Welcome To The Depression...

[Gary Ruben]

Re: Welcome To The Depression...

It's been about a month since I wrote my thought the next couple of months should be interesting. Since then the Dow Jones Index has closed at a low just above 6500. It's since come off those lows. Maybe it has bottomed. Maybe it hasn't. I'd thought around 6800 would be the bottom.

Let's keep in perspective the real tragedy in all this is the people who are losing their jobs and investments.

In the U.S. people are upset about companies which have been bailed out paying hundreds of millions in bonuses from the bailout money. One of these companies now has ownership of almost 80% by the U.S. government so the citizens have a right to be outraged.

I almost forgot about my Depression Portfolio. Under the circumstances I'm not all that unhappy about the performance. I think a couple of them have had setbacks. One will be consolidating the shares. Often when that happens the share price drifts back down after the consolidation. I doubt I'll even break even on that one.

My assessment on my investment in Domtar is that my money has gone to a better place. :(

Another of the companies has changed the CEO. If I'd have known they were going to do that I wouldn't have bought it. Anyhow, it appears to be a takeover candidate so I'll hang on.

Actually another company also has a new CEO. I think that change at Sherritt International is a good thing.

I never look at investment statements. My wife does. Lately she hasn't been commenting so it can't be good. Still, what do I care about the short term. I don't have to mark to market. A correspondence chess game takes between a year and a half and three years so I have patience.

I expect the stock market to bottom before the economy gets better.

I'm reading house sales are down but don't put much faith in that. Prices seem to have dropped and many people who might want to move find the house is worth less than the amount owing on the mortgage. Not usually a problem if the payments are up to date. Might be a problem if a person is trying to sell the house for less than the mortgage value and doesn't have the money to pay the difference.

Interest rates have dropped. Some mortgage contracts have a penalty for early termination of a mortgage of 3 months payment OR the interest rate differential, whichever is more. So if mortgage rates have dropped 3% and there is still more than 3 years to go on a mortgage it could cost 10's of thousands of dollars to discharge the mortgage, depending on the size of that mortgage.

These downturns feed on themselves. Just like falling dominos.

When I commented awhile back on the performance of the CPP investments, someone pointed out they probably hadn't sold the investments and realized the loses. If that's the case, I wonder if the managers feel better or worse as this quarter of the year comes to a close and they have to tell the performance again.

I notice the price of oil rose nicely in the last week or so. I wonder if the idea is to get the price of gasoline up for the summer driving season. That would likely depress another tourist season as it has been demonstrated people drive less when the price is higher.

DISCLAIMER: None of what I write should be used for investment decisions. I write this stuff for entertainment. Consult a financial advisor.

[Duncan Smith]

Re: Welcome To The Depression...

It's been about a month since I wrote my thought the next couple of months should be interesting. Since then the Dow Jones Index has closed at a low just above 6500. It's since come off those lows. Maybe it has bottomed. Maybe it hasn't. I'd thought around 6800 would be the bottom.

Let's keep in perspective the real tragedy in all this is the people who are losing their jobs and investments.

In the U.S. people are upset about companies which have been bailed out paying hundreds of millions in bonuses from the bailout money. One of these companies now has ownership of almost 80% by the U.S. government so the citizens have a right to be outraged.

I almost forgot about my Depression Portfolio. Under the circumstances I'm not all that unhappy about the performance. I think a couple of them have had setbacks. One will be consolidating the shares. Often when that happens the share price drifts back down after the consolidation. I doubt I'll even break even on that one.

My assessment on my investment in Domtar is that my money has gone to a better place. :(

Another of the companies has changed the CEO. If I'd have known they were going to do that I wouldn't have bought it. Anyhow, it appears to be a takeover candidate so I'll hang on.

Actually another company also has a new CEO. I think that change at Sherritt International is a good thing.

I never look at investment statements. My wife does. Lately she hasn't been commenting so it can't be good. Still, what do I care about the short term. I don't have to mark to market. A correspondence chess game takes between a year and a half and three years so I have patience.

I expect the stock market to bottom before the economy gets better.

I'm reading house sales are down but don't put much faith in that. Prices seem to have dropped and many people who might want to move find the house is worth less than the amount owing on the mortgage. Not usually a problem if the payments are up to date. Might be a problem if a person is trying to sell the house for less than the mortgage value and doesn't have the money to pay the difference.

