A Perfect Circle

Filthy Lucre

2009-09-08T19:14:00.004-04:00

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

Summary:
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."

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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

2009-09-08T19:04:00.004-04:00

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!

Bill's Buzz

2009-04-18T08:56:00.001-04:00

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.

Conquest Vacations as I see It

2009-04-16T21:17:00.006-04:00

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

2009-04-16T21:14:00.003-04:00

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

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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

Condo vs. REIT Part III

2009-04-06T18:05:00.002-04:00

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.

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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.

Conclusion
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.

Bill's Buzz

2009-04-04T11:14:00.001-04:00

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.

Minimum Wage - Part Two

2009-03-30T22:21:00.003-04:00

After a rather blunt post on minimum wage Saturday I thought I'd take a positive look at how one can live reasonably off of minimum wage with a few prudent financial decisions. First and foremost, what I'll say below can be found all over personal financial blogs and I don't claim to be original with any of the ideas.

Looking at top expenditures for the average person some not so surprising point jump out. We spend most of our money on rent, fuel, and transportation. For starters, when one makes minimum wage, certain luxuries are best avoided and clearly one shouldn't own nor operate a car if the desire is a comfortable life based on min. wage. It is likely wise to live slightly off the beaten path as rents will be cheaper, and to spend some of your time per day commuting as living slightly further away from work usually leads to cheaper housing costs. By avoiding a car and minimizing rent, you decrease you biggest liability and what most people spend 30%+ of their income on. Food would be the next highest expenditure for the average person and without saying, cooking at home should be top priority. Cooking at home clearly indicates the need to purchase most of your food at a grocery store, which should be a discount, no frills, basic type of grocer. Eating out should be avoided. Finally, conventional wisdom says that clothing costs must be cut as well, but the average person spends less than 5% of their income on clothes and thus, making large cuts in that area will have minimal impact on the minimum wage earners financial health.

With all that said, it is possible to live comfortably while making minimum wage. You certainly won't be living a luxurious life style and there will be hard knocks as you go....but then again, minimum wage should only be a stepping stone and not a destination.

Minimum Wage

2009-03-28T14:31:00.004-04:00

Maybe I'm missing the point, but whoever said that you're supposed to be able to raise a family earning minimum wage? Minimum wage is exactly that, the minimum wage that a person needs to earn a living. That doesn't mean they should be able to feed a family of four on that wage, that they should be able to own a car, a house, a cottage, or a boat. That would be called a "comfortable wage", or a "middle class wage". That's not the definition of "minimum".

Minimum wage is for unskilled workers, who can't command that wage in a free market economy and need government protection to ensure they earn, at least, the very minimum to survive, sometimes with the addition of minimal or no government assistance. Minimum wage is not supposed to be a goal or a lifestyle, it's supposed to be a starting point...hence why it's called "minimum".

If one is tired of only 'earning' minimum wage, perhaps they should pursue upgrading their skills, their abilities, and their attributes to make the jump up a couple $/hour. And then continue on from there, slowly increasing their wage with time. At the end of the day, the minimum wage earners are a necessary cog in the economy and for companies, but they do not add much value. Rather, they facilitate others, typically those who are paid above minimum wage, to create value and keep the minimum wage earners employed.

I applaud the government for holding back on raising the minimum wage next year. In theory it should maintain the employment levels of the minimum wage tier, and those earning at that level should be grateful. I suspect they aren't and don't fully grasp the inefficiencies a minimum wage level creates in the economy - inefficiencies that would adversely effect them. They think the government is taking money from them. The government is not taking money away from anyone with their decision; you can still earn more than the government mandated minimum wage increase to $9.50/hour. However, those that do make minimum wage should be grateful they are employed in Canada where the government provides this earnings protection, even if that protection level is increased but not necessarily as much as expected.

Dear AIG - I Quit

2009-03-26T18:24:00.002-04:00

Althought I firmly believe that many at AIG do not deserve a bonus, I have for a while believed that the 'popular' outcry was overblown and not fully educated about the true ramifications that still exist at AIG. Below is a letter that is well worth the read. Of note, 2 AIG executives in Paris quit this week over broken promises which potentially could trigger over $200 billion of defaults due to their departing expertise. $200 billion for a trade off of not paying a few million in bonuses. Food for thought.

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The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.
My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”
That may also be why you authorized the balance of the payments on March 13.
At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.
Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”
Sincerely,
Jake DeSantis

Random Thoughts

2009-03-23T19:38:00.005-04:00

Some random thoughts I've had lately that can't really form a full post:

1) Although upsets happen in March Madness, I suspect that if you pick the high seeds always, and that the bracket results are weighted so you get more points in the later rounds, you'll do better than average. Anyone want to backtest this theory?

2) That it is not always better to pay off your mortgage as fast as possible. Sometimes the alternative uses for investing the cash outweigh the benefits of being free and clear sooner. In other words, the potential for a higher net worth overall. And this is counter intuitive to most personal finance experts.

3) That the term 'banker' doesn't mean teller or anyone you see in bank branches...and those that don't know this really grind my gears.

4) The moral hazard involved in car repairs bothers me to no end. I'm supposed to trust the person when they dictate to me that I require certain repairs while they have the incentive to 'up sell' me as much as possible. And I have no way to verify what they say is true. Frustrating.

5) Why management of teams that have a shot at winning the draft lottery in the NHL don't do more to get there when there's less than 1/4 of the season left. Management can't ask the players to perform poorly (naturally, the players all try hard so as to remain in the NHL), but management can dictate who starts in net (i.e. the weakest goalie in the system), who gets more icetime, and other personnel decisions. If the goal of teams is ultimately to win, wouldn't that be accomplished by losing more in certain situations? Surely fans would understand and accept the bigger picture. After all, the New York Knicks' fans have accepted them tanking 2 seasons on the hopes they come up big winners in the free agent bonanza in 2010 (See James, Lebron) .

6) How much of the largest 10 day bull run since 1938 is due to shorters being forced to cover their positions?

Bill's Buzz

2009-03-16T20:14:00.000-04:00

Institutional Trader Marcel Ferreri has returned to UBS Securities Canada after a brief stint at GMP Capital. UBS also promoted Travis Wood to Income Trust Analyst.

Louisbourg Investments hired Heather Hurshman, as Vice-President and Portfolio Manager based in the firmâ€™s Halifax office. Hurshman was most recently a Vice-President, Portfolio Manager and member of the Senior Portfolio Management Team at Seamark Asset Management.

RBC Capital Markets Energy Associate Steve Toth has joined his former Analyst Gordon Gee at Phillips, Hager & North Investment Management.

John Glover has joined Barclays Capital from HiFX, as a Director of Foreign Exchange Sales in Toronto. Odlum Brown hired former Head of Fixed Income at Blackmont Capital, Hank Cunningham, as a Fixed Income Strategist.

Michael Herring, Vice President Managing Director and Investment Strategist will assume the overall responsibilities for BMO Nesbitt Burnsâ€™ Retail Research.

De Lage Landen Financial Services Canada appointed Peter Horan President and Chief Executive Officer from his role as Senior Vice-President, Sales which he has had since joining the Company in March 2008.

Martin Hakker will now head Fidessa Canada while retaining his position as EVP Marketing, North America.

Frederic Belhumeur has joined ING Canada as a Financial Specialist, Broker Financial Services. Previously Frederic was a Portfolio Manager for Presima in Montreal.

Eric Landry, previously an Analyst for Caliburn Capital Partners, has joined HR Strategies in Montreal as an Investment Analyst.

Rachel Gillespie has joined FTI Consulting as a Senior Consultant working in the Corporate Finance (Restructuring) Division. Gillespie was most recently at Scotia Capital as Associate, Investment Banking.

Hybrid Executive Pay Proposal

2009-03-10T23:05:00.002-04:00

As executive pay continues to get more and more press, I thought I'd offer a unique view on how we may be able to curtail excess pay while aligning shareholders desire for capital gains without exuberant risk.

First, I believe that exec bonuses should be granted in the form of face value subordinated, convertible bonds that cannot be sold in a secondary market - that is the executive must hold them to maturity. The convertible provision will be triggered in the event of bankruptcy and only then, serving to place the executive bonuses in last priority below traditional debt holders and preferred share investors, if the company is wound up. Granting face value debt will eliminate the capital gain aspect of the bonds and by forcing execs to hold them until maturity creates a double 'carrot' effect through: 1) Periodic (quarterly or semi annual) reminders of a job well done in the form of coupons and 2) a large carrot, or face value payment, at maturity.

Linking exec pay to a bond rather than increasing share price (call options) and forcing them to hold the bonds to maturity will create a long term incentive for the executive to perform and not take excessive risk that in future years could ruin the company. If the company does head for bankruptcy down the road, senior debt holders would be able to send the firm into bankruptcy before the large face value payments are made. These senior debt holders are the investors that likely would gain control of the equity through a restructuring, rendering managements now converted debt bonuses worthless. Therefore, tying exec pay to sub debt rather than call options will decrease the risk appetite of management significantly.

However, convertible sub-debt bonuses may decrease the risk appetite of management unduly and actually be counter to shareholder wishes as shareholders want reasonable risk, not no risk. Shareholders only gain the value above the value of the debt holders so if exec pay is now tied to debt, some incentive must remain to create value that transfers to the equity holders.

To provide a value creating incentive, I propose that execs are granted short forwards tied to a sub-index that represents the sector they compete in and the execs will also granted the same value of long forwards tied directly to the stock price of the execs firm. The short forwards will capture the systematic risk of the sector and the long forward in the execs firm will capture the spread of how his business performs (i.e. company specific risk) relative to the sub-index of the execs peers. Any positive spread will be paid to the executive on a pre-set date (1 yr., 2yr., 3yr., 5 yr.) and will serve to better align management and shareholder goals. If the spread turns negative, the firm can state the executive is not liable to pay or a certain amount of negative spread will be deducted from the debt bonus. And because the exec has received debt as part of his bonus, they will have less incentive to take large risks to make it back to a positive spread if they find themselves in a negative spread position whereas with out of the money call options, management has large incentives to take huge risks when the vesting date of the out of the money call options nears.

This is my proposal. Long term convertible sub-debt and short and long forwards for executives that I believe will better tie shareholders interests with management, reducing moral hazard and would serve to prevent excessive risk taking. By reducing the moral hazard between management and shareholders, hopefully we never have to relive the period we're currently going through.

Bill's Buzz

2009-03-07T13:37:00.001-05:00

From www.vlaadco.com

Here is a Bloomberg article from exactly one year ago today on our views of compensation. Looks like we were on target but not draconian enough! http://www.bloomberg.com/apps/news?pid=20601082&refer=canada&sid=apDC93d9p9JA______________________________________Wellington

West Capital Markets has added a few people to their Energy team:- Matt Sobolewski joined the Investment Banking team in Calgary. Previously he was an Energy Banker for GMP Securities;- Kevin Shaw, an Engineer from industry, will be working alongside Kim Page as an Energy Research Analyst; and- Analyst Greg Colman will be changing sector coverage from Special Situations to Energy Services.

Senior Base Metals Analyst, Oscar Cabrera, has joined Merrill Lynch Canada. Previously, Oscar was with Goldman Sachs in New York.

Michael Fowler has joined Loewen Ondaatje McCutcheon to Head up their Equity Research Mining team. Most recently, Michael was the Interim CEO at Augen Capital.

Energy Investment Banker at Blackmont Capital, Jeremy Matthies, has joined the Corporate Development team at FYi Eye Doctors in Calgary.

Also making moves into Industry are:- Jason Crumley, Energy Research Analyst from Salman Partners, has joined Harvest Energy Trust as Manager of Investor Relations; and- Energy Analyst at Raymond James, Steve Calderwood, has joined the Planning and Strategy Group of Talisman Energy.

Former Sentry Select Capital Money Manager Glenn MacNeill has joined Lawrence Asset Management.

David Whyte has been appointed Vice-Chair and Chief Operating Officer for DundeeWealth. Aminul Haque rejoins Wolverton Securities as Head of Research. He was most recently an Energy Analyst at AIC.

Associate, Alexandre Drouin, has joined the M&A Group at BMO Capital Markets. Drouin is joining from Morgan Stanley.

Jonathan Draycott, joined OMERS Private Equity as an Associate from Ironbridge Equity Partners.

TD Newcrest Analyst, Nelson Mah, has moved to Northern Securities as a Special Situations Research Analyst. Gilbert Bong, most recently Investment Banking Analyst, Macquarie Capital Markets Canada in Calgary has joined National Bank Financial as Research Associate, covering Royalty Trusts.

Stanley Hartt has become the First Chairman of Macquarie Capital Markets Canada. Hartt was previously the Chairman for Citigroup Canada, a Stikeman Elliott Lawyer and Chief of Staff to Prime Minister Brian Mulroney.

Bill's Buzz

2009-02-28T14:55:00.000-05:00

From www.vlaadco.com

Our deepest condolences go out to the family, friends and colleagues of Ross McMaster who passed away this week. A little editorial, but Ross was an ace and will be deeply missed.______________________________

Paul Pint has moved across Bay Street from the Sales desk at Blackmont Capital to Desjardins Securities.

The small & mid cap financing team at Strategic Capital Desjardins Securities Montreal, left to join Industrielle Alliance Securities. They included Senior Vice President Pierre Colas along with Vice Presidents Mathieu SÃ©guin and John Karagiannidis.

Four Traders left UBS Securities Canada: - Eric Dubreuil and Marcel Ferreri joined GMP Capital Trust- Ripal Patel joined Credit Suisse - Tom Scheuring joined RBC Dominion Securities.

Heather Kirk is moving across the hall at National Bank Financial in Montreal from the Investment Banking team to take on a role as an Equity Research Analyst covering the Real Estate sector.

Versant Partners hired former Blackmont Trader Donna Laing to cover both Canadian and U.S. accounts.

CIBC World Markets hired Eric Price as Head of the New York Financial Solutions Group. Eric was previously the Head of U.S. Institutional FX Sales at Merrill Lynch.

In addition, Mark Sweeting will Head up the European Financial Solutions Group based in London. Mark was previously the Head of U.K. and U.S.FX Sales at UniCredit.

RBC Capital Markets hired Marc Gorr as Director, Global Financial Institutions covering clients in Central and Eastern Europe, the Middle East and Africa. Marc was previously with Fortis London.

RBC also hired Natasha Brook-Walters as Managing Director and Global Head of Institutional FX Sales out of London. Natasha was most recently at Morgan Stanley.

Ron Otsuki moved from Manulife Financial, where he was a Senior Vice-President, Global Investment Strategy to CPP Investment Board as Vice-President, Portfolio Strategies, within the Portfolio Design and Investment Research department.

Noah Shipman has joined Viterraâ€™s Corporate Development team in Calgary as an Analyst. Noah was previously an Investment Banking Analyst at Genuity Capital Markets in Montreal.

When is a Weakness a Strength

2009-02-24T18:04:00.003-05:00

When should you point out the weaknesses of your application? How do you convince another organization that a step down would actually be considered a step in the right direction in your head?

Here are some of my thoughts (thanks to a reader email for the inspiration for this post). Given that the large shops are essentially the only ones that are tending to replace associate analysts that leave, I'll speak to that perspective for this post.

A reader on the street was an equity analyst at a small shop and is willing to become a research associate given the environment that currently, for lack of better words, is not really hiring research analysts. Essentially, he is willing to take a step down in order to move up in the future.

However, convincing the people interviewing him has become a limitation and a challenge to overcome.

Luckily for him, his experience oriented at a small shop which is a good entry to the street but doesn't form a complete resume. And in this environment, that can actually serve as a positive for this man. His small shop only experience gives him a perfect story when discussing associate positions with bigger, more established firms that may have better reputations. He could point out weaknesses like how he'd perhaps "like to work and learn at a shop with top ranked analysts" or a firm that "has greater resources and support from the institutional sales desk". He could point out that "although working as an analyst at a small shop, his bigger, longer term goal would be to become a top ranked analyst and to do so requires big shop experience that stems by learning under an established analyst."

He could continue by commenting how "the added reputation of the banking unit will open up relationships with firms that do not exist within the small shops on the street" and perhaps continue with planting the idea that "although he enjoyed the entrepreneurial spirit of a small shop he wants to work in a more structured environment that has a more defined career path".

I would use all these 'weaknesses' when looking to move from a high position at a small shop to a entry level position at a bigger shop. Essentially my strategy would focus on pointing out that I'm not ready to be a player on the street but that I've had a great start and to go to the next step I still have a lot to learn. Finally, I would approach the interviews by being passionate, humble, and personable.

To the reader that inspired the post, I hope this spurs some thoughts on your next step. Best of luck.

Bill's Buzz

2009-02-20T18:19:00.001-05:00

From www.vlaadco.com

Vlaad and Company welcomes Samantha Campbell as a new Director to our recruitment team. Samantha was previously the Head of the Banking and Financial Services Group for the Toronto office of a multinational recruitment firm.

Robert Weston has joined OMERS Strategic Investments as Senior Vice-President, Strategic Co-Investments. Weston was previously a Managing Director at State Street Global Advisors.

Dave Bustos is moving from Inwest Investments to Head the Vancouver office of RBC Capital Markets Investment Bank. Bustos has also previously worked at Scotia Capital and BMO Capital Markets.

Shilpa Arora has joined Deloitte and Touche in the Financial Advisory Services team. Shilpa was previously with Ernst and Young.

Mathieu Cardinal has joined Desjardins Securities Investment Banking team in Montreal as a Vice-President. Mathieu was previously with BMO Capital Markets. Kinross Gold hired Guido Lenarduzzi as Vice President, New Investments. Guido was previously a Director at Goldman Sachs in Toronto.

Lee Madruga has left Ernst & Young Vancouver's P3 Group and has joined Acciona Infrastructures Canada as Business Development Manager for the Pacific Region.

The Equicom Group appointed Alice Dunning Senior Account Executive in the Diversified Industries Group in Toronto. Prior to joining Equicom, Alice was an Equity Analyst with CIBC World Markets, Merrill Lynch and TD Securities.

Parimal Nathwani joined MaRS Innovation in the Business Development & Commercialization team. Parimal was formerly a Research Associate at Versant Partners.

Jenny Li has left her role as a Risk Underwriter with GE Real Estate's Montreal office to join the Real Estate Corporate Banking team at BMO Capital Markets as an Associate.

Patricia Baker has joined Scotia Capital from Merrill Lynch as a Director, Equity Analyst covering the Retail sector focusing on the U.S. and Mexico.

Michael Li has joined BMO Capital Markets as Vice-President, Mergers & Acquisitions. Previously Michael was at Citigroup Global Markets as Vice President, Metals and Mining Investment Banking.

