KCLarkin Posted January 9, 2015 Posted January 9, 2015 Thank KClarkin for your analysis. I would just add this has been consistently one of Jason Donville's top picks for years and for essentially the reasons that you listed. I wasn't aware though that they were more focused on Ontario, it definitely strengthens the thesis. 78% of loans are in Ontario. Only 5% in Alberta. Geographic concentration is a risk but the limited supply of detached homes in GTA (due to provincial policies) does partially justify the astronomical prices in Toronto.
ERICOPOLY Posted January 9, 2015 Posted January 9, 2015 - 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. So it's just like Florida, which is also a full-recourse mortgage locale. Yet Florida had a large decline. I think it was one of the hardest hit US markets. Would the US decline have been less severe if the entire country was full-recourse, just like Florida? I can't see what to make of the full-recourse aspect if Florida was one of the hardest hit states.
Hielko Posted January 10, 2015 Posted January 10, 2015 I also find that part of the argument non-convincing. The Netherlands (my home country) has full-recourse mortgages, but in the eighties we had a nice 50% drop in house prices. The drop since 2008 has been a lot more gradual and is currently at -20%, but its still sizable. I bet there are plenty examples of countries with full-recourse mortgages and large price swings. I don't know if the intuitive idea of full-recourse is higher risk is supported by the historical data.
Granitepost Posted January 10, 2015 Posted January 10, 2015 Please allow me to draw your attention to the large appreciation in Toronto real estate prices in the Spring of 1974 (about 35% in a few months I think), which prompted the Government of Ontario to enact the Land Speculation Tax Act, 1974. This Act provided tax on capital gains on houses in excess of 100% of the gain and resulted in the killing of the market for houses for an extended period. The resultant lack of liquidity and uncertainty about market price of properties caused a major disruption in the market as speculators who had bought several houses were unable to sell. Other periods like 1989 were not as severe as 1974 in many respects. It is not mentioned these days because it was an Ontario centric event and was before many of our Board members were born, but is indicative of the fact that you just never know what will happen in any market and what will be the cause a disruption. The 1974 Act was I believe repealed a few years later and after a while the market gradually recovered. I remember speaking to a real estate agent at the time. When I asked her what the market was like, she simply said there was no market.
KCLarkin Posted January 10, 2015 Posted January 10, 2015 Why didn't the Canadian housing bubble collapse in 2008? And if it didn't collapse in 2008 during a worldwide financial panic, why would it collapse in 2015? America's sub-prime lender (Countrywide) had delinquent loans of 11%, 15%, 19% in 2004, 2005, 2006. Canada's sub-prime lender (Home Capital) had delinquent loans of 0.35% in 2013. "The bubble in America was caused by some combination of megalomania, insanity and evil in, I would say, investment banking, mortgage banking,” Charlie Munger.
Guest 50centdollars Posted January 10, 2015 Posted January 10, 2015 In 2008 Canadians were not levered like they are today. Anyway, I'm not saying to short HCG or any of the Canadian banks. The only way to play it I think is to sell your house and go rent for a while. I find it interesting that the CEO's of 5 of the 6 big banks all retired at the end of 2014. I wonder why???
