Canadian Finance and Economics
This is probably why I don’t try financial humour too often on this site, but I couldn’t help but spot the two ticker symbols together on the daily gainers:
You can see HEAT and COOL are together in the gainers list. Isn’t that COOL? Or should I say they are HEATing up the Nasdaq?
This sad attempt at humour will not be repeated again here for a long, long time.
As the Canadian election trail continues, media frequently comments on the dropping voter turnout over the past few elections. There may be an economic reason for the drop in turnout – mainly that as electoral districts increase in population, the value of a vote is subsequently less.
Trying to quantify the value of a vote in an election (e.g. if you could “sell” your vote, which is illegal) has always been an interesting academic exercise. However, there is real market data that could give some sort of insight to the matter. The data can be obtained from companies that have dual classes of shares which share the economic interests, but split the voting interests in the firm.
One example of this is Rogers Communications (TSX: RCI.A / RCI.B). Each class of shares has the same dividend and economic interest in the corporation, while the Class A shares give you one vote in the election to the board of directors. Rogers’ voting shares is 90% owned by a family trust and hence the shares trading are in a minority position. However, in the event of a buyout offer, Class A and Class B shares can receive different economic consideration.
Class A shares are relatively illiquid – they trade about 5,500 shares a day, while Class B shares are very highly liquid. However, the voting rights with Class A shares, offset by the liquidity penalty that the shares would have, trade approximately $1-2 higher than Class B shares. Measuring the ratio of Class A to Class B share values, you have the following rather interesting chart:
Over the past three years, the ratio has gone from about a 10% price differential to as low as 1%, and there has been some badly placed orders that have brought the ratio below 1 – which gives you the economic interests AND voting interests – presumably this is a discount for illiquidity.
Shaw Cable (SJR.A / SJR.B) also has a similar structure, with the voting shares having a slightly lower dividend than the non-voting B shares. The spread there, however, is about 20% and the voting shares are highly illiquid.
Although both of these examples are not a precise comparison since the voting shares are majority-owned and thus your vote in the voting shares are meaningless, it is an interesting exercise in measuring the value of a vote. I am sure readers out there can come up with better examples of companies that have dual class structures that do not have majority ownership on the voting shares.
Although I like looking at fashion companies for their financial statements, when it comes to the wares they are selling, I am absolutely clueless. I have to ask others that know much more about the fashion aspect of clothing companies for their anecdotal opinions.
Never have I been so wrong about Lululemon:
Obviously this train ride has to end somewhere, but I just look at this chart with my jaw open. Reference my December 2010 post when I was questioning the high $2.8 billion valuation. Today: $6.3 billion.
John Hempton of Bronte Capital writes very entertaining articles. Most of his extensive postings are about companies that have “issues”, such as his strong suspicions of financial wrongdoing at the Chinese company Universal Travel Group (NYSE: UTA).
His latest spread is regarding Northern Oil and Gas (NYSE: NOG), which I found thoroughly fascinating, for a few reasons.
The first reason is that my earlier article on Petrobakken (TSX: PBN) and its steep decay rate of oil flowing from newly drilled Bakken-shale wells assisted his thinking with respect to NOG’s depletion rates. He is very gracious to link to my article.
The second reason is that apparently the rest of the market has “picked up” on Northern Oil and Gas’ low rate of expending of depletion and has decided to price this in (note the article hit the wires on Tuesday, although it seemingly was digested on Wednesday):
Interestingly enough, before this all hit the wires, NOG had about 20,000 shares available for borrowing at Interactive Brokers. Today there are none.
Thirdly, he writes good analysis. There is good reason to be skeptical of NOG’s management and their intentions. Even disregarding that, it does appear the valuation of the company is well above fair value. That said, the company’s balance sheet does show a net cash position (assuming those balances are truly there!), so the shares are most certainly worth something, unlike most of the other likely frauds that Hempton has been writing about.
Disclosure: No positions in any stocks mentioned in this article, nor do I intend on opening any. I’m watching this purely for entertainment value, although others likely have money on the line.
The uptrend in the major indicies over the past six or seven months has clearly been broken. Here is a chart of the S&P 500 with my retrospective scribble on the chart, indicating the prevailing trend:
Note that volatility has increased considerably:
VIX is not predictive; however, it does say that market participants have been spooked to pricing in more volatility in the future. The question is whether they are spooked enough – my gut instinct says we may get a sucker rally here or there, but it is more likely than not that the prevailing trend will either be choppy or down – not exactly the type of environment for a buy and hold investor.
Playing conservatively is likely the better option at this point, just as it has been for the past few months.