Hoodlum

Well, it was a little worse than I expected. Not sure what the market was thinking over the past few weeks as it drove up the price of FFH. The same thing happened last quarter. So FFH was trading about 13% above Q1 book $354US ($337cnd).

I picked up some MERC today for the first time. It seems a better value than FBK right now.

What I find interesting with the recent rise of FFH is that it has happened at the same time the Canadian dollar has risen ($1.04) and the 10 year bond yields continue to rise (nearing February highs).

Here are some more comments on Canadian house prices. http://www.theglobeandmail.com/globe-investor/investment-ideas/experts-podium/signs-point-to-a-severe-housing-correction-in-canada/article1979229/ The current consensus is that Canada’s real estate market has achieved a “soft” landing and that prices will flat line but not decline substantially over the next several years. I disagree. The housing market in Canada is already in bubble territory. Average house prices have doubled in the last 10 years, while rents have risen by only about 30 per cent. The ratio of house prices to rent is now higher in Canada than in any other developed country. An even more powerful indicator also points to a severe housing correction in Canada. Residential housing investment as a percentage of GDP was 6.48 per cent in 2009, down slightly from 6.76 per cent in 2008, after peaking at 7.13 per cent in 2007. The previous peaks were at 7.26 per cent in 1976 and 7.18 per cent in 1989 – and we know what happened to the housing market in Canada in the early 1980s and early 1990s. After residential housing investment as a percentage of GDP peaked in the previous two cycles, the housing market crashed within a few years. I believe we are running out of time. By way of a comparison, this ratio peaked at about 6.1 per cent in the U.S. in the mid-2000s at the height of its housing bubble, and toward the end of the 1980s in Japan, when that country was nearing the end of its own property boom. Both countries experienced sharp declines in housing prices soon afterward. (I should mention that the ratio stands at 6.0 per cent in China at the end of 2010 – no wonder there is talk of a bubble in the Chinese housing market.) Canada is past the point of no return. What has propped up the housing market in Canada and delayed the correction is artificial demand from Asian investors. While it is not clear when this demand will dry up, it eventually will. Once it does, watch out.

The market seems to be suggesting this won't drag on. This is just one industry as I know Sony is getting hit hard from this. Canon is projecting a 27% drop in earnings from the earthquake. The Nuclear problem has added a significant level of complexity that previous earthquake cleanups have not had to deal with. At this point know one really know how long this will drag out. http://www.theglobeandmail.com/report-on-business/honda-toyota-extend-north-american-production-cuts/article1977559/ The parts shortage caused by the disaster in Japan means Toyota will shut all its Canadian and U.S. assembly plants for five days – with the exception of a Kentucky plant that will close for four days – between April 15 and April 25. That move came after Honda announced, earlier Friday, that the cut in output of about 50 per cent at all its North American plants will be extended through the week of April 18. “We anticipate that additional production adjustments will continue after that date,” Honda added in a statement. Toyota is reopening its Japanese plants and running them at 50 per cent of normal levels for two weeks beginning April 18, but will then close them for a spring holiday and assess the availability of parts before deciding whether and/or when to start them up again. A senior American Honda Motor Co. executive told industry publication Automotive News earlier in the week that the production cuts could last for another 60 to 90 days.

FFH will also have significant losses from the New Zealand Earthquake and the Japanese Earthquake/Tsunami. My guess is that FFH is currently trading slightly above current book value right now.

I think the market is currently underestimating the impact on the supply chain. The ongoing blackouts from the nuclear power issues is hindering Japan's ability to get back up and running. This is just one of many industries that are impacted. http://www.forbes.com/feeds/ap/2011/03/27/general-specialized-consumer-services-japan-earthquake-car-crisis_8377549.html In the weeks ahead, car buyers will have difficulty finding the model they want in certain colors, thousands of auto plant workers will likely be told to stay home, and companies such as Toyota, Honda and others will lose billions of dollars in revenue. More than two weeks since the natural disaster, inventories of crucial car supplies - from computer chips to paint pigments - are dwindling fast as Japanese factories that make them struggle to restart. Because parts and supplies are shipped by slow-moving boats, the real drop-off has yet to be felt by factories in the U.S., Europe and Asia. That will come by the middle of April. "This is the biggest impact ever in the history of the automobile industry," says Koji Endo, managing director at Advanced Research Japan in Tokyo. Much of Japan's auto industry - the second largest supplier of cars in the world - remains idle. Few plants were seriously damaged by the quake, but with supplies of water and electricity fleeting, no one can say when factories will crank up. Some auto analysts say it could be as late as this summer.

