Tuesday, September 8, 2009

Filthy Lucre

Filthy Lucre: Economics for People Who Hate Capitalism
by: Joseph Heath

Mr. Heath uses his book to debunk myths on both sides of the political spectrum - the right and the left. He dives into common arguments that deal with incentives, taxes, personal responsibility, pursuit of profit, and equal pay amongst other topics. He uses data, economics, and other means of demonstrating why: "virtually all common held beliefs about economics - whether espoused by political activists, politicians, journalists, or taxpayers - are just plain wrong."


While I found the book interesting to read I found it hard to succinctly follow Mr. Heath's arguments. His writing style was jumpy and in some of the more techinical topics the lack of flow made it challenging to fully understand his arguments. I found this especially so when it came to viewpoints I didn't share.

A brightside note though, the book did convey many interesting perspectives that I believe those who are either committed to the right or left of the political spectrum could benefit from pondering. This book would be particularly useful at a party when debates break out over minimum wage, corporate profits, or motivating a workforce.

It is in this that I found the book the most useful - understanding the other side of the argument and data/analysis that backs up and/or refutes the common debates. Was this a great book to read - I didn't think so, but I do not regret picking it out. It won't directly make you a better employee at work, but it does provide good food for thought concerning many everyday headlines and arguments we encounter. Through this understanding one is likely to approach similar problems with more thought out rational in the future (say concerning incentives).

Back To School

I haven't wrote for a while because I wasn't sure what to write or what theme I wanted to continue with. I wasn't sure where or how (or even if) I wanted to proceed with this blog.

So in honour of those kids who went back to school today, I'm back on this (for a while anyway). Over the summer I've realized that I tend to read more often than not. And I tend to choose books that fall into one of four categories:*

1) Are directly related to business strategy, leadership, and corporate functions (strategy)
2) Cause me to think about problems, data, and analyze situations from different perspectives (perspective)
3) Carry underlying themes that are directly transferable to business/management/strategy (general)
4) Provide good fodder for networking/small talk conversations (pop culture)

*the bracketed category after each number will serve as a way of searching my reviews in the future.

The commonality amongst all books I choose is that it can apply to my career one way or another and that all books I read are non-fiction. I thought I would begin to review the books I read for other professionals out there that might enjoy similar books because I often find it difficult picking out books that are beneficial to my career. These reviews will not be a plot summary but rather how I find the book directly applicable to the professional environment. Of course, I will provide some summary but I am hoping to keep that to a minimal.

Over the coming weeks, look for these reviews. And if you can provide any suggested reading, please leave an email or a comment.

Happy back to school!

Saturday, April 18, 2009

Bill's Buzz

From www.vlaadco.com

Michael Bernstein has been appointed interim President and Chief Executive Officer of Macquarie Power & Infrastructure Income Fund. He was also appointed Head of Macquarie Capital Funds. Bernstein was previously Senior Managing Director of the Macquarie Group and Head of Infrastructure & Utilities Advisory for Macquarie Capital Markets Canada.

Some new moves and role changes at BMO Capital Markets:
Managing Director, Jamie Rogers is adding to his role and is now Head of Vancouver Investment & Corporate Banking and joins I&CB Canada Management Committee
Former UBS Securities Institutional Equity Salespersons, Mathieu Debost, Dan Vreeze, Alex Araugo and Andrew Whipp have joined the European Equity Sales force in Europe
Also on the European Coverage Team, but located in Canada, are Toronto Equity Sales Trader Carlo Giarrusso and Montreal Equity Salesman Maor Amar. Both were previously at UBS as well
Eric Luftig has joined as Managing Director in the leveraged finance group. Previously he held positions at GE Capital Markets and CIBC
Lyla Kanji has joined as Senior Manager, Corporate Finance
A couple of moves this week to CIBC include:
Andre LaJeunesse as Managing Director of fixed income, currencies, and distribution for the Asia Region, will be based in Singapore. Lajeunesse was previously with Australia and New Zealand Banking Group (ANZ Bank)
Based in Toronto will be Duncan Rule as Managing Director and Head of Foreign-Exchange Trading. He was most recently with Dresdner Kleinwort
Former Merrill Lynch, Head of the Canadian Team, David Wolf has joined the Bank of Canada as an Adviser, focusing on issues relating to monetary policy and the Bank's research program.
Also at the Bank of Canada, Jean Boivin has been hired as a "Special Adviser" working on Canada's inflation target and monetary policy framework. He currently holds the Chair in monetary policy and financial markets at the Institute of Applied Economics at HEC Business School.