Steve Kelly joined the Equity Sales desk at National Bank Financial. Kelly was formerly with Merrill Lynch.

Corporate Bond Specialist Jay Menning left Connor, Clark & Lunn and started at Phillips, Hager & North as a Credit Portfolio Manager.

Daniel Simunac has assumed the role as Principal Officer, Canada Branch for Allied Irish Banks with the departure announced last week of Chris Gifford who start up Avira Capital.

Hope. Change. Mortgage Relief Plan

2009-02-18T17:55:00.007-05:00

I can't say I agree with the mortgage relief plan. If I lived in the States, I would have trouble swallowing the idea of bailing out home owners who bought too much house and/or bought at the wrong time. I can only have faith that the relief is for the greater good and that Obama, who has access to much more information and expertise than I, is making the correction decision. But....

If I lived in the States I would have trouble swallowing the relief plan that punishes me because I make responsible choices to live within my means; to live within a payment structure that can be afforded if one partner was to lose their job; to live within a lifestyle that can be supported. So I have trouble with the idea of enabling those who made poor decisions and now own an asset worth less than a liability to be given relief.

I am a firm believer that you reap what you sew. So it really pains me to see the stupid, reckless, ill-informed, unlucky, and above all the irresponsible being given relief. Where is the consequence of their actions? I have trouble understanding that the American government is rewarding the irresponsible who were unable to understand the consequences and ramifications of a six figure plus financial commitment. Why punish the prudent and cautious?

This help is only going to people who made bad decisions - fantastic. Hope. Change.

Bill's Buzz

2009-02-13T18:31:00.000-05:00

From www.vlaadco.com

Merrill Lynch promoted Toronto-based Gold Analyst, Mike Jalonen to Head its Global Mining Research team, replacing Vicky Binns who left in January to Head up BHP Billiton`s Commodities Research Group out of Singapore.

Eric Munro has joined Raymond James in Toronto as a Sales Trader to look after New York accounts. Eric was previously on TD Securitiesâ€™ proprietary desk.

Steve Kelly joined the institutional equity sales desk at National Bank Financial. Steve was previously at Merrill Lynch.

Chris Gifford has left Allied Irish Bank's Toronto office, where he was Vice President and Country Head, to start up Project Finance advisory firm Avira Capital.

Blackmont Capital hired former Scotia Capital Trust Analyst Chris Blake, as a Special Situations Analyst.

Derryn Shrosbree has joined CIBC World Markets, as a Senior Director in the Risk Management team. Derryn was previously with BNP Paribas in New York as a Director, Credit Trader.

Former Laurentian Securities Consumer Products Research Analyst Alka Patel has joined CN Investment Division to work in their International Equities Portfolio team as a Financial Analyst.

Mike Meligrigoris joined Brockhouse & Cooper in Montreal as a Portfolio Transition Management Analyst. Previously Mike was Manager, Asset Acquisitions for GE Capital.

Matt Gibson has joined CIBC World Markets as an Associate for the Mining Research team. Matt was previously an Alt Energy Associate at Haywood.

Robert Fine has joined Cormark Securities. Robert was previously an Analyst in the Media and Telcom group at Citigroup in Toronto.

Call Center Competency

2009-02-10T20:53:00.003-05:00

This was to good to not link to. After listening to it, and it is well worth the 3 minute listen, it really resonated many of my call center experiences.

I really hope the poor guy on the other end of this (same link) finally figured out what his bill was.

Bill's Buzz

2009-02-08T09:00:00.001-05:00

From www.vlaadco.com

Guillaume Poulin, most recently an Associate with CitiGroup Investment Banking in London has joined Hugessen Consulting as an Associate, here in Toronto.

Richardson Capital is adding an Associate to their Toronto office, Tennyson Cho is joining them from TD Securities, where he was in Investment Banking.

Colin Ramkissoon has made a move from TD Securities, where he was a Vice President in Investment Banking, joining TD Capital Private Equity Investors.

Jonathan Norwood is joining Louisbourg Investments as Vice President and Portfolio Manager. He was previously Vice President, Portfolio Manager and a member of the Senior Portfolio Management Team at Seamark Asset Management.

In an internal move, Damon Williams has been announced as President of Phillips, Hager & North Investment Management. As President he will oversee the Institutional businesses of PH & N, RBC Asset Management and Voyageur Asset Management.

Joanne Ferstman will be taking on a new role at Dundee Capital Markets as Chief Executive Officer. Joanne has moved over from Dundee Wealth where she was Chief Financial Officer.

In Sunwoo recently joined National Bank Financial Research Team as Associate, Communications and Media. Previously In was a Research Associate at Genuity Capital Markets.

Favourite Posts

2009-02-04T22:17:00.004-05:00

Now that I'm starting to get back into this again, although it will slow down shortly here are some links to what I consider my favourite posts so far (in no particular order).

1) Much like Blackstone that came public at its peak, so did Sprott. I posted this the day of their IPO announcement. Kudo's to Sprott for making a timely exit.

2) I'm all for looking at unique ways of viewing real estate investment. Here's this post and this one that look at buying a condo to rent vs. buying REIT units.

3) I still believe we should monetize unused RSP room.

4) There needs to be efficiencies created in the NFP world - there is too much waste out there that doesn't go to benefit those intended and those that need it.

5) We should learn from the tales of people who are unfortunate enough to lose both their jobs and see the value of their company stock drop.

6) Finally, with talk of a national regulator heating up, I can only hope we finally get one implemented.

Escalators & Exercise

2009-02-03T21:18:00.004-05:00

Here's a thought.

With obesity (upwards of 1/3 of Americans are considered obese) rising and no end in sight, I have a solution that would lead to:
1) Decreasing energy consumption
2) Force everyone to gain slightly more daily exercise

And its a simple solution. The beautiful thing about escalators is that they, when turned off, double as stairs. Most humans are lazy and in the past this has been a wonderful thing as our inherent need to be lazy lead to wonderful innovations (flying, remote control applications etc.), but this also has helped us become large. Given the choice of climbing a flight of stairs or the taking the escalator located next to the stairs, most people choose the escalator. It's human nature.

But, if we want to cut energy consumption and encourage a basic but helpful lifestyle changes, why not turn all escalators off and watch everyone start doing stairs since they have no other choice.

Remax's Commentary

2008-12-07T20:38:00.012-05:00

I received Remax's Market Report in the mail recently and for once, gave it a read.

Remax mails a Market Report monthly containing on the front page their 'views' on the respective market you live in. Mine pertained to Toronto and I found it to be an interesting 'view'. I use the quotes as it is nothing but a contradictory, fact glazing sales pitch. When reading these market commentaries, one must remember that real estate brokers are like traders - they don't really care if the market is rising or falling as long as the assets are trading. Remax makes money through transactions on either side of the purchase/sale.

Here's what I found interesting in the market commentary from Remax for Nov/Dec 2008.

Remax details how, "all of the bad economic news has already been factored into the price." If the stock markets can't factor all the information into the price of stocks, how do condo buyers and sellers, that in my opinion are made up of a much larger retail investor base then stocks, have the ability to factor in ALL of the bad economic news. ALL is a powerful word, and Remax uses ALL to signal to buyers that the prices have hit bottom. I, like many others, have a different opinion than that, but I don't lose revenue like Remax by sitting and waiting for what I hope is a period of condo deflation. Remax does.

Also embedded in their Market Report, Remax entices buyers by pointing out that prices are actually rising in the majority of units, defying reported statistics and CREA. Remax says that the sales mix has changed and smaller, cheaper units are the ones that are selling and therefore responsible for the media reported price decline in condo sales. Remax uses the example of a 1550sq.ft. 2 bedroom condo that was purchased in Dec 2006 for $570k and sold in May for $590k - a whopping annualized return of 2.3% that trails inflation, excludes condo fees of what I figure would total between $8,000 and $10,000 over the 1.5 years Remax tracked the condo (approx. $0.28-$0.36 cents/sq.ft./month), taxes of a few thousand dollars per year, any repairs or upgrades made to the condo and of course the interest on the mortgage. In reality, this money making condos return was likely closer to 1% or even less (excluding interest costs on the mortgage). Include interest costs and your returns are negative.

Remax also used examples of other condos that averaged an annual return of 5.9% and 3.5% excluding the details. These are the examples used in the Market Report by Remax are clearly the best examples they could come up with to show prospective buyers that prices are rising and should purchase now - some nicely framed data in a small sample size used by Remax I must give them credit for. Anyway, after all, if condos are about to enter, or already have entered, a deflationary period, why would perspective buyers buy today. The obvious answer is that rational buyers would wait until the cheaper prices of tomorrow, but Remax doesn't want potential buyers on the sidelines. "There are plenty of examples of properties increasing in price too!" they quote, but they forget to calculate the true total return, instead focusing on the top line. A company can often report top line growth, but if your margins are low and decreasing, taxes rising, and capital expenditures eat into that top line, who cares if you sold at a great 2.3%, 5.9%, and 3.5% top line profit! That's not what I want as a buyer - solid top line returns that barely move lock n' step with inflation. But here's the best part: Remax actually says in their report that ""Sellers who were waiting for the top of the market missed it six months ago". Remax spent almost 1/2 a page in their Market Report detailing rising prices only to contradict themselves buy saying sellers have missed the top of the market by six months (and counting).

Finally, in the report Remax contradicts itself with "So if you don't have to sell now, take your property of the market and wait!" and mentions that "the sale price to list price for condos is still at 98%". That's a remarkable ration but seems to me like it ignores condos that are delisted making that number artificially high. A 98% ratio seems good for sellers - they essentially get the price they listed at, and given the trend to list at a slightly higher price than you expect, one can surmise that sellers, according to the way Remax framed their Report, are meeting their expectations.

So Remax would have us believe that it is not only a buyers market (which is corroborated by the media, stats, and general consensus), but it is also a sellers market. It can't be both, but Remax wants us to believe that because, like traders, they only make money when assets trade hands. I'm not buying their market report. In my opinion, it seems slightly biased to me and that also makes sense. Remax is in the business of buying/selling real estate and not providing independent market commentary.

Bill's Buzz

2008-12-07T20:37:00.000-05:00

From www.vlaadco.com

In case you missed it, here is a link to an article in the Toronto Star entitled “Bay Street Survival: Half the Pay for 100-Hour Weeks” http://www.thestar.com/article/546877.

Ezra Chang has recently joined Wellington West Capital Markets as an Associate, Investment Banking. Ezra was previously with GMP Securities.

Jeffrey Fiell, formerly of Evergreen Capital Partners, has joined Leede Financial Markets as a Vice President, Investment Banking in their Calgary office.

Portfolio Manager from CI Financial, Matthew Shandro, has launched a Bond Fund this week, Fulcra Asset Management, based out of Vancouver.

A couple of changes in responsibility at BMO Capital Markets:
· Kelsey Gunderson will be taking on the role of Head of Fixed Income and Money Market Sales
· Rob White will be assuming responsibility for all trading activity of the Debt Products Group

Tyson Birchall has left Tristone Capital, where he was Vice President, Investment Banking in the Calgary Office, to join Longbow Capital in Calgary.

Aaron Toporowski has joined Canada Post Corporation Pension Plan as Manager, Private Equity, from Export Development Canada where he was a Senior Associate.

Casper Wong, previously an Analyst in the M&A group with BMO Capital Markets has moved to industry joining easyhome, as Director of Business Development.

MPartners has added a few people to their team. Jennifer Burke, most recently at Thomas Weisel Partners has joined their trading desk and Jason Bedasse, most recently with Evergreen Capital Partners has joined their sales desk.

Warren Brown has joined the Investment Banking team based out of Vancouver, most recently Warren was with Northern Securities.

Max Zureski, has rejoined Deloitte & Touche, as Senior Manager in the Financial Advisory practice, most recently he was a Junior Oil & Gas Research Analyst with Haywood Securities.

Blackmont Capital’s Montreal based Institutional Salesman , Joe Marcone is joining CIBC World Markets on their Institutional Sales Desk.

Bill's Buzz

2008-11-29T14:36:00.000-05:00

The new poll question is with regard to BCE – Vote at www.vlaadco.com

Please join us in welcoming Mark Stipe, the newest member of the Vlaad and Company team. Mark joins us from the financial services team at a multinational executive search firm.
Former Federal Cabinet Minister David Emerson is now an Advisor at private equity firm CAI Capital Management.
Neil Petroff will succeed Bob Bertram as Chief Investment Officer and Executive Vice President of Investments at Ontario Teachers’ Pension Plan in January.
Another departure in January is the Head of Lazard Canada, Evan Siddall, who will be taking on the CFO role at Irving Oil.
Wolverton Capital has picked up three more members of the now defunct Evergreen Capital team – Paul Reid (Investment Banking) and Ovais Habib (Mining Research) in Toronto, and Trevor Conway (Investment Banking) in Calgary.
Brian Gibson is moving to Alberta Investment Management Corporation (“AIMCo”) in Edmonton as their Senior Vice President of Public Equities. Gibson was previously with Panoply Capital Management and prior to that, Ontario Teachers’ Pension Plan (“OTPP”).
Abraheem Abdulla is joining Dubai Islamic Bank’s Direct Investments Department in their private equity group. Abdulla was previously an Associate in the M&A team at BMO Capital Markets.
Ian Mitchell has joined the Versant trading desk. Mitchell was previously a retail trader at MGI Securities.
Former Edgestone Capital Partners Associate in the Later Stage Equity Fund, Katherine Rivington, has joined BMO Financial Group in the Office of Strategic Management.
Blair Carey has left his Associate position at Abacus Private Equity to assume the post of Vice President, Investments at Third Eye Capital.
Riley Keast has left his role in Investment Banking at MPartners to open up the Canadian operations of New York based Casimir Capital.

Please visit our website www.vlaadco.com for this week’s anonymous poll question.

Bill's Buzz

2008-11-21T19:17:00.001-05:00

from: www.vlaadco.com

Congratulations to the PALINtologists, this year’s Valachi Cup Funspiel winners!

Duncan Ball has joined Bilfinger Berger’s Project Investment Team as Senior Vice President of Project
Finance in Vancouver. He was previously Managing Director for Babcock & Brown’s Canadian Infrastructure Team.

JPMorgan Chase has named Andrew Pilkington CEO of the credit card business. Pilkington was previously with American Express.

Kenny Cheung has joined Credit Suisse as an Equity Research Associate, Precious Metals, from CIBC World Markets.

A number of executive changes are occurring at TD Securities:
· Rejoining TD Securities is Mark Faircloth as Head of Fixed Income and Foreign Exchange operations globally. He was previously at FairLane Asset Management where he helped start the fund management company.
· Head of Institutional Equities, Robbie Pryde, will have his role expanded to include Equity Derivatives and Equity Options.
· Head of Global Trading and Distribution, Martine Irman, will now be reporting to both Faircloth and Pryde.

After the recent closure of his co-founded company Evergreen Capital, Timothy Dalton rejoins Northern Securities on their Institutional Equity Sales Desk.
A correction to last week’s buzz, Executive Director, Ryan Donovan had joined UBS Canada in 2000 in their Debt Capital Markets Group in the US and is now moving to their Calgary office.

Financial Modeling Part 3

2008-11-18T17:49:00.004-05:00

This post is short and sweet. Below I detail the common schedules and layout of the model before you get into the inputs/variables.

As I get into the model I generally have the following tabs. I layout the tabs and schedules in them before I start to ensure I have the logic correct and everything I need to build a functioning model. By mapping it before I start, I try to minimize additions as I go that can make the model messier and harder to follow (aka not simple).

Cover Sheet

Summary - Included could be a variety of summary tables and graphs. This tab would be comparable to an exec summary page of your typical business report. In this tab, include outputs on the key drivers (aka valuation metrics, or working capital levels, or...). This should tie into the reason you build the model in the first place.

Assumptions - sometimes I use this tab, sometimes I don't. If its for internal use mainly by me or my boss, I don't. If the model will be viewed by a wider audience, I use this tab as an assumptions summary tab so people can easily see what assumptions I've made, but they still have to visit the individual schedules to change the assumptions.

Sources & Uses - This tab is good for LBO models or merger models. It deals with the acquisitions price and where the buyer is getting the financing from (aka cash, revolving debt, term debt, mezzanine, pref shares, common equity from various sources etc.)

Scenarios - your typical best, base, worst cast scenario assumptions and schedules are here for your key drivers.

Model - contains the following: Income statement, balance sheet, statement of cash flows and the following schedules (may contain more than just these schedules): revenue, COGS, other expenses, depreciation, working capital, debt & interest, shareholders equity, tax, distributable cash etc.

Free Cash Flow

DCF Valuation

Comparable Valuation

Graphs & Tables - depending on the purpose of the model, I graph and table as much as reasonably possible so that in the future if my boss needs something quickly, I hopefully have it done somewhere on this tab.

Again, these are the general tabs but a good idea of the roadmap you should layout before actually building the model.

If you have any specific questions on modeling, please fire off an email to strikershank@gmail.com and I'll be sure to answer them in future Financial Modeling posts.

The End: By Michael Lewis

2008-11-14T18:37:00.002-05:00

This has been making the rounds - I thought it was such a good read I would repost the entire piece here.

