General Motors IPO trading on the market

It was a virtual guarantee that General Motors would start trading above its IPO price ($33/share); given that this company is purely a political entity at this point, it would have been disastrous for the IPO to crash on the initial day in the marketplace.

Given the fact that GM has not really solved any of its fundamental business problems (high costs, inferior products) it will be able to successfully use its government-held ownership to bend rules toward its favour.

Suffice to say, I would avoid this company by a long mile.

Reports of food price inflation

I am starting to read more about food price inflation – this makes logical sense when you consider that base commodities such as grain have been rising significantly.

One of Canada’s major grocery retailers, Loblaw Companies (operating Superstore), reported their third quarter results and notably stated the following:

– the Company’s internal retail food price index was flat. This compared to internal retail food price inflation in the third quarter of 2009;

My anecdotal evidence would suggest that food prices are increasing, but at least not according to Loblaw, which has less of an incentive to lie about this than the government statistics.

End of year tax planning notes

Now is about the time to think about how your portfolio should look at the beginning of 2011.

In general, it is usually a wise decision to realize capital losses if you have capital gains to offset them with (i.e. in 2007, 2008, 2009 or 2010 tax years). Each realized loss dollar will result in a “refund” of half your marginal rate for that year. One usually wants to back capital losses into the earliest possible year (2007) if available, but if you have a lumpy income stream, then the high marginal rate year would be the correct decision.

Conversely, if you anticipate lumpy income in the future, realizing capital gains in the current tax year if the current year is a low income year may be optimal – these sorts of optimization calculations are never easy to perform.

The big change from previous years is the looming conversion of income trusts to corporations. Most income trusts will be distributing income until the last possible moment. For most, this means trust holders at the end of the year will be receiving income distributions. For those holding trusts in registered accounts (RRSP, TFSA, etc.), the optimal time to move them out of the registered accounts is at the beginning of 2011 and into non-registered accounts. This assumes, of course, that there are substitute investments that bear income that can be placed into the sheltered account.

You can perform this by doing an asset swap in the case of an RRSP; just that non-registered assets that are swapped into the RRSP will have a deemed disposition – a capital gain will be realized at this point. Capital losses are not allowed to be recognized with an asset swap, so if you plan on swapping assets that are in a current loss position, you will have to wait 31 days before repurchasing in order to avoid the so-called “wash rule”.

Tax planning is quite complicated, but in terms of portfolio management, it involves in placing as much income (interest income, REIT income, and solely in the case of an RRSP and not TFSA, US corporate dividends) as possible into sheltered accounts, and as much tax-advantaged income (eligible Canadian dividends, capital gains) outside the registered account. Unlocking the assets from an RRSP in a tax efficient manner is also a non-trivial issue to examine, which strongly depends on personal circumstances. The TFSA is a simple matter with our existing rules – it should always have something inside it.

Watching carefully

I wish I had something more substantive to write other than to say that I am observing the marketplace, but that is all I have been doing. There are hints of another upcoming economic storm, but it is difficult to say – the messages that my tea leaves give me are very scatter-brained at present. One of the advantages of having a relatively large cash position (the largest I have ever been since 2008) is that you can take advantage of panic, but I do not see panic yet – thus, no point in diving in. I do see a reversal in the markets, but I am not confident in my conviction.

A common question is – if I am convinced we are headed down, why not just sell everything and be in a perfect position to buy cheaply?

The answer is simple – I might be wrong. It could be the case that this selloff in long-term fixed income products is primarily profit taking, or a transient blip in what has been a profitable uptrend. Also, I do not know when the time to “buy cheaply” is. I might miss the opportunity. There are too many unknowns, plus there is the possibility I am devoting my research time to the wrong group of equities – my research simply didn’t have enough time to screen all the candidates in late 2008/early 2009 and thus I made some, in retrospect, sub-optimal investment decisions.

One of the easiest ways to evoke powerful emotions in the market is by being heavily invested in cash, but watching the rest of the equity market rise without you. An example is stalking an investment candidate close to your buying point, but watching it going up without participating in any upside. There is a sense of lost opportunity, but one always has to console themselves with the fact that there will be future opportunity – just that it will be in a different security and you have to be patient.

Have recent buyers in the past few months been the type of people that sold out in 2009 and didn’t participate in the massive gains subsequent to the economic crisis? Have these people been getting back into the market in droves? Equity and fixed income markets would suggest this is the case.

Patient I will be. The worst mistake that can be made is by forcing your cash to work in sub-optimal investments. The cash earns a small yield, but at least it is a positive and not negative number.

Whistler Blackcomb public one week

The reorganized entity of Whistler Blackcomb went public and has been trading for one week:

It has been trading narrowly around its (reduced) $12 price. With the announcement of inclement weather in the Greater Vancouver area and the early opening of the ski resort, it has not resulted in a budge in the share price.

I earlier covered Whistler Blackcomb and was not terribly positive on them at their IPO price.