S&P 500 year to date

Caution investors – if your portfolio hasn’t risen +7.4% since the beginning of this year, you are underperforming! (Just for disclosure, I am underperforming the S&P 500 year to date!).

I’ve attached the above chart to show how parabolic things are going to get over the next little while.

I can just imagine clients telling their value managers about how much their friends are making on cryptocurrencies, marijuana, and also by people just dumping money in the top 10 large-cap companies, irrespective of any fundamental underpinnings of these corporations.

There are times in financial history where this has occurred before. I’m thinking 1999 or early 2000. It doesn’t end very well.

Raise cash. It is the most difficult trade to hold cash right now – precisely why it is correct.

Bombardier vs. Boeing

Just like most (but not all) of the financial community, I was not expecting the USA trade panel to vote 4-0 in favour of Bombardier.

The immediate implication here is that Boeing, by its actions, has pushed Bombardier into Airbus’ arms, and Airbus is obviously more capitalized and equipped to handle Boeing. By forcing the trade issue, they’ve allowed Airbus to take control of a superior product, which Airbus has a strategic interest in proliferating.

Suffice to say, Bombardier’s stock price is up today, but more relevant for myself, I will be holding onto their preferred shares.

Keg Royalties Income Fund – Impact of the Keg franchise buyout by Cara Group

The Keg chain of restaurants were acquired today by the owner of Harvey’s and Swiss Chalet (both of these names are much more prominent in Ontario than they are in British Columbia). In general, this does not bode well for food quality, but it does bode well for the continued corporatization of the brand name.

More specific to Canadian investors, the Keg Royalties Income Fund (TSX: KEG.UN) is one of those few royalty funds remaining. It’s sole purpose in life is to distribute cash obtained by its 4% revenue share in anything that the Keg sells. It was interesting to see its reaction to the news today:

The market believes the buyout is a revenue-negative event for the Keg.

Financially, KEG.UN is easy to analyze. The trick for an investor is determining the proper fraction to pay for the royalty income (currently investors are purchasing a KEG.UN unit in exchange for $1.13 of distributions, which at a $19/unit price means a 5.95% ratio), plus factoring in the future trajectory of the Keg franchise’s gross sales.

Personally the last time I ate at the Keg was 2009.

Teekay Corporation – Raising money

Teekay (NYSE: TK) is raising capital in the form of US$100 million in convertible unsecured debt (maturing 2023) and 10 million shares of common stock. Their former daughter entity, Teekay Offshore, raised some preferred share capital last week.

Teekay’s existing unsecured debt issue (disclosure: I own some) maturing in January 15, 2020 has been trading above par for quite some time. The stock is trading at relative highs ($10.70/share) and this action only has one reason: getting capital while the window of opportunity is still open. Their January 2020 unsecured debt is the majority of their existing debt.

I was not convinced and still am not convinced that oil and oil service companies are coming back from the dead. Teekay’s management choosing to sell equity at existing prices is another datapoint that supports this.

I hope management does not call out the January 2020 debt issue, but it seems to be likely. I will be holding on and collecting interest payments as much as I can before the inevitable call-out. I’m still quite stuck when it comes to investing cash at this stage in the market.

The “interest rate noose” that is slowly being tightened on the necks of the market will eventually hit the panic point when the market starts to have difficulty breathing. It’s pretty smart for players like Teekay to be doing what they’re doing right now – while they still can. I’d carefully look at companies that have upcoming maturity profiles from a position of credit weakness and ask whether you want to be invested in their equity.