Thanks, I needed that morning laugh. Unless you consider the "highest standard of living" in the theological sense and are blindly pious to the violent history of Islam I'd wager you have been hanging out too long in the pubs to notice the latest demographic shift in Europe. Didn't anyone tell you the current numbers and trends? Your tax bills and local mullet wrapper should have given a hint. In about 20 years, given current immigration and social spending trend (e.g. paying homage to keep the peace) a good part of Europe will essentially be "Middle Eastern" or North African and very Muslim and operating under Sharia Law . If you are a traditional European capitulation type person I'd be planning in advance and be on the lookout for a cheap dishdash or making an investing in retailer companies specializing in traditional Arabic wear (http://www.hilalplaza.com/index.asp?PageAction=VIEWCATS&Category=11) . Thanks, you made my day. Wake up and smell the qahwah bubba and let's get back to investing and making money on the latest trends. TS
Guys - another way to play the trust sell off is to put yourself in the shoes of those who still need to be in high yield instruments. This class of investor needs and wants high yield monthly or quarterly income. That money is going to migrate somewhere. So, just look around for all the higher yielding conventional equities and get there before they are rediscovered or sell naked put options on them to get paid to wait for a price dip and an assignment. My bet it you will never get assigned though and will pocket the credit since I expect a new increased demand to high yield equities to push prices up. You can of course also buy a cheap call option and catch the money migration. Finance seems to be a likely good sector but there are excellent other sectors as well. BTW another advisor service I subscribe to just recommended that existing trust owners wait for the bounce then get out of TRUSTS completely. Their thinking is that even if CA parliament shoots down the trust tax changes the damage has been done to the long term credibility of trusts. Income investors above all else want stability and trusts are now seen as too wishy-washy and prone to goverment tinkering. This advisor is now suggesting that yield hungry investors migrate to Master Limited Partnerships (MLPs) or Real Estate Investment Trusts (REITs) as the next best alternative. MLPs favorable tax breaks are being challenged in the US but the law has held up for over 20 years and they seem a good bet. But I have noted REITs coming under a lot of downward pressure lately and looking very toppy as sentiment suggests commercial real estate is reaching its probable highs. BTW US citizens should NOT hold MLPs in IRA/Retirement accounts since the tax breaks are not allowed there. Good Luck, TS
The trusts are up today pretty good. I spot checked a few and I see another +5% here and there. LOL - now I wish I had bought a ton more discounted trusts as the dead cat bounce is starting to look strong and like its very much alive and has a few more lives in it yet... If you don't have access to foreign market quotes check here: http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp Some of the trusts symbols can be a bit tricky to find so I google the trust name and go to the company web page to get the trading symbols in their native markets. Some are also mirrored on the US OTC pink sheets but the prices are NOT updated live so you need to go to a live or delayed site or call your broker for current Bid/Ask trading ranges. Others are on the NYSE as ADRs etc. It's a bit of an adventure but profitable to go digging... TS
Canadian taxes are forthcoming, but when. PWI (energy) in 2010, BCE still years away, and they have not become a trust yet. Why the panic...
I was long a small position before the announcement, and just used this as an opportunity to go heavy and buy the panic. Took some profits and reduced size upon the dead cat bounce on friday. Ready to reload on another drop. Trendsailor, my reasoning is the same as yours - principal payback. This is the perfect opportunity, as both a trade and an actual investment. Rarely do I see such a nice opportunity. As far as basis risk (due to nat gas and oil price exposure), you also experience the upside of that as well. If you believe oil and nat. gas have more upside, you'll get that on top of these cheap prices and nice yields. There is risk, but that is the game. Remember, just as oil could go to 30, it'll more likely hold above 60 and hit 100 on hurricanes and political strife, especially considering how OPEC is behaving lately. The bond play argument that trendsailor is using here is interesting. Actually a good hedge to downside risk of lowered oil demand -- if oil demand lowers cost basis, the same low oil demand would be reflective of economic slowdown (which would likely result in short term fed rates adjusted downward), which finally would likely coincide with upwards cost basis pressure (as lower yields are more acceptable if cost of money is cheaper). My positions: PGH (primary), AAV, ENT, PWE, PWI. Another high yield I like: NAT. exposed to oil shipping demand issues, but a nice divvy...
