. More and more people are buying cars. Pasnik prefers to invest in Canada and the U.S. rather than directly in China if he can. Another financial Pasnik likes is Reinsurance Group of America, trading at about 6 times this years earnings and slightly below book value, and tremendous growth potential.

Pasnik hedges against the Canadian dollar when investing abroad to reduce the dampening effects the rising loonie can have on investment returns.

His outlook for 2010: Reasonably optimistic, but as we’ve seen, things could get bumpy. He thinks the global economy should do well over the next 5 years.

Date: 2010-02-22

Tags: Buying Cars, Canada, Cangene Corp, Compendium, Dan Videos, Energy Production, Global Economy, Global Explorer, Global Growth, Good Business, Hedges, Insurance Operations, Leaps And Bounds, Loonie, Mackenzie Financial, Mfs, Oil Demand, Oil Prices, Portfolio Manager, Reinsurance Group Of America, Return On Capital, Return On Equity, Sun Life, Target
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Canada a step closer to hiking rates from record low?

Tuesday, March 2nd, 2010

By Peter Bookvar, via Big Picture

After Australia raised rates to 4% as expected, the other major commodity country, Canada, decided to leave rates unchanged at their record low of .25%, as expected. They also repeated that policy won’t change before the end of Q2 but they hinted that they could go up soon after as they said “core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity.” They also said “the level of economic activity in Canada has been slightly higher than the bank had projected” in its Jan report. Rates have been at record lows because of the BoC’s concern with economic growth in the US, Canada’s biggest trading partner, and due to the strength in the Canadian $ which today is rallying to a 6 week high vs the US$ but the time has passed for record low interest rates in Canada considering their more positive outlook and bubbly housing market.

Tags: 6 Week, Australia, Big Picture, Boc, Canada, Commodity, Core Inflation, Country Canada, Economic Activity, Economic Growth, Hiking, Housing Market, Low Interest Rates, Partner, Positive Outlook, Q2, Record Lows
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NBC’s Brian Williams Leaves Canada Thank You Note

Tuesday, March 2nd, 2010

NBC’s Brian Williams leaves behind a thank you note for Canada. If you haven’t read it, take a moment, and feel great to be Canadian…

After tonight’s broadcast and after looting our hotel mini-bars, we’re going to try to brave the blizzard and fly east to home and hearth, and to do laundry well into next week. Before we leave this thoroughly polite country, the polite thing to do is leave behind a thank-you note.

Thank you, Canada: For being such good hosts. For your unfailing courtesy. For your (mostly) beautiful weather. For scheduling no more than 60 percent of your float plane departures at the exact moment when I was trying to say something on television. For not seeming to mind the occasional (or constant) good-natured mimicry of your accents.

For your unique TV commercials — for companies like Tim Hortons — which made us laugh and cry. For securing this massive event without choking security, and without publicly displaying a single automatic weapon. For having the best garment design and logo-wear of the games — you’ve made wearing your name a cool thing to do.

For the sportsmanship we saw most of your athletes display. For not honking your horns. I didn’t hear one car horn in 15 days — which also means none of my fellow New Yorkers rented cars while visiting. For making us aware of how many of you have been watching NBC all these years. For having the good taste to have an anchorman named Brian Williams on your CTV network, who turns out to be such a nice guy.

For the body scans at the airport which make pat-downs and cavity searches unnecessary. For designing those really cool LED Olympic rings in the harbor, which turned to gold when your athletes won one. For always saying nice things about the United States…when you know we’re listening. For sharing Joannie Rochette with us. For reminding some of us we used to be a more civil society.

Mostly, for welcoming the world with such ease and making lasting friends with all of us.

