Canadian Finance and Economics
Finance and Economics related articles
When politics is attributed as the reason why the broad market drops by 2% in a day, you know there is more to come (the reason is most certainly not politics).
Brace yourselves – I’ve been continuing to liquidate things and are well positioned for a market crash.
(Update, June 4, 2017: S&P 500 is up 4% since I wrote this, in a huge upward trajectory! Shows you what I know about short-term market timing!)
Aimia (specifically their preferred shares) were suggested to me a year ago as a reasonable risk/reward and a relatively high yield.
I declined. Today is the reason that I saw would likely happen.
Air Canada will be ending their business with them in 2020.
Everything in their capital structure is trading massively down – common shares are down over 50%, and preferred shares are down about 30%.
Good market timers could have bought when the margin calls were starting to flood in at around 10:00am Eastern time. The preferred shares at one point in time were down even more than the common shares.
(Update, I have included the chart of AIM.PR.A for illustration below)
I have no idea what the business prospects of Aimia is (although this news about Air Canada is VERY negative) and thus I will still not touch them.
I will, however, be a little more diligent at liquidating the meager amount of Aeroplan points I still have remaining – companies like Aimia can decrease deferred revenue liabilities by simply increasing the cost of “rewards” that their customers have already pre-paid for (can you tell what I don’t like about their business?).
Reminiscences of a Stockblogger (I don’t know his real name) has an excellent post on identifying what makes your edge in the marketplace. His performance has been excellent and his following paragraph resonates with me:
I think I have put up enough years of out-performance to tentatively conclude I have some sort of edge. Its still possible that I don’t; maybe I will blow up yet and these past years will prove to be a statistical aberration. But as times goes on those odds become less likely.
His performance is exceptional when you consider the number of positions he has in his portfolio – I run a much higher concentration than he does. It could be that my historical performance is simply a fluke.
I will warn this is a very dry post.
The merger arbitrage spread with KCG has narrowed considerably.
When the $20 cash merger was announced the shares were trading at $19.75. There is little chance of the deal falling through or there being a superior offer.
Today KCG is trading at $19.88. The estimated close of the merger was reported to be “3rd quarter 2017”. The assumption is the mid-range, or August 15, 2017.
So there are 3.5 months until the deal closes.
12 cents appreciation is 0.6% over 3.5 months, which over the course of 3.5 months implies a 2.1% annualized rate, not compounding. This also excludes trading costs.
Because I had a small cash deficit in my USD account and a surplus in CAD, I’ve sold some shares at $19.88 to make up the shortfall. I placed it at the ask to minimize trading costs, which turned out to be 29 cents per 100 shares.
What’s interesting is my trade got hammered away, 100 shares at a time, approximately 2-4 seconds apart per trade. Interesting algorithms at play here.
I also believe Virtu (Nasdaq: VIRT) will have a more difficult time with the integration of KCG than they originally anticipate. The company cultures are significantly different and while the merger makes sense on paper, in practice it is going to be quite different. KCG was also dealing with a non-trivial data migration program on their own, from New Jersey to New York City and these sorts of technical details require highly skilled individuals to pull off without causing trading blow-ups. It might take them a year to get things stabilized after the merger is finished. KCG had huge growing pains of its own after it was reverse-takeovered by GetCo.
James Hymas has published a considerable volume of information concerning fixed-reset preferred shares. It makes for very heavy reading (i.e. this is not something you can casually read at a Starbucks), but if you are in the right frame of mind, there is a ton of educational content that you would never see in your typical MBA program.
He also has an equivalent document for a class of preferred shares that stand a better chance of being redeemed early due to regulatory capital requirements rules which I will not repeat here.
While I’m on the topic of James Hymas, he is very concise with his analysis on the Canadian real estate market, mainly that it is caused by “low interest rates”, “an explosion of CMHC guarantees”, and “unsatisfactory stock market returns”. Capital has to go somewhere and if you can’t get a 4% return from the stock market, you can at least go for a cap rate for the same in the real estate market. I will observe that 5-year bond yields have slipped to the 1.00% level again and 5-year fixed rate mortgage are available for 2.39% on insured mortgages. Why bother to put up any equity when money is virtually being given to you at the rate of inflation?
