TBW

Thanks for the kind words John! I never did short Evergrande, though they were obviously insolvent back when we discussed the name. So hard with shorts, you often need an adult to enforce the rules, or shorts don't work. Somewhat ironic that China actually did something about Evergrande, and in North America that adult has very rarely stepped in...

Oops! Sorry didn't realize that. Thought the amount of comments on sec website was low and that perhaps people hadn't seen it. I too would be interested in reading the other thread.

Not sure if everyone saw this SEC document https://www.sec.gov/news/press-release/2019-189 or this blog post about it http://www.nonamestocks.com/2019/10/sec ... tocks.html (where I found out about this) but it discusses possible SEC changes that would not allow stocks to be traded unless there has been published financials in the past 6 months. It puts the onus on the broker to make sure they have the information, or the broker cannot quote the shares. This is clearly backwards. Fine companies for not providing the information required! I don't think the SEC realizes that companies go dark on purpose, some of the reasons being, to try to ultimately take their company out at a cheaper price, or to conceal how much management is paying themselves, etc. I plan on commenting when I have more time and I encourage everyone else to do so.

-5% for me

I was wrong about acquisitions... https://www.reuters.com/article/us-cronos-group-m-a-altria-group-idUSKBN1O61BS

I think risk of acquisition has dropped a lot now. For one bubble may have burst, reduces exec fomo. Also if Aphria is a fraud, as the report makes a compelling case it is, Corp lawyers may need to more due diligence down process. And slow down in purchasing process should allow valuations to matter more than sentiment.

That is a compelling case they make. I am short some. If you want to see an insane amount of cognitive dissonance check out the reddit group r/weedstocks. The opinions are insane. The level of ignorance for some invested in these companies is shocking, and I expected the knowledge level to be poor...

My view is that the unsecured would be the 'cheapest' if you think about the flexibility it offers. While you would pay more in terms of spread, although not that much given the current state of debt markets, you gain in flexibility. If you ever need to access more money you can always seek secured debt on those unencumbered assets and subordinate the unsecured. CHK did really well just by threatening to do so to their unsecured, and were able to help themselves greatly as a result of the leverage they had on the unsecured holders. There are pluses and minuses to keep in mind. In the GFC some companies with large unsecured debt coming due (think GGP) had to file when they couldn't access the market to refi. Also, some companies were able to hand back the keys on some poor assets when the secured debt was non-recourse. So there are special circumstance to take into account as well. Overall, if you can issue unsecured corp bonds that is a huge benefit. if it comes with a little extra cost, it is likely still very much worth it when spreads are compressed as they are now.

Losses are actually higher, costs of repossessing house, fixing selling is 15%. So equity is closer to 3% on the last 97bil of insurance underwritten. Not many defaults need to occur for the $3.9bil equity to get hit, as they only have 100mil in loss reserves. Regulatory capital is $400mil, that doesn't take much at all to be impaired. Historically defaults in Canada have been low. Suspect they won't be this time.

Sunrider, I did this presentation on Genworth MI Canada that answers most of your questions https://onbeyondinvesting.com/blogs/blog/ira-sohn-2018-investment-contest-finalist-short-genworth-mi-canada Couple quick points, they get paid upfront in one lump sum payment so there isn't a steady flow of premiums coming in. They also recognize most premiums as revenues in first 5 years, so they are really susceptible to slowing market as insurance written decreases. The pay the bank upfront for lost interest, they then take possession of the house and sell through power of sale to recover their losses. So losses are taken immediately, and they have to hold, maintain, repair houses when a bankruptcy occurs, which is an expensive process. Mortgages are recourse, but that matters far less in recovery than people think (like companies get 52% vs 50% recovery due to recourse). The reason is once a person loses their house its hard to get blood from a stone, there is also the PR implications of being aggressively collecting from people in dire straits. Hope this helps. Let me know if you have any further questions.

I was there. Wrote a bit about my experience https://onbeyondinvesting.com/blogs/blog/ira-sohn-2018-investment-contest-finalist-short-genworth-mi-canada My quick observations. Was surprised how tech/growth focused it was. Lots of comps to highly valued peers. The companies may deserve those multiples, I have no strong view, just found it surprising how that was a recurring theme. I will say that all ideas were thought provoking and I was impressed by the quality of the presentations (everyone appeared to be a natural at it). Ideas this board may care about, DHI - apparently becoming a NVR-type builder. Only two ideas that I found really compelling, Short EROS (Mangrove CEO made a compelling case). Short Rallye debt (Diameter presentation), this idea appeared to be a no-brainer, little NAV coverage of holdco european high yield debt, from overlevered grocery company exposed to a more competitive environment. Not something everyone can do, but compelling anyways.

I just watched this. It was really good! I thoroughly enjoyed it and would recommend it to everyone. I wrote an issue for my subscribers about China recently. It is mind bending some of the stuff that is going on. I know macro stats have been funny for a while, but if you actually dive into some of the companies, like China Evergrande, that embody some of these risks it is eye opening. Everyone, in my opinion, should be paying attention to what is going on there. There has been misallocations on a scale that I am not sure we have witnessed before. Case in point Evergrande has this http://www.oceanflowerisland.com/en/video.aspx and it is just one of 800 projects they have on the go! It is a homebuilder with US$240bil in assets and the balance sheet is levered 10x! Crazy stuff.

Bg - that is excellent advice and some I wish I had thought more about when I was in a similar position as TOL. Definitely learn delegation of duties, don't assume. What is process to close trades, investment discretion. Make sure deal is fair, equity etc. and as BG said character is absolute most important. Trust your gut even if people you talk to speak highly.