Interest rates have dropped. Some mortgage contracts have a penalty for early termination of a mortgage of 3 months payment OR the interest rate differential, whichever is more. So if mortgage rates have dropped 3% and there is still more than 3 years to go on a mortgage it could cost 10's of thousands of dollars to discharge the mortgage, depending on the size of that mortgage.

These downturns feed on themselves. Just like falling dominos.

When I commented awhile back on the performance of the CPP investments, someone pointed out they probably hadn't sold the investments and realized the loses. If that's the case, I wonder if the managers feel better or worse as this quarter of the year comes to a close and they have to tell the performance again.

I notice the price of oil rose nicely in the last week or so. I wonder if the idea is to get the price of gasoline up for the summer driving season. That would likely depress another tourist season as it has been demonstrated people drive less when the price is higher.

DISCLAIMER: None of what I write should be used for investment decisions. I write this stuff for entertainment. Consult a financial advisor.

If anyone had followed my recommendation to invest in call options of Canadian banks they would have made a huge return. Great opportunity the banks oversold ( eg BMO around $25 was way too cheap ). Tricky now the real easy money is done.

Other interesting companies include Bombardier ( for those with low risk tolerance ) or Ballard Power / Junior mines ( riskier ). I found QUA and TCM in gold. High risk play try the Uranium companies ( UUU and FIU ).

No guarantees of course but the banks were as close to a sure thing as one could get. If they drop again then same deal all over again.

Invest at your own discretion of course.

[Gary Ruben]

Re: Welcome To The Depression...

If anyone had followed my recommendation to invest in call options of Canadian banks they would have made a huge return. Great opportunity the banks oversold ( eg BMO around $25 was way too cheap ). Tricky now the real easy money is done.

Other interesting companies include Bombardier ( for those with low risk tolerance ) or Ballard Power / Junior mines ( riskier ). I found QUA and TCM in gold. High risk play try the Uranium companies ( UUU and FIU ).

No guarantees of course but the banks were as close to a sure thing as one could get. If they drop again then same deal all over again.

Invest at your own discretion of course.

Hi Duncan,

I'm going to comment with my usual disclaimer that people should consult an investment advisor before they jump in.

I picked up a financial ETF but a bit too early. I'm about even on it. It's encouraging the banks are starting to make money again on their core business.

I agree with you regarding Bombardier. I thought the high margin part is the airplanes but at these prices you are probably paying for the railway business and getting the planes end for free. Is that also your take? By the way, they have had a lot of "goodwill" and debt on the balance sheet last time I looked. I haven't bought it because of the balance sheet but maybe it's build into the current price.

Ballard is one a young guy told me about when it was around $125.00, I think the price was. Does that sound right? What happened to make it drop like it has to around a buck? I do hope he's not still holding it. I forget how many years ago that was but it was a great birthday party. That I remember. Isn't it hydrogen cells or something like that?

Is UUU in production? I take it that one is a play on the price of uranium. I prefer Usec Inc. which trades in New York. They enrich the uranium for reactors and have decent revenue and profiits.

The only producing precious metals mine I have is GPR. Bought it cheap. Mainly silver and mines are in Mexico.

[Duncan Smith]

Re: Welcome To The Depression...

Bombardier has a P/E less then 5 and a huge established business. It appears to finally be overcoming resistance at the $3 mark. I expect a big move up within days.

UUU is purely speculation ( momentum investing ). A whole bunch of brokerages like it to go up, the fundamentals aren't encouraging on the surface, but I don't really know how to evaluate these plays. Sometimes ride the wave. Tons of shares trading every day.

Ballard makes money, and doesn't seem to depend on experimental projects anymore. Seems highly oversold if we can trust the numbers ( P/E of 2 !!! ). Likely held back by people seeing what happened to NT.

Celestica is interesting as well but mixed signals. The junior miners I picked seem to be profitable, especially Quadra with low P/E.

Invest at your own discretion of course I am an "amateur" pundit. Canadian banks are bouncing around now ( TD in particular seems to be prone to day traders; went up 10% on Monday, down 4% today ).

[Gary Ruben]

Re: Welcome To The Depression...

Invest at your own discretion of course I am an "amateur" pundit. Canadian banks are bouncing around now ( TD in particular seems to be prone to day traders; went up 10% on Monday, down 4% today ).

