SharperDingaan

It's usefull to take a more 'numbers' approach ..... Of every 100 super-wealthy; how many got wealthy via a questionable source (75%?), and then how many used questionable practices (offshore accounts, charities, legal/tax accountants) to maintain it (90%?). You may be the angel, but you operate in a dirty ship - & soot on the wings is enevitable. If you made your money 'the old fashioned way' (stole it!), you've additional problems. Preventing your friends from stealing your money, and staying alive to enjoy it. Pillage is straightfoward, but you're only usefull so long as the pillaging remains good; after which you'll have a medical/flying accident just before the money vanishes from your offshore account. As 'inheritance' depends on how skilled your successors are - it's a self correcting merit based system, and pretty hard to fault! The wealthier you get, the smaller your gilded cage becomes. And if you're forced to procreate out of a steadily diminishing gene pool, it's not long before the hillbilly 'syndromes' start making themselves felt. Everybody thinking the same way, us versus them 'tone' deafness, rapidly diminishing 'street smarts' etc. It takes a while, but its no different to cooking frogs - do it slowly and you'll eat well, as they will not jump out of the pot. History shows that all civilizations eventually fail - but if they were ALL good enough to BECOME civilizations, what did they ALL do that caused them to fail? We would suggest that it was the corrupting influence of extreme wealth. 'Nature' at work. SD

Nature is very good at thining out the herd. A good chunk of the nouveau rich will blow themselves up well before they get to be old money, and a good chunk of old money will not successfully transfer accross generations. Drugs, drink, depression, family dysfunctiion, revolution, etc. will thin the population further. Time is a bitch, you cannot take it with you. As soon as you're dead your stash will be looted, and there is little you can do about it (ie: Egyptian Pharoahs) And as Ramses (Egyptian pharoah) demonstrated, your 'statues' will also be repossessed and 'attributed' to someone else! SD

Look into the mining industry. https://www.trafficsafetystore.com/blog/mining-operations-autonomous-vehicle-technology/ https://www.nbcnews.com/mach/science/robots-are-replacing-humans-world-s-mines-here-s-why-ncna831631 Labour is expensive, and in increasingly short supply. The technology works best in controlled spaces, and the more hostile the environment the better (self-driving ore loaders, where explosive gas/rockfall is a very real danger). More importantly it's not visible to Joe Public (hence no protests against job loss to the 'machines') and it saves lives, lungs and limbs; but it costs the unskilled their livelihoods. It's also dirt cheap. 10M in equipment under a capital lease might cost 8%/year ($80,000) and replace 2-3 people (2.5) at 80-100K/yr net of benefits. Per the P&L; spend an extra 80K to save 200-250K, and collect premium savings on reduced health and safety claims as added bonus. The same mathematics that is at work in automated warehouses and airport baggage handling. Great for productivity, but if you were one of those 'displaced', you're pretty much out of a job for good. The Corporate Social Responsibility (CSR) issue. SD

The take-away here should be that the US model is the EXCEPTION, versus the rule. Hence thinking that multi-national business in Europe, Asia, or even S America is much the same as it is in the US - is a big mistake. The faster 'shoot from the lip' decision making of the US often produces bad decisions, and feeds into the 'fail hard, fail fast' mantra much favoured by start-ups. All good, except that it's typically a fail with YOUR money, and NOT theirs. The slower 'consensus approach' typically produces better decisions, and more so - when the contributors are diverse. It also really comes into its own when dealing with highly disruptive or large-scale industrial/social change (ie: blockchain). Obviously, depending on what you want - you invest accordingly. SD

