OMG Canadian Trusts just opened HUGELY UP on TOP of yesterday's good jump!!! Here is a sample: Baytex Energy BTE +5.83% Bonavista PWR BLXJF +1.6% Canetics Res CNE +5.53% Enterra Ener ENT +18.2% !!! Fort Chicago FCGYF +3.2% Precision Drilling PDS +3.82% Pengrowth Ener PGH +3.97 Penn West PWE +2.78 TS
haha - Tobin Smith just put out a scathing criticism of Canada's Torie "Blunder" and Idiocity of what they just did to the Trusts. This is a great read: Enjoy, TS ================= THE KAHUNA'S RANT O' THE WEEK: Canadian Insanity, Week Three -- By Tobin Smith * Higher natural gas prices. * Lower tax revenue collection. * Higher unemployment. * $20 billion of wealth dissolved. Looks like the Canadian Finance Minister has had a GREAT month so far. For those of you who missed the Halloween Income Trust Massacre, the short story is the Canadian government -- in probably the single most insane and illogical legislative move I can recall -- changed the rules of the energy income trust game in Canada and refused to grandfather existing energy trusts to boot. This betrayal was Shakespearian in its cold-hearted cunning and contempt for rational thought. Now I distinguish "energy trusts" from "income trusts" because clearly having two different tax schemes for operating corporations was just as insane. They were worried that Canada was going to become an "income trust economy." Really? If you had companies taxed two different ways -- with one method being significantly less-taxing for shareholders -- wouldn't you choose the low-tax (i.e. income trust) approach? But energy trusts are the correct tax model for long-lived, high-cost energy reserves. They created a super-efficient model for increasing energy development in Canada and now they want to throw it away. They created an economic "Hamlet" and now they want to rewrite it? Canadian energy trusts have created a market for energy exploration companies to convert older, low-risk, low-upside reserves into cash so they can use that money to fund greenfield exploration. In other words, just like the billions of liquidity that was created in the real estate development business via sales of projects to real estate investment trusts, energy royalty trusts created a liquid market for long-lived mature energy reserves. Energy trusts don't threaten Canada's economy -- actually, the opposite is true. IN THEIR OWN WORDS ... "We are supporters of income trusts and we oppose tax measures that would raise taxes on income trusts." -- Conservative finance critic Monte Solberg, Jan. 12, 2006 "A Conservative government will ... (s)top the Liberal attack on retirement savings and preserve income trusts by not imposing any new taxes on them." -- Conservative federal election platform, Jan. 13, 2006 "We're faced with a situation where Canada was moving to an income trust economy and is that a good thing for Canada? And the answer is no. It's a very bad thing for Canada." -- Finance Minister Jim Flaherty, Oct. 31, 2006 In short, by taxing energy trusts as corporations starting in 2011, pushing the legislation through their house and senate with an odd coalition of liberal parties and by NOT acknowledging that energy trusts are a unique business entity that creates jobs and wealth in Canada, they have screwed the economic pooch in a single mind-boggling move. Let's explore the economics of this travesty. Overall, the weighted-average cost-of-capital for energy trusts will go up at least 20% higher under the new tax, translating into an increase of at least two full percentage points in real (not nominal) financing costs. That's the equivalent of arbitrarily raising interest rates for companies 20% by creating a "cost of capital tax." A 20% HIGHER cost of capital? Somebody needs to explain the concept of "cost of capital" to the Tories. Evidently, they somehow think that when you raise the cost of capital in a capitalistic