Canadian Finance, Economics and Fiscal Analysis
The following is a fairly telling chart – the Swiss National Bank is holding the line at a 1.2:1 exchange rate between the Swiss Franc to Euro (i.e. the SWB is not allowing their currency to strengthen relative to the Euro):
The question of the day for all traders is: Will the Swiss Bank relent? They have an infinite amount of Swiss Francs to sell into the market for Euros, but will they want the world to hold their currency while they hold onto (presumably more) risky Euro currency?
I took a brief summary review of the various players in the US Health insurance industry. Most of the companies had a shift in the stock price after the Supreme Court announcement, but otherwise traded in boring moderation as most insurance firms tend to do. I did manage to find one company intriguing enough (with sufficient insider ownership) that I plugged it on my watchlist for further review if the stock price went about 5% lower than its existing trading price. Insurance companies are not going to double on you overnight, but well-selected companies can provide a consistent return on investment over a lengthy period of time as they compound their book values. Examples of this (not necessarily related to healthcare) would include RLI (NYSE: RLI), Fairfax (TSX: FFH), etc., which have both provided 10% compounded annual returns to shareholders over the past 10 years, not even factoring in their dividend distributions.
I would note that these are not recommendations, but rather examples. Both of these companies, especially Fairfax, are going to be running into the law of large numbers where making high percentage gains becomes progressively more difficult as your equity base increases. RLI can probably continue its pace – you just have to be very judicious in terms of the market timing, similar to any other investment.
RIMM (Nasdaq: RIMM) is down to lows not seen in a long, long time. They closed today at US$9.11/share.
The story is fairly well-known: they’re getting cleaned out by Apple and Google/Android. It is frighteningly similar to Nokia in nature, where a technology giant becomes obsolete in short order by failing to catch up. The one moat to their business, a secure email and messaging system, seems to be eroding. As a result, they are losing the game in the corporate world, and when this occurs, it is pretty much lights out for RIMM. Or is it?
I haven’t been tracking the technology and I believe somebody would intuitively have to be keeping their knowledge updated of the upcoming technology trends in order to make an informed call on that front. Since my cell phone is considered to be barely functional in today’s terms, I am not that person. All I can do is read their financial statements, but while they historically have been quite profitable, it appears that the market is indicating otherwise. For example, look no further than analyst estimates, as compiled by Yahoo Finance:
Without knowing anything, my advice to any potential investor in RIMM would be to hold back until that February 2014 estimate is deeply negative.
RIMM has about $1.8 billion in the bank without any debt, so they do have some maneuvering room for research and development. I have no idea whether Blackberry 10 will actually be a competitive product or not, but clearly the market is not thinking so. If you believe the market is wrong, wait until those estimates go even lower and overreach on the downside – then invest. Today’s analyst report from Morgan Stanley that downgraded the company to a sell and called for its break-up was one more piling onto the bad news sentiment. Will there be more?
A fairly interesting tidbit is that Prem Watsa, from Fairfax Financial (TSX: FFH) fame is recently on the board of RIMM and Fairfax has 26,848,500 shares of RIMM, a position that is now deeply underwater.
Investors in Rogers Sugar (TSX: RSI) will doubtlessly be interested in reading this article in the Globe and Mail.
In my past, I have put in more time and effort into understanding the sugar industry in the country and the protection that both marketplaces (Canada and the USA) have on their sugar industries are very relevant factors in terms of Rogers being able to compete. Rogers Sugar has a virtual monopoly on the Western Canadian operations because of transportation logistics, while on the eastern part of Canada (Ontario, Quebec) there is competition between Rogers, Redpath, and a lesser competitor called Sweet Source Sugar.
After the Canadian trade panel ruled against the domestic sugar industry’s wishes by opening up the Canadian market to EU imports, I was actually quite surprised at the decision. I was even more surprised when the sugar producers appealed and managed to overturn that ruling. This alone was worth quite a few pennies on Rogers’ stock price – mainly the implied degradation of pricing power as Canada continues to open up its borders. For instance, there is a free trade agreement between Canada and Costa Rica which will enable the duty-free import of a relatively small supply of sugar, providing that it is produced from Costa Rica. Other free trade agreements that are pending the sugar industry has been able to flex some regulatory muscle to get specific provisions against opening domestic sugar into such agreements (Columbia being one example).
From an investment perspective, I sold my sizable portion of Rogers around the 5.50 range, but continue to watch the stock, albeit, it is a rather boring company to track. If there is a hiccup in the future (and there may be considering that some of its domestic production is derived from Alberta-grown sugar beats and thus represents a slight amount of operational risk) that takes the stock price down, I may get interested again. But at $6/share, there isn’t a heck of a lot of capital upside in exchange for a 6% yield.
Today’s trade execution report from Interactive Brokers showed that I bought 3 shares of a company, and since the share price is in the single digits, at this rate of accumulation I will more likely die of old age than getting my desired allocation level. The slap in the face is that the stock closed at around 3.7% above that level. My total portfolio allocation in this particular stock is currently 1% and my sense of the tape suggests that somebody else is out there very slowly gobbling up shares as well as myself, while the sellers are just dumping them with market orders here and there. This probably means the stock price has bottomed out for now.
Since the stock is relatively thinly traded (daily average volume is around $100,000 traded), I have an algorithm running that breaks my order into relatively small pieces. A market order to get my desired allocation would be suicidally inefficient – I’d probably spike the stock price a good 20% by doing so, which requires breaking down the order and being patient. As each piece is sold into, the price of the order declines by about two percent immediately, but over the course of a day, the bid price notches up slightly every time increment. This is incredibly easy to do in Interactive Brokers and is the simplest type of algorithm to employ when not dealing with million dollar trade sizes. It saves so much money on trade execution it is unbelievable.