“If you don’t own a home buy one,” Paulson recommended; ” if you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.” Isn't that what got us into this mess? Looks like China is going in this direction as well.

It is very difficult to predict which way it will go. Seems like the laying of electrical cable, pouring of water and frequent monitoring of radiation cannot be done at the same time so they are constantly switch back and forth between these activities. http://news.yahoo.com/s/nm/20110317/wl_nm/us_japan_quake Japanese engineers worked through the night to lay a 1.5 km (one mile) electricity cable to a crippled nuclear power plant in the hope of restarting pumps desperately needed to pour cold water on overheating fuel rods and avert a catastrophe. Officials could not say when the cable might be connected, but said work would stop on Friday morning to allow helicopters and fire trucks to resume pouring water on the Daiichi plant, about 240 km (150 miles) north of Tokyo. "Preparatory work has so far not progressed as fast as we had hoped," an official of plant operator Tokyo Electric Power Co (TEPCO) told a news briefing, adding that a cold snap was hampering the effort. Yukiya Amano, head of the Vienna-based International Atomic Energy Agency (IAEA), was due back in his homeland later on Friday with an international team of experts after earlier complaining about a lack of information from Japanese authorities on the crisis. Even if TEPCO manages to connect the power, it is not clear the pumps will work as they may have been damaged by the natural disaster or subsequent explosions. Work has been slowed by the need to frequently monitor radiation levels to protect workers.

And then there is conflicting information. I would side more with the US who have people on site, considering TEPCO's track record of lying and deceiving over the last 10 years. US says plant's spent fuel rods dry; Japan says no U.S. Nuclear Regulatory Commission Chairman Gregory Jaczko said in Washington on Wednesday that all the water was gone from the spent fuel pools at Unit 4 of the Fukushima Dai-ichi complex, but Japanese officials denied it. Hajime Motojuku, spokesman for plant operator Tokyo Electric Power Co., said the "condition is stable" at Unit 4.

Some more interesting comments on Fibrek and China. http://www.montrealgazette.com/news/todays-paper/Chinese+demand+helps+Canadian+pulp+producers/4447230/story.html China is installing 30 tissue products machines over the next 36 months to meet demand from a burgeoning middle class and that means tight pulp markets ahead, says Pierre Gabriel Côté, CEO of Longueuil-based Fibrek Inc. "We're selling into a tight market right now and a March industry-wide price hike of $30 U.S. a tonne for long-fibre softwood pulp that goes into paper and tissue products is holding firm," he said. Pulp inventories indicate the market is in supply-demand balance at this point. Côté said the Chinese are critically short of fibre and their international buying is pushing up world pulp prices. Though Fibrek ships almost all its softwood and hardwood recycled pulps to North American and European markets, it benefits from the higher world prices. The Asians have been buying Canadian and European pulp mills to boost supply. Asked if they have knocked on Fibrek's door, Côté replied: "We're running this company in the shareholders' interest ... the U.S. mills are not for sale."

The human and economic loss will be much greater than projected so far. Japan will be starting rolling blackouts on Monday and they expect this to continue for at least another month. I think they are being overly optomistic on this and is the worse type of environment for electronics manufacturing. This will impact all plants in Japan. The one nuclear plant with it's outer shell gone and the reactor filled with corrosive sea water will likely need to be rebuilt. Japan is highly dependant on nuclear power and this will take years to replace. Unfortunately the situation will likely worsen. Japan declares state of emergency at another nuclear plant

AIR Worldwide has increased it's estimated range for losses. A Police official also said the death toll will likely exceed 10,000. http://news.yahoo.com/s/nm/20110313/bs_nm/us_air_worldwide_japan AIR said its loss estimate range was $14.5 billion to $34.6 billion. That was based on a range of 1.2 trillion yen to 2.8 trillion yen, converted at 81.85 yen to the dollar. The firm cautioned the estimate was preliminary, and it has said its models do not factor in the effects of the tsunami that followed the earthquake, or any potential losses from nuclear damage. AIR cautioned that in some cases, buildings will have been damaged by the 8.9-magnitude earthquake and then swept away by the flooding thereafter, making precise counting difficult.

