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Minseok

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Everything posted by Minseok

  1. First hand experience here. My amortization jumped from 30 years to 59 years. Of course it hit the "trigger rate" where I've got contractual obligations to consider, but before the bank could act first, I increased my payment by $1200. My colleague waited to see what contractual obligations the banks might exercise, and they simply increased the payments on him without any formal notification. In both cases we were mortgagers with major banks and we passed stress test when qualifying for the loan. So banks knew the increased payment wouldnt be an issue for us to pay. Besides, 20% of all mortgages may be variable, but only about 25% of home owners have mortgages at all. It means only 5% of homes affected. Even then there is virtually no risk of default due to stress test. Like mentioned above though, if you bought at the april 2022 peak using a third party/private loan going at 10% APR 1 year term loan, you'd see the shit hitting the fan about now. But this period was also a period of historically low sales numbers. There will be distressed sellers, but the numbers are likely to be miniscule. There is a supply shortage anyways. In the GTA these days, homes are still selling fast and around asking price, ther is just not that many out on the market (literally just a couple of homes available in a neighborhood at a time) People simply pay up the increased mortgage payments and refrain from selling. Condo preconstruction projects which is a significant jolt of supply in the hundreds of units still sell out in a few weeks, so it looks like the market is soaking up the extra supply quite readily. Only if when people start loosing jobs and getting paycuts though, its a house of cards waiting to fall down. I dont see it happening though.
  2. That day is already here. Banks are increasing payment on variable rate mortgages without the consent of home owners when the trigger rate is hit. I voluntarily increased my payment at every rate hike for a total of $1250/month but one of my colleagues has had his bank forcebly increase payment by a total of $800/month through the hiking period. This is from a tier 1 bank.
  3. Its the management i suppose. Brand and market: You look to the aritzia shoppers and their psyche, their position in the market is unique and lacking competiton. Other retailers like gap/h&m discount their inventories to oblivion where as Aritzia tries to grow their brand and command the premium. Theyre not quite luxury tho so you still have a large segment to target. You visit their stores and theyre always so crowded. The one local to where I live is doubling the square footage and he demand is so high that they wont make a dent in the sales per square foot. The target is also young women in 20-30’s who are making money for themselves so they dont want to settle for cheap clothes, but at the same time cant afford to fill their closets with LV/channel/hermes. Store expansions: USA has ten times the population of canada. Canada has 68 aritiza stores, USA has 33. I dont see anything fundamentally different about the culture/interests/behaviors among the target market among these two countries, so likely runway to 600+ aritizia stores in US is real. Seeing how stores are placed in canda, the strategic placement of brick and mortar store are well done. In major malls, far apart, and boutique feel. The numbers are in the filings but basically couple of millions invested in a store will net you guaranteed revenue expansions. They have a back log of potential locations they are tackling at a pace they can absorb. online sales: The real upside surprise for Atz this year has been the online sales. They explain in the calls that where ever they open up shop, they see spike in online sales in that area. Its a relatively unknown store in the US so this explains that they are doing a good job building brand equity, and people are liking what theyre seeing. Online sales are surging triple digits some quarters. Women in my family have shopped through their online channels and are liking it very much as well. Conclusion: Its really a play on a growing brand. It makes the stock especially difficult at the same time if you believe in the managemnt I think the reward will be especially great. Over the next decade or so you either get a lululemon/canada goose or failed brands like forever21/american eagle/hollister.
  4. Aritzia ATZ - its a retailer growing 50% year over year, 80% in the US alone where they are still a small player. Very well managed company targetting a niche “everyday luxury” market. Yahoo finance posted PE is 32. Not terribly cheap but market does not think its too expensive, seeing as how recent downturn has not affected it too much (-14% from peak).