Pollitt & Co. has recently made a number of additions to their team:
Corey Dias joins as an Equity Research Analyst. Previously Corey was a Research Analyst, Technology and Special Situations at M Partners
Kelvin Cheung will be joining the team as an Equity Research Analyst. Kelvin was most recently with National Bank Financial, where he was an Equity Research Analyst
Mike Graham and Andrew Thompson have also joined Pollitt & Co. in Institutional Equity Sales. Formerly, Mike was an Investment Banking Associate at Thomas Weisel Partners in Toronto, and Andrew was an Equity Research Associate, Base Metals at Macquarie Capital.
Nick Savona has joined Sandfire Securities on their Equity Trading Desk. He was most recently Principal at Evergreen Capital.

Joon-Gi Cho is joining Dundee Securities in Montreal as Institutional Equity Sales. Previously Joon-Gi was at BMO Capital Markets.

Equity Trader Collin Thacker has joined UBS Securities Canada. Thacker was previously at Merrill Lynch Canada.

TD Asset Management will be saying farewell to Rob MacLellan (Executive Vice President and Chief Investment Officer and Chairman for TD Asset Management, President TD Capital, TD Investments, Wholesale Banking, TD Bank Financial Group) at the end of the year as he has announced his retirement. Taking over his responsibilities is Bill Hatanaka, currently Head of TD's Wealth Management Group.

Also gaining new responsibilities at TD Asset Management is Anish Chopra who will be managing the TD Canadian Value Fund.

Edward Gibbard has joined Clarus Securities on their Institutional Equities Trading Desk. He was previously Director at Scotia Capital.

Thursday, April 16, 2009

Conquest Vacations as I see It

In response to David Redekop's analysis on the demise of Conquest Vacations (posted earlier today - see below), I have a few opinions of my own. This post, like all blog posts, is of course an opinion post.

To begin, I quote: "demise of Conquest Vacations was not the result of mismanagement" Well I would disagree. If you are operating in an industry with large supply, moderate demand, then price wars will ensue. Despite the fact that "The company was managed by experienced and respected people that knew the business" there is little experienced management can do when your industry model is flawed (see the auto industry). Some will inevitably fall as the stronger survive. And Conquest failed because its management, like those at the Big 3 Auto's, were not able to appropriately adapt, adjust, and bring to market the proper levels of service and convenience those going on vacation want (see Expedia for convenience, Sunwing for service). To say it is not managements fault is in itself a faulty statement. Perhaps Conquest would have failed regardless of management action, but in that case, management and the equity holders should have shut the doors long ago. Conquest failed because of management's inability to navigate the waters.

"Travelers are inconvenienced and lose confidence while destinations receive fewer dollars per visit" Somehow i doubt this to be true. It would only be true if fewer people will travel because they cannot get a flight/hotel etc. Given this person states many times about oversupply throughout the vacation world, it is safe to assume the same absolute # of travellers will continue to travel, albeit on a different carrier/operator now if Conquest was their preferred operator of choice. In the end, destinations will continue to receive the same dollars per visit as the same # of visits (i.e. tourists) will continue to occur.

"An imbalance such as we have with package tour operators forces companies to focus on their margins rather than expanding operations" Isn't is the expansion of operations that has brought online so much supply that has created the imbalance that Mr. Redekop criticized earlier in his report? Why would Mr. Redekop now imply that operators should be focused on expanding their supply and operations rather than working to build an efficient company. Why should companies not focus on margins, improving service to draw customers in, when more than adequate supply exists. His quote here seems awfully out of place within the context of the rest of his commentary. And it ignores the fact that Transat, another tour operator, that originally introduced a 10% discount on its tour packages has recently reduced that discount to only 4% prior to Conquest's announcement. This indicates that although there is margin pressures in the industry they are lessening, making Mr. Redekop correct but his trend analysis wrong. Overall, not a very astute analysis by someone who is considered an 'expert'.