From: http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

The End
by Michael Lewis Nov 11 2008
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future. Unless some insider got all of this down on paper, I figured, no future human would believe that it happened. I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea. Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend. From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business. Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it’s true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms. The C.E.O.’s themselves didn’t know. Now, obviously, Meredith Whitney didn’t sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer’s campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they’d have vanished long ago. This woman wasn’t saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn’t even know how to manage their own. At some point, I could no longer contain myself: I called Whitney. This was back in March, when Wall Street’s fate still hung in the balance. I thought, If she’s right, then this really could be the end of Wall Street as we’ve known it. I was curious to see if she made sense but also to know where this young woman who was crashing the stock market with her every utterance had come from.It turned out that she made a great deal of sense and that she’d arrived on Wall Street in 1993, from the Brown University history department. “I got to New York, and I didn’t even know research existed,” she says. She’d wound up at Oppenheimer and had the most incredible piece of luck: to be trained by a man who helped her establish not merely a career but a worldview. His name, she says, was Steve Eisman. Eisman had moved on, but they kept in touch. “After I made the Citi call,” she says, “one of the best things that happened was when Steve called and told me how proud he was of me.”Having never heard of Eisman, I didn’t think anything of this. But a few months later, I called Whitney again and asked her, as I was asking others, whom she knew who had anticipated the cataclysm and set themselves up to make a fortune from it. There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. Whitney rattled off a list with a half-dozen names on it. At the top was Steve Eisman. Steve Eisman entered finance about the time I exited it. He’d grown up in New York City and gone to a Jewish day school, the University of Pennsylvania, and Harvard Law School. In 1991, he was a 30-year-old corporate lawyer. “I hated it,” he says. “I hated being a lawyer. My parents worked as brokers at Oppenheimer. They managed to finagle me a job. It’s not pretty, but that’s what happened.” He was hired as a junior equity analyst, a helpmate who didn’t actually offer his opinions. That changed in December 1991, less than a year into his new job, when a subprime mortgage lender called Ames Financial went public and no one at Oppenheimer particularly cared to express an opinion about it. One of Oppenheimer’s investment bankers stomped around the research department looking for anyone who knew anything about the mortgage business. Recalls Eisman: “I’m a junior analyst and just trying to figure out which end is up, but I told him that as a lawyer I’d worked on a deal for the Money Store.” He was promptly appointed the lead analyst for Ames Financial. “What I didn’t tell him was that my job had been to proofread the documents and that I hadn’t understood a word of the fucking things.”Ames Financial belonged to a category of firms known as nonbank financial institutions. The category didn’t include J.P. Morgan, but it did encompass many little-known companies that one way or another were involved in the early-1990s boom in subprime mortgage lending—the lower class of American finance. The second company for which Eisman was given sole responsibility was Lomas Financial, which had just emerged from bankruptcy. “I put a sell rating on the thing because it was a piece of shit,” Eisman says. “I didn’t know that you weren’t supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you could pick the one you thought you should.” He was pressured generally to be a bit more upbeat, but upbeat wasn’t Steve Eisman’s style. Upbeat and Eisman didn’t occupy the same planet. A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it. After describing how Eisman exposed various important people as either liars or idiots, the hedge fund manager started to laugh. “He’s sort of a prick in a way, but he’s smart and honest and fearless.”

“A lot of people don’t get Steve,” Whitney says. “But the people who get him love him.” Eisman stuck to his sell rating on Lomas Financial, even after the company announced that investors needn’t worry about its financial condition, as it had hedged its market risk. “The single greatest line I ever wrote as an analyst,” says Eisman, “was after Lomas said they were hedged.” He recited the line from memory: “ ‘The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.’ I enjoyed writing that sentence more than any sentence I ever wrote.” A few months after he’d delivered that line in his report, Lomas Financial returned to bankruptcy.

Don’t bet on it.Eisman wasn’t, in short, an analyst with a sunny disposition who expected the best of his fellow financial man and the companies he created. “You have to understand,” Eisman says in his defense, “I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn’t give a shit what it sold.” Harboring suspicions about people’s morals and telling investors that companies don’t deserve their capital wasn’t, in the 1990s or at any other time, the fast track to success on Wall Street. Eisman quit Oppenheimer in 2001 to work as an analyst at a hedge fund, but what he really wanted to do was run money. FrontPoint Partners, another hedge fund, hired him in 2004 to invest in financial stocks. Eisman’s brief was to evaluate Wall Street banks, homebuilders, mortgage originators, and any company (General Electric or General Motors, for instance) with a big financial-services division—anyone who touched American finance. An insurance company backed him with $50 million, a paltry sum. “Basically, we tried to raise money and didn't really do it,” Eisman says. Instead of money, he attracted people whose worldviews were as shaded as his own—Vincent Daniel, for instance, who became a partner and an analyst in charge of the mortgage sector. Now 36, Daniel grew up a lower-middle-class kid in Queens. One of his first jobs, as a junior accountant at Arthur Andersen, was to audit Salomon Brothers’ books. “It was shocking,” he says. “No one could explain to me what they were doing.” He left accounting in the middle of the internet boom to become a research analyst, looking at companies that made subprime loans. “I was the only guy I knew covering companies that were all going to go bust,” he says. “I saw how the sausage was made in the economy, and it was really freaky.” Danny Moses, who became Eisman’s head trader, was another who shared his perspective. Raised in Georgia, Moses, the son of a finance professor, was a bit less fatalistic than Daniel or Eisman, but he nevertheless shared a general sense that bad things can and do happen. When a Wall Street firm helped him get into a trade that seemed perfect in every way, he said to the salesman, “I appreciate this, but I just want to know one thing: How are you going to screw me?”Heh heh heh, c’mon. We’d never do that, the trader started to say, but Moses was politely insistent: We both know that unadulterated good things like this trade don’t just happen between little hedge funds and big Wall Street firms. I’ll do it, but only after you explain to me how you are going to screw me. And the salesman explained how he was going to screw him. And Moses did the trade.Both Daniel and Moses enjoyed, immensely, working with Steve Eisman. He put a fine point on the absurdity they saw everywhere around them. “Steve’s fun to take to any Wall Street meeting,” Daniel says. “Because he’ll say ‘Explain that to me’ 30 different times. Or ‘Could you explain that more, in English?’ Because once you do that, there’s a few things you learn. For a start, you figure out if they even know what they’re talking about. And a lot of times, they don’t!”At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. housing market: Lots of firms were lending money to people who shouldn’t have been borrowing it. They thought Alan Greenspan’s decision after the internet bust to lower interest rates to 1 percent was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing-market analyst at Credit Suisse, had seen the bubble forming very early on. There’s a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. “All these people were saying it was nearly as high in some other countries,” Zelman says. “But the problem wasn’t just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.” Zelman alienated clients with her pessimism, but she couldn’t pretend everything was good. “It wasn’t that hard in hindsight to see it,” she says. “It was very hard to know when it would stop.” Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. “You needed the occasional assurance that you weren’t nuts,” she says. She wasn’t nuts. The world was.By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn’t understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he’d spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. “What most people don’t realize is that the fixed-income world dwarfs the equity world,” he says. “The equity world is like a fucking zit compared with the bond market.” He shorted companies that originated subprime loans, like New Century and Indy Mac, and companies that built the houses bought with the loans, such as Toll Brothers. Smart as these trades proved to be, they weren’t entirely satisfying. These companies paid high dividends, and their shares were often expensive to borrow; selling them short was a costly proposition.

Enter Greg Lippman, a mortgage-bond trader at Deutsche Bank. He arrived at FrontPoint bearing a 66-page presentation that described a better way for the fund to put its view of both Wall Street and the U.S. housing market into action. The smart trade, Lippman argued, was to sell short not New Century’s stock but its bonds that were backed by the subprime loans it had made. Eisman hadn’t known this was even possible—because until recently, it hadn’t been. But Lippman, along with traders at other Wall Street investment banks, had created a way to short the subprime bond market with precision.

Here’s where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.

But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater. The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’ ” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’ ” And short Eisman did—then he tried to get his mind around what he’d just done so he could do it better. He’d call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They’d be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000. More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. “The price was absurd, and they were giving her a low-down-payment option-ARM,” says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. “She was this lovely woman from Jamaica,” he says. “One day she calls me and says she and her sister own five townhouses in Queens. I said, ‘How did that happen?’ ” It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. “By the time they were done,” Eisman says, “they owned five of them, the market was falling, and they couldn’t make any of the payments.”
In retrospect, pretty much all of the riskiest subprime-backed bonds were worth betting against; they would all one day be worth zero. But at the time Eisman began to do it, in the fall of 2006, that wasn’t clear. He and his team set out to find the smelliest pile of loans they could so that they could make side bets against them with Goldman Sachs or Deutsche Bank. What they were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made: Which poor Americans were likely to jump which way with their finances? How much did home prices need to fall for these loans to blow up? (It turned out they didn’t have to fall; they merely needed to stay flat.) The default rate in Georgia was five times higher than that in Florida even though the two states had the same unemployment rate. Why? Indiana had a 25 percent default rate; California’s was only 5 percent. Why?

Moses actually flew down to Miami and wandered around neighborhoods built with subprime loans to see how bad things were. “He’d call me and say, ‘Oh my God, this is a calamity here,’ ” recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA. But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says. As an investor, Eisman was allowed on the quarterly conference calls held by Moody’s but not allowed to ask questions. The people at Moody’s were polite about their brush-off, however. The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. “But we’re sitting there,” Daniel recalls, “and he says to us, like he actually means it, ‘I truly believe that our rating will prove accurate.’ And Steve shoots up in his chair and asks, ‘What did you just say?’ as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him.”“With all due respect, sir,” Daniel told the C.E.O. deferentially as they left the meeting, “you’re delusional.” This wasn’t Fitch or even S&P. This was Moody’s, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company’s C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.A full nine months earlier, Daniel and Moses had flown to Orlando for an industry conference. It had a grand title—the American Securitization Forum—but it was essentially a trade show for the subprime-mortgage business: the people who originated subprime mortgages, the Wall Street firms that packaged and sold subprime mortgages, the fund managers who invested in nothing but subprime-mortgage-backed bonds, the agencies that rated subprime-mortgage bonds, the lawyers who did whatever the lawyers did. Daniel and Moses thought they were paying a courtesy call on a cottage industry, but the cottage had become a castle. “There were like 6,000 people there,” Daniel says. “There were so many people being fed by this industry. The entire fixed-income department of each brokerage firm is built on this. Everyone there was the long side of the trade. The wrong side of the trade. And then there was us. That’s when the picture really started to become clearer, and we started to get more cynical, if that was possible. We went back home and said to Steve, ‘You gotta see this.’ ”Eisman, Daniel, and Moses then flew out to Las Vegas for an even bigger subprime conference. By now, Eisman knew everything he needed to know about the quality of the loans being made. He still didn’t fully understand how the apparatus worked, but he knew that Wall Street had built a doomsday machine. He was at once opportunistic and outraged. Their first stop was a speech given by the C.E.O. of Option One, the mortgage originator owned by H&R Block. When the guy got to the part of his speech about Option One’s subprime-loan portfolio, he claimed to be expecting a modest default rate of 5 percent. Eisman raised his hand. Moses and Daniel sank into their chairs. “It wasn’t a Q&A,” says Moses. “The guy was giving a speech. He sees Steve’s hand and says, ‘Yes?’”
“Would you say that 5 percent is a probability or a possibility?” Eisman asked.A probability, said the C.E.O., and he continued his speech.

Eisman had his hand up in the air again, waving it around. Oh, no, Moses thought. “The one thing Steve always says,” Daniel explains, “is you must assume they are lying to you. They will always lie to you.” Moses and Daniel both knew what Eisman thought of these subprime lenders but didn’t see the need for him to express it here in this manner. For Eisman wasn’t raising his hand to ask a question. He had his thumb and index finger in a big circle. He was using his fingers to speak on his behalf. Zero! they said. “Yes?” the C.E.O. said, obviously irritated. “Is that another question?”“No,” said Eisman. “It’s a zero. There is zero probability that your default rate will be 5 percent.” The losses on subprime loans would be much, much greater. Before the guy could reply, Eisman’s cell phone rang. Instead of shutting it off, Eisman reached into his pocket and answered it. “Excuse me,” he said, standing up. “But I need to take this call.” And with that, he walked out. Eisman’s willingness to be abrasive in order to get to the heart of the matter was obvious to all; what was harder to see was his credulity: He actually wanted to believe in the system. As quick as he was to cry bullshit when he saw it, he was still shocked by bad behavior. That night in Vegas, he was seated at dinner beside a really nice guy who invested in mortgage C.D.O.’s—collateralized debt obligations. By then, Eisman thought he knew what he needed to know about C.D.O.’s. He didn’t, it turned out. Later, when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. What you notice first about Eisman is his lips. He holds them pursed, waiting to speak. The second thing you notice is his short, light hair, cropped in a manner that suggests he cut it himself while thinking about something else. “You have to understand this,” he says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot fucking believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, “the equivalent of three levels of dog shit lower than the original bonds.” FrontPoint had spent a lot of time digging around in the dog shit and knew that the default rates were already sufficient to wipe out this guy’s entire portfolio. “God, you must be having a hard time,” Eisman told his dinner companion.“No,” the guy said, “I’ve sold everything out.” After taking a fee, he passed them on to other investors. His job was to be the C.D.O. “expert,” but he actually didn’t spend any time at all thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says Eisman, “but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a fuck about the investors in this thing.”
Whatever rising anger Eisman felt was offset by the man’s genial disposition. Not only did he not mind that Eisman took a dim view of his C.D.O.’s; he saw it as a basis for friendship. “Then he said something that blew my mind,” Eisman tells me. “He says, ‘I love guys like you who short my market. Without you, I don’t have anything to buy.’ ”

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?” This particular dinner was hosted by Deutsche Bank, whose head trader, Greg Lippman, was the fellow who had introduced Eisman to the subprime bond market. Eisman went and found Lippman, pointed back to his own dinner companion, and said, “I want to short him.” Lippman thought he was joking; he wasn’t. “Greg, I want to short his paper,” Eisman repeated. “Sight unseen.” Eisman started out running a $60 million equity fund but was now short around $600 million of various subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, “credit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic.” He was already short the stocks of mortgage originators and the homebuilders. Now he took short positions in the rating agencies—“they were making 10 times more rating C.D.O.’s than they were rating G.M. bonds, and it was all going to end”—and, finally, the biggest Wall Street firms because of their exposure to C.D.O.’s. He wasn’t allowed to short Morgan Stanley because it owned a stake in his fund. But he shorted UBS, Lehman Brothers, and a few others. Not long after that, FrontPoint had a visit from Sanford C. Bernstein’s Brad Hintz, a prominent analyst who covered Wall Street firms. Hintz wanted to know what Eisman was up to. “We just shorted Merrill Lynch,” Eisman told him.“Why?” asked Hintz.“We have a simple thesis,” Eisman explained. “There is going to be a calamity, and whenever there is a calamity, Merrill is there.” When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman’s logic—the logic of Wall Street’s pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain. There was only one thing that bothered Eisman, and it continued to trouble him as late as May 2007. “The thing we couldn’t figure out is: It’s so obvious. Why hasn’t everyone else figured out that the machine is done?” Eisman had long subscribed to Grant’s Interest Rate Observer, a newsletter famous in Wall Street circles and obscure outside them. Jim Grant, its editor, had been prophesying doom ever since the great debt cycle began, in the mid-1980s. In late 2006, he decided to investigate these things called C.D.O.’s. Or rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an M.B.A., to see if he could understand them. Gertner went off with the documents that purported to explain C.D.O.’s to potential investors and for several days sweated and groaned and heaved and suffered. “Then he came back,” says Grant, “and said, ‘I can’t figure this thing out.’ And I said, ‘I think we have our story.’ ”
Eisman read Grant’s piece as independent confirmation of what he knew in his bones about the C.D.O.’s he had shorted. “When I read it, I thought, Oh my God. This is like owning a gold mine. When I read that, I was the only guy in the equity world who almost had an orgasm.”

On July 19, 2007, the same day that Federal Reserve Chairman Ben Bernanke told the U.S. Senate that he anticipated as much as $100 billion in losses in the subprime-mortgage market, FrontPoint did something unusual: It hosted its own conference call. It had had calls with its tiny population of investors, but this time FrontPoint opened it up. Steve Eisman had become a poorly kept secret. Five hundred people called in to hear what he had to say, and another 500 logged on afterward to listen to a recording of it. He explained the strange alchemy of the C.D.O. and said that he expected losses of up to $300 billion from this sliver of the market alone. To evaluate the situation, he urged his audience to “just throw your model in the garbage can. The models are all backward-looking. The models don’t have any idea of what this world has become…. For the first time in their lives, people in the asset-backed-securitization world are actually having to think.” He explained that the rating agencies were morally bankrupt and living in fear of becoming actually bankrupt. “The rating agencies are scared to death,” he said. “They’re scared to death about doing nothing because they’ll look like fools if they do nothing.”On September 18, 2008, Danny Moses came to work as usual at 6:30 a.m. Earlier that week, Lehman Brothers had filed for bankruptcy. The day before, the Dow had fallen 449 points to its lowest level in four years. Overnight, European governments announced a ban on short-selling, but that served as faint warning for what happened next. At the market opening in the U.S., everything—every financial asset—went into free fall. “All hell was breaking loose in a way I had never seen in my career,” Moses says. FrontPoint was net short the market, so this total collapse should have given Moses pleasure. He might have been forgiven if he stood up and cheered. After all, he’d been betting for two years that this sort of thing could happen, and now it was, more dramatically than he had ever imagined. Instead, he felt this terrifying shudder run through him. He had maybe 100 trades on, and he worked hard to keep a handle on them all. “I spent my morning trying to control all this energy and all this information,” he says, “and I lost control. I looked at the screens. I was staring into the abyss. The end. I felt this shooting pain in my head. I don’t get headaches. At first, I thought I was having an aneurysm.”Moses stood up, wobbled, then turned to Daniel and said, “I gotta leave. Get out of here. Now.” Daniel thought about calling an ambulance but instead took Moses out for a walk. Outside it was gorgeous, the blue sky reaching down through the tall buildings and warming the soul. Eisman was at a Goldman Sachs conference for hedge fund managers, raising capital. Moses and Daniel got him on the phone, and he left the conference and met them on the steps of St. Patrick’s Cathedral. “We just sat there,” Moses says. “Watching the people pass.” This was what they had been waiting for: total collapse. “The investment-banking industry is fucked,” Eisman had told me a few weeks earlier. “These guys are only beginning to understand how fucked they are. It’s like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: ‘Holy shit, I’m wrong!’ ” Now Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. The investment banks were not just fucked; they were extinct. Not so for hedge fund managers who had seen it coming. “As we sat there, we were weirdly calm,” Moses says. “We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed.” Eisman was appalled. “Look,” he said. “I’m short. I don’t want the country to go into a depression. I just want it to fucking deleverage.” He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it. “That Wall Street has gone down because of this is justice,” he says. “They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience.” Truth to tell, there wasn’t a whole lot of hand-wringing inside FrontPoint either. The only one among them who wrestled a bit with his conscience was Daniel. “Vinny, being from Queens, needs to see the dark side of everything,” Eisman says. To which Daniel replies, “The way we thought about it was, ‘By shorting this market we’re creating the liquidity to keep the market going.’ ”“It was like feeding the monster,” Eisman says of the market for subprime bonds. “We fed the monster until it blew up.” About the time they were sitting on the steps of the midtown cathedral, I sat in a booth in a restaurant on the East Side, waiting for John Gutfreund to arrive for lunch, and wondered, among other things, why any restaurant would seat side by side two men without the slightest interest in touching each other.There was an umbilical cord running from the belly of the exploded beast back to the financial 1980s. A friend of mine created the first mortgage derivative in 1986, a year after we left the Salomon Brothers trading program. (“The problem isn’t the tools,” he likes to say. “It’s who is using the tools. Derivatives are like guns.”) When I published my book, the 1980s were supposed to be ending. I received a lot of undeserved credit for my timing. The social disruption caused by the collapse of the savings-and-loan industry and the rise of hostile takeovers and leveraged buyouts had given way to a brief period of recriminations. Just as most students at Ohio State read Liar’s Poker as a manual, most TV and radio interviewers regarded me as a whistleblower. (The big exception was Geraldo Rivera. He put me on a show called “People Who Succeed Too Early in Life” along with some child actors who’d gone on to become drug addicts.) Anti-Wall Street feeling ran high—high enough for Rudy Giuliani to float a political career on it—but the result felt more like a witch hunt than an honest reappraisal of the financial order. The public lynchings of Gutfreund and junk-bond king Michael Milken were excuses not to deal with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street’s trading culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed. Wall Street firms would soon be frowning upon profanity, firing traders for so much as glancing at a stripper, and forcing male employees to treat women almost as equals. Lehman Brothers circa 2008 more closely resembled a normal corporation with solid American values than did any Wall Street firm circa 1985.
The changes were camouflage. They helped distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture.