I didn't realize that SA was changing when I posted my article. I posted more out of curiousity, I wanted to see what it was like, understand their business model, different options etc. In theory it is a huge mass of interested readers in financial content. I wanted to see what engaging with that was like. I actually really like SA. Yes the articles are mostly garbage, however there have been some excellent ones from time to time. The transcripts are great too. What I really like is being able to read a halfway decent article and see what the comments have to say. I think this is super valuable. It is shocking how off-the-mark and 'besides the point' alot of these comments are. I think the comments provides great insight into what some investors are thinking, and how irrational the market can be. It would be a shame if it is changing up as much as you say.

I thought Arbitrage with Richard Gere was really good.

I had a similar experience with GTA real estate when it was going parabolic last spring as you guys and btc. Lots of ppl reaching out asking if they should buy. How many units, what areas etc. I was worst person to ask given my bearish views but still had lots of questions. Funny how these bubbles are all the same. We humans can't help but act like humans

Interesting. I think you can argue this should help pipeline or pipeline servicing companies as well, as this gas needs to go to more markets. I own MCR, which should do well if TMX is built (same with KML) plus should see further benefits from increased pipeline activity, LNG related or not. Transcanada has talked about expanding their western Alberta pipeline system too. I will look at the producers, but I struggle to understand them with my limited E&P expertise. Are their other service provider types that you think could also benefit from a reversal in this market? On a separate note, why do you think TMX is going to proceed? I haven't yet read anything about NDP opposition dropping. I know KMI is waiting on the judicial appeal before proceeding. I agree with you that it likely happens, but haven't really read much about political dissent from BC dropping.

Shorting Canadian financials. Cost me 12%, and related short CAD/USD cost 7%. Was very profitable until BRK helped save HCG, which I think was months away from running out of cash, and then the short squeeze was on. It would seem that a short here isn't that risky when you have a risky lender like CWB, that hasn't earned a ROE above 10% in a few years, trading at 1.5x book. Or a mortgage insurer, MIC, with no reserves trading at 1.1x book when house prices in its biggest market are down 17% from the peak. My view hasn't changed. I have been very early in this trade (a couple years) and the wait for the Canadian credit cycle to turn has been painful.

Up 2% Longs +21.1% Short - 12.2% Currency -6.9% What a year. Shorts + currency were up 20% in the early part of the year mostly due to HCG/CAD fin shorts. Once BRK got involved that +20% went to -20%. Currency is short CAD/USD, which went wrong at the same time too. Painful, but after all that happy to be flatish. I really think that once the credit cycle turns in Canada these shorts will have large payoffs. With home price -17% in Toronto from the peak, and B20 regulations restricting credit I would have thought market wouldn't be so optimistic on the future of mortgage lenders... Lesson in a raging bull market, shorting is hard.

I agree with what you guys are saying. What I think is being missed with the Grant's piece is they are also questioning the value BW provides and the strategy they use. From my understanding of risk-parity, the strategy that BW uses, it is just a glorified levered bond portfolio. The other stuff Grant uncovered, the lack of PB, only a few people the know the trades etc. Make sense. You don't need many people to just buy treasuries. So Grant's, to me, is saying there are a couple of ways this goes wrong; yields rise and they lose tonnes of money, investors realize that BW is mostly marketing and the strategy is quite basic, or there is some weirdness that could point to bigger issues. Combine that combination with the historical precedence of largest firms failing when markets turn. Strategies that work in bull markets (long rates) fail in bear markets etc (risk-parity or vol selling would be my primary guesses of strategies that fail next mkt turn). So I see lots of ways Grants can be right without this being an actual fraud.

I too have been buying Emergent. Its very cheap here. Def not a stock for everyone but I think more than compensated. I see upside of 4x if management intelligently puts this into run-off. UK how do you get to 10x? Is that assuming they can grow the biz when they are on more stable footing? One concern I have is tax, can they still use NOL's? If, not then my upside is more like 3x

I too had been considering this 'value investment' for the past couple of weeks. While I try to avoid gambling on sports (because I am terrible at it), this seemed too good to pass up. First, I renewed my bodog account. They gave me $10 free dollars for doing so. Another promotion offered $20 free dollars for depositing money (start of football season promotion). I deposited $100 and bet all $130 on Mayweather. My upside is $34.67, while only risking $100 of my own $$$'s. That means that MacGregor needs to have a 35% chance or better for this bet to be dumb. While anything could happen in one fight, I think realistic odds of MacGregor have to be less than 3%. If I win I plan on withdrawing all funds. Wanted to highlight the free money you can get for opening an account, and how this improves your odds, to those interested. Good luck

Thanks. That is very helpful. I think that was probably a realistic description. I think by operating this way they are creating a massive amount of moral hazard which can make things much worse in a crisis. We shall see, I could be wrong.

You are right. It does appear to be Canadian way. My question is WHY is this the Canadian way? I am Canadian and just dont at all understand the compulsion to bury issus and hide problems. Other questions I have: Is this cyclical behaviour one sees at the end of a long asset bubble? Or is this a cultural thing I just wasnt aware of?

@rb Totally agree. Credit will be restricted and that should be that in terms of the bubble. Also agree that rate hike, hcg deal, and osfi tightening were probably all coordinated. I found it weird that there was very little mention of housing in the boc releases today. But I still think osfi should be telling ppl who the bad actors are. Lets not forget that we subsidize their funding. Where would alt lenders fund without gics? Would be 100s of bps higher.