  5. On the topic of labour, Just an anecdote here. I started my career in oil and gas industry in canada around 2011 and switched to nuclear 2017. I was only one of a whole cohort of engineers who switched when the oil industry downturn started. When the industry capex has such a close correlation to the job market of your profession, you can feel the ebb and flow of the industry capex without looking at any cashflow statements. When you see your former colleagues, colleagues of colleagues, and former engineering contractors your worked for and their competitors bidding for nuclear jobs, and then you meet new colleagues in Nuclear who used to do fly-in fly-out fort mcmurry gigs in alberta ‘back in the good ol’ days’, you get a sense of how dry the oil capex is. With bleak o&g capex forecast, and decades of new nuclear capex (public money) in plan, many engineers have switched already and there is no sign of going back. Outside of niche and specialized incumbent knowledge, the vast majority of engineering work and skill involving steel/concrete/piping/rotating equpment/ project execution is nearly identical and transferrable, and transfer they have. If oil companies want them back, you now have to pry their fingers off with very competitive salaries. How high? As a baseline, aside from qualitative factors such as nuclear jobs are close to the cities with limited travel requirements. A competent and experienced nuclear engineer can easily push $200,000 simply by willing to work 3 hours north of gta at Bruce Power. Even at OPG east of GTA, mid level engineering managers and project managers can push $200,000. So What would it take to move them to Alberta and fort mcmurry? Away from civilization (and spouse who cant quit work and kids who cant move school) and into the tundras? You have to bring back the $300,000 $400,000 and above salaries just to get started on a negotiation. But nuclear jobs are cushy (unionized at client level, little competition among vendors), slower paced (35 hour work weeks) and most of all project execution in o&g runs circles around anything nuclear does relieving the individual of concentrated accountability for errors in execution in a typical nuclear project ( and private investment demands more accountability than public investment), so the job is relatively stress free. All the while staying close to and spending time with your family. The gap is even wider for blue collar. A qualified Nuclear operator already pushes $300,000, $400,000 salaries. Normally we used to say if your company didn't win the job, you can easily jump ship to the competitor who did. If oil industry is down, you can stay afloat by going over to nuclear for a while. Now with the renaissance of nuclear investments allowed by public sentiment change to ESG-ish mentality, government is allowing for significant capex in new builds and developments, so you have to stay in nuclear to experience the boom times. The cycle seems to have made an unusual turn this time indeed.
  6. https://financialpost.com/commodities/energy/oil-gas/eric-nuttall-fear-is-gripping-energy-markets-but-the-facts-suggest-oil-fundamentals-are-still-strengthening Canadian energy sector averaging 31% FCF yield and on track to be debt free by Q1 2023. The whole industry can privatize itself in 3.1 years! This is on a backdrop of oil demand growth which dont turn negative even in hard times, just slower. Hypothetical inventory surplus of 1M BPD is only enough to replenish historical stock piles over a whole year. Canadian TSX capped energy index ETF seems like a good hold in these times.
  7. https://apple.news/AZfDc8w_9TLyTaa9W-fAKIw gasoline demand falling but diesel demand is robust. refineries in US are still shutting. and heavy canadian crude with high diesel distilates should bode well. Dont know how material it is to the thesis but might be part of the overreaction in the markets lately.
  8. This is bearish for POS terminal vendors( e.g square).
  9. But the points! Why would I use apple pay if i can get 2% cashback on my mastercard? Most of the merchant fee (2% to banks 0.15% to V/MC) is charged by the banks backing the credit. And most of that is going to consumers in the form of kickbacks. In order for a new payment processing provider to tear down the moat, it needs to first win over the customers. Who will bribe 2% of transaction fee to customers just so they can earn measily 0.15% in transaction fees? So you say they can just copy the business model. Just look at the history of V/MC. Each bank used to have their own cards, compatible with select registered merchants. Industry went through consolation to pool compatible merchants to arrive at two “standards” who are largely compatible. Now we are seeing once a gain fragmentation, but will customers prefer V/MC which are compatible with 99.9% of merchants or X-pay who may only have 20-% of merchants registerd. to whose benefit is it to overtake the duopoly? Certainly not in the customer’s interest. visa and mastercard themselves cant erode their own moats. They are still using a dozen or so character limit for the transaction description because this was the limit of database software of the 60’s. There is just no incentive to overtake V/MC. They can reduce their fee by half to kill all competition and they can operate business as usual.
  10. Added some ATZ myself. I believe growth rates will justify its multiples. Its like a mini costco, very low capital invested for the revenues each new store generates. Also has very good accrual ratio. Recent promotion of COO to CEO is positive as I believe branding will be key going forward ( and she did a very good job of it as a COO).