"Consolidation among operators would be healthy for the industry, destinations and ultimately Canadian outbound travelers." I would also disagree that consolidation would be healthy for Canadian outbound travelers. Competition, supply outstripping demand, and low prices are healthy for Canadian outbound travelers. Consolidation, reduced supply, fewer choices/options, are healthy for Operators who have a much different goal than the consumer (i.e. More of the consumer $ for less vs. the consumer looking for more package for less $).

Finally, where is any commentary on the credit aspect of Conquest's demise? Consumers inability to find extra money is surely a factor in their announcement. Although that may be insignificant, what isn't is the inability of the "experienced and respected" management team who were not able to come to terms with their credit processor. Surely this impacted their operations. Yet, Mr. Redekop fails to even touch on this topic. A large oversight in his analysis if you ask me.

What really irks me about his commentary though is that our tax dollars go to support analysis like this which does not appear to be thoroughly thought out.

Conquest Vacations as the Conference Board of Canada sees it

I've reproduced some analysis by David Redekop of the Conference Board of Canada regarding the demise of Conquest Vacations that was released today.


Yesterday’s announcement concerning the collapse of Conquest Vacations was not entirely surprising. We had expected a consolidation amongst Canada’s tour operators this winter. No major package operator in Canada has been pleased with their margins. While demand for package travel in Canada has been strong for many years, the growth in capacity has been even stronger. This imbalance between the demand for travel and the growth in capacity is the main reason for the demise of Conquest Vacations.

Conquest Vacations had been in business for 37 years. The company was managed by experienced and respected people that knew the business. Conquest Vacations was once of the largest tour operators in Canada. The operator was once the number one supplier of seats to Las Vegas from Canada and a major supplier for Florida, the Caribbean and Mexico; particularly in the Ontario market. Conquest Vacations had only 11% of the approved charter capacity (85 thousand seats) for winter 2008-09. Combining the charter and schedule capacity, the operator had less than 5% of the available seats for this winter. Mexico and Cuba were their top destinations. Ten or fifteen years ago, Conquest Vacations had about double this share of seats.

The demise of Conquest Vacations was not the result of mismanagement (as say for the auto industry and some notable banking and investment institutions). The company failed because of systemic problems in the package travel industry in Canada. An imbalance between the demand and supply for package travel in Canada has resulted in artificially low prices for far too long. Canadians spent on average $1,103 per person visit (excluding air fare) in the Caribbean in 2002 according to Statistics Canada. By 2007, the expenditure per visit had fallen to $917 or by nearly 17%! Yet for operators, the cost of fuel, hotel rooms, salaries and wages continued to grow. It is a testament to the astute management abilities of Canada’s tour operators that most of them have been able to survive under these conditions. But ultimately, this situation could not last.

In 2007 we saw the merger of four major operators in Europe –first MyTravel and Thomas Cook and shortly after TUI and First Choice. More mergers in the UK have taken place since 2007. Meanwhile Canada has seen an increase in tour operators with the emergence of Sunwing Vacations and WestJet Vacations. This excess of capacity has driven down prices; especially for destinations in the Caribbean and Mexico. Although Canadian travelers have enjoyed bargain holidays, the imbalance between demand and supply has not been healthy for the travel industry. A consolidation of Canada’s package tour business has long been needed.

Everyone (travelers, destinations and companies and their employees) suffers when an industry is out of balance. Travelers are inconvenienced and lose confidence while destinations receive fewer dollars per visit. An imbalance such as we have with package tour operators forces companies to focus on their margins rather than expanding operations, improving their product line and introducing innovative programs and products. No one wins.