I hope those companies do well for you.

There are some I like but am waiting for them to be down while something I have is up so I can switch. Mostly in the U.S. Basically, I like to get a company which pays a dividend or distribution which I think is "safe". Or as safe as anything can be in today's environment. Also ones which might be takeover candidates.

I don't buy bank shares. Cost too much. I like the ETF's which track the TSX capped financial index. Preferably at 2X. I have one now I bought lower than the current index level. When I think this run is over I'll sell it. With an ETF which tracks the index there isn't the problem of the index going up and the one I have dropping or staying the same.

[Gary Ruben]

Re: Welcome To The Depression...

Our current economic situation continues. Remember, it's more than the stock market going up and down. It's also people losing their jobs, their businesses, their homes and their savings. People going hungry. Let's never forget the human element of what's happening.

Our Liberal government here in Ontario has brought in a new budget. They call it harmonizing the sales tax. In reality it's a huge tax grab. I could joke about it and say it will cost me an extra 8% for a haircut, which it will do. But it will be a tax grab against so much more than that. It's a tax against those who have to bury a family member. It also adds 8% to the cost of a grave and headstone and coffin. Also to other services done by funeral homes. A load of things which will probably cost retailers sales. Even a bottle of vitamins will cost extra tax.

I helped vote McGuinty and his Liberals into power. I will help to vote him out. Every so often a poliitical party has to be put into the political wilderness of opposition so they can gain a new perspective on what people want.

I guess the big story these days is the auto companies. GM and Chrysler. There was a time I would have been incensed that they want billions of my tax dollars to stay afloat. Why should I have to pay to keep them in Canada? Somewhere along the way I realized I didn't have billions to start with. Not ever Close! It's definately not my money they want. It must be your money. If you've checked out my depression portfolio recently you'll see I won't even be eating Kraft dinner. Beware, my dog, will be sharing the dog Kibble with me.

On a more serious note, I'd like to share the wisdom of the fortune cookie I was given today. "Confucius say: If you need a helping hand, look at the end of your arm." Perhaps it's a sign of the times.

[Kerry Liles]

Re: Welcome To The Depression...

...

On a more serious note, I'd like to share the wisdom of the fortune cookie I was given today. "Confucius say: If you need a helping hand, look at the end of your arm." Perhaps it's a sign of the times.

My favourite fortune cookie said "That was NOT chicken..." :)

[Tom O'Donnell]

Re: Welcome To The Depression...

I continue to think of this situation as an amazing, perhaps once-in-a-lifetime opportunity for people with money, considering how relatively cheap some assets have become. That many people have no money is the fault of those people, not the economy. Consider that most of the "economic growth" in North America of the past decade or two is primarily due to individual, discretionary consumption, much of it on credit, and it comes as no surprise to me that the wheels would eventually fall off. People weren't prepared for the sunny days to ever end, many got greedy by over-extending their financial positions (people with $50K jobs buying $500K houses in the US, for example) and are now paying the price. I for one lose no sleep over them.

Governments' solution to print more money in order to keep alive zombie companies like GM is as expected as it is disastrous. Flooding the world markets with fiat currencies is insanity. Why should anyone keep US dollars when they aren't backed by anything and the US government can just keep printing the stuff out? Why buy stock in Company X when their incompetent competitor Company Y can go crying to the government for money and get it?

As for taxes ... I for one dislike taxes, but much prefer consumption taxes over income taxes. Income taxes hinder people from stockpiling assets; consumption taxes hinder people from stockpiling consumer crap. If people can't afford a "proper" burial perhaps they should consider one of the alternatives. I have already instructed my wife that she is free to sell my body for dogfood, bury it in the backyard, or donate it to a medical school after I am through with it. Just don't waste money.

Arrange one's life in an economically viable way and no matter what macro event happens you are sure to do better than those who perform no planning. ;-)

Your last paragraph was right on. Look to yourselves. The government cannot help you but rather only get in your way.

[Gary Ruben]

Re: Welcome To The Depression...

