SharperDingaan

Retiring ½ the Debs now, & ½ later, is a desirable thing. It maintains the cash cushion, uses up the Q4 cash generated, & the remaining ½ will use up the Q1 cash generated. Some of the Deb holders would also like to keep them as long as possible; our cash yield is > 20% Everyone, including ABH, wants a higher price. It revalues their existing portion of St Feliceon upwards (more equity), & if they pay in stock - it increases their total o/s equity, & reduces the Debt/Equity ratio Snr Mgmt will be quite happy with a package. For regular Joe, there would essentially be no change - as only the ownership changes. You still need to run the plants. Clearly the AGM will be an important date, & we can expect a few more announcements. SD

There's a nice little business at WED ! SD

Keep in mind that the Debs trade just > 100. The clear inference is that the built up cash is going to be used to buy them out of the market, & that it will happen < maturity. Solid Q4 earnings, & an AGM announcement of intent to repurchase the Debs, will remove the dilution possibility & boost the share price. ABH is clearly shopping as well, & partial ownership of St Feliceon is not ideal. If there are no announcements, its hard to see how snr management will survive the rest of the year. SD

Sovereigns don't default, they 'restructure'. Put a fed guarantee on 20-40% of all the entire agency, muni, state, & fed debt in the US - & reterm the entire thing out to 100yrs plus. Take the new note, or take a haircut - your choice. 2-3 major currencies for regional trade purposes, & SDR's between sovereigns only. Bretton Woods III to fix the rate. 3 yr renewable limitation on trading block admittance becomes commonplace. Automatic evictions triggering changes in government become a common occurrence. Play by the rules or lose your head - your choice. SD

The macro is still there, it's just that nobody wants to hear it. http://www.theglobeandmail.com/report-on-business/top-business-stories/united-states-a-reclining-world-power-mark-carney-says/article1880471/ The good news is that the directions are becoming progressively more enevitable (euroland shrinkage, changes in reserve currencies, co-ordinated global write-off/re-structurings, Bretton Woods III, etc) & more binary. The bad news is that denial is worsening (US Muni's, US fiscal deadlock, Euroland budgeting, etc.) We think the US will ultimately have to do an Icelandic type restructuring, but there will be a lot of company. SD

"Shouldn't the house values go up if the the cap rate increases. When you said mortgage falls over the LT, you mean in relative to inflation rate? I don't see how ur increase mortgage, roll into short term T-bill will work in Canada where Mortgage rate is quite abit above T-bill rate... And I don't think there is CDN housing index to short .. if there is, I will do it." Higher interest rate = higher capitalization rate. Future equivalent rental income is discounted at the higher interest rate which reduces the PV. Lower PV = lower house value. A house is a hard asset. A mortgage is a hard liability. Inflation increases the price of a hard asset, & reduces the purchasing power cost of hard liability - producing a PV saving on retirement. Yes there is negative cash carry but you miss the point. You will repay the mortgage with inflated $ producing a gain, & the cash is the required margin for the index short. The discussion is also in the US context - Schiller index. If you believe in your premise that there will be inflation, this should not be a problem. To go this route be very sure that you fully understand the application of DCF, what inflation does to hard & soft assets/liabilities, & how to get/maintain an effective hedge. Miss-understanding, could cost you your house. SD

There are, but I'd prefer not to put the ticker symbols out. If you go this route you really need to do your own DD, & you'll very quickly get to the symbols once you start. SD

The assertion is that rates increase because inflation increases. In the short term house values fall because the cap rate increases. Over the long term, the purchasing power of the house rises, & the mortgage falls, with the inflation rate. Why buy a 2nd house, or buy a REIT/vulture fund AT ALL? Simply increase your mortgage, invest in & roll short-term T-Bills, & short the housing index. Dont care when my house value falls as I dont intent to sell (I need it to live in), my T-Bills are maintaining their value & I have a cash gain when I close out the index short. When I repay the mortgage from my T-Bills I capture the inflation gain on my liability - & I leave my house untouched & worth significantly more than when I started. Elegant, no fuss, no unplugging toilets, no collecting rent, no finding tennants, etc. SD

