Hoodlum

Investors are starting to get cocky again and at a time of increased risk. The last statistic is the most telling. http://www.theglobeandmail.com/globe-investor/investment-ideas/features/investing-trends/return-of-the-highly-confident-investor/article1386592/ Today, with some of his equity and real estate investments yielding returns of between 10 and 15 per cent, Mr. Bartolini is feeling a renewed sense of confidence in the markets. Given his mix of assets - stocks, real estate and corporate bonds - he expects long-term returns of at least 8 per cent. His optimistic outlook is echoed by the results of an online survey conducted last month by Toronto research firm Gandalf Group, which found investors are expecting an annual return on their investments of 7.5 per cent over the next 12 months and 7.9 per cent over the long term. Online investors were even more optimistic, expecting 11.1 per cent in the next 12 months and 9.7 per cent annually over the long term. Brad Compton, a Toronto mortgage agent, counts himself among these confident online investors. "For my own portfolio, I'm shooting for 10 to 12 per cent. If I'm lucky, even higher," he says. The same survey found 73 per cent of investors believe they will make back what they lost in their stock, mutual fund and bond investments during the recession. And 85 per cent said they are taking an aggressive approach to recouping their losses.

This will hit all on-line reseller as governments close this loophole. The same thing is happening in Canada with Ontario and BC going to HST, which will require the collection of the Provincial Sales Tax portion for all on-line sales.

Here are some more details on their new venture. http://www.theglobeandmail.com/report-on-business/fairfax-dives-into-brazilian-insurance-market/article1385144/ Brazil's insurance market is changing as the country's rapidly growing economy garners respect; the rising power conquered its recession by the second quarter of this year and added more than a million jobs in 2009. Its population of roughly 185 million, the fifth largest in the world, has helped make it the largest insurance market in Latin America, more than twice the size of Mexico's, according to Moody's. Yet insurers' sales as a measure of gross domestic product is a measly 3 per cent in Brazil, compared with 9 per cent in the United States, leaving plenty of room for growth. Throw into the mix the investment that is expected to occur as Brazil prepares to host the World Cup of Soccer in 2014 and the Olympics in 2016, and its relatively low exposure to natural disasters such as hurricanes and earthquakes, and executives at Fairfax are left wondering why it seems to be the only property and casualty insurer seeking a licence since the government shook up the market last year. Jacques Bergman, who was recruited by Fairfax from one of Brazil's largest commercial insurers to head up its new venture, thinks the industry is on the cusp of a major change. "Four of the big five insurers were Brazilian and they held up to 45 per cent of the commercial insurance market," he said. "We expect that, in less than two years, their share will go down from 45 per cent to something like 15 per cent. ... So that gives us a very good opening." .....

Government will not bail them out. http://www.theglobeandmail.com/report-on-business/government-wont-back-dubai-world-debt/article1382348/ The Dubai government disclaimed responsibility for the debts of Dubai World on Monday, dealing a blow to creditors' assumptions that the Arab emirate would guarantee the conglomerate's liabilities. “Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai's department of finance. “They think Dubai World is part of the government, which is not correct.”

We also need to remember that some Canadian banks have significant holdings in US Commercial real estate. Disclosure in this area is difficult to come by. Here is an article from today discussing TD's known exposure. http://www.theglobeandmail.com/report-on-business/td-banks-us-real-estate-exposure-higher-than-thought-report-says/article1381901/ Toronto-Dominion Bank's exposure to the troubled U.S. commercial real estate market is significantly higher than many of its investors believe, a new report suggests. The sector's continuing deterioration is fuelling concerns about the banking industry and the recovery of the U.S. economy. While this has been seen as a lesser problem for Canadian banks, TD's filings with U.S. regulators suggest it has about $19.5-billion (U.S.) in exposure, versus the roughly $12-billion that the bank disclosed in a recent presentation to shareholders, says Hamilton Capital, a new Toronto-based boutique asset manager specializing in financial services. The difference appears to come from the way TD classifies the loans it makes on owner-occupied premises, such as a factory where the owner has a commercial mortgage against the building. In its presentation to analysts, the bank appears to deem those loans to be business loans rather than commercial real estate, which is what they're classified as in the disclosure to U.S. regulators, the report suggests. A spokesman for the bank said the U.S. filings are not an extension of TD's formal corporate disclosure record.