Indeed - a lot of this is a typical scared "conservative" investor response. Income investors above all else want stability and any change to the status quo that is immediate or pending in the future is itself considered disruptive and negative to future cash flow and therefor the net present value and internal rate of return. Also, given the robustness by which the Canadian government attacked trusts it is clear that the government is trying to punish and discourage the formation of trusts and are no longer supportive of the trust mechanism at all. One could say the gov is openly "hostile" to trusts. That implies that going forward there is a perception that trusts are in the cross-hairs of gov and may be subject to further bullying. The market immediately discounted the effect of future cash flows as it always does in anticipation of reduced demand and abundant supply as well as future uncertainty. Essentially the government irrevocably soiled the pedigree, credibility and purity of trusts in much the same way a bully boy nonchalantly ruins a virgin maiden to get what he wants. The question that remains is will a neglected government piggy bank require the royal treasurer to employ whole scale pimping and scalping of trusts at the ruin of investors? Uncertainty is always over interpreted and overly discounted by markets. Recall that Trusts prior to this policy change enjoyed tremendous corporate tax breaks on distributing dividends which were considered non-taxable events in recognition of return on investor principal. Now, immediately in 2007 there will be a Distribution Tax on dividend distributions from publicly traded income trusts and limited partnerships on the trust itself. This means that trusts are taxed on the dividend flows, which creates the disincentive to payout bigger dividends. That is just the first spanking and it commences very soon. But more punishment is in store. Since "tax-exempt" Canadian pension funds are now forced (2011) to pay 31.5% on trust dividends the change in policy means that long term pension funds must probably replace these trusts with something that will generate higher net returns. Also in the US IRA retirement accounts by tax law can not get a deduction from this tax either but with the prior high yield it still was a superior yield to most other alternative high yield non taxable securities. At a new pension and foreign tax rate kicking in in 2011 at 31.5% and 41.5% respectively the future rape of pension funds means only pensioners who are into self flagellation and abuse would care to hold these anymore. Clearly all the pension funds in CA and the US will be dumping these in favor of other instruments - perhaps US long bonds (debt is the USAs largest export commodity these days lol). In an ironic sort of way Canada is doing the US another favor here and it brings up all kinds of interesting thoughts... With the rather dramatic dead cat bounce that brings value about half way back to pre-rape days I am beginning to wonder if the Canadian Gov is playing both sides of this. On one hand I am certain gov itself would love revenue flows. A perfect storm of opportunity for a Robin Hood government would now be to buy up discounted trusts and then win back support of constituents by having parliament repeal or retract the new tax policy. Think about it. In this manner they would get 100% return on investment at discounted prices and even higher yield and no one loses except the "speculators" and little old pensioners who got scared out early. In fact under my bully government theory the gov now starts to look like the good guy and saves face with a relieved and financially stung but surviving voting public. But it can be even more intriguing here. Consider the more likely case that government went into this half cocked and was clueless about the full scope and ramifications of its actions. Most governments after all are completely incompetent. Suppose that gov realized late that foreign private equity could now come in and buy up all Canadian trusts to take them over at a discount. Assume also that this trust bust was not contrived as a political favor for this precise purpose (is this treason?). Suppose then that Canadian gov sold Canadians down the river to foreign interests? This is all very plausible but I suspect now there is not just a discount sale going on now but that there are also probably some horrified people in government and Canadian financial markets rushing in to buy this stuff back before it is stolen at dirt cheap prices by foreigners and control is given to foreigners in takeovers. Interesting world we live in. Funny, I never thought about it until recently but the Canadian Maple Leaf in the Canadian flag is RED. All food for thought. TS