Guest Schwab711 Posted January 10, 2015 Posted January 10, 2015 Canadian housing bubble collapse didn't occur because a big part of the financial crisis was the liquidity crisis. US banks also were much more heavily invested in derivatives that enhanced the liquidity squeezes many financial institutions experienced. The Canada Sands in the west were the Bakkan of today and fertilizer prices were significantly higher. Exports of resources in general kept Canada a float. US banks in general, at the time, were much more leveraged than Canadian banks. Canadian banks have oligopoly protection which kept credit ratings artificially high. Consumer debt has increased consistently throughout the crisis, buoying the economy. The issue in Canada is that average appraisal values of homes have risen at an unsustainable pace for a number of years. Low LTV cannot protect from the drop required based on how over priced the housing market is. Will it ever correct? If so, when and by how much? Canada looks terrible on paper right now. I worked as a financial analyst for a major Canadian bank (mostly on the US side) but I have not worked there in a few years. I sold all my stock in the bank as soon as I was able. I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years). http://www.businessinsider.com/canada-housing-market-slides-2015-1 http://business.financialpost.com/2014/11/26/the-imf-cant-stop-worrying-about-canadas-potential-housing-bubble/ http://business.financialpost.com/2014/10/01/housing-bubble-will-force-bank-of-canada-to-renew-rate-hike-warnings-soon-pimco-says/ http://www.bankofcanada.ca/wp-content/uploads/2011/06/sp150611.pdf
Guest 50centdollars Posted January 10, 2015 Posted January 10, 2015 Canadian housing bubble collapse didn't occur because a big part of the financial crisis was the liquidity crisis. US banks also were much more heavily invested in derivatives that enhanced the liquidity squeezes many financial institutions experienced. The Canada Sands in the west were the Bakkan of today and fertilizer prices were significantly higher. Exports of resources in general kept Canada a float. US banks in general, at the time, were much more leveraged than Canadian banks. Canadian banks have oligopoly protection which kept credit ratings artificially high. Consumer debt has increased consistently throughout the crisis, buoying the economy. The issue in Canada is that average appraisal values of homes have risen at an unsustainable pace for a number of years. Low LTV cannot protect from the drop required based on how over priced the housing market is. Will it ever correct? If so, when and by how much? Canada looks terrible on paper right now. I worked as a financial analyst for a major Canadian bank (mostly on the US side) but I have not worked there in a few years. I sold all my stock in the bank as soon as I was able. I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years). http://www.businessinsider.com/canada-housing-market-slides-2015-1 http://business.financialpost.com/2014/11/26/the-imf-cant-stop-worrying-about-canadas-potential-housing-bubble/ http://business.financialpost.com/2014/10/01/housing-bubble-will-force-bank-of-canada-to-renew-rate-hike-warnings-soon-pimco-says/ http://www.bankofcanada.ca/wp-content/uploads/2011/06/sp150611.pdf Ya Canada does look terrible right now. The consumer is tapped out and you have falling commodity prices.
KCLarkin Posted January 10, 2015 Posted January 10, 2015 Ya Canada does look terrible right now. The consumer is tapped out and you have falling commodity prices. "Invest at the point of maximum pessimism." - Sir John Templeton
Range Posted January 10, 2015 Posted January 10, 2015 Ya Canada does look terrible right now. The consumer is tapped out and you have falling commodity prices. "Invest at the point of maximum pessimism." - Sir John Templeton While that is a good quote, I hardly think it applies here. Shares of HCG were up almost 20% in 2014.
KCLarkin Posted January 10, 2015 Posted January 10, 2015 Ya Canada does look terrible right now. The consumer is tapped out and you have falling commodity prices. "Invest at the point of maximum pessimism." - Sir John Templeton While that is a good quote, I hardly think it applies here. Shares of HCG were up almost 20% in 2014. The quote was in reference to the negative sentiment on Canada not HCG. I don't think we're at the point of maximum pessimism on Canada yet but the other half of the quote "sell at the point of maximum optimism" may apply to the U.S. market. If HCG falls another 20%, then I will open a thread for more debate. At current prices, I am aware of the risks and the position is sized appropriately.
no_free_lunch Posted January 10, 2015 Posted January 10, 2015 I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years). Schwab, which market will drop by 40%? Housing, energy stocks, tsx?
Guest 50centdollars Posted January 10, 2015 Posted January 10, 2015 With house prices at all time highs, I highly doubt Templeton would think we are at the point of maximum pessimism.
Guest Schwab711 Posted January 12, 2015 Posted January 12, 2015 I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years). Schwab, which market will drop by 40%? Housing, energy stocks, tsx? Housing prices have to correct by 40% over time in real terms. If there's a 10% drop over 5 years with 4% growth then we are 30% of the way there. Just about every metric for Canada points to housing being 100% overpriced and the average of the metrics implies 40% drop is necessary. Unless money leaves these housing prices can persist but lending is dropping for a reason (which makes the problem worse faster). EDIT: To go with this, the US housing market is still overvalued because numerous interferences stopped the market from dropping. We will likely see flat housing prices with fast GDP growth to finish the correction while Canada may not have the luxury of positive GDP to save them. Also, the point of maximum pessimism is not even close for the Canadian housing market. If anything, this is maximum exuberance.