Tags: Anchorman, Automatic Weapon, Brian Williams, Canada, Car Horn, Ctv Network, Exact Moment, Float Plane, Garment Design, Good Taste, Home And Hearth, Joannie Rochette, Massive Event, Mimicry, Mini Bars, Nice Things, Olympic Rings, S Brian, Sportsmanship, Tim Hortons, Tv Commercials
Posted in Markets | 3 Comments »

Tom Brokaw Explains Canada To Americans

Monday, March 1st, 2010

Tags: Canada, Tom Brokaw
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David Fuller (Fullermoney): Concentrate Long-term Investments in Low-Risk Countries

Sunday, February 28th, 2010

“There has been a great deal of discussion in the financial press about whether Greece will successfully navigate the crisis it now finds itself in, if the Eurozone will survive a sovereign debt default should one occur and if there is a risk of contagion for countries such as the UK, Japan and the US. These are all important questions which we will have definitive answers for in the coming months and years but to my mind there is a more important question that needs to be addressed first.

“All the issues facing these governments are in essence related to a problem with too much debt and leverage and not enough tax receipts to pay it down. The questions so far have focused on how one country or another might survive this crisis but from the perspective of a judge at an international beauty contest do we want to invest in these countries at all since there are plenty more where these problems are relatively minor if they exist at all?

“Commodity producers such as Australia and Canada have come through this crisis comparatively unharmed. Most of the others are primarily in the so-called emerging markets. Brazil is now a net creditor, China has the biggest foreign currency reserves in the world. Large numbers of countries in Latin America and Asia run trade surpluses. If we look at the world with a broader perspective we see clearly where risk and leverage are concentrated.

“The outcome of the major challenges facing the US, UK, Eurozone and Japan are crucial because of the effect they have on the global market. However, we do not have to invest in the debt, currencies or equities of these countries. Others are better equipped to deal with these issues from a position of strength. They have shown to be credible managers of their economies in a truly testing era and it is surely in these countries one should concentrate long-term investments.”

Source: David Fuller, Fullermoney, February 24, 2010.

Tags: Canada, Commodity Producers, Contagion, Countries In Latin America, Creditor, Currency Reserves, David Fuller, Debt Default, Definitive Answers, Emerging Markets, Eurozone, Foreign Currency, Fullermoney, Global Market, International Beauty Contest, Large Numbers, Leverage, Sovereign Debt, Tax Receipts, Term Investments, Trade Surpluses
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David Rosenberg: Canadian Inflation a Non-Event

Friday, February 19th, 2010

CANADIAN INFLATION A NON-EVENT

The headline inflation rate did tick up to 1.9% YoY from 1.3% in December but this reflected soaring energy costs and the depressed base of a year ago (prices rose 0.3% MoM). The core came in tame at +0.1% MoM, but again base effects took the YoY trend up, to 2.0% from 1.5%. Once the base effects subside, look for the 3.5% output gap and the strong Canadian dollar to exert a renewed downtrend in coming months.
As for the Bank of Canada, all we can do is point to the article in yesterday’s National Post - Tories Plan ‘Specific’ Spending Cuts in Budget - as a sign that if there is any tightening to be done this year, it will be in the realm of fiscal policy. And, the proposed stimulus pullback by a deficit-wary Federal government is going to take a whole lot of pressure off the Bank of Canada, in our view.

Read the summary of today’s report here.

Read the complete report here.

Tags: Canada
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Canada Moral Hazard Corporation?

Monday, February 15th, 2010

As the world’s spotlight turns to the Vancouver Olympics, all eyes will be on Canada. Our nation suffered comparatively less than other G7 economies during the last recession, and our banking system has received praises for being good and boring (read the Sceptical Market Observer’s comment on this).

To be sure, our economy is adding jobs, our stock market has rallied sharply, our currency is close to reaching parity with the USD, commodity exports are up, everything looks great. A buddy of mine even told me that our currency is being bought by central banks around the world. Canada seems to be on a tear.

But things are far from perfect. For one, there is a housing bubble in the making that could last a lot longer than people think. Stephen Jarislowsky, one of Canada’s best known investors, says he believes government measures aimed at juicing the housing market has put the sector in a bubble:

“I am convinced there is a housing bubble in Canada,” Mr. Jarislowsky told Bloomberg News. “… I conclude that the prices of housing today in the U.S. are cheaper than they should be, and that the prices in Canada are far more expensive than they should be.”