One further comment. The timing on the trust bust was just too amazingly funny. Does Canada celebrate or have a "halloween" or "all hallows night" on the last eve of Oct?. With the crash on Nov 1 in trusts I'd say there is something very spooky about Canadian Government or Jim Flaherty and company are warlocks and witches. How did that little witch's verse go in Macbeth? Thrice the brinded cat hath mew'd. Thrice and once, the hedge-pig whin'd. Harpier cries:â'tis time! 'tis time! Round about the caldron go; In the poison'd entrails throw.â Toad, that under cold stone, Days and nights has thirty-one; Swelter'd venom sleeping got, Boil thou first i' the charmed pot! Double, double toil and trouble; Fire burn, and caldron bubble. Fillet of a fenny snake, In the caldron boil and bake; Eye of newt, and toe of frog, Wool of bat, and tongue of dog, Adder's fork, and blind-worm's sting, Lizard's leg, and owlet's wing,â For a charm of powerful trouble, Like a hell-broth boil and bubble. Double, double toil and trouble; Fire burn, and caldron bubble. Scale of dragon; tooth of wolf; Witches' mummy; maw and gulf Of the ravin'd salt-sea shark; Root of hemlock digg'd i the dark; Liver of blaspheming Jew; Gall of goat, and slips of yew Sliver'd in the moon's eclipse; Nose of Turk, and Tartar's lips; Finger of birth-strangled babe Ditch-deliver'd by a drab,â Make the gruel thick and slab: Add thereto a tiger's chaudron, For the ingrediants of our caldron. Double, double toil and trouble; Fire burn, and caldron bubble. Cool it with a baboon's blood, Then the charm is firm and good. haha - just amazing circumstances. TS
How's that averaging down working for you? I noticed today that lots of the trusts are hitting new 52 week lows. Fording, Precision, etc. Volume has been heavy which I think would indicate institutional dumping of their positions. The "talk" is that some of the trusts are going to have to cut their distributions, a concern that was in play prior to the tax. Any input on this Trendsailor? Given your expertise and access to advisors, I'm curious as to whether I should be buying? Most people would say not to buy stocks when they are hitting new 52 week lows. But what would you say? By the way, lots of snow up here in Canada. Your ski trip should be excellent.
I'm in the camp that says most trusts won't need to reduce their distributions at this time (unless they would have been reduced for reasons other than the tax change). But regarding the oil and gas trusts specifically, it's quite possible that distributions will go up in these trusts. They have the ability to increase distributions by increasing their production and they will have a significant incentive to do this between now and 2011 to reduce overall taxes paid. The drop in some of the trusts is leaving yields of 15%+. Only time will tell if these are near term bargains. But just as the market often overshoots on the high side only to see prices deflate quickly, so it goes on the downside as well.
I hear you. I decided to go in long and will nibble at new positions on significant dips and rely on super high yields to attract income investors. At 15% return and the rule of 72 a long income investor is going to get 100% return on capital in 72/15 = 4.8 years. Assuming these trusts can keep up the dividends and oil and gas prices (and demand) continue to rise proportional to reservoir and resource draw down that's not a bad long term play. But I am expecting at some point before then that the US FED will have to lower interest rate again to invigorate the economy and we are going to see a rush of retired and yield hungry investors rushing in to buy this stuff up. If that happens we could easily get 25% total return or better on demand driven price appreciation. But there must be a huge dump of these trusts by pensions at some time due to the tax bite so I expect volatility as large pension institutions trade in and out. Given that there is a huge pension problem in Canada ($1 Trillion shortfall) and that the value of pensions just took a 15-25% bloody nose by this action I am also expecting some sort of political compromise that will be favorable to trusts. That and the fact that these are RIPE for private equity takeover is going to make this whole security's dynamic amazingly "interesting" to watch over coming months. The wild card is the Canadian Gov and the retirees and pensioners in Canada and what political firestorm comes out of all this. Since I am not Canadian I do not have an up close and personal insight into what that dynamic is likely to result in. My hunch is that reason will prevail and the Canadian Gov will realize its only getting a fractional net tax revenue benefit and a HUGE future expense in pension bailouts and voter anger (not to mention foreign capital fleeing to other more reliable countries). If foreign capital flees from what looks like a hostile investment environment Canada's GDP growth will come to a grinding halt and stagnate and that means yet more social services will be needed to help the unemployed at a time that Canada has massive and liberal immigration policy and even more people demanding "free" social services. With a future that bodes of increased expenses Canada will have to make some drastic decisions going forward in the midterm - perhaps devalue the currency AND reverse or augment this policy. If they don't then Canada will be directly competing with the US for foreign capital. That can only result in yet greater costs of conducting business for Canadians. It will be ironic and sad if Canada has to revert to incentivizing foreign capital inflow as a privileged class at the expense of its own citizens with even higher taxes. As I said before I do not think most people understand the social and geopolitical fallout this trust betrayal is going to have for Canada. Historically nations have revolted and changed their governments over smaller things than this. TS