Here is the article. http://www.theglobeandmail.com/globe-investor/short-term-us-interest-rates-turn-negative/article1370977/

There are some significant differences between the 1982 recession and now. Mortgage rates were at an all time high during the '82 recessions with nowhere to go but down. This along with the spending from the baby boom generation (in their peak spending years) had a significant impact on growth in the US over the past generation. Now interest rates have nowhere to go but up and the baby boomers are switching to savings mode. I also don't think we will see the increase in house prices like we did after the '82 recession (higher interest rates and the baby boomer generation will help with this) further limiting future consumer access to credit. We may still see a further double dip in the economy over the next couple of years as governments cut back on spending and lay people off. The best we can hope for is a very long 'L" shaped recovery.

GE will likely have large write-downs in their commercial real-estate portfolio over the next few years. I guess Prem figures the rest of GE will more than offset this. http://www.reuters.com/article/businessNews/idUSTRE59F3YH20091016 "General Electric Co's $84 billion real estate portfolio remains a worry for investors, who wonder if the conglomerate will have to take big write-downs to reflect the lower value of real estate debt and equity holdings." The financing available to roll over a lot of commercial debt coming due in the next few years is limited. Much of GE's commercial real estate equity is not worth what the company paid for it, especially assets bought near the market peak in 2006 and 2007. "They're still not taking impairments on the commercial real estate portfolio and there's a lot of concern about that," said Jack De Gan, chief investment officer at Harbor Advisory Corp, which owns GE shares in client portfolios. "They acquired that portfolio very late in the rally for commercial real estate," De Gan said. "There's a lot of concern among investors there are significant write-downs yet to come out of that portfolio."

The assets of Nucryst (75% owned by Westaim) will be sold to Smith-nephew for $21US. After this transaction is completed Westaim will have $40M+ in cash. They also have significant tax losses that can be carried forward and tax credits, as well as some ABCP and real estate. They have no debt. http://money.cnn.com/news/newsfeeds/articles/prnewswire/200911101915PR_NEWS_USPR_____TO445.htm

http://www.theglobeandmail.com/report-on-business/chrysler-worse-off-than-fiat-expected/article1289471/ Chrysler's restructuring will progress slowly at first because the company was in worse shape than Fiat had expected, Sergio Marchionne, the CEO of both companies, said Wednesday morning at the Frankfurt Auto Show. Mr. Marchionne, 57, said Fiat was well aware before it took control of Chrysler in the summer that the Detroit auto maker's new product pipeline, currently laden with SUVs, was almost dry. But Fiat discovered the lack of new models wasn't the only problem. “There's a whole pile of stuff that we didn't see when we came, that we were not expecting,” he said. “Probably the single largest surprise to us was how little had happened in the past 24 months to get [Chrysler] competitive.”

It is a very low volume stock. I picked up some earlier this year at .25 and sold half last month at .36 It is taking some time to deploy their cash (they missed out on some opportunities in March).

It look like a portion of the "deficit cuts" are just a transfer to the municipalities. This could tip many towns/cities into bankruptcy assuming it is legal for the State to do this. http://www.reuters.com/article/politicsNews/idUSTRE56K5JD20090721 The day-old pact among California leaders to close the state's $26.3 billion budget gap came under fire on Tuesday as county and city governments threatened to sue to block a plan to seize local tax revenues as part of the deal. City and council officials vowed to seek a court order barring the proposed diversion of $2 billion from local redevelopment agencies and $1.7 billion in highway tax collections into state coffers to help close the budget deficit. Opponents argue that such moves are illegal because the state is prohibited under its constitution from grabbing revenues raised at the local level or earmarked specifically for county and municipal purposes. They cited a recent state appeals court ruling that a similar diversion of $740 million in local public transit funds last year was unconstitutional. The Board of Supervisors for Los Angeles County, the state's most populous county, voted to file suit against both moves if the budget deal is enacted as agreed to on Monday by Governor Arnold Schwarzenegger, a Republican, and leaders of both parties in the state Legislature.

There are many ramifications if this drags out into next year. The BofA has also agreed to accept the IOUs for now, from all their clients. I wonder how they will report this on their books. The hit on Municipal social services that are funded by the state will be hit hard. Then there are the Grants for university education. The small businesses that deal with the State will fall very quickly if the banks start refusing to accept the IOUs.

We just sold our house which is in the Toronto Suburbs. We had multiple offers and sold above asking in less than 48 hours. Home prices is our neighbourhood have now reached, if not past, the previous price peak in 2007. This is great for us but not good for our economy long term. People are taking on huge mortgages with these low rates. With increasing unemployment and possibly higher rates next year the housing market in Canada is gearing up for another pull back.

I many ways Detroit reminds me of Buffalo where industries started leaving the city 50 years ago and it population dropped by half. Buffalo still hasn't recovered as it struggled with infrastructure upgrades with a smaller tax base. I also believe we will see more trade barriers and increased security at borders that will have an added impact on border towns as trading of goods and tourism slow down. I don't think we will see any bounce in Detroit housing over the next 20+ years as families gradually move from the area.