Mr. Jarislowsky is not alone. Other economists have also fretted about a bubble given the stunning rebound in real estate after the slump, and projections for record sales and prices this year. Ottawa is now considering tightening some rules. Said Mr. Jarislowsky: “They have basically encouraged people to buy houses based on cheap mortgages. That has created the opposite effect of what was desirable.”

Then, there is what Peter Foster of the National Post calls the Canada Moral Hazard Corporation:

There has been much official chest swelling over Canada’s relatively strong performance during the financial crisis, but perhaps Canadians shouldn’t — if you’ll excuse the mixing of metaphors — be counting their chickens until they are sure that there are no black swans present. And in fact there does seem to be one dark, plump, bird looming around the back of economic barnyard: the Canada Mortgage and Housing Corporation. Or is that a turkey that should be renamed the Canada Moral Hazard Corporation?

The CMHC was never given a cutesy acronym like its U.S. equivalents, Fannie Mae and Freddie Mac. But why not “Morrie Haz,” acknowledging that it has always been an instrument of moral hazard, the situation where insurance makes the insured-against event more likely?

As we know, Fannie and Freddie — which were privately-owned but “government-sponsored,” which meant they inevitably got bailed out — were front and centre in the U.S. housing market meltdown, which in turn precipitated the global financial crisis.

There are increasing concerns that the Canadian housing market is headed the same way as that of the U.S., stoked by the same factors: artificially low central bank interest rates, and the government insurance/promotion of risky mortgages.

This policy double whammy explains the growing calls for somebody — banks? CMHC? Carney? Flaherty? Anybody else? — to tighten mortgage regulations. These requests appear puzzling until we realize the role of the CMHC in encouraging perverse behaviour.

In a free market, if banks felt a housing bubble building, they would simply tighten standards themselves, either by demanding higher credit qualifications, hoisting rates, or shortening amortization periods. Hoisting rates is out of the question, since rock bottom mortgage rates are now considered by the Bank of Canada to be essential to national economic recovery and protection of our export industries. That leaves Morrie Haz waiting there to insure mortgages, and gives the banks every incentive to hand out any loan that can get insurance. However, they obviously grasp that such cosmic policy fecklessness will ultimately come back to haunt them.

A couple of weeks ago, Peter Routledge of credit analyst Moody’s pointed out that the overheating of the housing market was goosing an unsustainable increase in household borrowing more generally. “As witnessed in the United States,” he wrote, “this movie does not end well.” Specifically, once the punchbowl of low interest rates disappears, households find themselves in trouble, and so do their bankers.

Mr. Routledge noted that Canadian banks likely wouldn’t wind up in the same depths as their U.S. counterparts, but that is only because their riskiest mortgages are backstopped by CMHC. But this makes the systemic threat to the Canadian economy greater.

The U.S. crisis was massive but did not fall entirely on Fannie and Freddie. It was shared with other financial institutions. Nevertheless Fannie and Freddie both failed and had to be taken into government “conservatorship.” Mr. Routledge suggests that the situation is more “secure” in Canada, but as a recent report from the Fraser Institute points out, what this really means that the Canadian system features “massive taxpayer exposure.”

Mr. Routledge suggested that CMHC should tighten its insurance criteria, and this week he was seconded by former Governor of the Bank of Canada David Dodge.

The Fraser study, by Neil Mohindra, confirms that the taxpayer risk from a housing collapse is greater in Canada than elsewhere. He notes that a stunning 90% of all insured residential mortgages in Canada are covered by the CMHC. This amounts to an estimated $480-billion for which Canadian taxpayers would be on the hook if the housing market tanked (although any loss would obviously only be a fraction of this amount).

The study suggests that the CMHC’s activities should be privatized, but that possibility appears a long way down the road, both for practical and political reasons. The biggest problem is that nobody is going to want to privatize a property which harbours a potential time bomb.

The whole thrust of CMHC insurance is to encourage banks to make riskier loans. Normal insurance provisions are based on actuarial principles. CMHC insurance is based — like the activities of Fannie and Freddie — on promoting home ownership. Mixing social and economic objectives usually ends in taxpayer tears.