Conquest Vacations became a victim of the imbalance that exists in Canada’s tour operations industry. Despite their collapse, the imbalance between the demand for package travel and the supply of packages remains. We expect to see a further consolidation amongst Canada’s remaining package tour operators over the next 12 months. Consolidation among operators would be healthy for the industry, destinations and ultimately Canadian outbound travelers.

David Redekop
Principal Research Associate
The Conference Board of Canada
255 Smyth Road
Ottawa, ON K1H 8M7

Email: dredekop@conferenceboard.ca
Tel. (613) 526-3090 ext. 324
Fax. (613)526-4857

Monday, April 6, 2009

Condo vs. REIT Part III

I've written about condo's vs. REITS here and here.

Now I've stumbled upon a landlord talking about 5 myths about owning and renting property. I've reproduced it below and his post can be found here.


5 Big Myths About Owning A Rental Property

By Smarty Sean Apr 3, 2009
Many people think that it is easy to become a landlord, collect rent from a rental property and enjoy the income. The popular belief is that you can buy a property, rent it out at market rate, sit back and collect rent for the next 30 years. At least that’s what I was told before I bought my rental property in Philadelphia.

When the real estate market was booming, many New Yorkers traveled to Philadelphia in hopes of buying a property before the real estate market prices skyrockets. My parents’ friends had bought property in Philadelphia when the average single-family houses were in the 60’s thousand range, and had double their initial investment in less than 5 years.
One friend told me, “Buy the property now. Sit back and collect rent.” It turns out that many people I know had joined the real estate craze in Philadelphia and bought a property. They all buy a house and rent it out. It was a great opportunity for people in New York and could not afford New York prices. So I also bought a property in Philly.

At first, I was getting the good tenants. I collected rent every month on time. It was like a dream come true. The rent checks kept coming and I kept smiling. No complains from me.
Then recently, I had to deal with some really bad tenants. They would not pay rent and would not leave. I tried to evict them in court but they took measures to postpone court dates until I could not longer deal with them.

Own a rental property is like owning a business. It requires your time and energy. Even if you have good tenants, you need be ready for any problem that arises. Most of us don’t start a business and think we can make money by doing nothing. Instead, we would expect starting and running a business takes time and hard work. The same mindset should go for owning a rental property.

Owning a rental property can be hard work and time consuming. Below are some myths about owning rental property.

Myth #1: I just need enough money for the down payment to buy a rental property.
There are many costs associated with a rental property apart from the initial down payment. You would definitely need extra money for the rainy days. The house may be in need of sudden repairs and you would need to have some cash to back yourself up. Also, it’s no guarantee that you can always rent out the property. Some times it may take months before you can find a new tenant after the old one leaves. In events like that, you should have adequate savings to help you ride through tough periods for the time being.

In my situation with the bad tenant, I did not receive rent payment for 9 months. I had to dig into my personal savings and pay mortgages and other costs associated with the house. My cash flow was negative for those months. Therefore, I would suggest landlords have about 12 months of rent money for backup.

Reality: Down payment is not enough for buying a rental property. You will need about 12 months of rent money in addition to down payment and closing fees.

Myth #2: I will sit back and collect rental payment every month from my tenants.
Many people think that once you buy the property, everything goes on autopilot. You think you would sit back, cash checks and get fat. More likely than not, you would be busy dealing with tenants and making regular repairs to the rental unit. You can hire a real estate agent to take care of it for you, but it will cost you money. And even with an agent, you cannot just sit back and forget everything. Since it’s your property and not his/hers, the agent will not be too concern about your property if you don’t care much about it. More often than not, rental property owners are very hands-on.

My friend has a hired a real estate agent to look after her property. She told me that all they do is collect the rent checks and pay you the difference after the fees. If there are any problems with the house, the agents do always react right away. Often they would call you for a decision.

In which case, they would suggest calling someone else to make repairs or deliveries of heavy items. My friend thought her real estate agent was useless, because she was on the phone several times a day when there’s an issue in the house. She cancelled the service and did the same amount of work and save on the monthly service fees.

Reality: A rental property will require your attention and prompt for your actions. You will have to be proactive.