  11. No far from it. just didnt expect this ‘correction’ to last as long or as deep. I’ll never forget now to be conservative with my cash position going forward.
  12. With the recent retail results indicating inflationary pressures, price of goods might correct itself sooner than expected. Fed might use more dovish language in the june meeting and ease on the tightening. I hope this will be the start of change in sentiment.m ( and bottoming of markets).
  13. Not that I am a tesla bull, I sold tesla in 2012 for $32 pre split because it was bubbly. It went through a few tightening cycle already but it defied all odds and appreciated 100+times. If you play out the most optimistic scenario there are people who can play with the numbers to justify it even on a fundamental basis. i suppose I am looking at it from a “MSFT took 10 years to reach dot com-highs” kind of bubble. Tesla may not follow the same path.
  14. I just finished listening to it as well. I am a novice when it comes to macros so some of what he said was very interesting to me. The fact that he sees that the fed doing interest hikes prioritized over QT is indicative of ulterior political motives for example. Why benefit banks who are already well capitalized if you can achieve the same effects through a more intense QT? You are only losing your chances of reducing the balance sheet by hiking the interest rate first. Also he mentioned that inflation reflects the economic state of the past year, so he is just as sure of deflation in the next few years just as he called 2022 inflation since 2020-2021. Perhaps its a call on inflation fixing itself, and fed is again at risk of over reacting. lastly “Fed rate reduction is always unexpected but hikes are never unexpected”. If this is true, risk reward is always skewed towards betting on dovish fed outcomes.
  15. cant help but tie in my intel thesis here (for fun so take it or leave it) Here is a growth thesis for HP (and it is similar for Dell): Intel processors post 2016 has not improved much and i think it has contributed to the slowing/lowering sales of PC's. I literally can do everything at satisfactory speed on a 2016 PC compared to a PC i buy today. WIth future processors being leaps and bounds better, and with a huge replacemnent cycle coming i think they will grow. The current laptop supply rate for schools for example is absymally low. Pat has mentioned that they also see material increase in the markets going forward according to their PC forecasts. Also, just as apple is driving new mac sales with hardware acceleration on media/AI and other specialized functionality, with similar features for x86 road maps, and consider that there will always be afew PC users for every apple users, its an aspect of sales. And when the FAANGs increase their capex (which they are doing now) they are buying racks from HP/DELL/Lenovo. Also the purchase is eerily close to the recent plantornics deal. HP buys Plantronics in US$3.3 billion deal - Infobae. Perhaps a play on the remote working trend/metaverse pivot. Havent run the numbers, but with such a low cost, above deals are probably all positives.
  16. But what if you constantly liquidate your appreciation with a home equity line? It can be considered psudo cash as long as we can assume no long term permanent lost of market value in real estate.
  17. One aspect that muddies RE and stock comparisons is that stocks dont usually trade at book value. But recent accounting changes to report mark-to-market earnings levels the comparison somewhat. So marking your real estate “book” to market value may have its fair share of counter arguments. Counting market appreciation as “returns” could also be an issue.