The results for SFK were not good. Net loss of $15M and cash dropped down to $23M in traditionally their best quarter. The covenants will be breached this year at some point even without the Abitibi situation. http://www.sfkpulp.com/EN/docs/CPDistr/2009/20090515-SFKPress%20Release2009Q1-EN.pdf "As at March 31, 2009, SFK Pulp was in full compliance with its debt covenants. However, the ongoing negative market conditions have resulted in lower EBITDA than anticipated. Based on current forecasts, SFK Pulp expects to be unable to meet the interest coverage ratio prescribed in its credit facility before the end of 2009. In addition, in the case of an unfavorable judgment in the litigation opposing SFK Pulp to Abitibi, SFK Pulp will no longer benefit from the price formula for its fibre purchases from Abitibi, which currently provides a $20/tonne price reduction from market price. Moreover, it will need to assess the impact of this termination under the terms of its credit agreement. Under these circumstances, the ability of SFK Pulp to continue its operations will be dependent on the support of its lenders or its ability to secure alternative financing."

There has been a moratorium on foreclosures for many of the banks. They will need to go through these soon so expect to see a sharp rise in foreclosures in the coming months. This will add further pressure to the housing market.

This is just begging for a class action suit. http://news.yahoo.com/s/nm/20090423/bs_nm/us_bankofamerica_ceosb_6 The Wall Street Journal reported on Thursday that Lewis testified Bernanke and Paulson told him that failure of the Merrill acquisition to go through would "impose a big risk to the financial system" of the United States. Lewis also testified that Paulson and Bernanke pressured him to keep quiet about losses at Merrill. According to Lewis's testimony made public on Thursday, Paulson told him the management and board of the bank would be replaced if it pulled out of the deal. "I can't recall if he said 'we would remove the board and management if you called' or if he said 'we would do it if you intended to'," according to the transcript. Cuomo said that, in an interview, Paulson "largely corroborated" Lewis's account. "Secretary Paulson's threat swayed Lewis," Cuomo said. The letter also stated that Paulson "has informed us that he made the threat at the request of chairman Bernanke." Bank of America halted its attempt to scrap the merger on December 21, the attorney general said. He said Lewis told his office he was directed by Paulson and Bernanke that the question of public disclosure was not up to him. "I was instructed that 'we do not want a public disclosure'," Lewis testified. He also testified there was no discussion with the board about disclosure to shareholders.

And now the lawsuits begin. California sues Wells Fargo for $1.5 billion

http://www.theglobeandmail.com/servlet/story/RTGAM.20090416.WBstreetwise20090416113902/WBStory/WBstreetwise/ AbitibiBowater filed for creditor protection early Thursday and announced it has pulled in $200-million of new loans from Fairfax, a Toronto-based insurer, and Avenue Management. These new loans, which need to be approved by the courts, rank at the top of Abitibi's hierarchy of creditors and ensure that North America's largest newsprint company can keep the lights on.

Here's another bit of info. http://finance.yahoo.com/news/AbitibiBowater-filing-for-cnw-14945290.html "The Company has also announced that it has entered into a financing commitment with Fairfax Financial Holdings Limited and Avenue Management LLC for debtor-in-possession (DIP) financing totaling approximately $200 million for certain of its Bowater subsidiaries."

http://business.theglobeandmail.com/servlet/story/RTGAM.20090416.wabitibitradingalert0416/BNStory/Business/home

I also believe that banks won't price price them correctly so that few will want to buy in (not counting the swapping of toxic assets between banks ::) ). This is why I believe we will see the nationalizing of banks by the end of the year. This is the only way to get it cleaned up.

I suspect there would be a lot of nudges/winks in these "deals". So now we may be entering a new shell game where we will need to guess where the toxic assets are at any one given time. The insanity never ends. Bailed-out banks may buy toxic assets "U.S. banks that have received government aid, including Citigroup Inc, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co, are considering buying toxic assets to be sold by rivals under the Treasury's $1,000 billion plan to revive the financial system, the Financial Times said. Citigroup was considering whether to take part in the plan as a seller, buyer or manager of the assets, but no decision had yet been taken, the paper said, citing people close to the company.... The U.S. government's plan, known as the Public-Private Investment Program, gives government help to private investors looking to buy loans and securities from banks. "It's an open program designed to get markets going," a Treasury official told the paper, adding that "it is between a bank and their supervisor whether they are healthy enough to acquire assets."

The "cat is out of the bag" on Financials and Mark to Market. Hiding it will only increase the scepticism.