The Canadian Dollar see-saw

Attached is a chart of the last six months of trading of the Canadian dollar, relative to the US dollar:

One issue I have with technical trading is that in retrospect it is obvious there are “trends” and “momentum” factors as participants try to load up (or dump) the product in question, but when does the party end? Today? Tomorrow? Next week? How will you know the party ends? Right now, “sell at 98, buy at 95” seems to be the optimal algorithm. We will see if that’s the case or not.

Even though I’ve got exposure to both currencies, I will only be watching this from a distance. It’s very difficult to know whether the Canadian dollar is “fairly” valued or not – how do you even begin to construct a fundamental model? This is why a lot of currency traders are primarily technical – hop on the bandwagon, and hope others are still keeping the cart going before you dump your trade.

Why I will never invest in China

John Hempton has a classic story of his research on an “online” travel agency.

My rule of “Never invest in a jurisdiction that does not have English as its primary language” holds very, very true. I am sure there are a lot of wildly profitable companies in China, just that you can be absolutely sure that minority shareholders’ interests (i.e. the suckers that buy a few hundred shares to have a “China play”) will never be in alignment with the board of directors or management. In this particular case, UTA looks great on paper, but is likely their accounting and reporting is completely crooked.

In their last 10-K filing, you even had the auditors (a firm I’ve never heard of in New Jersey) saying in their audit letter the following:

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses were identified:

The Company’s policy documentation of all controls identified during their assessment and remediation process was incomplete.

Lack of technical accounting expertise among financial staff regarding US GAAP and the requirements of the PCAOB, and regarding preparation of financial statements.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2009 consolidated financial statements of the Company as of and for the year ended December 31, 2009.

Translation: “We have no idea whether these guys were lying to us when they provided us with alledged ‘proof’ of the revenues, expenses and balance sheet items you see here. Good luck!”

Suffice to say, I wonder if Hempton (who has probably made a small fortune shorting this thing earlier when the stock was trading higher before writing this huge article on the company) will be able to single-handedly get the stock delisted when his 2,200 readers (at least according to Google Reader) eventually hammer the stock down to the zero it probably deserves.

Just for full disclosure, I am not long or short the stock, nor do I plan on trading the stock. Trading from other people’s research is a great way to lose money – capturing real value in the market is done by performing independent research when nobody else is watching.

You get what you pay for… sometimes

An article (link) on the proliferation of finance-related sites on the internet offering all sorts of advice.

My only comment on this is that you get what you pay for. And even if you pay for it, sometimes you still don’t get what you pay for.

Your only real defense is to be able to ask critical questions and be able to correctly evaluate the people you deal with.

As for the internet, I have a high aversion to people that do not use their real names. A few anonymous sites out there are fairly well written, but when you attach your name to your writing, you are telling the world out there that you are willing to risk your reputation with your written word.

Ally doesn’t inspire confidence

I’ve written about Ally before and for the most part they have performed in a minimalistic manner, which is what they should be doing. They still have a fairly high short term savings rate (2.00%) and this is only overshadowed by a couple other obscure institutions offering 2.1%.

On their high interest savings page, I saw the following:

So is it 2% or 1.75%? I logged into my account and indeed, it was 2%.

Stuff like this makes me look at the CDIC page and read out the following passage to myself:

CDIC automatically insures many types of savings against the failure of a bank or financial institution that is a CDIC member. However, NOT all savings are insured and CDIC deposit insurance does not protect against fraud, theft or scam.

I’m really beginning to wonder if a bank failure was caused by fraud whether that would count. I don’t think it is the case for Ally, which is owned by ResMor Trust Company. In the USA, the Ally brand used to be backed by the General Motors Acceptance Corporation, while in Canada, ResMor Trust Company is a mortgage firm – very similar to ING Direct’s business model except that ING Direct uses the same name for both savings and loans.

LuluLemon’s second quarter

Headlines are being made that Lululemon (Nasdaq: LULU) beat earnings expectations and raised income estimates for the year. Their common shares were up about 13% today after their second quarter report.

Most of what I wrote about Lululemon, in terms of share valuation back in June 10, 2010 (when they announced their first quarter results) applies today – the company will have to execute high growth perfectly in order to justify their existing valuation.

It should be pointed out that despite their second quarter surprise, their valuation around the same ($2.8-$2.9 billion) as it was when I wrote my June 10 article, or about USD$40/share. They will need to continue achieving rapid growth in order to grow into the existing valuation. If not, you will see a significant haircut in the stock price.

Lululemon is a classic case of a well-run company that you do not want to own stock in.