There is no indication that the Canadian mortgage market has been subject to the lunacies of the U.S., where — for a while — anybody with a pulse could get a home loan. Still, high ratio mortgages — that is, ones with down payments as low as 5% — inevitably carry a hefty risk of default when a bubble bursts. That default then becomes the CMHC’s problem.

As such, notes Mr. Mohindra, Canada is not a model for anybody. Morrie Haz has always been an accident waiting to happen.

According to Moody’s Mr. Routledge, “If policymakers deploy the appropriate tools early rather than late in this period of household credit expansion, perhaps the Canadian movie will end differently.”

But Finance Minister Jim Flaherty knows that ending the party is not going to be popular, which is where inevitable political self-interest compounds those practical problems. Meanwhile CMHC isn’t just a provider of potentially reckless insurance and the depository of last resort for mortgage assets the banks don’t want. Yesterday a representative of Diane Finley, Minister of Human Resources and Skills Development, who is also responsible for CMHC (go figure), was in Montreal handing out stimulus slush under Canada’s Economic Action Plan.

Mr. Flaherty doesn’t want to see a bubble, much less a bomb. But when it comes to which movie we’re coming to the end of, maybe he should check out The Hurt Locker. Just in case.

Of course, lenders like ING, oppose any clampdown to rein in mortgage borrowing. Sound familiar? I agree with Stephen Jarislowsky and I also fear that this movie isn’t going to end well. Enjoy the Vancouver games, because I feel a post-Olympics winter chill headed our way.

Tags: Banking System, Black Swans, Canada, Central Banks, Cheap Mortgages, Chickens, Commodity Exports, Financial Crisis, Government Measures, Housing Bubble, Housing Market, Jarislowsky, Metaphors, Moral Hazard, Parity, Praises, Recession, Record Sales, Slump, Swans, World Canada
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Why Valentine’s Day Just May Be The Healthiest Day Of The Year,
and other Weekend Reads

Friday, February 12th, 2010

Valentine’s Day and the Chinese New Year fall on the same day!

A Chinese proverb states that all creations are reborn on New Year’s day. The Chinese New Year is a celebration of change … out with the old and in with the new!

It’s a great time to be thinking about your Heart Health. Here are some weekend reads we wanted to share with you. Wishing you and your family a Happy Valentine’s Day!

Stretch Your Legs, Save Your Life

Sitting behind a desk all day or driving in a long commute can already wreak havoc on your back and your backside, and then add to that lazing on the couch after an arduous work week, your body is in danger of too much rest.

Staying Healthy: Healthy Habits for Men

Juggling jobs, relationships, social obligations, bills, and staying on top of a healthy gym routine is a lot to handle. As a woman, trying to find the time to eat better seems to be the last thing on my list and it can’t be much easier for men. Here are a few tips for making men’s lives a little bit better from morning to night:

A Stressful Lifestyle Can Cause Adrenal Fatigue

Adrenal fatigue can also lead to insomnia. While some natural remedies for insomnia may relieve the problem temporarily, if the underlying cause is in the hypoadrenalism, the adrenals will need to be healed for lasting relief to occur.

Why Do Men Die Younger Than Women?

We take it for granted that women live longer than men. This is the case in over 98 percent of countries in the world. In the United States, average life expectancy is over five years more for women than for men.

Does Your Breath Make Cupid Faint? How To Keep Your Bad Breath From Wilting Her Valentine’s Day Flowers

So, you’ve bought the candy, the diamond necklace, made the reservations at her favorite restaurant and had your suit cleaned and pressed. Still, even if you earn that special Valentine’s Day kiss, it won’t make a difference if your breath is so bad that it could motivate the dog to leave the room.

Aren’t Your Friends the Loves of Your Life Too? Why Not Start Having Valentine’s Day Lunches To Celebrate Close Friendships (PHOTOS)

Leave it to the Greeks to understand the many nuances of love. Unlike any other language, Greek has five words - not one - to delineate the enormity of love: the love derived from friends and family, the love of work, the love for children and the intense passions stirred by a lover.