I’d not seen Gutfreund since I quit Wall Street. I’d met him, nervously, a couple of times on the trading floor. A few months before I left, my bosses asked me to explain to Gutfreund what at the time seemed like exotic trades in derivatives I’d done with a European hedge fund. I tried. He claimed not to be smart enough to understand any of it, and I assumed that was how a Wall Street C.E.O. showed he was the boss, by rising above the details. There was no reason for him to remember any of these encounters, and he didn’t: When my book came out and became a public-relations nuisance to him, he told reporters we’d never met. Over the years, I’d heard bits and pieces about Gutfreund. I knew that after he’d been forced to resign from Salomon Brothers he’d fallen on harder times. I heard later that a few years ago he’d sat on a panel about Wall Street at Columbia Business School. When his turn came to speak, he advised students to find something more meaningful to do with their lives. As he began to describe his career, he broke down and wept.When I emailed him to invite him to lunch, he could not have been more polite or more gracious. That attitude persisted as he was escorted to the table, made chitchat with the owner, and ordered his food. He’d lost a half-step and was more deliberate in his movements, but otherwise he was completely recognizable. The same veneer of denatured courtliness masked the same animal need to see the world as it was, rather than as it should be. We spent 20 minutes or so determining that our presence at the same lunch table was not going to cause the earth to explode. We discovered we had a mutual acquaintance in New Orleans. We agreed that the Wall Street C.E.O. had no real ability to keep track of the frantic innovation occurring inside his firm. (“I didn’t understand all the product lines, and they don’t either,” he said.) We agreed, further, that the chief of the Wall Street investment bank had little control over his subordinates. (“They’re buttering you up and then doing whatever the fuck they want to do.”) He thought the cause of the financial crisis was “simple. Greed on both sides—greed of investors and the greed of the bankers.” I thought it was more complicated. Greed on Wall Street was a given—almost an obligation. The problem was the system of incentives that channeled the greed. But I didn’t argue with him. For just as you revert to being about nine years old when you visit your parents, you revert to total subordination when you are in the presence of your former C.E.O. John Gutfreund was still the King of Wall Street, and I was still a geek. He spoke in declarative statements; I spoke in questions. But as he spoke, my eyes kept drifting to his hands. His alarmingly thick and meaty hands. They weren’t the hands of a soft Wall Street banker but of a boxer. I looked up. The boxer was smiling—though it was less a smile than a placeholder expression. And he was saying, very deliberately, “Your…fucking…book.” I smiled back, though it wasn’t quite a smile.“Your fucking book destroyed my career, and it made yours,” he said.I didn’t think of it that way and said so, sort of. “Why did you ask me to lunch?” he asked, though pleasantly. He was genuinely curious.You can’t really tell someone that you asked him to lunch to let him know that you don’t think of him as evil. Nor can you tell him that you asked him to lunch because you thought that you could trace the biggest financial crisis in the history of the world back to a decision he had made. John Gutfreund did violence to the Wall Street social order—and got himself dubbed the King of Wall Street—when he turned Salomon Brothers from a private partnership into Wall Street’s first public corporation. He ignored the outrage of Salomon’s retired partners. (“I was disgusted by his materialism,” William Salomon, the son of the firm’s founder, who had made Gutfreund C.E.O. only after he’d promised never to sell the firm, had told me.) He lifted a giant middle finger at the moral disapproval of his fellow Wall Street C.E.O.’s. And he seized the day. He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn’t, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers. From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith. No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.’s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.’s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit. No partnership, for that matter, would have hired me or anyone remotely like me. Was there ever any correlation between the ability to get in and out of Princeton and a talent for taking financial risk? Now I asked Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it.” He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game. It was now all someone else’s fault.He watched me curiously as I scribbled down his words. “What’s this for?” he asked. I told him I thought it might be worth revisiting the world I’d described in Liar’s Poker, now that it was finally dying. Maybe bring out a 20th-anniversary edition. “That’s nauseating,” he said.Hard as it was for him to enjoy my company, it was harder for me not to enjoy his. He was still tough, as straight and blunt as a butcher. He’d helped create a monster, but he still had in him a lot of the old Wall Street, where people said things like “A man’s word is his bond.” On that Wall Street, people didn’t walk out of their firms and cause trouble for their former bosses by writing books about them. “No,” he said, “I think we can agree about this: Your fucking book destroyed my career, and it made yours.” With that, the former king of a former Wall Street lifted the plate that held his appetizer and asked sweetly, “Would you like a deviled egg?” Until that moment, I hadn’t paid much attention to what he’d been eating. Now I saw he’d ordered the best thing in the house, this gorgeous frothy confection of an earlier age. Who ever dreamed up the deviled egg? Who knew that a simple egg could be made so complicated and yet so appealing? I reached over and took one.

Something for nothing. It never loses its charm.

Bill's Buzz

2008-11-14T17:13:00.001-05:00

From www.vlaadco.com

It looks like the Spice “Curls” are favoured over “Rink” Floyd at this year’s Vlaad and Company Curling Funspiel. More to follow.

Jennings Capital has expanded into Halifax acquiring Acadian Securities.

Former Blackmont Capital Industrials Analyst Avi Dalfen and Associate Aung Oo have joined Macquarie Capital Markets Canada.

CIBC World Markets hired Citibank Canada’s Chief Investment Officer Scott Bere.

RBC Capital Markets has brought in Richard Barker to head up the Australian operation. Barker was previously with NM Rothschild & Sons.

Eric Cardinal has joined MF Global in Montreal as part of the Foreign Exchange Group. Cardinal was previously Vice President Sales at Finrad.

UBS Canada has picked up former PricewaterhouseCoopers Operational and Systems Risk Management Senior Associate, Ryan Donovan. Donovan has joined the Oil and Gas, Investment Banking team in Calgary.

Clément Gignac, Chief Economist for National Bank Financial Group and Senior Vice-President and Strategist at National Bank Financial has taken a role in public service joining the Federal Department of Finance as Senior Advisor to the Deputy Minister - Financial Systems. Veteran NBF Economist, Stéfane Marion, was appointed Chief Economist for National Bank Financial Group.

Former BMO Capital Markets Media, Communications and Technology Investment Banking Analyst, Geoff Gates joined Macquarie Metals and Energy Capital as an Analyst.

Irrational Rational TELUS Pricing?

2008-11-12T21:33:00.007-05:00

With the introduction of Koodo's plans that eliminate the access fee and 911 fee, Telus has altered, for at least the time being, the wireless industry. This leadership role was taken by TELUS has been shown to drive down industry pricing. Rogers' Fido and Solo quickly followed the TELUS lead on the lower price points by matching the plan characteristics.

What makes this interesting is that there doesn't seem to be any clear rational for the price reductions - which means the probable rational is even more interesting. TELUS has no immediate need to drop the Koodo pricing and entice an already competitive wireless market. With residential access line eroding 11% or so already this year and likely to accelerate wireless competition and substitution will continue to be fierce and TELUS' pricing strategy has added fuel to the fire.

If one was to speculate on the irrational ration pricing move by TELUS what might be concluded? A conspiracy theory could be made that TELUS’ wireless pricing behaviour is that it hopes to drive BCE into financial ruin post LBO. This would allow TELUS to compete and pick up the pieces, business units most likely and almost guaranteed to be at sold at fire sale valuation levels. TELUS may also be attempting to deter new wireless entrants from getting started now that the auction on wireless spectrum has concluded, or at least make their life more difficult.

Regardless of TELUS' rationale, it looks like its wireless pricing strategy is destructive. Which makes it all the more interesting to try to figure out their irrational rational pricing points.

Financial Modeling Part 2

2008-11-09T17:55:00.002-05:00

When I approach building a model these are general high level thoughts that I keep as a list of 'rules' for how the model should be built. The list below may contain whats seems like some overly simple rules. Many people though overlook these rules and end up creating more work for themselves than necessary. My high level model rule list is below in no particular order, except #1.

1) Simple matters. This is the most important rule. The model should address its purpose. This purpose should be kept in mind with every step in the building process. The model should be as simple as possible.

2) Key drivers matter. For every model built there will be a few key drivers depending on the purpose of the model. Spend your time on the key drivers, remember what might be immaterial to the output and try to minimize time spent on inefficient tasks.

3) Make assumptions clear. I make assumption inputs in blue font to stand out. Sometimes I include a sheet that is dedicated to assumptions and nothing else. By clearly articulating what assumptions you are making, you make it easier for other users to use your model.

3b) Clearly mark and label the model. It makes it simple to follow for others and will help you, the builder, quickly test and change various areas of your model. Clear labels makes life simpler. Which aligns with rule #1.

4) Avoid multiple workbooks as much as possible. See rule #1. Multiple workbooks often create unnecessary complexity. Complexity to be avoided.

5) Hardcode as little as possible. One cell contains the assumption, the rest should be formula's that link to the assumptions. Change one cell and the rest change themselves. You never want to do the additional work of changing one cell, then having to change them all manually. It's too much work for my liking.

Bill's Buzz

2008-11-07T18:51:00.001-05:00

From http://www.vlaadco.com/

Many departures from Merrill Lynch this week:
- Head of Research, Igor Danyliuk has moved to National Bank Financial in the same capacity.
- CIBC World Markets picks up three:
o Christian Exshaw has joined as Managing Director and Head of Fixed Income and Foreign Exchange Global Distribution
o Abdullah Malik is now Managing Director and Head of Business Development, responsible for working with technology providers
o Paul Jenkins is joining the London desk as Head of European Interest Rate Derivatives Trading (that has to be a crazy desk to work on in this market)

Kym Anthony has joined Research Capital as Vice Chairman. He was previously the head of Dundee Securities.

Mike Wekerle has given up the mahogany desk at GMP Securities’ new Hedge Fund initiative and has moved back down to the Trading floor full-time. The Hedge Fund is still in operation.

Jean-Pierre Buyze has joined Versant Partners as Managing Director, Investment Banking. Buyze was previously a Mining Banker at Thomas Weisel Partners.

Jean-Francois Giroux is leaving Caisse Centrale Desjardins to join Standard Life as a Derivatives Trader and Portfolio Manager.

Benoit Fredette has ran away to join the circus. He is now with Cirque du Soleil as a Financial Analyst – Capital Projects and Corporate Finance; previously Benoit was an Analyst in the Montreal Investment Banking team of BMO Capital Markets.

Financial Modeling Part 1

2008-11-06T22:17:00.005-05:00

In what I hope to turn into a series on modeling hints and tips, today's post is simple. Today's post focuses on simple excel shortcuts to make your life easier. If you've built a model before, you'll already know that a lot of time can be wasted just clicking back and forth, searching, formatting etc. So this post deals with some hints on how to minimize 'wasted' time. By no means is what I present below all encompassing. It's just the beginning.

Simple Shortcuts
Shortcut Keystrokes for Other Common Numeric Formats
Date format (31-Jan-01) Ctrl + Shift + #
Currency format (2 decimal places) Ctrl + Shift + $
Percentage format (0 decimal places) Ctrl + Shift + %
Trace precedents - Ctrl + [
Trace dependents -Ctrl + ]
Row differences -Ctrl + \
Column differences -Ctrl + Shift +

Other Shortcuts
Ctrl + Spacebar Selects entire column
Shift + Spacebar Selects entire row
Ctrl + 0 Hides columns
Ctrl + 9 Hides rows
Shift + F11 Inserts a new worksheet

Common Functions
=SUM(number1,number2,...)
=MAX(number1,number2,...)
=MIN(number1,number2,...)
=COUNT(value1,value2,...)
=AVERAGE(number1,number2,...)
=MEDIAN(number1,number2,...)
=STDEV(number1,number2,...)
=ROUND(number,num_digits)
=VLOOKUP(lookup_value,table_array,col_index_num, range_lookup)
=SUMIF(range,criteria,sum_range)

Banker Jokes

2008-11-03T20:54:00.001-05:00

These are making the rounds and I thought I'd share for those who haven't had a chuckle yet....
Q: What’s the definition of optimism?
A: An investment banker who irons five shirts on a Sunday evening.
***
An investment banker said he was going to concentrate on the big issues from now on. He sold me one in the street yesterday.
***
A man went to his bank manager and said: ‘I’d like to start a small business. How do I go about it?’ ‘Simple,’ said the bank manager. ‘Buy a big one and wait.’
***
The credit crunch is getting bad, isn’t it? I mean, I let my brother borrow a tenner a couple of weeks back, it turns out I’m now Britain’s fourth biggest lender.
***
Q: What is the difference between an investment banker and a pigeon?
A: A pigeon can still make a deposit on a BMW.
***
Q: What is the difference between an investment banker and a large pizza?
A; The pizza can still feed a family of four.
***
Q: What does a hedge fund manager with no fund to manage say?
A: Would you like fries with that sir?
***
Q: What is the capital of Iceland?
A: About $3.50
***
I tried to get cash from the ATM today but it said “insufficient funds.” I don’t know if that meant them or me. ***
Q: What's the difference between a banker and a couch?
A: The couch can support a family of four.
***
Q: What do you call a banker without a girlfriend?
A: Homeless

CFA Level III Prep

2008-11-02T10:23:00.003-05:00

After managing to finish off the CFA last year, I thought that I'd pass along my top three study hints for those preparing to sit for the level III exam. The following aren't rocket science by any means and hopefully will be helpful in your prep work.

1) More so than anything else, pay attention to the CFAI questions first and foremost. Use the Schweser questions sparingly. Unlike the level I & II where Schweser was more than satisfactory, the CFAI questions mirrors the exam far more than the alternatives.

2) Discuss the subtleties of the material with any other level IIIers. Some friends I know formed a study group. Others monitor an online forum. For the level I & II, I spent my entire study time independently. For the level III, I spent 1/2 my time in a social context. The level III, unlike previous levels, the material seems simple but can quickly become complex if one isn't aware or doesn't pay attention to the subtleties between sections and how they interact. Having others challenge you in depth is a key to a successful exam day.

3) Prepare a study schedule and stick to it. Unless you are a genius, there is too much material to cram. And since this is the first time you'll see an exam that isn't 100% multiple choice, you need to get through the material and practice everything. No MC questions to bail you out means more preparation is needed. Start early, go often, take breaks.

Those are my top three point. By no means is what I've just mentioned anything new; However, I felt it was worth sharing and reiterating. Best of luck.

Bill's Buzz

2008-10-31T17:56:00.002-04:00

From: www.vlaadco.com

Eric Fredrickson has joined Laurentian Bank Securities in Institutional Equity Sales in the Toronto office. Eric was formerly at Fraser Mackenzie.

Courtenay Wolfe has been appointed President and CEO of Salida Capital. She was previously a Managing Director at the firm.

Alex Fabian has joined the Credit Suisse Institutional Equities desk in Montreal as a salesperson. Alex was formerly in the same role with Merrill Lynch Canada in Montreal.

Michael Lawrance has joined the newly launched Cantor Fitzgerald (Canada) as Managing Director, Canadian Equities. He was previously Head of Equity Trading at State Street.

Lewis Bateman is now a Managing Director of Business Development for Horizon Beta Pro. Bateman was previously at the TSX Markets Group as Senior Account Manager.

Lucas Atkinson moved his equity trader license from Jones Heward to Front Street Capital.

Drive home safely and watch out for the little trick-or-treaters.

Hiring Freeze

2008-10-30T22:20:00.003-04:00

Large firms that, for the most part, I know that have a hiring freeze on (official or otherwise). One can extrapolate that if these firms are scared to add headcount, countless others must be as well. Just food for thought.

Middlefield Capital
DBRS
Deloitte
RBC
KPMG
Scotia
TD (some hiring still going on but down dramatically)
BMO
CIBC
National Bank Financial
Haywood
GMP
Blackmont
Canadian Tire
TSX Group
RIM (still hiring but moving slower than they normally do)
AIC
Fox Networks
Fidelity
Canaccord

Strategic Acquisitions

2008-10-29T17:57:00.005-04:00

With the IPO market essentially dead (no Canadian IPOs in the last 4 or so months), what's left for the bankers/corporate development staff/transaction service teams?

In the coming months the most likely acquisitions will be small tuck unders sold likely from a public corporation to a strategic buyer.

The catalyst for these asset sales will be the need for the public companies to shore up their balance sheet (i.e. raise cash most likely to pay off debt that's coming due). It's not likely that the carve out would be for any other reason as asset values are so depressed right now that there is very little motivation otherwise to sell off a non-core asset or under performing division. Unless you need cash. Multiples of these asset sales will remain depressed (think 2.5x - 5x EBITDA) and debt based takeovers aren't likely to be in the cards (cash and/or stock deals only please!).

So the strategic buyers are circling, looking, and talking. We aren't likely to hear too much of these tuck-under buys but I suspect they will become a lot more frequent in the coming months. The days of the LBO are over for now. The renewed focus will be on top line grow and margin improvement - not financial engineering.

And that's not a bad thing.

Bill's Buzz

2008-10-25T22:27:00.000-04:00

From www.vlaadco.com

BMO Financial Group hired Nico Meijer as Executive Vice-President and Chief Risk Officer, BMO Capital Markets, Enterprise Risk & Portfolio Management. Meijer joins BMO from TD Bank Financial Group, where he was Senior Vice-President, Head of Global Risk Strategy.

Tomy Mangattur has joined RBC Dexia Investor Services Trust as a Senior Manager, M&A, Strategy and Corporate Development. Mangattur was a Vice President, Corporate and Investment Banking with Bank of America in Toronto.

Investment Banker Trevor Anderson joins Macquarie Capital’s Calgary office as Managing Director, Energy, reuniting with former boss Dan Cristall. Anderson was previously with BMO Capital Markets and National Bank Financial. Merrill Lynch Canada has lost two Research Associates to the buy side.

Retail Associate Louis Chan, has joined Sceptre Investment working with global integrated equity offerings. Banking Associate, Dave Chan, has joined Empire Life Insurance to work with the asset-management operations.