German (& many other European) companies operate under a two-tier board system; a Supervisory Board made up of shareholder and labour representatives, as well as an Executive Board which is the decision making body. The Supervisory Board is required by law, and has teeth. https://global.handelsblatt.com/companies/why-german-corporate-governance-is-so-different-892389 "Half of the non-executive directors in all public limited companies with more than 2,000 employees came from the works councils and unions (Codetermination Act). Thus German boards must, in theory, heed the concerns not only of shareholders but also of employees, creditors, suppliers, and local governments, and should take a long-term perspective that stretches over generations. Nowadays, the chairperson of the supervisory board holds most of the cards. He or she (in practice, it is still mostly a he) can never hold the position of CEO at the same time, but must stay in regular contact with the executive board to discuss strategy, business developments and risks." And this is in addition to the numerous supply chain cross-holdings at the holding company level and down; that are common practiice in both Europe and Asia. Hence take a run at a German (or Asian) company, and you pick a fight against a very large army .. and all of it's friends. In North America there is no such thing as a Supervisory Board, and for many; the expectation is that you can do pretty much whatever you want, and deal with the rest of the stakeholders later - if at all. Each approach has its own pros/cons, and the major variable is essentially the speed of change. Federally regulated Canadian banking has a fairly similar arrangement to Europe. Substitute the Regulator and the Bank of Canada for the Supervisory Board, the Individual Banks Charter for the Codetermination Act, and add ongoing operation 'at the pleasure of her majesty ....' Just a different way of doing things ;) SD

You might want to look at the board and governance structures of German (& other European), versus US, companies. There is a reason that they are more 'stakeholder' orientated. Buying a German company, and expecting it to act like a US one (especially in a crises), is often a recipe for tears. There are some relative bargains, but it also requires a change of mindset. SD

A few things to add to this. Thinking as a business owner means knowing the value proposition of the business; the how it makes its money, why, who's buying the product, where are they, and when are they buying it. And not for every product, just the 20% that make 80% of the money. In a rapidly changing business world, basing decisions on just valuation ratios - makes very little sense. WEB bought primarily 'brand' businesses (Coke, Sara Lee, etc.), and essentially substituted 'brand' for 'reputation'. Quality and brand went hand-in-hand, and a brand 'made the list' BECAUASE OF its reputation for quality (the moat). Cheap businesses with poor reputations didn't make the cut (better to buy the great business ...), and 'reputation' is not a line on either the P&L or BS. Yet we all know that the value of 'reputation' is repeat business, with/without current management. Inability to evolve is perhaps THE greatest impediment to value investing, and it is in many ways directly comparable to the evangelical in the 'bible belt'. I'll read another book, when the good lord writes one! The options are pretty limited :D The masters are very good at what they do, but the world has moved on. Obviously some things are just 'same old' in a new wrapper, but too many things are truly new (tech), and we all progressively 'stale date' as we age. Even the very good! Different strokes. SD

If you buy more house than you can afford, and get foreclosed on - what happens to you is on you. At any time, you could have sold and bought a smaller house in the same location, the same size house in a cheaper location, or just rented instead. You could also have taken in lodgers, or shared ownership. Yet, you chose to do none of these things? Nobody wins when somebody gets foreclosed - but it does force long overdue change. And therein is the rub - it's not the way it was anymore. SD

We all know that RE values fall as rates increase, and that it will not slow untill foreclosures have burned through the bulk of the FI loan loss provisions. We just don't like what it means. Yes it means that there are going to be a lot more foreclosures, and bankruptcies. The party is over folks. Yes, responsibility sucks! - & the economy is going to slow as a result. That's the way monetary policy works. I was stupid, I made bad choices, is not an excuse. You f'd up, you wear it. The great depression scarred an entire generation, as the great recession has scarred Gen Z - which will outnumber Millenials by the end of this year. Everyday, Gen Z is seeing what over-leverage has done/is doing to their parents (You/I), & doesn't want to mimic us. We f'd up. https://www.bloomberg.com/news/articles/2018-08-20/gen-z-to-outnumber-millennials-within-a-year-demographic-trends. Hard to lend money when your future customers dont want to take it. Hard to issue mortgages, when customers choose to rent vs buy, and be cash rich/house poor vs house rich/cash poor Harder to control the supply-chain as customers become independent. Equals a smaller FI industry. Not a bad thing. SD