berkshire101 Posted January 12, 2015 Posted January 12, 2015 QIWI Thanks, Lance I'm hoping to buy some more too below $20 a share! :)
Patmo Posted January 13, 2015 Posted January 13, 2015 I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years). Schwab, which market will drop by 40%? Housing, energy stocks, tsx? Housing prices have to correct by 40% over time in real terms. If there's a 10% drop over 5 years with 4% growth then we are 30% of the way there. Just about every metric for Canada points to housing being 100% overpriced and the average of the metrics implies 40% drop is necessary. Unless money leaves these housing prices can persist but lending is dropping for a reason (which makes the problem worse faster). EDIT: To go with this, the US housing market is still overvalued because numerous interferences stopped the market from dropping. We will likely see flat housing prices with fast GDP growth to finish the correction while Canada may not have the luxury of positive GDP to save them. Also, the point of maximum pessimism is not even close for the Canadian housing market. If anything, this is maximum exuberance. Yeah no kidding, don't know what this other guy is talking about with his maximum pessimism. Everybody's still leveraging themselves up the ass for crappy homes at 10x their salary, and singing about it. Back on topic, I picked up a few more shares of KRN Karnalyte. Keeping it a small position, but pretty excited about the prospects of a company trading at 55% net cash, with a catalyst in early stages of ignition. It's like a net-net on steroids...
benchmark Posted January 13, 2015 Posted January 13, 2015 I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years). Schwab, which market will drop by 40%? Housing, energy stocks, tsx? Housing prices have to correct by 40% over time in real terms. If there's a 10% drop over 5 years with 4% growth then we are 30% of the way there. Just about every metric for Canada points to housing being 100% overpriced and the average of the metrics implies 40% drop is necessary. Unless money leaves these housing prices can persist but lending is dropping for a reason (which makes the problem worse faster). EDIT: To go with this, the US housing market is still overvalued because numerous interferences stopped the market from dropping. We will likely see flat housing prices with fast GDP growth to finish the correction while Canada may not have the luxury of positive GDP to save them. Also, the point of maximum pessimism is not even close for the Canadian housing market. If anything, this is maximum exuberance. Yeah no kidding, don't know what this other guy is talking about with his maximum pessimism. Everybody's still leveraging themselves up the ass for crappy homes at 10x their salary, and singing about it. Back on topic, I picked up a few more shares of KRN Karnalyte. Keeping it a small position, but pretty excited about the prospects of a company trading at 55% net cash, with a catalyst in early stages of ignition. It's like a net-net on steroids... BAC Jan17 leaps
berkshire101 Posted January 13, 2015 Posted January 13, 2015 Started a position in PCLN and added more CLB.
frommi Posted January 15, 2015 Posted January 15, 2015 Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified.
Uccmal Posted January 15, 2015 Posted January 15, 2015 In the past few days: Mullen Trucking: MTL - originally an oil services trucking company. They have diversified into trucking across Canada, which will do well in the cheap fuel environment. I held this in 2005 to 2008. FFH bought private notes from Mullen in 2009 to help Mullen survive the crunch and of course make money for Fairfax. Really well run and easy to understand. ARX - Arc Resources - Smallish position. I held this in 2005-2008 time as well. Very well run, large E&P company. Well hedged into this downturn. Russell Metals - RUS - huge metal distributor. Trading down due to part of its business being related to the oil industry. One concern: Dividend payout is close to 100% but they can probably handle it. It is basically an inventory turn company. Non-oil business may accelerate in the US and Canada. FN - Canadian mortgage company - 70% privately held. This is my mortgage company, and the largest non- bank mortgage lender in Canada. I am still working on understanding it fully. It is basically a mortgage securitization company. I am trying to determine their liability to the mortgages they have securitized. They dont do commercial real estate at all. I will add that I am not commenting further on any of these for now. If you are interested, read the financials and come to your own conclusions. I dont want to influence anyone with my viewpoints.
no_free_lunch Posted January 15, 2015 Posted January 15, 2015 BAC common. Thanks to all who have posted to the thread, some excellent analysis in there.
kirkomi Posted January 16, 2015 Posted January 16, 2015 Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified. I can't find any new ideas. Would you mind sharing the names. I will like to do my due diligence. Regards.
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