Former AT Kearney Consultant, Marc Daniels has joined the Investment Banking team at Merrill Lynch Canada. Azita Travati has joined Macquarie Capital Markets Montreal as an Associate. She was previously an Associate, Global Corporate Bank at Citigroup.

Also in Montreal, Martin Pepin recently joined the real estate securities portfolio management company, Presima as a Financial Analyst, Americas. Martin was previously with Hydro-Québec Pension Fund.

Bank Didn't Hire You?

2008-10-20T20:20:00.003-04:00

With bank recruiting season done for the time being the question on a lot of people's minds is how to get noticed now. Admittedly, times are tough. TD, Haywood, Scotia, and National Bank all let people go within the last few weeks. CIBC and BMO did earlier this year. It's not easy to get a job in research, banking, trading etc. normally, but even more trying now. However, bear in mind that all firms have to succession plan, so there will be entry level spots open here an there.

So if I was in the position of needing a job fresh out of school, here's how I would be thinking.

First, as Imentioned, lets get the bad news out of the way up front - the current climate for small and mid size shops sucks. Bonus pools are drying up quickly and hiring freezes are already implemented in most shops (big and small). Banks are quietly firing second associates in some cases (that is analysts that have 2 associates now have one) and quietly laying off bankers. It's a tough market. With that said, you have a hard task ahead of you but not an impossible one of finding a job.

I would take some time and prepare my own research report that I would submit attached to my resume. Maybe even instead of a cover letter. I would pick a company in an industry I like and ensure it's a small cap company because that would make my life easier. And to be perfectly clear, this research report must be better than any school project that you've ever handed in. No grammar mistakes, no spelling errors etc. is simply the start. A clear, concise, articulate and intelligent report is the way to differentiate yourself.

Most small firms have email addresses right there on the website. I would email the higher ups and any analysts that don't have any associates with your work/resume. You won't get much feedback but its better than nothing. Apply to as many jobs that exist as possible as well as ones that don't. When you get the rejection emails (if you get them) I would ask if you could buy the person who replied a coffee to pick their brain. This accomplishes two things: 1) they'll buy you coffee even though you offered but the idea of you offering makes it less of a commitment on their part and 2) face time for you, a connection and a chance to get to know the industry better. It probably won't make them change their mind about a rejection, but it certainly won't hurt either.

If I wasn't hurting for money and was able to afford it, I would consider propositioning a firm that showed interest in me but didn't have the desire to up the head count about an unpaid 4 month internship to get in the door and get the experience. The chances of that working as well are slim.

But with the job market the way it is right now, especially in finance, it doesn't hurt to try any angle. Just be prepared for rejection and learn from each 'no' - it's the easiest way to get to yes.

Bill's Buzz

2008-10-19T17:04:00.001-04:00

from www.vlaadco.com

Welcome to the street the newest dealer, broker #52, Sandfire Securities. They are…
Jonathan Robinson – Chairman and CEOBrian Vyner – Member of the Advisory BoardJohanna O’Reilly – Chief Compliance Officer and Vice President OperationsHarold Wolkin* – Vice Chairman, Head of Investment BankingMichael Sproule* – Managing Director, Investment BankingRichard Goodman* – Managing Director, Investment BankingYaron Conforti – Investment BankingThierry Nguyen – Analyst, Investment BankingColinda Parent – Managing Director, Institutional Equity SalesMary Ann Roberts – Managing Director, Institutional Equity SalesDavid Montreuil* – Institutional Equity Sales Brendan Keast* – Institutional Equity SalesAnne Brooks – Institutional Equity TradingLisa Brown – Senior Analyst, Alternative Energy and InfrastructureDr. Fiona Childe, PhD Geo. – Senior Analyst, Mining* pending approval
Jim Beattie has joined CIBC World Markets as the Head of Institutional Equity Trading. Beattie was previously at RBC Capital Markets.
Canaccord Capital hired John Rothwell as Head of Private Client Services, Executive Vice-President. Rothwell was previously at Wellington West Financial.
Addenda Capital hired Alda Pavao as Assistant Portfolio Manager. Pavao was previously a Research Analyst at CIBC World Markets most recently covering Pipelines, Utilities and Energy Infrastructure.
Global Securities rehired Elvis Picardo as Analyst and Strategist after he spent a brief stint at Northern Securities.
Brian Van Allen has joined Cobalt Capital Partners as a Director, Investments. He was previously an Associate with VenGrowth Private Equity Partners.
Salman Partners has brought in a new Chief Compliance Officer, hiring Tomas Seto from Scotia Capital.
Blair Wilson has jumped into the wonderful world of Investment Advisory with BMO Nesbitt Burns. Wilson was previously Director, Institutional Equity Sales Trading at Blackmont Capital.

Bill's Buzz

2008-10-11T09:31:00.001-04:00

from www.vladdco.com

Not surprisingly, regardless of what was released in the Job Report today, there were not many hires this week in the Canadian Capital Markets.
Nana Sangmuah has joined Clarus Securities as a Research Analyst, with a focus on Junior Golds. Nana was previously an Associate at Thomas Weisel Partners.
Canaccord Capital hired Kenneth Knowles as Head of Fixed Income taking over for the retiring Bill Whalen. Additionally, Robert Lee, joins the team as Managing Director and Head of Fixed Income Sales. Both are from JP Morgan Chase.
Scott Roberts has joined Aberdeen International to trade a proprietary book. He was previously an Associate Portfolio Manager at Middlefield Capital.
May you have a long, tryptophan induced, post-turkey nap. Happy Thanksgiving.

Retaining Customers 101

2008-10-05T21:44:00.004-04:00

I ordered a pizza and had it delivered last week. Paid for it with a credit card and left the driver a tip. The drive proceeded to add approximately $5 onto his tip which I obviously discovered when the charge showed up in my Visa statement.

Problem #1 - the driver stole from me. So I called head office to lodge my complaint. After investigating my complaint they refunded the difference between my order and the the initial charge that showed up on my Visa.

What blew my mind is that their driver stole from me, was caught, and they expect me to remain a loyal customer by simply refunding the difference. And they are wrong - their pizza prices are competitive which means I can find one of a dozen other stores to order from without wondering if the driver will attempt to steal from me or not.

What would it have taken to retain me as a customer? Refund my entire order and apologize. Total cost - about $25 and a service reps time. Not much considering my next order would likely come in a week or two. And then there would be the orders that followed after that. Instead, I'll take my lifetime pizza orders somewhere else. And when you start thinking of customers in terms of lifetime spending, this pizza places lack of customer service cost them thousands of dollars.

So if you ever find yourself in a position to retain a customer, think of what it will cost you now, which is known with a high degree of certainty vs. what it could cost your firm over your lifetime if you lost this customer (known with much less certainty but can be estimated). This simple cost-benefit analysis will be one key piece of information in deciding if this customer is worth retaining.

Bill's Buzz

2008-10-04T07:17:00.000-04:00

For now:Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

Highlights of the recent changes at National Bank Financial include:• In addition to his current role as Co-president, Co-CEO and Head of Wealth Management, Luc Paiement is now also responsible for Innocap• Research will now be part of the Institutional Equities group under Gerry Throop• Equity Capital Markets will now be part of Corporate and Investment Banking under Cam diPrata• Laurent Ferreira will Head a newly created Derivatives team• Éric Girard is now Head of Proprietary Trading• Michel Falk has joined as Chief Investment Officer and member of the board of directors of Natcan Investment Management
Scott Murray has joined boutique investment bank Capital West Partners in Vancouver. Murray left his Managing Director role with Macquarie Capital Markets’ Mining Team earlier this summer.
Martin Lavigueur has left GMP Securities’ Special Situations Research group to join Macquarie Capital Markets as a Research Associate in the Mining group.
Ashutosh Sharma joins BMO Capital Markets new India initiative as Managing Director, India Head, Investment & Corporate Banking. Sharma is based in Mumbai and worked previously for Citigroup.
Michael Curlook has moved from Farallon Resources/Hunter Dickinson over to independent junior gold, Great Basin Gold where he will head up the Investor Relations and Corporate Development activities in North America.
Sal Diaz has left his role as an Associate Analyst at National Bank Financial to join LOM as a Special Situations Analyst.
Massimo Polveraccio and the Project Finance team from Bilfinger Berger in Toronto left to join German Infrastructure player Hochtief.
Former Royal Bank Investment Management Tech Analyst, Chris Blake, joined OMERS to cover industrials.
Also joining OMERS as an Analyst is Ramy Zacher from Caisse de dépôt et placement du Québec to cover Tech and Telecom.
Imran Sajun was an Investment Banking Associate at Haywood Securities. He has moved to Sanofi Pasteur - a division of Sanofi Aventis.
After an assignment with Scotiabank’s Executive Project Office, Peter Slan, Managing Director, will be re-joining the Equity Capital Markets group.
UBS Securities Canada has boosted the junior ranks of their Institutional Equities team hiring Nii-Apa Lamptey and Chloe Nicol, two MBA graduates from the Rotman School of Management, as Associates.

Sanity

2008-09-29T18:38:00.001-04:00

“Just keep your fingers crossed that saner minds prevail.”

“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that...This isn't a market for the timid.”

“It feels terrible to be running money today, just awful. We're all sick to our stomachs around here.....You've got to be nuts to be selling on a day like today. It's hard to understand why the Canadian stock market is down 7 per cent. It doesn't make any sense to me.”

Bill's Buzz

2008-09-26T19:39:00.000-04:00

For now:Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

Charles (Chuck) Winograd is retiring as Chairman and Chief Executive Officer of RBC Capital Markets where he has been for “the last little while”. Mark Standish is stepping in as President and Doug McGregor as Chairman. Both will be co-CEOs effective November 1st.

Lynda Gauthier, Vice President, at RBC Capital Markets has pulled out her passport and is transferring to the San Francisco office to join the Financial Services Group. Concurrently, Kyle Walker has joined the Energy Group in Toronto from the Generalist Program.

Also buying a plane ticket is Gary Littlejohn, who is leaving Desjardins Securities as an Investment Banking, Managing Director in Montreal to become President and CEO for a brokerage subsidiary of the Arab National Bank in Riyadh, Saudi Arabia.

At the same time, Desjardins has hired Andrew Bishop as a Managing Director, Special Situations. He was formerly with HSBC Bank Canada.

Xavier Aubut is now with the Structured Finance, Mergers & Acquisitions team at CAE Montreal. Previously he was an Associate Director for GE Real Estate.

Maxime Labrie has joined Innergex Renewable Energy as Director, Project Finance, moving from the Corporate Finance team at Quebecor Media.

Olga O'Neill, Research Analyst, Consumer Staples/Discretionary & Industrials at Natcan Investment Management is leaving to join OMERS as a Research Analyst, Global Consumer Discretionary/Staples.

David Hanna ex-National Bank Financial Banker, most recently Vice President, Corporate Finance at Kruger has joined BroadGrain Commodities as Vice President and Chief Financial Officer.

Josh Gerstein, former Principal at ZED Financial Partners, has joined MPartners’ Banking team.

Wolverton Securities has hired Michael Starogiannis from Fraser Mackenzie as their Mining Research Analyst. He joins Diversified Industries Analyst, Darren Robinson, who made the move this summer from MGI Securities.

Roshan Thiru, former Assistant Vice President with Dominion Bond Rating Service (“DBRS”) covering Utilities and Project Finance, is joining MFC Global Investment Management as an Investment Analyst.

To those celebrating Rosh Hashanah, we would like to wish you a Happy, Healthy and Prosperous New Year.

Bill's Buzz

2008-09-20T06:31:00.001-04:00

For now:Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

TD Newcrest’s Energy Research Team has hired four geological consultants from McDaniel & Associates. They include oil sands specialist Craig Burns, petroleum engineer Brian Hamm and unconventional oil and gas specialists Greg Heath and Jeff Meunier. TD veteran Roger Serin will lead the team.
Scotia Capital announced the appointment of Adam Waterous as its Head of Global Investment Banking in addition to his role as the Head of Scotia Waterous.
Farooq Moosa has joined Scotia Capital as an Associate Director for their Investment Banking team in the Structured Products Group. Moosa was recently at BMO Capital Markets as a Vice President of Equity Capital Markets.
Also at Scotia, Pat Burke is joining as Head of Institutional Equities from Merrill Lynch Canada, where he was Head of Sales.
Paul Rollinson has left Scotia Capital to join Kinross Gold as Executive Vice President of New Investments.
As part of its continued growth efforts, Blackmont Capital hired Trader Josie Bonfanti, Institutional Equity Salesman Spyros Karellas, along with Investment Bankers Kevin Spall and Noam Silberstein from Versant Partners.
In an additional departure from Versant Partners, Institutional Equity Salesperson, Brendan Ashcroft has left to join BMO Nesbitt Burns’ Investment Advisory business.
National Bank Financial has hired Grant Harder in Institutional Equity Sales from Scotia Capital.
Alexandre Patte, Vice President, Investment Banking, National Bank Financial Montreal will join Kruger as Vice President, Corporate Development.
Pierre Lutfy has left Genuity Capital Markets to join BMO Capital Markets Montreal as an Investment Banking Associate.
Rob Penteliuk has joined Cormark Securities as a Financial Services and Real Estate Investment Banker. Penteliuk was previously at Genuity Capital Markets.
Raj Ruperelia has left Credit Suisse Investment Banking in New York to join Teachers’ Private Capital in Toronto.
Former RBC Capital Markets Trader Graham MacKenzie has joined CIBC World Markets as Executive Director.
RBC Capital Markets has bought Craig Dudra, former Forest Products Investment Banker in Vancouver a train ticket to Toronto where he will join the Equity Capital Markets’ Team. At the same time, Tim Johnston moved from the ECM team to the Global Mining and Metals Investment Banking Group.
Also joining RBC Capital Markets is Institutional Equity Sales Associate, Dan Sorger, previously with MGI Securities.
Gluskin Sheff & Associates has appointed Jeremy Friedman, Deputy Chief Executive Officer and Bill Webb as Deputy Chief Investment Officer. Friedman was previously Executive Vice-President and Chief Operating Officer, and Webb was Vice-President and Portfolio Manager.
Foyston, Gordon & Payne’s Healthcare and Small Cap Research Analyst, Charles Walker has joined Burgundy Asset Management.
Zubaida Mirza, formely an Associate Analyst at CIBC World Markets has joined the Energy research team at Foyston,Gordon & Payne.

Politics & Gas

2008-09-16T22:28:00.001-04:00

From a writer much more talented than I: Gregg Easterbrook (http://sports.espn.go.com/espn/page2/story?page=easterbrook/080916)

Last fall, after 20 years of strident inaction, Congress finally passed a bill to increase the fuel efficiency of cars, SUVs and pickup trucks. There was a lot self-congratulation on Capitol Hill. The law seemed to mandate roughly a one-third increase in new-vehicle MPG by 2020 - enough to eliminate the oil the United States imports from the Persian Gulf. Sounds great! But as your columnist wrote in December 2007, "TMQ is hugely suspicious … [there is] a waiver provision that says that if the new standards prove too onerous, automakers can ask they be waived. That is a formula for what Washington specializes in: the appearance of dramatic action while nothing actually happens." So what's going on in Washington right now? Pleading poormouth, the big three automakers are already asking for a waiver from the 2015 interim standard, which requires roughly a 15 percent improvement in fuel efficiency. That standard does not take effect for seven years, and already Detroit automakers are saying they can't meet it.
Or perhaps, they don't want to try. Lee Hyun-Soon, president of Hyundai, told the Wall Street Journal last week his company will meet the entire 2020 standard by 2015, and will do so entirely with conventional vehicles -- no complex plug-in hybrids, just sensible engineering using existing technology. Whenever Washington seems to get serious about oil waste, Toyota, Honda, Hyundai and Subaru put their engineers to work -- then build, at American factories staffed by American workers, vehicles that comply with MPG rules. Whenever Washington seems to get serious about oil waste, Chrysler, Ford and General Motors put their lobbyists at work to dilute or evade the standards. There are only 535 people in the United States so gullible they would believe Korean engineers can meet a technical standard, yet American engineers cannot. Unfortunately, those 535 people are the members of the United States Congress.

AP Photo/Ron Edmonds
Are they the 535 most gullible people in America?
Has anyone from the mainstream media followed up on how last year's seemingly strict MPG bill is being watered down? As Eric Patashnik of the University of Virginia details in his powerful and timely new book "Reforms at Risk," reporters are often present when "dramatic" legislation passes, then treat the enactment as the end of the story -- paying no attention as lobbyists later water down a bill. As Thomas Friedman points out in his important new book "Hot, Flat and Crowded," the refusal of Congress and the White House to take any real action against oil waste has had the effect of transferring hundreds of billions of dollars to Moscow, and to the oil sheiks who support anti-Western and anti-Israel terrorism. If MPG standards were higher, oil demand would fall. Instead, high demand holds up barrel prices, enriching Persian Gulf dictatorships and Vladimir Putin. Why, Friedman asks, is Russia suddenly confrontational? Because in the past two years, Russian elites have gotten super-rich, owing to rising oil prices brought on at least in part by U.S. stupidity regarding petroleum waste. If Congress grants Detroit the MPG waivers it seeks, the stupidity will march on.
Meanwhile, back at the federal budget: In 1976, the entire U.S. national debt was about $800 billion, converted to today's dollars. Last summer, Congress without debate and with barely any notice added $800 billion to the national debt ceiling -- raising that ceiling by an amount equal to the entire debt a generation ago. With no debate! The U.S. national debt was $5 trillion in 1997, and has doubled to almost $10 trillion since. Why aren't the young outraged? The old are acting irresponsibly -- spending like crazy but unwilling to tax themselves, then handing the bill to the young. If the young were spending borrowed money like crazy, the old would be lecturing them. How come in Washington, the old can get away with behavior that would be called reckless for the young?

At any rate, the moment another $800 billion worth of borrowing was authorized, supposedly for "emergency" purposes, lobbyists got to work trying to seize every penny now. The big three automakers are now asking Congress for $50 billion of that $800 billion, supposedly to retool to build the fuel-efficient vehicles they had no way -- just no way on Earth -- of knowing they would ever be required to build. As Paul Ingrassia pointed out in last week's Wall Street Journal, when Congress bailed out Chrysler in 1980, the deal was structured so that if the company recovered, taxpayers got most of their money back. But what's being asked for now is pure subsidy -- money taxpayers will never see again, and that will be used in part to fund the bonuses of overpaid auto executives who got their companies into trouble in the first place. (The Journal opposes the bailout, though the $50 billion would go to Corporate America.) Ingrassia further notes that when Chrysler's Lee Iacocca tried to weasel out of the deal and keep the money that was promised back to taxpayers, Ronald Reagan stood firm and would not budge. Contrast Reagan's sense of civic responsibility to the current president and Congress, both of which just cannot wait to give away other people's money.