We have a very good idea as to what will happen, we just don't know the timing. (1) The higher the fed rate goes the smaller the 'aggregate' lend (asset to the bank) becomes; simply because as rates goes up, more projects fail their IRR and NPV tests (and are shelved as a result), and the PV of securitized assets declines - significantly reducing demand for money. Same 'spread' on a smaller asset = less interest income. (2) Declining collateral values push corporate borrowers over the edge, and bankers into 're-structuring' - to avoid booking losses. Raise rates too quickly and credit-card/line-of-credit defaults absorb too much of the loan loss cushion, producing strings of sizeable 'one-time' quarterly write-offs. Less net income + lots of downside risk = P/E compressiion ... and the possibility of dilution through new capital raises. (3) The other name for large-scale, industry-wide restructuring, is QE. Most would suggest that now the 'system' is stable - CB's would highly prefer loan-loss write-offs to agressively hit the P&L; both to enforce 'moral hazard', and because there is still so much QE capital on the books to unwind. Further P/E compression, particularly if a 'zombie' bank is either broken-up or allowed to fail. Banking has gone nearly TWO generations without the discipline of 'moral hazard' - so it is long overdue for 'change'. The proportion of 'brick and mortar', to 'virtual' (& blockchain related) banking , is also very 'out-of-line' for todays global age. 'New pipe' versus old pipe, is coming to a bank near you - and a lot sooner, versus later. It's still a great industry, but the times are rapidly changing. Not a bad thing. SD

The old one was just a 'tourist' Zulu chief - but I do like his head-dress! The current one is Oliver Reed who played 'Athos' in the 1973 film version of the Alexanda Dumas book 'The Three Musketeers'. A bit more appealing in todays investment rough and tumble! https://www.imdb.com/name/nm0001657/?ref_=ttfc_fc_cl_t1 SD

You're really betting AGAINST the intertwining of the european banking system. Day-1; somebody, somewhere, screws up - all the banks go in the crapper, and media transmission accelerates contagion. Day-2; locals read about 'their' banks fall in their morning paper/media feed, and react accordingly. By end of day-3, the central bank in the 'source' market is actively intervening - & we're all speculating on how successfull that intervention may be. We learnt from 2006/2007 that if the bank is still solvent by early afternoon on day-2, it's probably going to survive the screw-up. So an enterprising lad would buy calls in the early afternoon of day-2, dump them at the end of the week, and margin the gain against a long position (held untill record date) to capture the dividend as well. The expectation being that to avoid an immediate collapse, the central-bank will temporarily repo enough junk out of the offender, that it can ensure a demonstration of 'confidence to the market' - via full payment of the next round of dividends. Thereafter it's just sit in T-Bills, until the next screw up shows up. Obviously the more players, and the more unique constraints there are, the more opportunities ;) Hence predatory investing in Europe. SD

You might want to think along more 'predatory' lines.... Assume that regulation/oversight of European banking is 'more-or-less' co-ordinated. While execution in each country will be along national lines, 'overall' execution follows a 'plan'. As with an orchestra, individual sections (countries) all following the conductor - to produce great music. The great recession was only 2006/7, we're finally recovering from it, and a lot of the cause was banking related (ie: LIBOR, instiutional corruption, etc). Arguably we're now at the stage where 'the system' is healthy enough, that reforms can be implemented without killing the patients. All banks down, as the tide goes out. UK banks were amongst the worst offenders, and the UK has the additional problem of the pending Brexit. Most would assume that a 'managed devaluation' and a BoE temporary 'put' on the UK banking sector would be part of the exit plan. A european buying a UK bank buys cheap as the tide receeds, buys cheaper as Brexit complicates, and gets both a devaluation boost and downside protection from the put - not available anywhere else in Europe. And as capital shifts from Europe to the UK, the cracks around the European banks progressively begin to show more ... So as a European, why wouldn't I help myself ;D SD

Long time ago when I first entered the working world I made a decision that I ONLY wanted to work for this type of company. I was there to learn the business, intended to learn from the best, and I wasn't shy in asking. In Canada that's a very short list of public companies, and a BIGGER list of private companies. While there's a material opportunity cost to working for these firms, if you can make your case - you'll get to do a lot more, and on your own terms. Practice for later. They are all very 'connected', very classy, and all have strong cultures - good and bad. But the higher up you went, and the more 'invested' you became, the harder it was to effect change. You had to be a young person, use the opportunity to learn your craft, and then leave. Ultimately they are long-term greedy versus the short-term orientation of the market, and use their ability to time arbitrage. Hence very similar to the value-investors mantra of buying when out-of-favour and reselling when everyone suddenly loves it. SD