society that your economy does better? Maybe we should just take over the Canadian business schools, eh? BLAME CANADA! BLAME CANADA! It was the low cost of capital that created $50 billion of liquidity for the Canadian energy industry -- duh! The energy trust model takes revenue from predictable oil and gas production volumes, subtracts the cost of developing and producing these volumes (i.e. the "netback" net cash flow to the trust) and then subtracts the cost-of-capital for owning the reserves. This formula has worked spectacularly -- more than $10 billion a year in oil and gas is owned and produced by energy trusts that sends most of it to the United States, by the way. $3 billion to $5 billion is also reinvested into supplemental development of these older reserves with modern tertiary recovery methods and new drilling. All due to the economics inherent in the energy trust model. Why on earth would you want to diminish the economics of a $15 billion industry by 20%, especially when net back percentages have been falling because of higher production and energy labor costs? The 20% higher cost-of-capital raises the economic threshold of mature energy production by 20%, which means 20% MORE abandonment of marginal but previously acceptable fields in addition to 20% less investment in mature energy assets. Twenty percent less production means 20% less employment, less merger and acquisition activity, and 20% fewer jobs in the sector. And last, but not least, significantly less oil and gas production. The trust tax plan guarantees significantly less activity in acquiring, developing and exploiting high-cost, mature fields. Less capital from trusts means LESS new field exploration for E&P companies. And for natural gas (where we see a rapid 30%-40% decline in the rates of production from initial new reserve finds) that means one thing ... HIGHER natural gas prices. We get more than 10% of our natural gas from Canada -- that's certainly going to change. So, not only does Alberta now lose BILLIONS in business investment and commerce, they will lose thousands of taxpayers. And natural gas prices will have to rise as production rates fall in Canada. Now that makes terrific sense doesn't it? THE GOOD NEWS? Energy trusts are fighting back, and they are RIPE for 1) Stock buy backs 2) Private equity takeover moves 3) Changing domiciles out of Canada (too bad) Stay tuned ... the energy trust industry has changed forever. But what the economic dunces in Ottawa failed to realize is there are other options for the energy trust companies. That's very wrong. And as Shakespeare taught us, revenge is one very-powerful motivation. Toby
LOL I am up 26% on Enterra Energy (ENT)!! Weee..... We have almost 10 million shares of trading volume and the 90 day average daily vol is only 477,000 shares. Looks to be like someone is trying to take over this company or a lot of our retail investors all got the word at the same time. Hmmm, is it Cramer's recommendation or private equity...? It's important to know since if its average retail buying this price could tank as the fickle public takes profits. If it's a takeover attempt then we can probably get at least 20% more from here before an offer is tendered... TS
Well its been about 6 weeks since the Halloween Canadian Trust Bust. I was advocating speculating on a dead cat bounce. Where do trusts stand now to those that got in within a day or two at the bottom? It looks like the speculation payed off in spades... I am WAY UP on my portfolio of Trusts. As we speak dividends are starting to come in now. But the pretty thing is I have exceptional unrealized capital gains on the stocks themselves. I have over $1,300 in dividend income coming in each month now (less 15% foreign tax) on an average locked yield of about 13.93%. Profits on gains range to about 10% with some up 16% and 25% and a few others seasonally