Now connect the dots! The automakers are asking for $50 billion in handouts to meet new fuel economy requirements -- at the very time they are also asking for waivers from those requirements. If the past is any guide, they will get both the subsidies and the waivers. The net will be zero progress, more billions of dollars for oil shipped to anti-American forces in the Persian Gulf, and more debt handed to everyone under the age of 30.

The Cost Of Gas

2008-09-15T21:46:00.004-04:00

The jump in the price of gas at the pumps recently has me absolutely convinced the price of gas is only correlated on the way up.

This was no more prevalent with the then pending hurricane Ike. The oil retailers thought that they better raise the prices $0.13/litre overnight on SPECULATION that the hurricane could cause major damage to refineries. But the prices were only raised in Canada. The $0.13/litre would've translated into an almost $0.50/gallon jump in the United States and prompt an uproar. Canadians spoke up, but we've quickly gone away.

Since oil's peak at $147/barrel we've seen oil prices come off about 35%. We've seen the Canadian dollar drop roughly 9% helping offset some gains we should have seen in the price of gas. We should be paying much less at the pumps. Should.

Except we can clearly see that gas is only correlated to world events and the price of oil on the way up. With hurricane Ike out of the way and little/no damage done we have perfect information about what Ike's damage will be. Yet prices still hover well above where they were before it was confirmed Huston was in Ike's path. Efficient markets theory would dictate the price of gas should be at least as cheap as it was pre-Ike.

And with oil/barrel coming off as much as it has and the Canadian dollar relatively holding steady, I suspect we should actually see $1.05 at the pumps. It's too bad that prices aren't correlated as highly on the way down.

Bill's Buzz

2008-09-12T18:35:00.001-04:00

For now:Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

GMP Securities has announced the appointment of Harris Fricker as President. He is also Vice-Chairman, Co-Head of Investment Banking, GMP Securities, and Co-Chairman, GMP Securities Europe.

Oil Services Analyst at Dundee Securities, Chris Gindl, has left to join Tarpon Energy Services as an Executive in their Corporate Development Team.

Peter Henry has left his role as Institutional Sales at CanaccordAdams to join FirstEnergy Capital Corp.

Adam Spears has joined ONCAP Management Partners as a Private Equity Associate from Citigroup, Investment Banking.

Previously at MGI Securities, Sam Collins, has moved to Jennings Capital as a Senior Vice President, Senior Managing Director in Private Client Services.

Ron Wardlaw, previously at MGI Securities, has joined the Institutional Equities Trading Desk at Versant Partners.

Portfolio Manager, Michael Chan, has left UBS Global Asset Management to join Sceptre Investment Counsel.

Lou Mouaket has left TD Securities to join CIBC as Managing Director, Program Trading.
Jason Grenier has joined Desjardins SME Advisory Division as an Advisor M&A and Divestitures.

Bill's Buzz

2008-09-06T11:12:00.001-04:00

It's been a crazy few days in the markets. Look back at some old posts about what should be done in times of turmoil - I think i've written 3 or 4 and posted a couple others have written about times like these.

For now:

Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

Dave Foley has left CanaccordAdams to join Research Capital as Managing Director, Institutional Trading.

Quantitative Analyst, James Thai, has moved from Legg Mason Canada to Agilith Capital, where he will launch a Hedge Fund, the “Agilith Quantitative Opportunity Fund”.

Grant Dawson moved from DBRS, where he was a Vice President covering Telecom, Media & Technology, to join MFC Global Investment Management as a Senior Investment Analyst.

Evergreen Capital Partners has added Justin De Vera to their Institutional Trading desk. De Vera was formerly at Clarus Securities.

Associate, Doron Mizrahi, recently transferred to Deutsche Bank’s Natural Resources Group in London.

Tim Allen, previously the Head of U.S. Equity Sales, Europe at Bear Sterns joins RBC Capital Markets as Managing Director and Head of U.S. Institutional Equity Sales. Allen and ten others from Bear Sterns will form a new U.S. Institutional Equity Sales and Trading Team to be based in London and Switzerland.

Pierre-Marc Sarrazin has joined Quebecor World as Manager, Corporate Finance. Previously Pierre-Marc was Corporate Treasurer and Director, Investor Relations for Adaltis.
Caisse de depot et placement du Quebec has announced Richard Guay as their new President and Chief Executive Officer.

Bill's Buzz

2008-08-30T10:59:00.000-04:00

Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

Former BMO Capital Markets Investment Banking Analyst in Montreal, David Sanmiguel has joined Babcock and Brown in Toronto.

Jean-François Côté, previously a Vice President at JPMorgan Global Markets, has joined Hydro Quebec’s Treasury department as a Manager, Financial Risks.

Philippe Côté, Research Analyst covering Quebec Special Situations at Cormark Securities has left to join SIPAR as a buy-side Senior Analyst.

CIBC Asset Management lost Financial Analyst Bernard Gauthier to Jarislowsky Fraser.

Associate Portfolio Manager John Cameron moved from Wellington West to Scotia Cassels.

MPartners has acquired Lukasz Michalowski in Research from a Trading role at Infinium Capital. Kelly Klatik has also joined MPartners in Investment Banking, previously a Vice President, Equity Capital Markets at IPC Securities.

Dundee Capital Markets has added Ron Stewart as an Analyst to their Mining Equity Research team in Toronto. Stewart was previously the President and CEO of Verena Minerals.

Geological Engineer Aleem Ladak is now working as an Associate in the Mining Research team at Desjardins Securities, joining from Wardrop Engineering.

Also in Research, Bobby Kalsi landed at BMO Equity Research as an Associate, Chemical and Fertilizers. Kalsi was previously an Investment Banking Associate at Thomas Weisel Partners.

Co-Founder of ReGenesis Capital, Garrett Prins is now a Trader at W.D. Latimer.

Maple Leaf '08 vs. Sara Lee '98

2008-08-25T15:51:00.006-04:00

Ten years after the Sara Lee listeria crisis, Maple Leaf is recalling food after, as many are aware, a listeria outbreak from their meat products. What many likely don't recall is that approximately 10 years ago, Sara Lee recalled about 15 million pounds of meat for the same reason. The Sara Lee recall was eventually linked to about 21 deaths affecting 22 states.

What long term effects did this have on the Sara Lee brand? About a year later and attempting to remove the noise from the stock price (remember after all this was the dotcom boom and the asian crisis), the recall had little to no effect on the market value of Sarah Lee. Their reputation was restored. How did they manage such a crisis? Much the same way Maple Leaf Foods is responding - with a massive communication campaign. Up next for Maple Leaf? Likely a massive coupon campaign to provide enough incentive for customers to return and trust to be regained. After all, we know if the discounts are deep enough, consumers will return in droves.

So will Maple Leaf recover in the next year like Sara Lee? I expect not, or at least not as quickly, given the flow of information this time around. The Menu Foods crisis in 2007 that effected pets proved how companies are under the microscope more these days than a decade ago.

The Internet hardly existed 10 years ago - when a story finished the after effects left consumers minds for the most part. Now, with blogging, and 24 hour news media, Maple Leaf has a much harder crisis their brands must deal with. But if their post-recall discounts are big enough to entice consumers back, in a year all may be forgotten. The Maple Leaf brands will live on, but as Menu Foods discovered, it will be a painful process of regaining trust.

Bill's Buzz

2008-08-22T18:26:00.003-04:00

Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

Union Securities has picked up several new bodies. Mark Van Remortel was brought in from MGI Securities as the Head of Trading. And from LOM, Dr. Geoff Houlton has joined as the Senior Healthcare Analyst along with Associate Ilya Shubin.

In contrast, Macquarie Capital Canada has essentially closed down its Biotech practice. Healthcare banker, Mitchell Greenspoon is transferring to cover the Tech space, while Healthcare Equity Analyst Stefan Quenneville has moved to Institutional Sales.

Stephen Brode returns to Toronto to join Ark Fund Management as Vice President, Sales & Marketing. He was most recently at TD Asset Management as Regional Vice President, Sales for Alberta North.

Jean-Philippe Towner has joined BMO Capital Markets in Montreal as an Investment Banking Analyst. Towner was previously an Analyst in the Corporate Development team at BCE.

Katie Tabesh has left the Portfolio Advisory Group at ScotiaMcLeod to join CIBC World Markets’ New York Institutional Equity Sales desk.

Indi Gopinathan has joined Scotia Capital from Versant Partners as a Research Analyst, Gold and Precious Metals.

Scotia Capital’s Infrastructure team has acquired yet another Depfa Bank employee. Conor Kelly, Managing Director and former Head of Infrastructure in the U.S. for Depfa is coming on board in September.

Form Matters: Hitting The Gym

2008-08-18T15:13:00.003-04:00

New to working out or an old vet? Form and full range of motion matters. Remember that and ingrain that in your workout schedule.

When I make my trips to the gym, there are a few pet peeves that pop up. One of the biggest ones are watching people lifting with bad form just to push a few extra pounds, building their egos in the process.

Those people look like idiots. Not only are they not as strong as their ego's would mislead them into thinking, they risk serious injury. And they annoy me because of those egos that are justified by lifting with momentum (as opposed to actual strength) or with 25% of a normal range of motion. But I love playing those momentum or lack of range of motion lifters in sports, because they lack the true strength to compete which makes flying by them all the more satisfying.

If you go to the gym and want to bulk up - I suggest you take notes from the workouts of football players. This group tends to lift with a full range of motion (thereby increasing total strength) and the tend to lift almost exclusively with proper form (thereby reducing the risk of injury dramatically). You almost never see them lift with momentum or lift with a smaller range of motion.

So next time you're in the gym, focus on a full range of motion and a controlled rep each time. Because trust me, you're not fooling anyone when you life 'a lot' with a crappy form and a small range. What does happen is people shake their heads behind your back.

Bill's Buzz

2008-08-15T16:01:00.002-04:00

Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

Paul Bradley is rejoining several former colleagues who are now at Macquarie Capital Markets as a Managing Director in the Infrastructure and Utilities. Bradley was most recently running his own energy investing and advisory firm but prior to this was at CIBC World Markets.

Also from CIBC World Markets, Managing Director, Brett Gellner is joining TransAlta as Vice President Commercial Operations.

Mike Shuh has joined CIBC World Markets from National Bank Financial as a Managing Director and Head of Retail Structured Products.

Confirmed are both Peter Kim and Steven Maletic returning to Northern Securities. Kim left Versant Partners to Head the Trading Desk, and Maletic left National Bank to join as a Special Situations Research Analyst.

Alex Tyszkiewicz has joined the Sales desk at GMP Securities in Montreal. He was a Mining Research Associate at PI Financial Corp.

Robert Cooper formerly an Oil and Gas Analyst at MGI Securities has joined Acumen Capital in Calgary.

Sashen Guneratna has left the Power and Infrastructure Corporate Banking Group at Scotia Capital to join Canada-based CIT Energy & Infrastructure as Senior Associate.

FirstService Corporation has hired Alex Nguyen from OTPP Private Capital Group as a Manager in Corporate Development.

Insider Trading? Canada Needs a Better Regulator

2008-08-11T16:21:00.004-04:00

I've posted before about the differences between the SEC and Canada. Another instance sparked my interest today. RIM and Wi-LAN (win-t) settled their dispute, sending Wi-LAN shares soaring as much as 30%+ today before settling down. Why did this spark my interest?

Wi-LAN's stock has been beaten down over the last few weeks and traded to just above $1.62 until the last business day before this annoucement. Then suddenly on Friday, on twice its normal volume, Wi-LAN stock surges 10% in a single day. No news, no management guidance, no presentations or anything that would cause this stock to jump. Nothing. Except insider information (I can't prove this, it is simply common sense speculation).

And then today Wi-LAN's stock gets halted and the when it reopens the price of its shares surge. The 500,000+ shares bought the day before the announcement could have exited their initial position for upwards of a 50% ONE DAY return. Not to shabby for those who were close to the information.

This all reminds me of the income trust fiasco where no insider charges were bought despite the 'common sense' approach clearly showing that some money managers knew the governments decision before the rest did. Trading in Yellow Pages Income Fund was front and centre in this case. The income trust fiasco and another data point today is why I believe strongly we need a national regulator and someone with the guts to go after those who erode the integrity of the markets.

Because something tells me not everything is kosher.

Bill's Buzz

2008-08-09T23:04:00.000-04:00

GMP Capital Trust promoted Dan Tsubouchi to Vice Chairman and Co-head of Investment Banking, in addition to his current responsibilities as Head of Calgary office.

GMP also hired Base-metal and Uranium Research Analyst David Wargo from Cormark Securities.

In another promotion, Paradigm Capital appointed Ian Joseph, President who will continue to cover clients in his Senior Investment Banking Role.

In a series of CIBC World Markets moves:
• Former TMX Group executive Rik Parkhill was brought in as Head of Cash Equities (sales, trading, research and alternative execution services) • Tim Carrington, came from an Investment Bank in Europe to become the Head of Equity and Commodity Structured Products
• Ian Parkinson left Versant Partners to join as the new Junior Exploration Research Analyst
• Dan Barnholden resigned from MGI Securities for a role as Investment Banking Director in the Global Mining Group

Craig Miller left his post as Junior Exploration Analyst at BMO Capital Markets for TD Newcrest.

Saad Mahmood has resigned as Vice President, Institutional Sales, at ITG Canada to join Paribas in Dubai as Director, Institutional Equity Sales and Trading.

Charlie Kim, Portfolio Manager at HSBC Investments in Vancouver left for Alberta Teachers’ Pension Plan.

Recently, Jeff Gamble left Cantor Fitzgerald to take on the role of Co-head of Trading and Head U.S. Trading at Versant Partners.

Correction - last week we should have mentioned Mark Ashcroft from MGI Securities going to Stonegate Minerals not the science fiction-like name Stargate Minerals.

Sprott IPO: A Follow Up

2008-08-06T08:55:00.002-04:00

The day Sprott announced their IPO I wondered in a post if that was them calling the peak of commodities. (http://strikershank.blogspot.com/2008/04/sprott-ipo-contrarian-view.html)

Here we are four months later and let's recap:

Gold is below $900 after trading above $1000.
Oil hit $147/barrel on July 11 and now trades for around $119/barrel.
The Reuters/Jefferies CRB Index of 19 commodities slid 10 per cent in July.
Zinc traded to its lowest level in 2 1/2 years yesterday.

In April I wondered: "Which causes me to think - is Sprott about to be right again? Are the gold bugs that work there thinking the rise in gold has run its course? Are these commodity guru's seeing the peak of commodity prices and not telling us? Are we nearing the top of a commodity bubble?"

It would appear the answer to all those questions is 'yes'. History repeated itself - we saw it with the Blackstone IPO and again with the Sprott IPO.

Research Associate Interviews

2008-08-05T13:28:00.003-04:00

So you want to become an equity research associate and have landed an interview but without any idea of what to expect. You're not alone. Below I summarize the various rounds in the approximate order you can expect them to appear.

A final thought before I start listing - don't underestimate the importance of casual conversations or an interview presented as 'low key and informal'. These interviews and moments are of paramount importance as to be a successful research associate you must hold the technical skills in addition to the softer skills necessary to work with people for 12 hours a day and develop client relationships.

Round 1: The 'HR' round.
This round is like most first round interviews where they try to screen out candidates that just don't belong. Except this interview is usually run by a dedicated capital market HR individual. For instance, I once was interviewed by an 'HR' women who was a former research associate and investment banker before she changed careers and married a head of research at a different bank - she knew if I was bullshitting her. So don't lie because you'll find out to late if the person on the other side of the table knows more than you think they know.

What is the 'HR' looking for - technical aptitude of course, ability to communicate but most importantly passion for the markets. I will repeat that last word: Passion. In many rounds you can be expected to answer the question what do you invest in. Even if you don't invest yourself, make sure you have 2 stocks you like and 2 you don't and pretend to hold long and short positions. Lack of money is no excuse for not following the markets.

Round 2: The Associate Round
Often, round 2 is conducted by the Analyst's current associate or associates. Sometimes if it's a general pool of candidates for many analysts, associates from different sectors will be involved. This is the most technical round. Associates will be searching for candidates that understand valuation methods, what moves markets, how the capital markets work, why you are interested in being an associate and for your general understanding of the role etc. You will often be interviewed by people your age or younger so don't let that catch you off guard if you're attempting a career switch after years in industry.

Round 3: The Test.
Some shops test candidates and some don't. Generally there is little you can do to prepare for this round other then reviewing some research reports. Focus on the way the sentences are written the relevant information presented, if your test is 'in house' (explained below).

If you get a test it will likely take one of two forms. The take home test will be a 'build a model' or a 'build a model & write a quarterly report' test. You will have 24 hours to complete this test. The other testing version will be a in-house test that usually lasts an hour. This will be an excel/word test but more simplistic in nature. It can take the form of building graphs in excel or inputting the latest quarterly release. The word portion usually centers around dissemination of a quarterly release.

Overall, all testing forms are very ambiguous on purpose. Be succinct, be clear, and be on time with your submission.

Round 4: The Analyst.
Congratulations if you make it to this round. You've beaten out hundreds of qualified candidates to meet the analyst you hope to work for. This round has little generalities and is very analyst specific. The analyst will look for passion, personality, and how they believe you will fit with them. If you've reached this round, you've likely already proved you have the technical expertise to be successful, so personality becomes more important.

Round 5: The Director of Research.
Some shops have you meet the director before you get hired and again some don't. If you meet the director you are likely one of three candidates remaining for a particular role. The best advice I can give for this role is to be honest and calm. There are not likely to be any technical questions in this round so look for more fit/personality questions.

Round 6: HR is back.
Congratulations or we're sorry. Those are the phrases you'll hear at this point. Often if it's congratulations you'll hear from your analyst before HR. This step often doubles as the negotiation phase that HR will handle.

-----

In general, starting from scratch is a tedious process in landing a job as an equity research associate in Canada. Be persistent, be passionate, and be prepared for a long process.

Bill's Buzz

2008-08-05T13:25:00.001-04:00

The two week trailing Bill's Buzz....From http://www.vlaadco.com/bills_buzz.php

HSBC Bank Canada hired Matthew Bosrock as Deputy Chief Executive Officer. Also at HSBC, Jamey Hubbs left TD Securities to join as a Managing Director and Head of DCM Canada.

Evan Hazell has also joined HSBC from Citigroup Global Markets as a Managing Director, Investment Banking based in Calgary.

Mark Caplan, former Co-Head of the Financial Products Group at BMO Capital Markets, is a new Director at The Bank of Canada and will be responsible for relationships with the banking and investment communities and will help set monetary policy.