You might want to consider what happens under 'right to die' legislation. Palliative care is a lot cheaper that end-of-life medical/drug intervention, and choosing 'quality of life' over 'longevity of life' is becoming a lot more common in NA as aging boomers approach end-of-life. Reduce demand for the 20% of intevention services that add 80% of the cost, and total cost comes down rapidly. SD

I'm pushing to become the actuarial abnormality SD

Keep in mind that regulation is RE-active, not PRO-active. FI's are expected to self-regulate within the rules of the sandox (set by the regulator), in return for hands-off regulation (letting the market solution prevail wherever possible). The regulator is just there to preserve the robustness of the system as a whole, and limit any aggregate net abuses. By and large it works well. There will always be fraud, and money-laundering. All that regulation can do is try to make it more visible, more difficult to execute, and shut it down where practical. But as in the drug trade, it is unrealistic to believe that you will ever get 'ahead' of the dealers. Not all provinces have the same view. BC is notoriously lax, and can do what it wants within its own borders - the Vancouver property market being an example. But if bad things happen there it will be BC and investors that take the brunt of the hit, not the Cdn banking system. Not what folks want to hear, but this isn't the US banking system. SD

Can we have that now pretty please? These days it seems every retard and his brother attend university and the levels of he university have dropped at a frightening degree. On top of that many universities are highly politically biased and the "challenge everything" attitude has made a 180. This is all caused by a too large student population. On the one hand people with too low a base intelligence (no critical thinking) and on the other the universities can't handle the larger student population, degrading the level of the studies. A secondary benefit would be that the drop outs would go into trade schools. And that's exactly of which supply is lacking now. So students would be happier, learning a (useful!) skill at their level of thinking with almost guaranteed job security and society would benefit greatly too. All for the small price of governments minding their own damn business (w/e that is) and letting the free market do its thing. If a student has to be 21+ (vs 18) in order to get a student loan, the simple 2-3 years of post high school work experience (more maturity) should go some way to curing this. Mom/dad are no longer as influential (opting for status vs practice), and if the student is now paying most of the bill - there are going to be more rational choices. Same number, or possibly fewer students - but a higher proportion in subjects/trades with more application. The market at work. SD