The answer to the exam is that some of these funds have been picking up mortgages, in volume, at 15c on the $ :o with the european mortgages at maybe 20-25c. If you're going to stay with them for 3-5 yrs it will be pretty hard to lose, even with Roundpoint not being the greatest vehicle. Point is that beyond direct ownership, & indirect ownership via the REIT, there is the 'vulture' fund. Obviously not for everybody, but they do have some attractions. SD

Not an endorsement, but look at the vulture funds buying distressed debt http://www.tavistock.com/index.aspx?id=13 http://www.thefreelibrary.com/RoundPoint+Financial+Group+Names+Steve+Bashmakov+as+Chief+Financial...-a0239825740 Then ask why is the US better than a similar investment in the Europeans. ie: Portugal, Italy, Ireland, Greece, & Spain ? SD

< 0% until we're through the reporting season. Significantly > 0% thereafter. We prefer to use cash, versus options, to hedge - & do not expect the US to have a happy experience this year (widespread municipal defaults, Hoisington, etc) Our main deciders are the time horizon to get a double, the quality of the investment, whether we are likely to have interim opportunities, & whether we can move up the quality curve. EG: CMP may well double over the next 3 yrs, but it’s highly uncertain, it will probably be a volatile ride, & it is likely to offer multiple entry/exit points between now & then. PDS may well also double over the next 3 yrs, but it is a lot more certain, relatively less volatile, & far better quality. Take PDS over CMP & move up the quality curve. SD

Pick your time horizon (in years) - & the commodity. Yes, NA is awash in gas (short-term), but not so much in the medium to long-term. Were that not the case, the McKenzie Valley pipeline would not be going ahead. Pick your sector, & know how it works. Land or off-shore? Specific oil/gas field? Operator, distributor (wholesale, retail, futures trader), or servicer? (drilling, transportation, catering, shelter). What are the production methods, depletion rates, etc?. Define your expectation. What needs to happen to get there, what you think the odds are on it occurring. Double, or triple? Sell assets, or drill for it? Buy someone else & hold for gas price increases? Operational efficiencies? Very basic research before you even enter the sector. SD

Re: RBK Mills They are a good business, but the structure of the industry ensures that margins will almost always be low. Add in the FX volatility they generate because of Cdn parent ownership, & you get poor quality earnings. The good news is that they are effectively recycling utilities - so over the long term they should generate at least a modest positive return on investment. More valuable to a US parent, which will not have the FX risk. Additional value if they can find a market for some of their byproduct (heat, electricity co-generation, etc.) SD

The basic premise is that where multiple outcomes are possible you draw out a probability tree of events over a given time horizon, determine the value of the stock under each outcome and assign a probability to each outcome. Multiply the value x the P(x) to arrive at the probability weighted Expected Value for that branch. Sum the Expected Values of each branch to get to the Expected Market Value (EMV) of the share overall. Bayes ? Theorem. WEBs bridge example. Some of the values will be based on liquidation, others on P/E multiple, & still more on BV multiple. Multiple valuation approaches are part of the framework. Efficient Markets To hold a security I expect to get paid, & the more risky it is the more I get paid. Therefore I need to PV the EMV back to today to determine what price ‘X’ I should be willing to pay to buy the stock – inclusive of all my expectations. For a 1 yr horizon, & 20% discount rate, multiply the EMV by 1/(1+.2)^1. Risk/Return theory. If todays price P(0) is < X, I should be a buyer as I can capture an arbitrage gain of [X-P(0)] x # of shares. If P(O) > X, I should be a seller. If P(O) = X, I should be neutral & therefore 50% hedged. Algorithmic formula. If P(O) hits X & subsequently falls, you can repurchase the hedge at a permanent cash saving. If P(0) goes through X & keeps rising, you need to sell more. The decision becomes how much of the overall portfolio should be in this stock Move forward 1 quarter. Discount multiple is now 1/(1+.2)^.75, & EMV has changed as the P(x) of each branch has changed. The value of each outcome may have changed as well. There is a new X, & a new decision to be made. We deliberately speak cryptically in order to make you develop your application skills, which maybe 1 in 4 will do. You can teach a monkey theory, but it becomes a gorilla when it learns how to apply. Here endeth the lesson! SD