S&P is estimating at least $30 Billion in claims this quarter for insurers. http://money.msn.com/business-news/article.aspx?feed=OBR&data-ipsquote-timestamp=20110312&id=13132664 "Standard & Poor's equity analysts estimated on Friday that insurers will end up facing at least $30 billion in claims this quarter from a combination of the Japan quake, a quake in New Zealand, floods in Australia and losses related to unrest in the Middle East."

A 6.6 magnitude earthquake just hit North Eastern Japan. I wonder if we will see another round of earthquakes like last year. It seems like one major earthquake can have an effect on all of the earth's plates. http://e.nikkei.com/e/fr/tnks/Nni20110311D11JF352.htm

Do we know what type of exposure they have to the New Zealand earthquake?

This has been way overblown. Here is one reviewer who used his own system to see how long it would last. http://www.anandtech.com/show/4159/ocz-vertex-3-pro-preview-the-first-sf2500-ssd/2 "Over this period of time I used only 10 cycles of flash (it was a 120GB drive) out of a minimum of 3000 available p/e cycles. In eight months I only used 1/300th of the lifespan of the drive." Our company will be using IBM Enterprise SSDs. IBM has rated them for 5+ years in intensive write environments running 7x24. In most business environments IBM expect them to last much longer. Based on my experience with hard drives, it looks like SSD have already surpassed hard drives for reliability.

I don't think the Cloud will increase hard drive use, just a shift in usage. Most people only use a fraction of the hard drive in their system now and most of that due to Windows by default reserving 12% of the disk for restores (120GB on a 1TB drive) when only 10GB is really needed. Hybrid drives won't succeed. What happens if either the SDD or Hard drive fails. The Enterprise will definitely not use this and the desktop/notebook market share will be decreasing in the coming years.

Just to bring a different perspective. Our company will be replacing the hardware that runs our ERP software. Currently, we run 10+ fast SCSI drives in this system. Our new hardware will not have any hard drives. We are going with Enterprise SSDs for performance reasons. We are also only a year or two away from considering Enterprise SSDs for our Network SAN. Enterprise hard drives are the last domain for higher margin hard drives. On a personal note I will be replacing my own home system in the next couple of months. I will be going with an SSD for the OS and programs and then go with a cheap 5400rpm green hard drive for my other data. These cheap drives have little to no margin. Another trend is the continual movement towards smallers devices that depend on SSDs and memory for storage (ie. phones, tablets, etc). The hard drive market is getting squeezed from all sides and I don't see this changing.

With the Canadian dollar continuing to rise, I was wondering if anyone has calculated the impact on EBIDTA with every cent increase in the Canadian to US exchange rate.

Imagine if they didn't have the $5.5 Million gain on the Abitibi claim. ::) With the strong dollar, Q1 will likely be worse without this one time gain.

http://www.newswire.ca/en/releases/archive/February2011/23/c5525.html For Q4 the EBITDA was $6.0 million with a net loss of $4.6 million

Not if the new target is still well below the current price.

I don't remember seeing this posted http://www.herald-dispatch.com/news/briefs/x1476902673/ICG-says-price-set-on-insiders-stock-sale International Coal Group says nearly 35 million shares being sold by its two largest stockholders have been priced at $8.16. ICG says in a Securities and Exchange Commission filing Tuesday that the deal is expected to close Friday. Chairman Wilbur Ross’ investment firm, WL Ross Group L.P., plans to sell nearly 12.3 million shares, or half its holdings. Toronto-based Fairfax Financial Holdings plans to sell nearly 22.6 million shares, or half its stake.

With 1.25M shares exchanging today, I wonder if the last of the big seller is done now.