SD - can you elaborate when you say sound regulatory oversight? As someone who works in the compliance world, I think the regulatory oversight in Canada is a joke. What makes you say that the regulators do a good job in Canada? In Canada. The vast majority of mortgages are issued by federal FI's regulated by OSFI, working closely with the BOC and provincial regulators. Financial stability is maintained by OSFI /BoC stress testing FI capital against various scenarios, and changing the rules as required (new mortgagers passing a 200 bp stess test before the morgage is issued). You do as you're told, when you're told, as your federal FI operates at the 'pleasure of her majesty'. A Provincial FI is subject only to the rules of the Province, usually a lot less strict. But if the Provincial FI is selling mortgages to others outside of the Province, there will be an OSFI 'overlay'. So long as a Province 'X' FI meets local requirements it can originate a mortgage in Province 'X'. It can re-sell it to anyone it wants, but a Federal FI will have limits on how much of these Province 'X' mortgages it can hold (originate or purchase). Hence you can originate as much dog-sh1te as you want, but you need an other than federal regulated FI to buy the bulk of those mortgages. So you securitize what you couldn't sell, and it becomes the mortgage investors problem - not that of the Canadian financial system. The US doesn't have anywhere near this crisp a level of seperation. So when there's abuse - it's easier to achieve system wide 'contagion' and force a financial system 'bail-out'. We burn the investors, and originating Province instead. A scottish thing. SD Have you asked yourself why the stress test was brought in? I'll tell you. It's because they found out that mortgage fraud is a serious problem in Canada. There is a reason why CMHC is asking the CRA for people's incomes now. https://business.financialpost.com/real-estate/mortgages/exclusive-canada-housing-agency-pushes-for-better-income-checks-to-catch-fraud. It's because its very easy in Canada to lie about your income and most mortgages brokers out there get paid on volume so they don't care whether you can really afford the house or not. Many people were doing this. The OSC and OSFI were tipped off by whistleblowers about the mortgage fraud going on at Home Capital a year and a half before shit hit the fan. They sat on the information and did absolutely nothing. They only acted on it when the information was leaked to the Globe and Mail and it was published in an article. Is that good oversight to you? Now, even today, most people think Home Capital was a short and distort lol and the reason they do is because OSFI doesn't give the information to the market. The only way you would know this is if you knew an OSC/OSFI employee or someone who left Home Capital, which is how I know. The CMHC knew Home Capital was a problem. They knew there was a lot of fraudulent mortgages pumped into CMHC but even they did nothing. They kept approving them. Not sure how that is good oversight? Things don't get done on the frontpage of the newspaper in Canada and you will never hear when there is a issue in the financial world unless it is leaked. The reason for this is because OSFI believes that our financial system is small and because it is small, our system can collapse a lot easier. If one bank goes down in Canada, were fucked. If one bank in California goes down, doesn't mean the US banking system goes down. Now, you can argue whether this is the right way to do it or not but I believe all information should be given to the market so people can make informed decisions. People were going long home capital thinking it's short and distort and I don't blame them because how would they know? It wasn't short and distort, there was serious fraud going on there. Home Capital is just one example where mortgage fraud is a problem. There are others but the market doesn't know about them yet. You will find out when this cycle ends. The other major problem in Canada is money laundering. The money laundering departments of all FI's in Canada are dog shit. I'm not sure why they even have these departments because the employees in them don't do anything. And I'm talking about the big banks, not casinos in BC. The regulators know about this but don't do anything lol. Even the compliance departments at most banks are a mess. They're mostly country clubs. The stress test was way too late. That should have been brought in years ago but I'm glad they did it and I hope they get even more strict. They waited way too long. Just for completeness ... Yes Home Capital had mortgage fraud. But the possibility of mortgage fraud is part and parcel of the morgage issuing process, every issuer is exposed to it, and how much of it there is in the given FI is controlled by the FI's management. When the FI's management isn't acting to contain it, you get whistleblowers. A very good thing. Home Capital was a big fish in a niche business, but the proportion of their issued morgages compared to all mortgages issued in Canada was small (<5%). A problem for Home Capital, but not a big enough problem to immediately bring down the Canadian financial system. The smart response is to publicly do nothing, privately investigate system wide, quantify and develop potential solutions, 'sniff test' against the major players, THEN make an announcement. But to the whistleblower nothing seems to be happening. Yes Home Capital was a problem - but it was defused very elegantly. C-Suite changes, broker network changes, standby pension fund & 'others' investment , tighening of mortgage issuance criteria, and a great many employees jobs saved. Employees that would lose their livelihoods, yet had nothing to do with it - they just worked for the wrong FI. That didn't just 'happen', it was planned. FI stress testing is an on-going quarterly (or more) process, than has gone on for decades. The tests are done by both the FI, the regulator, and 3rd parties in other jurisdictions. All the people involved know their stuff, know how to 'hide' the undesirable, and serve as a check on each other. You might be able to beat them, but you have to be extremely good. Of course good analytics don't mean anything, if you can 'politic' your way out instead. Much harder to do in Canada versus the US, as it's a much more 'one-sided' conversation. There's 'flexibility' but you'll do as you're told, when you're told. Or we'll find someone else. Grating to a US audience but perfectly in-line with the scottish 'clan' system (mafiosi in skirts ;)) of Canadian banking. Hence what happened in the US is not really comparable. SD