Bill Tilford joined CPP Investment Board as a Vice-President and Head of Global Corporate Securities. Tilford was previously at Connor, Clark & Lunn Investment Management.

RBC Capital Markets’ Media Research Associate Brad Darling is transitioning from the sell-side to the buy-side joining Ontario Teachers' Pension Plan.

Suraj Raythatha, also at RBC, is moving from Institutional Equity Sales in Toronto to the Base Metals group in New York.

Matt Boelen, Investment Banking Analyst in the M&A group at TD Securities, is heading to Richardson Capital as an Associate.

Versant Partners lost several bodies this week. Michael Boulter, an Institutional Salesman is leaving for Enaj Mercantile Corp. Mining Investment Banker Mark Ashcroft left to become the
President and CEO of Stargate Minerals. And Peter Kim, who had left Northern Securities to join Versant is returning to Northern to run the Trading Desk.

However, Versant added Gregory Lawrence to its Institutional Sales Desk from Blackmont Capital.

Chris Lounds left Ernst & Young to rejoin the Mining Investment Banking team at Macquarie Capital in Vancouver.

Andrea Cheung, Precious Metals and Minerals Research Analyst at BMO Capital Markets left to join Cormark Securities.

Grant Daunheimer is joining Dundee Securities to cover Junior Oil and Gas names. Daunheimer was at MGI Securities.

Matt Jenkins, Associate with National Bank Financial in Calgary has left to join some of his former co-workers at Tristone Capital.

Fidelity Investments’ Chase Bethel moved to Desjardins Securities as a Research Associate, Merchandising and Consumer Products.

And Merrill Lynch’s Mining Associate in Toronto, Hannes Portmann left to pursue a Corporate Development role with Western Goldfields and Silver Bear Resources.

Paradigm Capital appointed Partner and Investment Banker Ian Joseph as President.

Blackmont Capital’s Calgary based Oil and Gas Research Analyst Menno Hulshof and Associate Tashi Dorji have left for Dundee Securities.

Wellington West Capital Markets’ Energy Research Analyst Malcolm Shaw has left for the buyside joining K2 & Associates Investment Management.

Bruce Moore, Head of European M&A in London at CIBC World Markets, is returning to Canada to head the Lodging and Leisure Investment Banking sector in Toronto.

Also in London, Luke Alexander, formerly an Institutional Equity Trader at National Bank Financial has moved to GMP Securities.

Juliana Sponer of Desjardins Securities left her role as a Financial Services Associate-Analyst and is now the firm’s Research Product Manager.

Former top ranked Tech Analyst and Head of Research at Genuity Capital Markets David Hodgson has joined Gluskin, Sheff and Associates.

Jean-Philippe Valiquette left his position at Deloitte & Touche Montreal to join a Cayman Islands Hedge Fund.

Mark Van Remortel, formerly of MGI Securities, has joined Union Securities as Head of Institutional Trading.

Also leaving MGI Securities is Dan Sorger who joined the Corporate Finance team at MPartners.

Taylor MacDonald has left his Associate, Investment Banking position at Haywood Securities in London for a Senior Associate, Institutional Equity Sales role with Renaissance Capital's New York office.

Bill's Buzz

2008-07-18T20:52:00.000-04:00

From http://www.vlaadco.com/bills_buzz.php

Ron Rimer is joining Macquarie Capital as the Head of the Diversified Industries and Real Estate Groups. Rimer was previously at Canaccord Capital.

Former Executive Vice-President, Corporate Development and Planning for BCE and Bell Canada, Scott Thomson has moved West for a role as Executive Vice-President, Finance and CFO at Talisman Energy.

Scotia Capital repatriates Associate David Garg who is returning to Toronto after a 2-year stint
with Scotia Waterous in London.

Also coming back to Scotia Capital is Mark Carrington who was a Bond Trader with Merrill Lynch in Toronto.

Paul Samson left the sales desk at Fraser Mackenzie for Toll Cross Securities.

As MGI Securities continues to restructure, former salesperson Cam Ross has left to join Fraser Mackenzie.

Forestry Analyst Patrick Yung is leaving Raymond James for HSBC Securities.

David Galison joined CIBC World Markets as an Industrial Products Equity Research Associate. Galison was previously working at various industrial companies.

Jason Kepecs has joined Vision Capital as Vice President, Investment Analyst. Jason rejoins his former Desjardins Securities colleagues, veteran Real Estate Analyst, Frank Mayer, and former
Head of Investment Banking, Jeffrey Olin.

TD Securities Fixed Income Salesperson Ian Pollick has changed desks joining their Economic Strategy team.

Alan Ng has joined DSI Bodiam, a group within Desjardins Securities, as an Associate.

Northern Securities lost Mining & Metals Research Associate Chris Kennedy to Canaccord Adams.

David Goldstein has joined BMO Capital Markets’ Media, Communications & Technology Group from Bank of America as an Investment Banking Analyst.

Home Prices Slip

2008-07-15T13:33:00.000-04:00

Exerts from the Globe & Mail:

Canadian home prices fell in June for the first time since January, 1999, as the number of houses for sale remained at record levels.

The average price of an existing home fell 0.4 per cent in June to $341,096, compared with $342,615 the year before, according to statistics released Tuesday by the Canadian Real Estate Association (CREA).

“The fall in home prices...is a sizable dip in this indicator, given that not too long ago the Canadian housing market was witnessing double-digit price gains,” Millan Mulraine, economic strategist at TD Securities Inc., said in a research note.

Of the 25 major markets included in the statistics, average home prices declined on a year-over-year basis in Calgary, Edmonton, Victoria and Windsor-Essex. The largest decline of 2.6 per cent was in Edmonton, while the smallest was in Windsor-Essex at 0.5 per cent.

Last month, BMO Nesbitt Burns Inc. economist Douglas Porter raised the possibility of an overall drop in home prices in Canada. Most industry watchers have stayed with the view that home prices will rise slightly this year.

In June, Mr. Porter said it was “unnerving” to note that Canada's housing market performance appears to be tracking that of the U.S. but with a two-year lag, although he also sees a number of differences between the two markets.

He said he was tracking prices in the “middle ground,” cities such as Toronto, Montreal and Ottawa, which still have fairly robust economic fundamentals but haven't been supercharged by the commodities boom.

The Canadian and U.S. markets are still very different, CREA president Calvin Lindberg said in a statement. U.S. home prices dropped by 14.1 per cent in the first quarter of the year, according to the benchmark Case-Shiller national home price index.

As price gains cooled in most markets, the number of resale homes listed nationally has hit monthly highs in April, May and June, and sales activity has continued to fall.

For the first six months of the year, listings on the Multiple Listing Service (MLS) reached a record level of 332,958, up 8.1 per cent from the previous record set the year before.
Listings in the past three months reached record, or near-record, levels in Toronto, Vancouver, Ottawa, Regina and Saskatoon, according to CREA.

“The frenzied pace for sales activity last year has faded, with buyers now better able to shop around before making an offer,” Gregory Klump, chief economist at CREA, said in a statement. “Price increases are expected to be modest in the second half of 2008, as sales continue easing and new listings remain high.”

Bill's Buzz

2008-07-11T22:08:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

UBS Global Asset Management appointed Marcel Larochelle as the new Canadian Head. Larochelle was previously with Mercer Investments.

Harris Fricker has assumed the role of President at GMP Securities.

Vic Turbendian will be joining the Equity Trading desk at CIBC World Markets as a Liability Trader. Turbendian was previously with Desjardins Securities.

Another departure at Desjardins Securities includes Technology Analyst Kris Thompson who moved to National Bank Financial.

Jeff Crich moved from Dundee Securities’ Institution Equity Sales desk to Jennings Capital.

A second Dundee move includes Robert Silgardo, former consumer products and business trusts Research Analyst, who is now at Royal Bank Investment Management (“RBIM”).

Wellington West Capital Markets brought Jesse Pearlstein into their Investment Banking team as an Analyst. Pearlstein was previously with PwC.

Krista Muhr was made Director of Investor Relations of Andean Resources. Muhr managed the Investor Relations function for Meridian Gold at one time but was most recently a Sales Associate at LOM.

And in another IR related move, Lauren Harris moved from TD Capital Mezzanine Partners to TD Capital Private Equity Investors to head up Investor Relations for the recently announced Ontario Venture Capital Fund.

Tim Milinchuk has joined Ontario Teachers' Pension Plan as a Senior Investment Analyst in Public Equities. Milinchuk came from merchant bank PowerOne Capital.

Steve Kangas has signed on at Manulife's investment division, MFC Global Investment Management. Kangas was previously the President of BluMont Capital.
Associate, Jeff Barber joined Raymond James' Investment Banking team in Calgary leaving his team at Canaccord Capital.

Joshua Chandler is leaving National Bank Financial’s Media & Communications Research team where he was an Associate to join Deloitte`s Montreal office in M&A.

Christophe Bourque has joined BMO Capital Markets in Montreal as an Investment Banking Analyst; he was previously at Genuity Capital Markets in Montreal.

François Schumayer has accepted a full-time Investment Banking Analyst position at National Bank Financial in Montreal where he previously was a Summer Analyst.

Scale & Monster Markets

2008-07-05T19:48:00.004-04:00

Two final thoughts on Andy Kessler's 'Running Money'.

Scale. To summarize, Andy details the industrial revolution that revolved around scale (the steam engine, the cotton engine (gin) etc.). He details that in order to seek out the most potential from businesses you need to recognize the ones that will change the way businesses operate. And that you don't necessary need to recognize the end businesses that will change the world. You need to identify the technology that will enable firms to make and realize large profits. And then invest in the technology. During the industry revolution it was the steam engine that made getting coal out of the ground more economical. It was the cotton gin that reduced clothing prices creating a market for cheaper clothing, opening up a monster middle/lower class clothing market.

In today's world, RIM and Apple for instance have introduced smart phones. Which company do you invest in? How about the company with a piece of IP that both RIM and Apple need to take the next step. Now you don't have to bet on who wins the smart phone battle, you just have to bet on smart phones being successful. And this analogy can apply to other industries as well. Buy the IP that services a monster market.

Is there an IP in the food industry? Ag Growth Income Fund (AFN.un) in Canada has been a primary beneficiary of the run-up in food prices. A low risk business that manufactures augers, portable grain handling equipment, grain dryers etc. went public in 2004. It has appreciated over 200% and carried a yield of approximately 10% annually - not bad for a lower risk equity investment. Its commodity food exposure is only to the farmers producing the end product. That means you don't have to bet on corn or wheat winning the race, just that the race will continue. As an investor, you may want to consider seeking out the companies that service monster markets to make your profits rather than betting on the winners of the monster markets.

Monster Markets combines with an unfair business advantage (however, don't get that confused with a malicious advantage) and a business model that exploits that unfair advantage. Companies with those traits are the companies you want to invest it. Companies that are growing margins in a growing market. Or maintaining margins in an increasingly competitive market. You want to invest in a business that sees an opportunity to make a lot of gains and that has the resources, (management and other resources), to exploit the unfair opportunity for profit.

And you want all this to occur in a monster market because lets face it, owning a 90% market share in a $1mln market isn't going to make investors rich when all is said and done.

Bill's Buzz

2008-07-04T16:05:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

RBC Capital Markets has the passport office busy. Trevor Brady, an Associate in the Vancouver Investment Banking office, is moving to London. Michael Cheung, a recent grad from Kellogg's is replacing Brady. Paul Lee has joined the Global Energy Research team as an Associate based in Calgary, working with Jason Bouvier, covering Junior Oil & Gas companies. Lee is moving from London where he worked on Goldenberg Hehmeyer & Co’s Fixed Income desk as a Proprietary Trader. And RBC Capital Markets' added three bodies to its Sterling Fixed Income business based in London. David Parkinson as Head of UK Rates Sales, John Wraith as Head of Sterling Rates Product Development and Warren Butler, Trader for RBC's Index-Linked Gilts. RBC did lose Marty Lippert the Group Head, Global Technology and Operations to Citigroup.

Greg Harris is joining Scotia Capital’s Institutional Equity Sales team in London, UK. Harris was previously at Canaccord Adams. Scotia’s Institutional Equity Sales team is bringing on Mark Emrich from CIBC World Markets to broaden its U.S. institutional distribution capabilities. Also from CIBC World Markets comes David Barnes who will focus initially on high yield equities and related income oriented securities.

Blackmont Capital has made Andre Brosseau the Head of Institutional Equities and Brad Smith the new Head of Research who will continue to cover the Financial Services sector.

After a career in Investment Banking with Canaccord Adams, Richard Cawkwell, is going back to his engineering roots moving to NuVista.

Marisa Nicholishen has landed two new roles. Formerly with BMO Capital Markets’ Credit Research team, Marisa landed at CIBC Asset Management as a Credit Analyst. She also is getting married to RBC Capital Markets Equity Salesman Brian Jones tomorrow. Congratulations.

Vincent Martel is leaving his role as Manager, Structured Finance and M&A at CAE in Montréal to join nuclear energy company Areva in its Strategy Department as a Manager, Mergers and Acquisitions in Paris (France, not Ontario).

Mike Baker has joined Fraser Mackenzie on the trading desk, coming over from MGI Securities.

Jeff Stevens, Institutional Equity Sales Trader, has moved from Northern Securities to MPartners.

Seema Sindwani sales person at LOM joined Northern Securities.

Recent Mining Engineering grad Colin Garner has joined Genuity Capital Markets in Vancouver as a Research Associate in Mining.

Glen Campbell is adding the title of Head of Equity Research in Canada to his current role of Telecom Analyst at Merrill Lynch following Ihor Danyliuk's departure. Merrill Lynch has also appointed Chris Li, Senior Analyst for Canadian Media.

Company Management

2008-07-02T18:51:00.004-04:00

An excerpt below details the importance of management in a company's operations from the perspective of a hedge fund manager. Dan Reingold mentioned the same thing in his book that I detailed on June 19th. Management is key and an important piece of the puzzle when analyzing a potential investment. From what I've learned, it is easy to underestimate their importance and downplay the impact poor or good management can have.

From Andy Kessler's 'Running Money':

"Running a company is like driving a tank down the street - except the tank has no windshield, just a rearview mirror, and there are five or six managers pushing pedals and pulling levers and turning dials and adjusting settings almost by trial and error, trying to drive as fast as they can and keep the tank going straight, and all of a sudden a giant tree drops into the middle of the street and the team has to somehow steer around it without spilling their coffee.

And? I [Andy] ask.

And I guess you have to make sure managers are up to that task."

Edge

2008-07-01T22:18:00.003-04:00

I recently finished reading a book called "running money" and it details a former wall street analyst/investment banker/Venture Capitalist's successful attempt at running a hedge fund with a partner. Over the 5 year life of the fund they returned an average of 55% per year.

And i hope to turn a few excerpts and ideas from his book into a few blog posts. Starting with today's post. In one chapter they talk about raising money and someone they're pitching asks what their edge is. And at this point in the hedge fund's life, the founders aren't sure what their edge is.

This got me thinking about how this might apply to us who aren't running or planning on running a hedge fund. And I realized that we all need an edge. No exceptions. If you're interviewing for a job and get asked "tell me about yourself" you might as well answer with "here's why I'm unique. Here's why i have an edge over other candidates. Here is why I'm better than everyone and I can prove it."

If you're in a job and want to outperform, what your edge is and how it's your edge should be at the front of your mind. Are you smarter than everyone (unlikely but possible), harder working than everyone (possibly), or have a better understanding of the problem/task at hand because of experience?

I realized that if you want to be more than mediocre, you need to not only have an edge, but an understanding of your edge. Because we all have an edge.

Bill's Buzz

2008-06-27T16:06:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

Doug Guzman has been promoted from the Head of Investment Banking, Canada of RBC Capital Markets (“RBC CM”) to the Head of Global Investment Banking.

In New York, RBC CM has brought on seven investment bankers from Bear Sterns into their Municipal Finance Healthcare group. Kathy Costine, Rae Boylan and Nelson Luria are joining as Managing Directors while James LaVigne is a Director. Additionally, Marcella Finkel and Evie Wang are joining as Vice Presidents and Sonal Bose as an Associate.

Further additions at RBC CM New York are Paul Zingarini as Managing Director and Head of Secondary Loan Trading and Richard Rothschild as Managing Director in the Global Syndicated Finance Sales group. Both Paul and Richard were at Citigroup.

Top ranked Technology Analyst David Hodgson is joining Gluskin Sheff & Associates as an Analyst, focusing on the portfolios managed by William Webb.

Patrick Morton is moving from RBC CM’s Toronto office to their London office to continue working as a Precious Metals Research Associate.

CanDeal has made a couple of additions. Tristan Michela has been named Executive Vice President. He was previously the Director of Fixed Income Electronic Trading at RBCCM. Aubrey Baillie is returning to CanDeal as their CFO from ZipLocal a Canadian search engine.

Oil & Gas Research Analyst David Beddis is joining Cormark Securities from GMP Securities.

Precious Metals Research Associate Steven Ko is moving from Blackmont to Canaccord Capital.

Eric Winmill has joined the Equity Research team at Wellington West Capital Markets and will be working with Robert Winslow. Eric was previously with Regent Securities Capital.

Over at the Private Capital group of Ontario Teachers Pension Plan Andrew Claerhout, Shael Dolman and Glen Silvestri have been promoted to Vice Presidents. CIBC Global Asset Management has hired Duncan Webster as their new Chief Investment Officer from Allian.

Bill's Buzz

2008-06-20T21:21:00.000-04:00

From http://www.vlaadco.com/bills_buzz.php

Who needs the NHL Hockey Draft this weekend; we have enough excitement in Canadian Capital Markets!

Scotia Capital scoops three CIT Infrastructure players. Andrew Bloom, Charles Halam-Andres and Peter Kinkartz join the new Infrastructure Advisory group in July.

Vanessa Gardiner, the former CCO at Research Capital left to also join Scotia Capital to head up Institutional Trade Compliance.

Vice-Chair and Co-Head of Investment Banking at Merrill Lynch Canada, Paul Allison, joins Raymond James as Co-President and Co-CEO with Peter Bailey.Kevin Dalton has taken on the role of President of Blackmont Capital Inc. from Wayne Adlam who left the firm this week. Dalton was previously the Head of Investment Banking.

George Vasic is taking on the Head of Research title once again for UBS Securities Canada replacing John Graham. Vasic will continue to perform the Equity Strategist and Canadian Chief Economist roles.

UBS Securities Canada lost long-time Equity Product Manager Bill Verner, who left to become the Head of Thomas Wiesel’s Canadian operations.
The Toronto office of UBS has brought up Trader Ripal Patel from Connecticut. And Liability Trader Bryan Lopushinsky re-joined the Toronto team by way of a short stop at Citigroup.