  18. @Gregmal whats US type 30 year mortgage? I got myself a 1.28% variable 30 year mortgage on my property in canada (5 year term)
  19. Im in the greater toronto area (gta) and I agree with Gregmal that depending on your cashflow situation, you should do both, especially to take advantage of the tax situation. I am sure COBF members need no finanical advice in this matter, but talking to myself out loud, I consider real estate as any other stock ticker. Its got ROE/ROIC ( how much did you put down against expected capital appreciation and income) which varies with leverage and interest. Unless you are investing in debt free companies , companies are highly leveraged these days anyways so compare your Real Estate ROE to your favourite ticker. I like the following aspects to canada’s tax situation with RE. Principal residence is capital gains exempt, and investment property is tax deferred until the day you sell. But the equity can be withdrawn tax free through home equity line of credit. This makes sure your leverage ratio is maintained at 20% for maximum ROE, and the withdrawn equity can be borrowed at 1.5% tax deductable interest rate to invest in canadian blue chip dividend stocks yielding 3-5% which is then taxed at reduced rates due to its eligibility for dividend tax credit. Now about investing in Toronto, i calculate my ROE to be in the tweens assuming a 5% appreciation per year. I dont know if i can beat that easily by investing stocks. The million dollar question here is will real estate appreciate 5% per year. I do think so. Only 25% of homes are mortgaged, (most of my boomer parent genration who are large chunk of home ownershave bought real estate 20 years ago when you could have bout a house with 2-3 year salaries, and their descendants, the millenials are accepting large gifts straight out of the parent’s equity.) Among those mortgages, most of the low rate variant were signed in the last year or two. 1. if interest rates go up, borrowers are already qualified to pay up to 5.25% due to stress test requirement, and among those who got in more than a years ago are paying 3% anyways so rate hike risk is minimal. There is no credit risk when market is awash in cash and subprime is non existant. 2. There is a signifiant shortage of hosing in toronto. Of the annual 400,000 increase in number of people, construction workers and trades men capacity can build to satisfy something like 100,000 per year. Permit red tape and tax on development only hinders the rate of construction further. Pre construction condo prices in downtown toronto went up from 500,000 to 700,000 in the last 4-5 years but builder profit margins have remained same due to rising cost in labour and development/permit taxes and land prices. The market effect is that new homes/ condos are much more expensive than resale despite having to wait several years for completion 3. Immigration is only going to increase post covid. And canada does not take poor immigrants. I asked an iranian friend how immigrants afford toronto real estate and he says prices back home, you could sell and apartment in Tehran and buy a single detached here easily. Money comes from half corrupt tax free countries in the middle east or China. 4. Toronto has become the educational institution for rich immigrant families. post secondaries have taken dramatic increase in tuition and enrollmemt and have benefitted greatly. There are families who buy homes in the suburbs here just to send their kids to good highschools. And there are many good highschools here. 5. Past trends dont predict the future but compared to the 7% annual increase in last 20 years, 5% annual is conservative considering the unique economic situation today.
  20. Cant run AI without hardware. NVDA has the lead on ANN training market. Recent ARM purchase attempt was to capture ANN inferencing market share. If this fails, Jensen will have his way at all cost, probably an in house CPU from NVDA will be in order. Intel is coming at it from both directions. Pote Vecchio for high throughput workloads for ANN training, and AMX instruction set for matrix operations on their Sapphire Rapids server CPU to go after inferencing market share. The up and coming inferencing contender is probably Cerebras claiming low latency( inferencing) on an accelerator ( training) platform. But according to Naveen Rao (podcast) founder of nervana ( acquired by Intel), the blurring of training and inference, although is the ultimate future, is yet a few decades away, and credits NVDA as defacto winner of AI hardware of today (who knows better than outsiders how easily the lead could be toppled, and is not standing still). I am really interested to see how the Neuromorphic computing platform by Intel plays out. ( currently available for tinkering via intel cloud). Today’s software paradigms are unfit for programming anything on here. Ultra low frequency, ultra low power, asynchronous computing; hardware that mirrors its algorithms.
  21. No tax on principle residence here. Its really two things, limited supply, increasing demand. Main buyers are millennials starting family and immigrants ( mostly graduated international students), premium real estate is single detached. The money source is twofold: sale of previous property that has gained 100% on equity ( plus all your principal payments due to low interest) and savings from salary ( there are many high paying jobs here) And the market dynamic only needs to act on a small fraction of the population and properties ( as explained by ericopoly) to have a perfect conflux of effects to boost prices. Build prices? Construction and trades, ( overlooking all star real estate brokers) are probably highest paid occupations here. Supply increase is hampered by ever richer tradesmen in shorter supply who go out and buy more homes and cottages at extended prices. In north america I see only two other places which experience similar effects: manhattan and greater san fran, but theyre both more expensive than toronto already! I personally dont think anybody is inflation hedging with houses. We just want some place to have a room for each kid and maybe a small backyard! Are modest dreams not modest anymore?
  22. You better believe it, I am based in toronto and have the opposite problem looking at US home prices “you mean you can get a 3000 sqft home for less than $2 million???”
  23. Interesting article. It resonates with some of the ideas that Prof Damodaran preaches. He has got a few more up his sleeve such as treatment of long term leases on property and treatment of R&D as a capex and the adjustments necessary to do so. Recognition of these ideas would have been very useful in valuation during early years of Amazon as its value was hidden behind the apparent close to zero net income.
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