Hi Tom,

I think most of what you suggest for disposing of a human body is illegal in many parts of the province. You can't simply bury a body in the back yard in the cities. An abbattoir might be interested in your body for dog food if it were still "on the hoof", so to speak. Probably, though, there would be some issues like offering an indignity to human remains. Also how such a thing would look if it ever made the newspaper. Lots of pet food buyers would be "grossed out". :-)

In the real world most people aren't being overpaid and lavishly spending on things they don't need. They are making enough to get by from one week to the next. I know the big bucks governments pay and the auto industry pays make the headlines. The reason they make the headlines is because they are so out of line with what the majority of people earn. It's not just the highly paid who are losing their jobs. It's lower paid employees as well.

The consumption tax you like doesn't just hit those buying new cars or other discretionary goods. It doesn't just penalize blind people who want to buy audio books. It taxes things like electricy to light your home and the gas, oil or electricity to heat your home. I think the reason they are giving a year to implement the tax is to allow things like apartment leases to expire. Landlords will probably have to add $50. or more to monthly tenants rent to pay the increased tax. A large apartment building uses a lot of energy. Maintainance and repairs will also go up. For a house the utilities will probably go up by about $200. per year and that's before you even start buying things. Also, companies will have to reprice their goods to reflect the higher input costs in production.

Maybe you're right about the car companies. I'm kind of hoping Ford, whose shares I hold, doesn't get broken in the attempt to fix the other two. Sparton Motors, which I also have and you might not even have heard of, seems to be doing quite nicely. It makes money (pays a dividend) and specialty vehicles. Things like chasis for fire trucks, ambulances, large hydro trucks, MRAP's, etc. MRAP's are military equipment. I guess their recreation vehicle sales are probably slow right now. They trade on the NASDAQ so it's necessary to have a strong stomach for the up and down ride.

I don't know if it's a once in a lifetime opportunity. Around the 80's was pretty good too for those who bought at the bottom. Mostly the kind of companies I buy are ones where I've been to when I did service work (or similar companies in the same line) and I was impressed with some aspect of what they do. Probably amongst the worst of reasons for buying things but it amuses me.

A comment on the currencies. I think what we are seeing is governments fixing things with todays hard dollars and they will pay for them in tomorrows soft dollars. I expect inflation will come. The price of goods and wages will likely rise. Interest rates will likely rise. All the rises in the cost of goods and increases in wages will result in more tax income for governments.

Cheap assets can always get cheaper. There is such a thing as buying the right asset at the wrong time. I once gave a friend a stack of stock certificates which he had Zeroed for me. They went out of business and I needed a brokerage firm to to say they had a fair value of Zero so I could write them off on my taxes against some gains. When the price of the commodity dropped and interest rates rose they couldn't pay the debt and went under. So now I limit myself to an ETF on the commodity price rather than equity in oil and/or gas companies. I do the same for financials. I play the TSX capped financial index by ETF rather than by buying individual companies. That index includes the big 5 banks and the big insurance companies as well as other financials. I can use an ETF to either bet them up or down.

With any of the things I mentioned consult a financial advisor if you like them. They all carry a fair amount of risk.

[Gary Ruben]

Re: Welcome To The Depression...

It must be a sign of the times. An upcoming event in Toronto with a $3,000. first prize and 6 GM players registered. Probably our events looks good to the Americans. We don't deduct income tax from the prize money.

I was reading the report from an American company which is building a new plant which will cost over 1 Billion. They proudly state it wears the Made in the U.S. label. All the parts are manufactured in the U.S. Looks to me like a disregard of the Free Trade agreements.

I read something in the newspaper during the week about a duty on lumber coming from Canada. Maybe someone can help me out with this one because I don't recall how it went as my newspaper was a little vague on the details.

GM is once again talking about filing for bankruptcy. Hard to know if they really mean it or if it's a ploy to get union concessions.

Our government announced they would guarantee the warranties on new cars of GM and Chrysler, which are purchased from a few days ago. Nothing on the warranties which are currently in force and it seems they won't be covered. This is quite short sighted. The people who are most likely to buy a new car from those automakers are those who already own one. I drive a Chrysler with time remaining on the warranty. Wouldn't dream of buying another one for a couple of reasons. I don't have confidence in the government to maintain the committment for all the years remaining if the company goes under. I don't have confidence parts would continue to be available for the duration of the warranty if the company goes under. I doubt the car would have much resale value if the company goes under.

