Minor site administration note – Comments

A few weeks ago, in response to a comment that the “email when there are new comments” function on my previous system was not working at all, I replaced the comments engine with this WP Discuz plugin, which appears to have better functionality in addition to actually supporting the feature.

I’m happy to report this system appears to be working well.

On a recent post, somebody had posted a couple links in the comments, and ordinarily posts with two or more links would go into the moderation queue (a ton of spam contains multiple links per comment). I’ve now raised this limit to 3 links or more before I have to manually moderate comments.

Cash parking – why bother?

A year ago, if you had spare cash in the brokerage account, it made sense to dump it into a cash-parking ETF such as (TSX: PSA) and get your 200 basis points of yield while you waited to make a decision on your capital.

You can see the effect of the decrease in interest rates from the Bank of Canada:

Now cash in this instrument yields 65 basis points, minus a 15 basis point MER, leaving a net of 0.50%. Might as well keep it in zero yielding cash instead of bothering with the hassle.

I found it amazing to know that despite the decrease in interest rates to nearly nothing, that PSA’s assets under management is still $2.2 billion! The managers are being paid $3.3 million to administer a savings account.

I note that one of their competitors, (TSX: HSAV) had to decrease its management expense ratio from 18bps to 8bps. Its gross yield pre-MER is 75bps on a $313 million net asset value.

Might as well keep it in liquid cash at this point. Who knows if the market maker will decide to have a heart attack and you can only liquidate with a 25 cent spread at the worst moment?

Frustrating week to date

The quarter-to-date number is astonishingly high, but quite bluntly these are the times like 2009 where you have to reach for the sky.

This week was frustrating because of the velocity of how the market rocketed up.

I’ve had this informal heuristic where my selling reallocation gets conducted when the overall markets are in a buying mood, and does my buying reallocation when the markets are in a selling mood.

This works great until you stop getting down days, where instead you build up excess cash in the portfolio. There is a form of portfolio misallocation going on right now, and it is in the form of zero-yielding cash.

Going from negative 12% cash to positive 12% cash (basically taking advantage of companies that were pounded to death in early April and cashing them out for some quick gains for more durable picks) and then having everything else rocket up still means you’re participating in the market, but other than getting a 500 share fill on a company some of you may have heard of, it’s been pretty tough going – my limit orders haven’t been getting hit.

The markets, for the most part, “feel” like the people that have cashed out their portfolios in March/April are trying to get back in.

I do have notional exposure to the ever-increasingly concentrated S&P 500 but it is mild (the percentage exposure has gone down, and this was fortunately aided by the fact that the rest of the portfolio itself has gone up).

The only future losing investment I can see at this time is long-duration fixed income. Even rate-reset preferred shares, which should be relative underperformers, will be okay for the most cautious investors compared to sticking money in A-AA-AAA fixed income.

The trick here is to not view the cash in your portfolio as (too much of) a liability (yes, my CPA hat is screaming at me that cash is in the asset column, I think the reader knows what I am getting at here). Instead of saying “damn it, I’m just going to hit the ask”, waiting for a day when Trump says something that causes the market to go down a couple percent, or some other equivalent, and then choosing to purchase when the nervous nellies return thinking there will be a second rebound of COVID-19. The latter isn’t happening – the surprise is going to be how quickly COVID-19 will disappear, except in the eyes of the media, and the public knows it.

The question is when the month-long euphoria of re-opening (which will cause a spending boom) ends, what will happen to employment, capital investment, and so forth. There are a lot of questions about the potential re-domestication (I don’t know what else to call this) of certain components of the US economy. Regulatory structures do need to change to give companies incentives to on-shoring manufacturing that has long since been outsourced (mostly to China). In Canada, the only industries that matter in the lens of the current government are the ones encompassing the metropolitan Toronto and Montreal areas, with Atlantic Canada (you can literally look at the 2019 election results map and look for the ‘red’ areas to determine where the government privilege will go), so apply that information strategically in Canadian investment decisions. As in, Bombardier unsecured debt is trading at around 60 cents on the dollar.

Late Night Finance with Sacha, Episode 3

Late Night Finance with Sacha, Episode 3

Date: Thursday, May 21
Time: 9:00pm, Pacific Time
Duration: Projected 1 hour.
Where: Zoom

Frequently Asked Questions:

Q: What are you doing?
A: I’m going to be running a TSX stock screen and doing some very rapid research on some candidates for an hour. Questions during this presentation, both on and off topic, are accepted.

Q: Why are you doing this?
A: Continuing my experimentation in video broadcasting. Who knows, I might learn something from you as well.

Q: Why so freaking late? I live in the eastern time zone.
A: It is late night finance, is it not? I might do ‘afternoon finance’ another time, but not this time.

Q: How do I register?
A: Send sacha@divestor.com an email. Subject line “Late Night Finance May 21”, and in the message body tell me what city and province/state you’re from (or if you’re international, city and country). I’ll reply later (no later than Thursday 8pm) with the zoom channel and passcode to get in.

Q: Are you trying to spam me, try to sell me garbage, etc. if I register?
A: I can hardly manage a mailing list without breaking my own website, what makes you think I will spam you? No, if you register for this, I will not harvest your email or send you any solicitations. Also I am not using this to pump and dump any securities to you, although I will certainly offer opinions on what I see.

Q: Why do I have to register? I just want to be anonymous.
A: I’m curious who you are as well.

Q: If I register and don’t show up, will you be mad at me?
A: No.

Q: Will you (Sacha) be on video (i.e. this isn’t just an audio-only stream)?
A: Yes. You’ll get to see me.

Q: Will I need to be on video?
A: I’d prefer it, and you are more than welcome to be in your pajamas. No judgements!

Q: Can I be a silent participant?
A: Yes.

Q: Is there an archive of the video I can watch later if I can’t make it?
A: No. Eventually when I figure out a good procedure I will enable this.

Q: Is there a limit to the people that can participate?
A: Zoom limits me to 100. I really hope the number isn’t higher than 10.

Q: Will there be some other video presentation in the future?
A: Yes.

Another clothing retailer bites the dust

The fixed costs of leasing for most of these companies is way too high, so CCAA is the only real escape hatch.

Reitmans (TSX: RET.A) finally pulled the trigger on CCAA today, probably to get out of their onerous leases.

My only comment about them is that their balance sheet is still in reasonably decent shape (they have a lot of cash, relatively speaking – $89 million at the beginning of February 2020) and little in the way of debt other than their lease obligations.

Finally, in what had to be the worst-timed substantial issuer bid in stock market history, on July 29, 2019 they repurchased $43.4 million in stock at $3 a piece.  I’ll leave it to the readers to determine the rate of return on this after less than 10 months.