SD - can you elaborate when you say sound regulatory oversight? As someone who works in the compliance world, I think the regulatory oversight in Canada is a joke. What makes you say that the regulators do a good job in Canada? In Canada. The vast majority of mortgages are issued by federal FI's regulated by OSFI, working closely with the BOC and provincial regulators. Financial stability is maintained by OSFI /BoC stress testing FI capital against various scenarios, and changing the rules as required (new mortgagers passing a 200 bp stess test before the morgage is issued). You do as you're told, when you're told, as your federal FI operates at the 'pleasure of her majesty'. A Provincial FI is subject only to the rules of the Province, usually a lot less strict. But if the Provincial FI is selling mortgages to others outside of the Province, there will be an OSFI 'overlay'. So long as a Province 'X' FI meets local requirements it can originate a mortgage in Province 'X'. It can re-sell it to anyone it wants, but a Federal FI will have limits on how much of these Province 'X' mortgages it can hold (originate or purchase). Hence you can originate as much dog-sh1te as you want, but you need an other than federal regulated FI to buy the bulk of those mortgages. So you securitize what you couldn't sell, and it becomes the mortgage investors problem - not that of the Canadian financial system. The US doesn't have anywhere near this crisp a level of seperation. So when there's abuse - it's easier to achieve system wide 'contagion' and force a financial system 'bail-out'. We burn the investors, and originating Province instead. A scottish thing. SD

Keep in mind that Canadian RE shares little simlarity with the US. Loan structure, recourse/non-recourse, regulatory oversight, and a host of other things are completely different. Hence, you're trying to compare apples to oranges. Yes they are both fruits, but that's about it. SD

You would just get a smaller student population, and higher tuition cost. The fixed costs of running the university/college just divide over a smaller base, and it costs more to go to school. Our own thoughts are that the problem really isn't access to loans, it's the immaturity of students/parents at the time they are making these decisions. Hence, the practical solution may be to simply tie the loans to being older than 'X'. You're still free to make poor choices (freedom), but at least you'll do it with some 'real world' experience under your belt. ie: you've learnt the value of a buck. SD

You might want to think in terms of time horizon. < 1 year, 1-3 years, 4 years+, etc. With the escalating trade war; over the next year - all manufacturers are probably going to sell less than 'normal'. Hence downside earnings bias and the shares of all kinds of global, quality firms, available at less than expected prices. If you think that accummulating global job loss eventually forces adult discussion, the earnings bias is only temporary - and there should be signicant price gains as tariffs ease &/or are dialed back. The big unknown is timing - were control of the US senate to change hands in the midterms, most would expect a shortening; otherwise a lengthening. The US does have quite a few valid points, but Trump's toxicity makes it impossible to implement them. Hence medium term most would expect changes, but executed by different individuals. Anyones guess as to what they might be. Our own thoughts are that there will ultimately need to be another Roosevelt type 'new deal'. Fiscal stimulas in a big way to rebuild the roads, bridges, ports. pipelines. etc - that will require people. SD

This is just borrowers looking for anyone else to blame but themselves. Everybody else got a bail out, so I should to. Mom and dad have either refused (mortgage their house to pay off my debt, and get a job to pay for the mortgage), or don't have the means. Young and dumb is not an excuse, there is no 'undo' button in life. You f'ked up, hence you wear it; and have the rest of your working life to pay it off. You don't get to buy a house, you have your kids later (if at all), you don't get to live the same life-style as mom or dad, because you f'ked up - they did not. You get the rented shit-box, take the bus, and work two/more jobs until that debt is paid off - just as mom/dad had to do when they were your age. Bwah .... Every druggie blames their dealer for getting them hooked, every alchoholic blames the bar/store for making it 'too available', and every borrower blames their lender. Everybody else but them. Sure it sucks, but you made your own bed. That's life. SD

There's a difference between moving for short-term versus long-term benefits. Sure, with experience and connections you could make a lot more in the US than in Canada. But net of taxes, health care coverage, stress, widespread gun usage, and the xenophobia of US society - is it really worth it in the long term? Or is it better to BASE the family in Canada (long-term benefit), and simply travel to/from Canada for that work (short-term benefit)? If you want an amah to look after your young kids you're better off in Asia, simply because you will not earn enough to afford the same thing in a Canada or a US. Hence the young person who moved for the money (short-term), moves home in middle-age; and is really a MIGRANT versus an IMMIGRANT. Not what a young person wants to hear. The only 'short-cut' is family/friends helping you out in the new country with shelter and job; otherwise you grind it out, the same as everyone else. Again - not what a young person accustomed to instant gratification, wants to hear. There are more jobs for young people in Canada, than there are young people; we just don't like what they pay, what's involved, or that they are dead-end. Your choices are to either make your own (better) job, vote with your feet, or put up with it as a means to an end. Nothing wrong in any of that. SD