mcliu

Would it be possible that people can just afford to pay more for a house? This is just a back-of-the-envelope calculation: Toronto Median Detached Home in 2005 was ~$350K. Avg. Mortgage Rate: 6%. Median Household Income ~$65K Toronto Median Detached Home in 2014 was ~$600K. Avg. Mortgage Rate: 3%. Median Household Income ~$72K If you assume a 70% LTV at those rates, interest expense in 2005 would be $15K and in 2014 would be $13K. Given that household income has risen while interest expense has declined.. http://creastats.crea.ca/treb/mls/mls05_median.htm http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm

You should be able to find the proxies on SEDAR.

Just playing the devil's advocate here, even though P/Rent or P/Income ratios are higher than historical averages, mortgage rates and bond yields are also lower than historical averages. Adjusting for that, maybe housing prices aren't as overvalued as it seems? That obviously changes if mortgage/interest rates go back to or above historical averages. However, what about the off chance that we have another decade or two of low/declining/negative interest rates? ::)

Isn't the issue here stock buybacks vs. capital expenditures/r&d and not stock buybacks vs. dividends?

Most companies and managers being bad is a general problem, it doesn't have anything to do with buybacks specifically. Whatever system you put them in, most people will make mistakes, follow the herd, put their interests above the shareholders', grow for growth's sake, waste money, focus on the wrong things, follow fads, etc. Investors get more of a choice with buybacks than with dividends, actually. With dividends you don't have a choice but to get it and pay taxes. With buybacks, you can decide to sell shares in pro-rata to the buyback or not (and then be taxed less). Certainly, if buybacks are done properly, they are somewhat more tax-efficient by allowing you defer taxes. However, the key is if they are done properly. If you believe that on average share buybacks are value-destructive (or even non-value-enhancing), and that shareholders are better capital allocators, than perhaps dividends offer a better route for investors despite the lack of tax deferral. I'm not suggesting that the mechanism itself is flawed, merely the incentives that allow most companies to exploit this mechanism. I mean if we assume a world where buybacks aren't allowed. Then you have less situations where companies would repurchase stock at 100x P/E to push up stock prices vs. investing in R&D/factories that can generate large returns 20 years down the road or paying a dividend to shareholders who can reallocate the dividends. Obviously, you can argue that the company may just use the excess cash to purchase a couple of corporate jets. However, from an optics perspective, shareholders would easily dismiss that as excessive and wasteful. On the other hand, things like poorly timed share buybacks continue under the veil of shareholder-friendly governance.

The article does raise some issues: First, companies are exactly great at capital allocation. With dividends at least investors get to make the choice.. Second, short-term incentives may push companies toward buybacks that lift the stock price above option strikes rather than pursue value-enhancing investments that payoff over the long-term. From the CEO and board's perspective, they don't really know how long they'll be at the company for, and their stock options have finite lives. So, why pursue something that will pay off decades years down the road when they can buy stock, get a huge bonus and quit/retire/get fired?

Or it may be worse of active value investors, since all the non-value investors and dumb money are investing in ETFs, the only remaining investors that compete with each other are smart active value investors? :o

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/calgary-housing-market-hits-seven-year-low/article22749863/?cmpid=rss1

Why can't Saudi Arabia just produce more at lower prices in order to support their budget?

Full transcript Very interesting. Thanks! The net effect may not be as positive as it seems since only a quarter of the savings is actually being spent. That spending is also offset by cuts in capex and spending in O&G..

How do you determine whether the money saved from lower fuel prices will be spent vs. used to pay off debt or saved?

Just theoretically speaking, what would you do assuming most markets do reach 2007 levels? Would you hold cash or some sort of alternative currency or just buy the cheapest stocks in an expensive market?

Your avatar?

Good to hear that, I didn't like the acquisition either even though it's worked out quite well for the share price. I'm surprised at how overvalued the shares are getting given how much the risk profile has increased. Guess the sell-side was pretty ecstatic about the acquisition on the call and may be pumping it to their clients now.

What kind of impact will a devalued Euro have on US growth?

http://www.airdrie.ca/getDocument.cfm?ID=2722 http://renx.ca/wp-content/uploads/2014/10/14oct16-ColliersQ3-caprates1.pdf Sub 4.5% cap rates in Vancouver/Toronto for multi-family units.