Cwericb: Keep in mind that one needs to think in terms of P(x) x EV within 1 Yr - then discount the EMV back to present day at some appropriate rate. ie: [P(no change) 25%, P(higher margin net of FX & inflation) 45%, P(Asset Sale) 15%, P(Merger) 15% x best guess for various outcomes]/(1+discount rate) Obviously as information becomes public knowledge the P(x), EV, time horizon, & discount rate will all change - which will alter your decisions. Multiply the range of posters ‘values’ by each posters P(x) of occurrence, & we’re all probably within 10% of one other. SD

Very good year. - Significant positions in securities that almost doubled. PDS - Capital redeployment. $ taken off the table to reduce the base - Intelligent hedging. FBK SD

3 reasons. - AGM's are to formally present the audited year-end financials - until then we're all just taking managements word that the numbers are actually representative. If you have a choice, you want to start from independently confirmed numbers. - The AGM is a formal coming out party, where management will present its vision & announce its major changes. If its your last one you want it to be a good one, & if you have any material forthcoming transaction you'd like to formally announce them. Counterparty transactional details, due diligence, etc. will of course have been worked out well before then. - Lot of friendly schmooze gets done at AGM's - but you have to press the flesh, show some class, walk the talk, etc. If you want to be fair & friendly, some of those friends may well turn out to be future partners - & how you act will have an impact as to whether they would want to do business with you. SD

The reality is that nothing is going to occur unless FFH iinitiates it, which is unlikely until the year-end AGMs are over. That it will occur, is largely a foregone conclusion. In the meantime you get to trade off a rising valuation, that will suddenly spike at some point. SD

$4-6 base, plus something for the liquidation variables. 1) Lot more if the buyer can pay in a mix of stock &/or cash 2) More again for a decision on the US plants. Sell for a gain & merge FBK into the buyer - or sell St Feliceon & keep FBK (either as a US coy, or as the Cdn sub of a US parent) SD

"Still, today I have a pretty crafty friend, a self-made scrapper with a few million of net worth, who has a bid in on a 4 bedroom waterfront home. It has its own pier, boat ramp, pool, patios (covered ones too), etc. Appraised for $775,000 in 2007 (rediculous) and he thinks the 90 day process is about up on this short sale propery and that his bid of $125,000 is going to be successful. It has an in-law suite where he plans to stay and he says he'll rent out the 3 bedroom part." Your friend is hoping to get the property at a low enough price such that most of the cost of ownership is what he/she would otherwise have paid out in shelter costs for him/herself. He/she can afford to wait a very long time for house inflation to occurr. If he/she is willing to live there year round, & can actually do the property management side they will seem to do very well. Then ask yourself how many mom/pop motel/B&B owners do you know, who 10 yrs later, would probably have been better off ($ &/or quality of life) if they had never bought the place to start with? And didn't they all see a similar business logic? Your friend may not be considering all the relevant metrics. SD

