This represents roughly a 3% dilution of shareholders.

I wonder why they raised equity capital instead of relatively cheaper preferred share capital.

Readers might suspect that I’d rather want to put my money in that bond than the equity.

This is about a clean a slate that Petrobank will have before it decides how to invest the proceeds in other projects. The May River project was not as successful as management anticipated and they likely hit the best bid they could solicit. The low-rate interest environment does create a lot of froth, and they were probably wise to take the money while they could.

I’ve been scratching my head since they had a $2.8 billion market cap, and now they are trading at $9.2 billion.

They are headquartered in Vancouver, British Columbia, Canada, which is right in my backyard.

The after-tax profit margin (19%, trailing 12 months) is just incredible for a clothing company. It is right up there with handbag producer Coach (NYSE: COH), although in the latter’s case they have a somewhat more reasonable valuation.

In both cases, understanding women’s sense of fashion is the key investing variable. What’s the next meme after yoga pants?

Some metrics include roughly a $50M enterprise value (i.e. market cap minus cash plus debt), revenues of a quarter billion, negative profitability in the past 12 months and a brand name moat that some, but not most should recognize. In terms of expenses, over 60% goes to sales and marketing expenses. No dividends.

The “over 60% goes to sales and marketing expenses” should give the reader a hint that I am not talking about a company that is related to commodities!

The general thesis is that while revenues have appeared to be flattening, this company is generally regarded as the best of breed in its product category, and they should be able to reduce expenses to restore profitability.

If the world economy goes into a 2008-style meltdown, there is some downside protection in the stock, mainly embedded in the huge cash position it has relative to its market cap.

Using my not-patented risk-reward measure, I would say this is a low risk, medium reward type situation.

Investors are paying bond-like premiums for equity-like returns. At the rate that yield-chasing is going, investors might even bid up the company to 5.5% or even 5%, but I won’t have any part of it. The golden moment was when in early 2009 it was trading at $3/unit and I did load up during this time since the stable 15% pre-tax returns made much more sense in terms of valuation. The only problem was that most other equities at that time were also exhibiting high risk-reward potential!

This was in a single quarter. A lot of people must have wanted their iPhones and iPads for Christmas.

Subtracting taxes and other matters still left shareholders with $13 billion net at the end of the day.

When you add up the cash and marketable securities, they still have $98 billion to splash around.

Normally in technology, companies face incredible price pressure as competition is very fierce. Apple behaves as if it has a monopoly on its market, and in the minds of many consumers, they might as well.

There is erosion potential with the iPhones (specifically with Google’s encroachment with Android), and the iPads are starting to face some functional competition. However, this will not dissuade people from the name brand, as Apple has turned into somewhat of a status icon – this in itself will make it more difficult for competition to break.

The question for Apple – can they keep it up?

The question more relevant for investors would be – what technology upstart ten years from now will be doing the same thing?

Hence, I am still twiddling my thumbs.

Curiously I do notice Encana (TSX: ECA) is up about 6% despite the fact that natural gas futures are still depressed. Might be a sign of short covering?

I’ve also been doing some research on R.R. Donnelley & Sons Company (NYSE: RRD) – I have owned their corporate debt in the past so I have not had to do much additional work. They are facing the same issues that Yellow Media had, mainly a good chunk of their business (catalogs and cheque printing) is getting enveloped by the online world. Still, the company is hugely cash flow positive and doesn’t even have the debt albatross that Yellow Media has. If it wasn’t for the fact that they are a well-known case, I might dip my toes in.

There are a couple other smallish-cap companies ($100M-$250M range) that I am reluctant to mention here that seem to have very compelling valuations, plus almost no financial pundits are paying any attention to them.

The great thing about having a large cash position is that it feels like I am working with a blank canvass. Despite earning almost nothing in yield for cash, I also do not feel pressured to make any portfolio decisions. If I have to wait out an entire year without hitting any candidates, so be it.

The March contract is trading at $2.50/mmBtu and this is very close to the lows that were reached during the 2008-2009 financial crisis. At present prices, it becomes very uneconomical to develop produce natural gas and it makes you wonder how long it will be before you start seeing insolvencies in natural gas companies. Those that have over-leveraged themselves will be facing the consequences soon.

I look at companies like Encana (TSX: ECA) – their operating and transport costs is approximately $1.60-$1.70/Mcf, which is still well below spot price. It explains the $12 billion market capitalization, but it makes you wonder when the bottom will be for it and also the spot price.

With the risk-free 5-year government bond rate at 1.3%, the bank is still making money from the loan. I’m guessing the only people qualifying for such a mortgage would be those that have very good credit ratings and those purchasing homes with reasonable leverage (e.g. 25% down payment or above).

Interestingly enough, since most financial institutions have raised rates on their variable rate mortgages – (last year there were offerings that went as low as prime minus 0.9%, or 2.1% with existing interest rates, while today you will be lucky to receive prime minus 0.25%), it makes the fixed rate offer a significantly superior option. Although I do not believe short term rates are going anywhere in 2012, it is difficult to fathom that short term rates will still remain at the levels they are through the duration of a five year term.

This is yet another function of the low interest rate environment where people are encouraged to financially leverage on cheap credit. At 3%, why not spend the extra $100,000 on those granite counters? That’s only $250/month extra…

The argument that low interest rates increase asset prices is a simple mathematical argument, but the real estate market in the USA, where interest rates are equivalently low for long-duration mortgages, is proving that rates alone are not a sufficient explanation for asset values.

The whole trade (in and out) ended up losing the portfolio less than 2%, but obviously the story after the investment was made changed which triggered my exit order. Getting in and out of illiquid stocks is a real pain, and unless if the potential risk-reward ratio is disproportionate, such transactions should be valued explicitly with a discount acknowledging the lack of liquidity.

Throughout my history my dabbling in illiquid stocks has been less than spectacular – my sweet spot of investing has tended to be small cap stocks ($100M-$1B capitalization) instead of microcaps.