Why Valentine’s Day Just May Be The Healthiest Day Of The Year!

Many people eagerly await Valentine’s Day, and for good reason! Whether you are with a loved one, family or friends various Valentine’s Day traditions can benefit your body, mind and spirit. And for these scientific reasons, it might just be the healthiest day of the year.

It’s good to go nuts

February is Heart Month, the perfect occasion to eat right, including snacks that love your heart right back. And this includes nutritionally dense almonds.

An equal opportunity killer

Cardiovascular disease has traditionally been seen as something that afflicts middle-aged or elderly men. Turning 40 and trudging off to the doctor for a checkup so you can rest assured that you won’t drop dead during a weekly game of pickup hockey has been almost a rite of passage for middle-aged men.

Dark Chocolate May Lower Stroke Risk

If choosing among white chocolate, milk chocolate or dark chocolate, “I’d definitely go with the dark chocolate,” said Saposnik, director of the Stroke Research Unit at St. Michael’s Hospital in Toronto.

Tags: Adrenal Fatigue, Adrenals, Arduous Work, Average Life Expectancy, Canada, Chinese New Year, Chinese Proverb States, Diamond Necklace, Favorite Restaurant, Gym Routine, Happy Valentine, Healthy Habits, Heart Health, Hypoadrenalism, Lazing, Long Commute, Natural Remedies For Insomnia, Social Obligations, Staying On Top, Stressful Lifestyle, Valentine S Day
Posted in Markets | 1 Comment »

Ian Ainsworth - The Case For High Technology

Thursday, February 11th, 2010

Ian Ainsworth, 25-year veteran fund manager, and two time Canadian Investment Awards winner, discusses the case for high technology with Dan Richards, of Client Insights.

Source: ClientInsights.ca, February 10, 2010

This video interview is just one of many produced recently by Dan Richards, in an effort to bring the industry and market closer to the people who manage money. Find this and many other fund manager interviews at http://www.ClientInsights.ca.

Tags: Ainsworth, Awards Winner, Canada, Canadian Investment Awards, High Technology, Insights, Money, People, Veteran, Video Interview
Posted in Bonds, Markets | No Comments »

David Rosenberg: How to Play Inflation

Thursday, February 11th, 2010

Here is a reprise of David Rosenberg’s thoughts on how to prepare for inflation, from Breakfast with Dave, December 15, 2010.

HOW TO PLAY INFLATION?

There is no sense in being dogmatic. But just in case inflation were to stage a comeback, this is how one would prepare for it:

• Precious metals (while gold grabs the spotlight, silver has surged 52% this year and has far outpaced the 27% runup in gold; and the gold/silver ratio, while down from a peak of 84 to 66, is still above the average of 54 over the past three decades).
• An even steeper U.S. yield curve!
• TIPS (or real return bonds) - the 5-year TIPS breakevens right now point to an inflation expectation of just over 1.7%, whereas consumer expectations are closer to 2.6%.
• Short-term duration corporate bonds (and go out the credit curve).
• Commodity currencies - Canadian Loonie, New Zealand Kiwi, Aussie dollar, Brazilian Real, and Norwegian Kroner.
• Basic material stocks (including energy) as well as consumer staples (tobacco, food/beverage).

We don’t have a big inflation view, but you never score brownie points by being dogmatic. If (when?) the massive amounts of fiscal and monetary stimulus ever do show through in final inflation (this will hinge on a renewed expansion in household balance sheets and a fresh credit-creation cycle), these are the areas that would likely garner the most investor interest.

Source: Breakfast with Dave, December 15, 2010

Tags: Balance Sheets, Brownie Points, Canada, Commodities, Consumer Expectations, Consumer Staples, Corporate Bonds, Credit Creation, David Rosenberg, Food Beverage, Gold, inflation, Investor Interest, Massive Amounts, New Zealand Kiwi, Norwegian Kroner, precious metals, Real Return Bonds, Runup, Stimulus, Term Duration, Three Decades, Yield Curve
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David Rosenberg: Update and 5 Ways to Protect a Portfolio in a Deflationary Backdrop

Tuesday, February 9th, 2010

Below is an excerpt from Breakfast with Dave, February 9, 2010.