and post-dividend down a few percentage. Even my pre-bust holding "Canadian dog" Fording Canadian Trust (FDG) is doing much better now. I doubled down against all better judgement and fundamental analysis when I saw this super high yield stock drop even more after the initial drop. That paid off nicely. Yesterday they just announced an increase of dividend increasing current yield to 15%. On dividend increase news the the stock shot up about 6% on top of rising a few days early by 3 or so more percent. I was within a nickle of buying 50 cheap call options (I held for .20 rather than pay .25) on speculation of an increase that would have net me many thousands of dollars as it soared to $1.75 the next day! Sigh - I could kick myself. The absolutely hilarious thing about FDG is it appears now that we in the middle of a massive short squeeze on over 1,200,000 short shares who just got bushwhacked. Short traders getting their gonads squeezed and having to cover. I can't express enough how pleased I am in this justice of this after they drove us long players into the dirt over the last 4 months. FDG still has problems as a company but it should now start to recover with a new President at the help starting 1 Jan 07. I am feeling good about Canada again and going to celebrate next week with a ski trip there. I'll repatriate some of their money to make amends for all the evil I spoke about their idiotic socialist government masquerading as a conservative party. Peace, TS -------------- POTFOLIO POST TRUST BUST PERFORMANCE SUMMARY AAV/AVN.UN ADVANTAGE ENERGY INCOME FD TR UNIT ISIN #CA00762L1013 SEDOL (Margin) 600.000 $12.033 $7,219.50 $6,877.00 $342.50 4.98% LOCKED YIELD: 16.53% AETUF/AET.UN ARC ENERGY TR UNIT ISIN #CA0019861081 SEDOL #2052247 (Margin) 1,400.000 $19.829 $27,759.90 $26,958.19 $801.71 2.97% LOCKED YIELD: 12.01% AGUNF/AG.UN ARCTIC GLACIER INCOME FD TR UNIT ISIN #CA0396751038 SEDOL #2 (Margin) 400.000 $9.850 $3,940.00 $4,058.35 -$118.35 -2.92 LOCKED YIELD10.10% BLXJF/BPT.UN BORALEX PWR INCOME FD TR UNIT ISIN #CA09951T1066 SEDOL #2849 (Margin) 500.000 $7.487 $3,743.40 $3,950.37 -$206.97 -5.24% LOCKED YIELD: 9.8% BNPUF/BNP.UN BONVISTA ENERGY TR UNIT ISIN #CA0985361058 SEDOL #2901844 (Margin) 100.000 $24.850 $2,485.00 $2,220.00 $265.00 11.94% LOCKED YIELD: 14.29% BTE/BTE.UN BAYTEX ENERGY TR UNIT ISIN #CA0731761098 SEDOL #2552736 (Margin) 200.000 $19.505 $3,901.08 $3,394.00 $507.08 14.94 LOCKED YIELD 11.20% CNE/CNE.UN CANETIC RES TR COM ISIN #CA1375131077 SEDOL #B0W1X56 (Margin) 400.000 $14.390 $5,756.00 $4,968.00 $788.00 15.86% LOCKED YIELD: 19.54% COSWF/COS.UN CANADIAN OIL SANDS TR NEW UNIT ISIN #CA13642L1004 SEDOL #206 (Margin) 100.000 $27.089 $2,708.90 $2,520.99 $187.91 7.45% LOCKED YIELD: 4.19% ENT/ENT.UN ENTERRA ENERGY TR TR UNITS ISIN #CA29381P1027 SEDOL #2195852 (Margin) 400.000 $8.709 $3,483.60 $2,768.00 $715.60 25.85% LOCKED YIELD: 20.87% EPCPF/EP.UN EPCOR PWR LP LTD PARTNERSHIP UNIT ISIN #CA29413K1057 SEDOL # (Margin) 100.000 21.676 $2,167.60 $2,165.90 $1.70 0.08% LOCKED YIELD: 10.25% ERF/ERF.UN ENERPLUS RES FD TR UNIT SER G NEW ISIN #CA29274D6046 SEDOL # (Margin) 600.000 $45.820 $27,492.00 $26,085.98 $1,406.02 5.39 LOCKED YIELD: 10.97% FCGYF/FCE.UN FORT CHICAGO ENERGY PARTNERS LP UNIT LTD PARTNERSHIP INT CL (Margin) 200.000 9.375 $1,875.00 $1,750.60 $124.40 7.11% LOCKED YIELD: 9.37% FDG/FDG.UN FORDING CDN COAL TR UNIT ISIN #CA3454251024 SEDOL #2414267 (Margin) 1,000.000 $23.45 $23,450.00 $21,208.00 $2,242.00 10.60% LOCKED YIELD: 15% NOIGF/NAE.UN NAL OIL & GAS TR TR UNIT ISIN #CA6289491095 SEDOL #2621272 (Margin) 1,000 $11.96 $11,930.00 $11,030.00 $900.00 8.16% LOCKED YIELD: 13.50% PDS/PD.UN PRECISION DRILLING TR UNIT ISIN #CA7402151087 SEDOL #B0P0ZR6 (Margin) 1,100.000 $25.230 $27,753.00 $26,065 $1,688.00 6.48% LOCKED YIELD: 13.61% PGH/PGF.UN PENGROWTH ENERGY TR UNIT NEW ISIN #CA7069025095 SEDOL #B19GQ (Margin) 200.000 $16.730 $3,346.00 $3,136.00 $210.00 6.70% LOCKED YIELD: 16.90% PMBIF/PIF.UN PEMBINA PIPELINE INCOME FD TR UT ISIN #CA7063291099 SEDOL #2 (Margin) 300.000 $13.707 $4,112.07 $3,771.22 $340.85 9.04% LOCKED YIELD: 8.40% PWE/PWT.UN PENN WEST ENERGY TR TR UNIT ISIN #CA7078851093 SEDOL #B09WRL (Margin) 100.000 $32.240 $3,224.01 $2,854.00 $370.01 12.96% LOCKED YIELD: 12.59% SBKEF/SHN.UN SHININGBANK ENERGY INCOME FD ISIN #CA8249161008 (Margin) 1,600.000 $13.660 $21,856.00 $21,815.77 $40.23 0.18% LOCKED YIELD: 19.46% TETFF/TET.UN TRILOGY ENERGY TR TR UNIT ISIN #CA89619Y1016 SEDOL #B073G58 (Margin) 300.000 $10.256 $3,076.92 $2,946.83 $130.09 4.41% LOCKED YIELD: 17.21% TIFUF/TIF.UN TRANSFORCE INCOME FD TR UNIT ISIN #CA89365Y1079 SEDOL #20023 (Margin) 500.000 $11.924 $5,962.00 $5,982.26 -$20.26 -0.34% LOCKED YIELD: 12.48% TUIJF/TUI.UN TRUE ENERGY TR UNIT ISIN #CA8978391065 SEDOL #B0P1H40 (Margin) 300.000 $7.040 $2,112.00 $2,134.59 -$22.59 -1.06% LOCKED YIELD: 26.75% VETMF/VET.UN VERMILLION ENERGY TRUST UTS ISIN #CA9237281097 SEDOL #231800 (Margin) 100.000 $30.041 $3,004.05 $2,687.83 $316.22 11.76% LOCKED YIELD: 6.68%
Thanks - I now think I am definitely going long since there is essentially no remaining risk and all I can envision is positive news. There are still possibilities for: a new government reinstalling favorable tax legislation or stretching out the tax time or 2) Private equity taking it all private and out of country at a premium, 3) US interest rate cut in 2007 pushing up price even more and 4) Peak OIL pushing dividends even higher. This might be the best long term high yield income and growth play opportunity of a lifetime... TS
I am also long PGH now, but feeling less good about it than I would care to. I agree with you that the most attractive option here is a private equity buyout - I have no illusions that the canooks are going to reverse such a momentous decision. I would feel a lot better about getting long once spot oil prices drop into the 50's, and will add to my position at that time. If it doesn't materialize, so be it. PGH, by the way, going on an acquisition spree. Anyone have any strong opinions about management there and their long term strategy?
What are you all doing to hedge against a decline in the CAD? That's the main risk I see with these trusts right now.
Who needs a currency hedge with tax and spend Democrats in control of US government? They just inherited: 1) 9 trillion in debt (from a Republican gov who purposely poisoned the pot before exiting), 2) a busted medical insurance market, 3) a hemorrhaging Iraq war cost, 4) social security & medicaid now starting to go belly up and 5) S&L and home loan corps about to go belly up with need of a bail out? haha. Can you say "currency reset"? No hedge can stop that so why bother? Not kidding - the US dollar has been forced low to 3rd world status so we could buy back global competitiveness and get trade imbalance rationalized. It won't be coming back any time soon. At any rate, with no military spending overhead in CA I don't think the Canadian dollar will lose too much against the US dollar for some time. That is, unless the CA gov continues with growing its social programs while oil declines or is forced to bail out all the little old pensioners (who just got raped by the trust bust and can't afford heating oil, food and beer without going back to work). TS
The question is simply will the USD fall against the CAD? The USD may weaken for all the reasons indicated but might still strengthen relative to the CAD. The Canadian economy is starting to slow down (due to the U.S. slow down) and further interest rates increases seem unlikely. I heard two firms make projections about the CAD over the past two weaks. One looked for a 2007 high of .89. The other looked for a 2007 low of .81 to .82. Both might be right but it still makes me think there's more downside than upside.