Myth #3: I will buy a rental property and get rich.
Many people think that buying a property will get them rich. They see it from their friends or other people. It’s always the exceptionally good news that travels down everyone’s ears. There usually someone who had purchased a house at some place and made a phenomenal return on his/her money. And you want to be the next person.

I was also part of that story when I bought my house in Philadelphia. I heard many people made 100% or more in profits selling their properties in Philadelphia. The rumor then was that the housing market in Philadelphia will increase even higher. The local economy was thought to be booming and the job market seemed to be doing well. My friend told me that prices would most likely double in two years. I thought about it and it seemed like a very good investment at the time.

Unfortunately, I got in the real estate market at near the peak. The prices had dropped since then. The current value of my property is estimated to be 30% lower than what I had paid for it.
Now I am in debt with a mortgage probably worth more than my house. I also have other monthly expenses associated with the rental property, such as insurance, real estate tax, etc. I have not seen positive cash flow for a very long time.Reality: Buying a rental property is not a guarantee that you will get rich.

Myth #4: The house will care for itself
People would think that if they buy a property and successfully rent it out, then they are all set. It’s easy to forget that the house gets worn and torn each year. Every year the house needs maintenance. There are many things to be checked. For example, the roof needs re-coating every two years. The heating system and house equipment need to be checked regularly. It is in your best interest to detect problems early on. Usually early detection helps you save money.

For my property, I had replaced many different things. I bought a new stove and a new washer machine to name a few things. I had to shell out a lot of my money in my savings account. This is also where some extra money can help. The rent money alone may not be enough.

Reality: The house will need to be checked regularly.

Myth #5: My contractor will fix everything
People rely heavily on their contractors to do the work for them. The contractors will tell you something to make you believe they are better than you and they will do the job right. And if you don’t know any better, you would believe them.

I doubt contractors have your house in their best interest. Most contractors try to get the job done as soon as possible without you bothering them. Often, the quality of the work is mediocre. This is especially true if you are far away from the property, like I am. I learned that it’s best to check the job after it is done by the contractor. This gives you an opportunity to examine the quality of work the contractor did. And if it is not right, you have to tell them. It is your house, so you have to put attention to it.Reality: The contractor will not have your house in his/her best interest at heart. You will need to inspect the work and follow up with them, if necessary.

In conclusion, the myths presents owning a rental property seem easy, but in reality, there are many hours of work behind the scenes. Always do your due diligence before investing in the real estate market. And if you are seriously interested in getting your foot in the real estate market but do not want to get your foot dirty, there is an alternative option - real estate investment trust (REIT). REITs are securities that you can trade in the stock market. You do not have to deal with tenant problems in REITs and you will often receive a nice dividend for holding REITs. REITs are the preferred investment choices for investors who want to participate in the real estate market and do not want to deal with the hassles.

Saturday, April 4, 2009

Bill's Buzz

Greg Pardy has resigned from Scotia Capital and is moving to RBC Capital Markets as Co-Head of the newly formed Energy Group and will also cover large cap energy stocks.

David Rosenberg is joining Gluskin Sheff as Chief Economist and Strategist. Rosenberg was previously a Managing Director, Chief North American Economist at Banc of America in New York.

TD Securities has brought on John Moore from JP Morgan to head its U.S. Fixed Income Sales team, based in New York. Also joining but from Morgan Stanley are Jim O'Brien to head U.S.

Fixed Income Trading and Bond Trader Charles Coristine. Desjardins Securities found a new Head of its Mining team with the hiring of Paul Carmel who most recently was the President and Founder of Caisse de depot et placement du Quebec’s backed Private Equity fund MinQuest Capital.

Jamie Williams joined CIBC World Markets from HSBC Securities Canada as Head Bond Trader.

Ed Rieckelman has joined Alberta Investment Management's (AIMCo) Private Equity group in Toronto. Ed was formerly with Oncap and True North Investors. Rajiv Chail has left his

Investment Banking Analyst seat at Research Capital to join Cormark Securities as a Mining Equity Research Associate. BMO Capital Markets’ Metals & Mining Group recently added Yefei Pi as an Analyst. Pi was most recently part of the M&A team at Genuity Capital Markets.