“We highlighted yesterday what this means for asset classes and sectors: If past is prescient, it would mean a test of 900 on the S&P 500 with defensive “yield” sectors taking over leadership (utilities, staples, health care — in fact, biotechs have held in very nicely during this recent market selloff). Bonds outperform stocks (with the Treasury market undergoing a bull-steepener — though see below why a bond rally may be led by the longer end of the curve this time around). Volatility increases substantially. Credit spreads widen and commodities get crushed. This is a time for conservative investing with cash on hand to be put to work once better valuations emerge — we are not quite there yet, in our view.

“It always pays to look and see how the market is positioned — this would have helped a lot when the appetite for risk peaked in late 2007 and reappeared in early 2009. So, we look to the Commitment of Traders report that is published every week and look at the “net” long or short position across the various asset classes (futures and options), particular among the ‘non commercial’ accounts, which is a proxy for the ’speculators’ or momentum investors.

We found that even after the move towards risk aversion and defensive positioning in recent weeks, there may be more to go. The VIX still has a net short position of 2,395 contracts. There are 9,225 net long Dow contracts and as far as the S&P 500 is concerned, speculators are still net long 99,675 contracts. The Australian dollar still commands a net long position of 33,524 contracts; and 17,209 net long contracts out there for the Canadian dollar.

There are 90,709 net short contracts with respect to the 10-year Treasury note, but 173,637 net long positions for the 2-year Treasury note (this would actually augur then for a bull flattener if these shorts on the 10-year not close out). The long bond is still net short by 92,358 contracts — again, if these shorts are covered then we could get one humdinger of a rally at the back end of the Treasury curve.

In the commodity space, only natural gas has a net short position (81,010 contracts) – there are 160,232 net long crude oil contracts, 222,282 net long gold contracts and 18,069 net longs on copper. Invest accordingly.

All we can say is that here we are with a 0% policy rate, a $2.2 trillion Fed balance sheet and a massive 10.5% deficit-to-GDP ratio and the strong undertow of deflation has not gone away, and governments have few, if any, bullets left in the chamber. We have industrial metals prices coming under downward pressure, price wars in the telecom sphere, and of course, ever since the Department of Agriculture told us last month that this year will provide a bumper crop of farm products, we have seen the likes of corn prices plunge 16% and soybeans by 7% (see page C1 of the WSJ for more). Below we list how to position the portfolio for a deflationary backdrop.”

FIVE WAYS TO PROTECT A PORTFOLIO IN A DEFLATIONARY BACKDROP

1. A focus on safe yield, wherever you can get it. High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs)
2. Equities: focus on reliable dividend growth/yield; preferred shares (”income” orientation)
3. Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios – balance sheet quality is even more important than usual. Avoid highly leveraged companies at all costs.
4. Ultra-selectivity with regard to financials. Same for retailing.
   
5. Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care).
   

Tags: Asset Classes, Australian Dollar, Biotechs, Canada, Canadian Dollar, Commercial Accounts, Commitment Of Traders, Commitment Of Traders Report, Commodities, David Rosenberg, Futures And Options, Gold, Momentum Investors, Move Towards, oil, Risk Aversion, Selloff, Short Position, Speculators, Staples, Treasury Market, Valuations, Vix, What This Means, Year Treasury Note
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Canadian Housing Bubble?

Tuesday, February 9th, 2010

Tags: Bank Lenders, Barry Ritholtz, Borrowers, Canada, Canada 2, Cleveland Fed, Hodge Podge, Housing Bubble, Housing Market, Insurance Mortgage, Investment Houses, Ltv Ratio, Mortgage Debt, Mortgage Insurance, oil, Pmi, Recourse, S Market, State Regulators, Subprime Market, Subprime Mortgages, Wsj
Posted in Markets | 5 Comments »