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What are you buying today?


LowIQinvestor

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If I recall correctly, USO Is a terrible instrument if there is contango in the forward curve.  You should look into that and see how contango eats away at the performance of USO. 

 

I bought 100 shares of USO purely as a hedge against a future rise in oil prices.

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If I recall correctly, USO Is a terrible instrument if there is contango in the forward curve.  You should look into that and see how contango eats away at the performance of USO. 

 

I bought 100 shares of USO purely as a hedge against a future rise in oil prices.

 

BG2008 - one of the funds I work with uses USL (United States 12 Month Oil ETF) rather than USO precisely for this reason.  From Commodityhq.com, "USL invests in the next twelve months’ contracts, allowing the fund to reflect the average price of a light, sweet crude oil contract over the coming year."

 

Thanks,

Lance

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CHKDG

 

The $100 note trading at $94.5 will float back to a slight $2 to $3 premium after the shock from the slide in oil wears off. The trade should make 8-9% plus dividends in the meantime. Low hanging fruit for 13% - 20% annualized ror. 

 

I made a similar trade back when CHK was running their going out of business sale.

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HCG.TO

 

Are you not worried about the CDN housing market? What will happen to HCG earnings  if the market corrects 40-50%?

 

I'm not done buying yet. So yes I am very concerned. Please short HCG!

 

A few reasons why I think the concern is overblown:

- Most mortgages in Canada are full-recourse. Strategic default isn't an option so a dramatic, nationwide drop (like the U.S.) is very unlikely. It also means that unemployment is the key metric to watch. As long as borrowers are employed, HCG would be able to recover a significant portion of any defaults even if houses were underwater.

- HCG has a Loan-to-value ratio on its uninsured portfolio of 65%. That means that house prices would need to drop 35% and borrowers would need to default before their would be significant losses.

- Why would house prices drop 40-50%? The most likely cause would be a dramatic spike in mortgage rates. Do you see any evidence of that happening anytime soon?

- Unlike U.S. lenders, HCG keeps most of its loans on its own books. It has a very large incentive to maintain credit quality.

- Most of HCG's loans are in Ontario. Ontario should benefit from the low Canadian dollar.

 

Am I worried about Canadian house prices? I have been worried since at least 2000. In the meantime, HCG has grown 24% per annum.

 

At a 10x PE for a stock growing 15% per year, I think I am getting compensated for the risk. I just wish it was cheaper. In 2013, I think I was buying it at 8x not 10x.

 

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