No April Fools jokes on this site.
1. I’ll post a more comprehensive report later, but Q1-2020 is shaping up to be around -13% -11% performance for me, while:
Index / Total Return
S&P 500: -20.0% / -19.6%
TSX: -21.6% / -20.9%
I was caught badly out of position going into this CoronaCrisis and I do not consider my relative performance to be any sort of victory at all. You can’t eat on relative performance is a good cliche to describe this. I hate losing money.
2. CannTrust (TSX: TRST), after getting busted by Health Canada in July 2019 for not being able to run a legal marijuana operation, finally bit the bullet and did CCAA yesterday. The fact that they haven’t been able to publish any financial statements since Q1-2019 should have been enough of a hint to anybody that something really bad was going on. The marijuana sector is regarded as one positive recipient of everybody that is forced to go on lockdown (and anecdotally when biking around Vancouver I get the impression a lot more people are smoking it!), but my views on the economics of the entire sector is the same – I wouldn’t be a buyer unless if you get the impression that branding will result in premium pricing power. Although I do not smoke marijuana at all, from those that do, apparently the legal stuff isn’t nearly as good. The majors (Canopy Growth, Tilray, etc.) will stay alive but that’s about it.
Speaking of Tilray, remember when they were trading at US$150/share back in October 2018? They’re now a shade under $7. Canopy’s down to about CAD$20/share and still has a $7 billion market cap. I’d expect this to depreciate. Still too expensive to short (borrow is still at 22% cost although this has gone down significantly), so sad.
3. What happens when a province goes bankrupt? Newfoundland is on the brink and only got bailed out by the rest of Canada…
4. Dividends will be cut. Do not depend on the historical dividends of any corporations. Another example is Corus (TSX: CJR.B) reported this morning and they will “review” their next quarterly dividend in June as they, along with the rest of the universe, has no idea what will happen to business going forward. Although quite cash flow positive, they are also heavily leveraged and this leverage is forcing them to be more conservative than what their P/E of 3 would otherwise indicate. Good luck raising debt financing in this environment unless if your investor is the Government of Canada!
If Canadian real estate valuations continue to drop and banks start taking baths on bad debt, I also wonder if they will be forced to cut dividends in an attempt to shore up their Tier 1 ratios. Remember how I described Genworth MI as picking up twenty dollar bills in front of a steamroller? With unemployment spiking up to double digits, we’re going to find out what happens when we get a whole bunch of credit defaults. The question is whether the market is pricing this in or not.