I've been driving Chryslers since 1986 and wouldn't touch a new one under the circumstances. Maybe my next vehicle will be a Ford. I liked my 78 Mercury Cougar. That was a car! What a motor! It got about 9 miles to a gallon of gas and that was when it was tuned up.

The chances of me buying a hybrid are non existent.

I was reading the advertisement for a local tournament. The senior prize is for those over 50+. To my way of thinking that's still a young person. Middle aged. A senior is a card carrying person which says they are. It's issued by the government when we turn 65.

Anyhow, the reason I was looking is because I'm getting ready to wind down my correspondence play. My game has lost a lot since my last health problem and I'm not satisfied with my play. My memory isn't what it used to be. Maybe it's time to go back to over the board where I could care less if I win or lose. Finish 2 games a day instead of playing for a couple of years.

I see the price of oil has risen nicely the last couple of months. Looks like the idea is to increase the price of gasoline for the summer driving season. I thought the decrease in tourist traffic with the gas prices last summer was an indication people would not travel as much with those higher prices. Probably another lost summer is needed to prove the point.

What we need is a new financial Oscar. An Oscar for the pension fund which manages to lose the most amount of money. Have you folks been reading the loses of the various pension funds? Man, it's awesome!!! If a pension fund has lost less than 20 billion in the last year it wouldn't even rate an honourable mention in the race for Oscar.

I seem to recall Tom telling me the pensions wouldn't be there in a number of years when people need them and I debated the point. Maybe he has a better take on this than I do.

Anyhow, the Depression Portfolio didn't have too bad a week and Ford has picked up nicely so the week didn't go too badly.

DISCLAIMER: None of what I write should be used for investment decisions. I write this stuff for entertainment. Consult a financial advisor.

[Gary Ruben]

Re: Welcome To The Depression...

A look at the Depression Portfolio. Haven't done this for awhile.


2 units Transforce Inc. Cost $4.33 Value 3.58
1 units Domtar ................... 3.80 V. 1.35
2 units Chartwell Senior Housing.. 4.13 V. 4.38
1 Unit of a Sparton Motor company.. 2.83 V. 5.81 U.S. funds
I unit Belzberg Technology ...... 2.00 V. 1.38
2 units Sherritt International..... 2.22 V. 3.23
I Unit Ford Motors ............... 2.67 V. 4.24 U.S. Funds

Without accounting for foreign exchange gains, dividends or distributions, it's up a bit. A few of the companies have new CEO's from when I bought them. Chartwell Senior Housing lost around 100 Million for 2008. Mike Harris issued and annoucement the CEO was stepping down and a new one was appointed. I don't know how they can lose money on seniors housing and retirement homes. The funds from operations covered the 74 cent a year per unit distribution.

Many of the larger companies have ex-politicians on their board of directors. Transforce, a very large trucking company, has Lucien Bouchard. Sherritt International lists Marc Lalonde. Sherritt is involved in Cuba and the Trudeau government, along with those which followed, maintained friendly relationships with Cuba.

It's starting to look like I'll have to take a loss on Domtar. Too bad, so sad. :)

DISCLAIMER: None of what I write should be used for investment decisions. I write this stuff for entertainment. Consult a financial advisor.

[Duncan Smith]

Re: Welcome To The Depression...

My small growth portfolio in options is up a lot recently. I have had options in BMO/TD, BBD.B, CLS, and more recently RIM ( missed the best day but still profitable ). My other recommendations ( BLD, QUA, UUU ) have all done well except UUU peaked and is down somewhat from its best days. I didn't get BLD because the cheapest calls were at the $3 level.

Here are a few examples of stock movement ( a little over a month ) :

CLS $3.37 --> $5.70 BBD.B $2.44 --> $3.62 BLD $1.19 --> $2.60
BMO $26 --> $36 RIM, QUA way up but I missed the best starting point.

I made significant money on CLS and BMO options. I expect RIM will pay off next week.
BBD.B has paid off but not nearly to the extent I expected.

[Gary Ruben]

Re: Welcome To The Depression...

Hi Duncan,

The ones I mentioned are those I have in my Depression Portfolio section. It doesn't include others which I flip, such as ETF's. I play financials with HFU. Did OK on oil with HOD. Gold I play the same way but have no particular feeling on which way it will move. If I had to make a guess, which I don't, I would think the recent G20 meetings where they decided to sell some 400 tonnes of gold will put a downward pressure on the price of gold.