Use a 5yr fixed rate mortgage, & you're really hoping that either 1) the market rate in 5 yrs is lower/same as it is now 2) inflation takes hold in a big way, 3) the rental income increases dramitcally (rate/week, or more weeks rented), 4) or there are minimal upkeep costs over the holding period that will not change much. To achieve it you're willing to go back to the same place for each of 5yrs. 1) & 2). If refinancing costs go up significantly (european 1st half 2011 debt roll-overs crowding out the market), the NPV will materially decline unless there is significant offsetting inflation in house prices. Very high inflation may eventually happen ... but most people would expect a time lag untill it does occurr - & if you cant hold until then you're dead. 3) & 4). Additional rent would be primarily because you to rented more weeks, vs more rent/week -& unlikely to occurr for at least 2-3 years - people need the money to spend, & everyone else in your area has to have allready rented out their extra weeks. One significant repair bill & your property could give you a negative carry cost. Why be another seller when everyone else is also selling - isn't it better to be the buyer & have the flexibility to go wherever you want? If you want the investment why isn't a REIT with a geographic concentration in the area not a better choice ? (liquidity, positive income, diversified risk, etc.), & why would you not you roll in over time to exploit the expected rate increases that will drive down the REITs price? SD

We don't buy common unless we can reasonably see at least a double within 3-5 yrs, & when there are no opportunities we're in fixed income instead. The upside is that it forces profit taking & makes you more conservative as valuations rise. The downside is bias to larger than normal opening positions. Example. FFH at 70 was a great investment, simply because the outcome was virtually certain (collapse or recovery) within 1 yr, & you could limit your loss with an option (call, or LEAP). At 140 it was still good, but to get a double was going to require at least 2-3 yrs & some changes in the corp approach/structure. At 280 it became iffy - simply because to get to 560 (ie: double) there would have to be some very big wins, & a potential acquisition (assuming no increase in div). While 'Churn & burn', & margin, could improve your return - it can not change the reality that another double within 3-5 yrs is far less certain. At present, almost every pond is crowded with doubles; they just aren't as cheap as they were, & their price stability is uncertain - which is why averaging & hedging was invented. But not all doubles are the same ... ie: FFH @ 70 is very different from FFH @ 140 & very different again from FFH @ 280. Show us some long dated zero coupon euro guaranteed sovereigns though, & we might change our mind! SD

The rational thing is a rolling long term out-of-the market put on bullion. Buy as cheaply as possible, & keep rolling it forward every 6 months to minimize the decay cost - essentially the poor mans CDS More gold is produced than used each yr, & unfortunately the stuff recycles - so there's a growing cummulative supply overhang. Stop the buying & we will get a rapid drop as the hoards come out of the woodwork - unless developing nation central bank(s) switch a portion of their $ holdings to bullion (the traditional position). Lots of volatility. Culturally the (mostly) rural populaces of both India & China have used gold as their store of value - & its that growing marginal wealth that is pushing prices. More savings to invest, & the growing value of your existing hoard, producing a nice wealth effect - not unlike the Tech bubble. Given that you can margin against your hoard to support spending, there is probably quite some way to go yet. SD

A little biased, but you might want to look at the following: To know the mechanics as to how P&C insurance works, look at the industry professional designations. Within Canada you would be looking at the CIP &/or the FCIP. http://www.insuranceinstitute.ca/ProductCatalog/ChartOfProgramOfferings.aspx?pg=Canada&lu=1. As with everything, the principles involved (ie: UW of marine, hazmat, specialties, reinsurance, etc) are more important than the actual legislation. Learn from the bad. Look at the financials & press releases for the last 5-10 years of KFS (TSE listing), read the various comments that were made on this board (content & time). Look at the loss triangles on their final AR's, what the coy was saying 9-12 months before the losses occurred (short-tailed business), how you can delay the enevitable, & what bad UW can do (assumptions & staff retention) to you ($, & time to break-up/bankruptcy). Then look at the WED transaction. If the business showed 3 yrs worth of 'real' triangles how much more would it be worth over the purchase price - simply because the uncertainty was removed ? Very patient shareholders, & at 580M shares o/s - a 120M loss is only 2c/share. ie: The how you fix it. Watch & learn. SD

.... bit more than steady as she goes. http://www.foex.fi/ Look at the NBSK forwards, the overall change during November, & the bump around Feb-2011. Then look at the BHKP (limited substitute for NBSK) change over the same period. Somebody needs a lot of (additional) NBSK over Feb & can't substitute with a lower grade. Who has lots of celebrations during February? SD