I think the impact will be more on your future consumption rather than the deficits that has accumulated in the past. As an example, look at the impact of the plunging rouble on Russia consumers. The prices of imported products have risen significantly while incomes have not. I mean, like its micro-participants but on a macro level, a country can't continue to consume beyond its own productive capacity without sacrificing some consumption in the future. Sure, companies and people trade, but that doesn't change anything. As an example, A sells widgets to B and demands payment in fiat currency. If A doesn't believe that A can redeem fiat currency for anything, A may demand payment in gold from B. While B has an infinite supply of fiat currency, B will have a limited amount of gold. How will B continue to consume widgets as before? Got you. Well, maybe B should be buying gold now while he can? True, B should be doing that and also as anders suggests, buying land, businesses and other productive assets of A with the fiat currency.

I think the impact will be more on your future consumption rather than the deficits that has accumulated in the past. As an example, look at the impact of the plunging rouble on Russia consumers. The prices of imported products have risen significantly while incomes have not. I mean, like its micro-participants but on a macro level, a country can't continue to consume beyond its own productive capacity without sacrificing some consumption in the future. Sure, companies and people trade, but that doesn't change anything. As an example, A sells widgets to B and demands payment in fiat currency. If A doesn't believe that A can redeem fiat currency for anything, A may demand payment in gold from B. While B has an infinite supply of fiat currency, B will have a limited amount of gold. How will B continue to consume widgets as before?

By the same token. The so-called trade deficit isn't necessarily a bad thing for the U.S. and in the long term it may end up that the other side got the short end of the stick. And the market will not care that you held the opposite opinion. Humility is indeed important. There are multiple ways to look at this, but in general trade always benefits both sides, that is true even if money always flows in one direction and goods in the other. The trade deficit isn't necessary a "problem". My trade deficit with my local grocery store is huge, they never buy anything from me, but I don't consider this a problem at all. I think a better analogy would to think as if you're buying from your grocery store with money that you've borrowed from the grocery store. If the grocery store believes that you could return the money with interest in the future, then it's not a problem at all. It becomes a problem when the grocery store stops believing in your ability to return the money.. But to further the analogy I also have the ability to inflate the debt away. I think what you mean is that you have the ability to print your own money to return to the grocery store. In that case, you will always have the ability to return the money that the grocery store has lent you. However, as you continue to borrow and print your money to return to the grocery store, will the grocery store continue to believe that the money that you've printed for them has value? If not, will the grocery store continue to sell to you?

By the same token. The so-called trade deficit isn't necessarily a bad thing for the U.S. and in the long term it may end up that the other side got the short end of the stick. And the market will not care that you held the opposite opinion. Humility is indeed important. There are multiple ways to look at this, but in general trade always benefits both sides, that is true even if money always flows in one direction and goods in the other. The trade deficit isn't necessary a "problem". My trade deficit with my local grocery store is huge, they never buy anything from me, but I don't consider this a problem at all. I think a better analogy would to think as if you're buying from your grocery store with money that you've borrowed from the grocery store. If the grocery store believes that you could return the money with interest in the future, then it's not a problem at all. It becomes a problem when the grocery store stops believing in your ability to return the money..

Does anyone know what the chances are for these brokers to recover the losses from their clients? Is there any recourse on margin debt?

Hi Gio, just curious to know, is there a point at which would you become fully invested? Or is a large cash balance a permanent fixture? For example, I think you mentioned that FFH is a large % of your portfolio, so clearly you believe that it's undervalued relative to its opportunities. Given that, why not invest the remainder of your cash into FFH, rather than hold it in cash? Or is the alternative, holding cash and waiting for opportunities like waiting for FFH to drop below BV and purchasing it then? Assuming that does happen, when FFH moves below BV and you put all your remaining cash balance into it, do you sell to recover your cash balance when the stock price moves higher than BV?

You're from Fernbank Partners? Congrats on your investment! Do you have any thoughts on the acquisition? The market seems to really like it.

Thanks, that was helpful. It just seems so odd that short sales are considered income and not capital gains.

A couple of Canadian tax questions for the end of the year: 1) Are the gains/losses from shorting stocks treated as income or capital gains? Judging from this: http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html , it seems like it should be treated as income.. Can anyone confirm this? 2) With the US$ gaining so much on the C$, I've sold some stocks where I've lost money in US$ but made money in C$ terms. Since CRA requires you to convert your transactions to C$ when reporting (even if you don't actually convert the US$ into C$), I would have to pay taxes on these money-losing trades as a result of the implied exchange gain.. Does that make sense or am I missing something?