Uranium I play with USU on New York. They enrich uranium which is mined and then it can be used in Light Water reactor. LEU (Low Enriched Uranium). Basically, what is mined is U 238. Probably it can be used in heavy water reactors, like the Candu, but has to be enriched for the Light water reactors. They enrich it from U 238 to U 235. That raises the percentage from around one or less to around 5%. The produce SWU's (Separative Work Units). It's a measurement something like a a volt. A SWU is the standard measure of uranium enrichment. Currently they are building a new plant. The American Centrifuge Plant. They operate on forward contracts and refuel about half the reactors in the U.S. and a good percentage in the world. Maybe 25% or more. I forget. Anyhow, the reactors refuel on an 18 - 24 month schedule so there's always year when the revenue is a little less. 2008 was such a year. The new reactors should bring more business when they are online.

The cycle is it's mined by someone like UUU. Then it's converted to UF6. (Uranium Hexaflouride) and then it goes to USU. There it is processed with about half becoming depleted uranium and the rest Uranium Oxide (and small pellets) and fuel assemblies. Then it goes to a light water reactor.

I got it pretty cheap and am holding for a 4 or 5 bagger. Probably take a couple of years.

You have mentioned BBD.b a couple of times and I do like it. The main problem is I can't buy everything I like. Probably 6 or 7 isn't out of the question on that one.

Rim I wouldn't touch because of the premium multiple it carries.

Sherritt I like for its Thermal Coal. They mine it and have long term contracts as far as I know. I don't think thermal coal is as sensitive to price changes as is metalurgical coal. Electricity is still a necessity in bad times while steel is more sensitive to demand for steel.

None of the companies I write about is anything I recommend. I don't recommend stocks but hold them as a part of my portfolio. I call it my need for greed. Losing doesn't bother me.

I really haven't done much with options over the years but know they can be very profitable. I get more of a "buzz" from the actual stocks.

Usual disclaimer for this and I realize your post also carries one.

[Hugh Brodie]

Re: Welcome To The Depression...

My transactions in the bull market:

X.TO: bought early January @ 25.50. Sold half my holdings last week @ 37. Thursday's close: 36.64. This company owns the TSE and takes a cut of every trade that is made through it. Competition looms however, and I will sell the rest very soon.
HFU.TO: bought about a month ago @ 4.50. Thursday's close: 5.58. Will hold for a while. Stock price based on the movement of Canadian financials.
TCK-B.TO: bought about a month ago @ 5.50. Thursday's close: 9.94. Will sell (some - if not all) at next sharp upward move. Large producer of copper, zinc, and coal. Copper prices up 35% in the last few weeks. Zinc prices up 15% in the last month.

[Gary Ruben]

Re: Welcome To The Depression...

My transactions in the bull market:

X.TO: bought early January @ 25.50. Sold half my holdings last week @ 37. Thursday's close: 36.64. This company owns the TSE and takes a cut of every trade that is made through it. Competition looms however, and I will sell the rest very soon.
HFU.TO: bought about a month ago @ 4.50. Thursday's close: 5.58. Will hold for a while. Stock price based on the movement of Canadian financials.
TCK-B.TO: bought about a month ago @ 5.50. Thursday's close: 9.94. Will sell (some - if not all) at next sharp upward move. Large producer of copper, zinc, and coal. Copper prices up 35% in the last few weeks. Zinc prices up 15% in the last month.

Hi Hugh,
You have some nice gains there. I've also got HFU. It's based on the TSX financial index. It's at the point now where the percentage increase in the index start translating to a bigger gain or loss in the ETF price. While the index tracks a lot of companies, I seem to recall reading somewhere that about 80% of the index is the Big 5 banks, Manulife and Sun Life. The dividends the banks are paying still leaves them attractive in relation to GIC's from what I can see. Here are the components of the index.

http://ca.finance.yahoo.com/q/cp?s=%5ESPTTFS

Anyhow, HFU is starting to get to a price where a few percentage points move in the index will translate to a nice increase in the price as it's leveraged 2X. Better than expected earning from the banks should help.

Probably I should take some profits on Sherritt as it goes up again but I like the dividend percentage on the price I paid. Along with the Thermal Coal, it has nickel, cobalt and oil in Cuba. I think the nickel refinery and smelter is in Canada.