Canada Pension Plan Investment Board (“CPPIB”) lost one of its Senior PM's in Global Corporate Securities, as John Durfy moved to become a Managing Director of Global Equities at OMERS.

Jamie Golombek, Tax Specialist, frequent National Post Tax Columnist and AIM Trimark employee joined CIBC Private Wealth Management.R

amez Milad is moving as an Associate from Research to Investment Banking at Wellington West Capital Markets where he will continue to focus on Agricultural companies. WWCM also hired Senior Electronic Equity Trader Stephen Burns from ITG Canada Corp. and Institutional Agency Trader Keith Gilday from Thomas Weisel Partners Group Inc.

Greg Walker who was formerly on the Fixed Income team at Dundee Securities joined Barclays Global as a Principal, Exchange Traded Products.

Shameze Rampertab, previously at Jennings Capital as Senior Healthcare and Biotech Analyst, has joined Loewen Ondaatje McCutcheon Limited “LOM” as Partner, Healthcare Investment Banking.

Leede Financial Markets hired former Raymond James Technology Analyst Arash Yazdani to cover “Clean Technology”.

Marianne Godwin, former Communications and Media Analyst at Octagon Securities has joined the team at D&D Securities.

CIBC World Markets promoted Alex Artamonov to the Infrastructure Equity Research team as their new Associate.

Advice From A Wall Street Analyst

2008-06-19T23:03:00.004-04:00

After reading 'Blood on the Street' (http://strikershank.blogspot.com/2007/08/blood-on-street.html) almost a year ago, I promised myself I would revisit the subject. With the CFA now over (for now, hopefully forever) I picked up Dan Reingold's "Confessions of a Wall Street Analyst'. I suggest anyone who is too young to recall the bull market of the 90's and the fallout of the tech-boom pick up these books. Especially for those interested in research.

One piece of writing Dan touched on but wasn't highlighted very well and wasn't discussed in great detail was his analysis when he looked back at his career. The passage was a 1/2 a page near the end of the book and detailed what he would be more aware of if he was to do it all over again. And for anyone going into research, I wanted to highlight his advice as I believe it holds very true today.

From Dan (quotes).

1) "Do not play banker". I agree - you are not a company cheerleader. Bankers are cheerleaders. Their job is to win the deal and convince others to buy the offering or vote for approval. Your job as an analyst or associate is to provide objective and independent research opinions. If you like a company, that's great but remember to always be objective and if new information enters the equation, don't be afraid to change your analysis.

2) "Nor should I have had as much faith in the SEC as I did". The regulatory system in the States is light years beyond that in Canada. I've discussed this before (links at the end of this post). I agree with Dan - if you notice wrongdoing on the street, don't be afraid to provide an anonymous suggestion the regulatory body look into it.

3) "Dig deeper into the numbers". Rule #1 of research is don't always believe management. Don't always take the numbers provided at face value. Don't believe everything management says as fact. Do your homework and ensure you pay as much attention to the trees as the forest. Be alert for the possibility of financial manipulation.

Overall, I believe that Dan Reingold provided a nice overview from his perspective of the corruption on the street. I think combined with 'Blood on the Street' it makes for a good lesson in history and an eye opener.

http://strikershank.blogspot.com/2007/09/sec-to-rescue.html
http://strikershank.blogspot.com/2007/09/one-billion.html

Hybrids - Are They Worth It?

2008-06-18T14:16:00.006-04:00

I have been reading a lot lately on Hybrid cars and if you run the numbers (which you don't have to - I'll provide links below of other that have) it doesn't make sense to purchase a hybrid. Not now at least. When considering a purchase of a hybrid, you really have to justify to yourself that you want to spend one or two months salary for the 'green' benefits. Here are two links that are worth a read.

The wall street journal has a take on the hybrid argument and states that the Civic's payback is actually 7 years. Financially, it just doesn't make sense to own a hybrid. So you'll have to convince yourself the 'green' benefits are worth it.

http://online.wsj.com/article/SB121346814330775183.html?mod=hpp_us_autos

The second link I'll provide is a more rudimentary analysis of the cost of a hybrid and the benefits from it. I thought this was interesting because marketers sell the green side of hybrids and consumers have bought into the idea that they are cheap to run (which is true, they are cheap to run). But what consumers seem to forget is the additional up front investment which reduces the return on running a cheaper car. For instance, a Prius has a 13 (THIRTEEN!!!) year pay back. That's a long time. And this analysis assumes zero additional maintenance costs which is unlikely but for arguments sake, it appears this payback analysis is conservative. And it also poses a though provoking equation that going green really isn't going to save money. But it may save the environment - the question remains: is it worth it?

http://www.milliondollarjourney.com/hybrid-vs-gasoline-vehicle-comparison-are-hybrids-worth-it.htm

Bill's Buzz

2008-06-13T16:31:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

Wellington West Capital Markets has hired Senior Trader Mike Lerner from CIBC World Markets.

Jean-François Desjardins has joined Genuity Capital Markets as a Vice President, Investment Banking. Ironically, Desjardins was at Desjardins.

GMP Capital Trust brought on Senior and Junior Technical Analysts Joe Farrell and Tina Norman, respectively, from Genuity Capital Markets.

Leede Capital Markets hired Arash Yazdani in Vancouver as an Equity Analyst covering Technology and Clean Technology. Yazdani was previously with Raymond James.

Also in Vancouver, Niall Henry is heading over to the trading desk at CIBC World Markets from his current position at B.C. Investment Management Corporation in Victoria.

Brad McMillen has joined Salman Partners as Vice-President, Corporate Finance in Toronto. McMillen had been at UBS Securities Canada since 2002.

Former M Partners Investment Banker Chuck Allen has joined Green Breeze Inc. as President and CEO.

Joe Ng joined the Financial Services Research team at Dundee Securities as an Associate. Ng was previously with Ernst & Young's Financial Services Advisory Practice.

A few moves into industry - Josh Clelland a Research Associate at Haywood Securities has left to join the Corporate Development team at Kinross. Dominique Lagacé has joined the Corporate Finance team at Yellow Pages Group, he was previously an Investment Banking Analyst at National Bank Financial.

A few moves at Canadian shops in the U.S. - Canaccord Adams named Jamie Brown President of Canaccord Adams Inc. (the U.S. operations), in addition to his duties as Head of Investment Banking. Kevin Dunn will now assume the title of Vice-Chairman of U.S. operations.

TD Asset Management USA has hired John Reynolds as Director of Institutional Business Development from BNY Mellon Asset Management. And Samir Dhrolia, a Toronto-native who has been running Merrill Lynch's Canadian Derivatives book from New York, has moved to Goldman Sachs to build out their Canadian Derivatives franchise also from New York.

Sell-Side to Buy-Side move - Mike Towey joined Pali Capital as its Co-head of U.S. Equities with Kevin Fisher. Towey, was previously the Head of U.S. Equity Trading at CIBC World Markets.

Bill's Buzz

2008-06-06T16:09:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

Good luck to all CFA takers this weekend. 40 degrees and 90% humidity makes for great exam conditions!

---

James Quigley was made President of Merrill Lynch for Latin America and Canada.

Lynn Patterson remains country head for Canada and will report to Quigley.

Former Head of Sales at Desjardins Securities, Trevor Torzaz, is joining CIBC World Markets as an Executive Director, Client Manager on the Institutional Equity Sales desk.

Scotia Capital has added former CIBC World Market’s Fixed Income Trader Jeff Lunn.

Former Moody's Investor Services heavyweight Andrew Kriegler is moving back from New York to join CIBC as a Senior Vice-President, Credit Portfolio Management in the bank's Treasury and Risk-management Group.

Keith Lam has left his Equity Research Associate role at GMP Securities to join GMP Investment Management as an Analyst with his former colleague Tim Lazaris. Replacing Lam on the Financial Services Research Team is Jon Chow from Artemis Investment Management.

GMP Securities also lost Investment Banking Associate Matt Watson to G3 Capital, a private hedge fund in Toronto.

Eric Kougioumoutzakis joined Desjardins Securities’ as a Liability Trader in Montreal. Eric was at CNR’s pension-fund, CN Investment Division.

Thomas Weisel Partners brought in Jon Fredericks from Merrill Lynch as a Managing Director on the Canadian Trading desk focusing on the energy sector.

Anish Joshi is taking over as Senior Healthcare Investment Banker at Blackmont Capital, succeeding the retiring Gordon Larock. Meanwhile, Craig King left Blackmont’s ECM desk to join the team at National Bank Financial.

Dragan Trajkov joined Salman Partners as their new Energy Analyst coming from Genuity Capital Markets where he was an Associate.

Steve Maletic who left National Bank Financial last month has accepted a job as an Equity Analyst at Northern Securities, the firm he left in 2007.

Raymond James hired up Calgary-based Energy Investment Banker Sonny Mottahed from Canaccord Capital Corp. In Addition Raymond James’ Biotech Analyst Brian Bapty has left the Vancouver office to join the Institutional Sales desk in London.

Nadine Eugene joined Sentry Select as a Research Analyst. She was previously a Quantitative Research Analyst with RBC Capital Markets.

Things of Interest This Week

2008-06-01T20:58:00.003-04:00

1. Books Warren Buffet is adamant about us reading: http://www.businesspundit.com/10-investing-books-recommended-by-warren-buffett/

2. The Onion has a great piece on inflation and Wheel Of Forutne. A great read. http://www.theonion.com/content/news_briefs/wheel_of_fortune

3. One of the best pop n lockers I've seen. You can find this video pretty much everywhere, but here it is anyways: http://break.com/index/i-think-he-can-dance.html

So You Wanna Pass the CFA Exams?

2008-05-31T11:36:00.005-04:00

With a week to go, I realized I often get asked by those starting out in the process how to pass the CFA. I always start by saying, I'm not there yet, but I have made it through the first two levels which is somewhat of an accomplishment on its own (35% globally pass the Level I and Level II exam each year).

So when I get asked what advice I can pass on, I often pass along my keys to exam success. Perhaps for those of you starting out you may find a couple that apply to you since we are all aware that everyone learns differently.

1. Join an online forum. I belong to a forum. I find it invaluable for a couple reasons. For starters, it makes me feel like I'm not alone. It's great to see others posting about questions they get wrong and don't understand. It's nice to be able to answer those questions. And it's nice to have others answer my questions or correct my silly oversights (or my brutally wrong oversights). I also advocate a forum because if you follow the postings regularly, it acts as a reminder study tool since there are lots of people on the forum who are all at different stages of the material. If someones ahead of you, you get a preview of something you don't yet understand when you read their question. If they're behind you in the material, you get a nice reminder and the chance to cement what you learned by answering their question. I definitely advocate joining a forum from the start. Heck, by the third level, many of you will feel like you know each other, despite having never met.

2. Schweser's Q-bank. I'm not one to make pitches for companies on this site unless I fully stand behind their products. I believe strongly in Schwersers Q-bank (a 2000-4000 bank of questions to test concepts). Its great for the initial learning stages and the final learning stages (i.e. to learn the basics and review the concepts heading into the exam). I think the Q-bank is great for studying Ethics & GIPS, which make up 15%-30% of the exam I believe.

3. Start early. This is a gruelling process. But it's only gruelling if you start early. And its a lot less stressful if you start early. Very few people fail the exam because they are stupid. Usually they fail because they don't allow enough time to cover the 4000+ pages of material. Start early and let your intellect take over. There are always people who claim they passed with only 2 weeks to a month of studying - and those are the people who I envy because I know I will never be as intelligent as them. So if you're like me and with only 35% of people passing globally each year, respecting the volume of material this exam compromises can make a difference when results are released in August.

4. Take practice exams. Schweser provides 6 multiple choice practice exams that are challenging (for the prepared often score mid 70s). Take them all. The CFAI offers a set of sample and mock exams. Some of those cost extra to take but are money well spent. Take the practice exams. But study first - the practice exams should serve as a review, not as a wake-up call. Hopefully.

5. Take the Friday before your exam away from the books. I put away my books around lunch. I may review a formula or two, or a definition, but I refuse to try to learn a concept by that point. I learn what I can by Thursday night. Friday is a day to let my brain charge and my body de-stress.

6. Go out Saturday night; pass or fail, we've earned it.

Bill's Buzz

2008-05-30T15:13:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

Even amongst the cuts at a few of the Bank-owned shops this past week, there are still several moves to highlight.

Ardem Keshishian joins Haywood Securities as an Equity Research Associate, Mining from Van Berkom & Associates where he was an Assistant Research Analyst.

Scotia Capital has added Jerrold Annett and Russell Starr from Research Capital where they were respectively a Salesperson and Trader.

Dean Ciura is joining BMO Capital Markets as a Special Situations Research Associate. Ciura was previously at Deloitte in Tax.

Phil Swinfen has joined the RBC Capital Markets Global Mining team in London as an Associate. Swinfen was at HansonWesthouse as an Equity Mining Analyst.

Former UBS Securities banker Steve Latimer has joined Salman Partners as its new Co-Head of Investment Banking and will run its Oil and Gas business.

Sales Trader AJ Maroon left UBS as well and ran into the open arms of Goldman Sachs. UBS also lost Trader Milan Perak, who packed up his Stamford belongings and moved back to Toronto to work with Credit Suisse.

Jesse Ahlan has joined the trading desk at CIBC World Markets as a convertible bond trader. Ahlan was previously a Research Associate at the firm.

Simon Tremblay has left Desjardins Securities to join GMP Securities as a Trader in Montreal.

Loewen, Ondaatje, McCutcheon lost Will Trower to Iron Ore Company of Canada in Montreal where he will work in the Business Evaluations team.

Round 3 - CIBC Trims & BMO Reviewing Business

2008-05-27T09:49:00.002-04:00

Round 3.

CIBC World Markets is expected to trim approximately 100 employees in coming weeks, or 4 per cent of its work force. This has been long expected, and I have touched on this topic before. These first round of layoffs at a big bank are also necessary because following this will be a rebound in the months ahead (likely Q4 or Q1,09) for people in the financial service sectors (see: research, trading, and investment banking). Scotia Capital recently went through a hiring freeze in their research group before finally getting the green light to replace some departing associates.

Many firms are known to be reviewing strategy and staffing levels. BMO in their quarterly release today announced that they are "review[ing] the businesses in capital markets with the goal of reducing volatility of results and producing high, stable return on equity.”

These Canadian layoffs have already played out on Wall Street, with more than 30,000 jobs gone at American dealers - Bear Sterns, Citi, Lehman are leading the charge there.

All in all, might not be a bad summer to enjoy some free time before things in the economy take a turn for the better.

Round 1: http://strikershank.blogspot.com/2008/01/youre-fired.html
Round 2: http://strikershank.blogspot.com/2008/02/round-2_15.html

What I learned

2008-05-25T18:46:00.006-04:00

Here's 5 things I learned this week:

1. That according to sources (some are mine, some aren't) in the big Canadian banks and the Canadian arms of the big four accounting firms, seats are being left empty and co-op hiring is down. What this means is that should people quit right now, these firms are not in a rush to fill their job. And that's a bad sign for those looking for work.

2. The the couple who formed the inspiration for the based on a true story movie "Open Water", Tom & Eileen Lonergan, were never found - presumed drowned and/or eaten by sharks. And not necessarily in that order. Could you imagine surfacing from a dive only to see your boat off in the distance - truly demoralizing. Doesn't make for a good movie however.

3. How to calculate the implicit costs of trading (boring!)

4. That I never ever want to write another CFA exam after next week. Ever. Seriously.

5. That I've waited FAR to long to play Wii and have enjoyed every minute of it since I picked up a controller. Truly addicting. And what makes the Wii even more impressive to me? It's based on game play and not flashy graphics. Somewhat like the Hollywood blockbusters that people are growing tired of as they often lack substance but are all flash, the Wii bucks the gaming trench by being all substance and little flash. And i love it!

Bill's Buzz

2008-05-23T17:34:00.002-04:00

From http://www.vlaadco.com/bills_buzz.php

Nawojka Wachowiak and Christine Healy have joined the mining Research team at Genuity Capital Markets. Nawojka was previously at BMO Capital Markets and will cover the Base Metals. Christine was most recently at UBS covering Precious and Base Metals.

Equity Salesperson Carly Dean, located in Vancouver, has left RBC Capital Markets to join Macquarie.

Tom Schnurr has moved from the San Francisco office of Thomas Weisel Partners to head up the Trading operations in Canada. One of his first moves was the hiring of Jon Fredericks to the Canadian trading desk. Jon was previously at Merrill Lynch where he focused on energy stocks. A
meel Somani has left his M&A Analyst chair at CIBC World Markets for a private equity role at Teachers’ Private Capital.

ITG Canada has hired program trader Ken Latvanen from CIBC World Markets.

CFA Pain & Pleasure

2008-05-16T16:33:00.007-04:00

With about three weeks left until the exam I want to pass on my 'good luck' to those who are near the end of this process. In an earlier (much earlier) post, I mentioned how I opened a book about 280 odd days ago. This is definitely been a grind for me and if I fail, I am unsure if I could put myself through the paces one more time.

The process for preparing for this exam is excruciating at times, but it does come with an eye opener. It has enabled me to recognize which friends & relatives understand. And, more eye opening, it has enabled me to recognize that the friends & relatives who don't understand this process but are still supportive are truly great people to have in your support network.

I've been ignoring many people for months now. Good friends, acquaintances, parents, and my significant other. And those that understand and support are the ones I can't wait to celebrate with this summer. Even if i'm not celebrating a pass, but rather the creation of free time, these relationships are the ones that will make the coming years special.

Almost as special will be finally passing this last exam and adding three letters onto my name. Which really brings the perspective that the people in your life mean more than the achievements we successfully garner on your own.

Bill's Buzz

2008-05-16T15:30:00.000-04:00

Investment Banker, Doug Harris has resigned from Desjardins Securities to cover the Special Situations and Renewable Energy space at Salman Partners.

Genuity Capital Markets has hired Research Analyst Deepak Chopra away from National Bank Financial to cover Hardware.

Fraser Mackenzie Oil & Gas/Renewable Analyst Vic Vallance has hired Jeffrey Li as his newest Associate, filling the role previously held by Patty Shao who left for Hong Kong.

Duncan McKeen will be joining Macquarie in June covering Uranium and Coal. Duncan was previously a Research Analyst at GMP Securities.

RBC Capital Markets has brought on Daniel Armstrong as a Technology Research Associate for Mike Abramsky. RBC also hired Jeff Bevan in Calgary as a Research Associate for Oilfield Services.

In Montreal, Jean-Francois Santerre has joined the RBC`s Structures Equity & Commodities team as a Trader. Jean-Francois went over from Caisse de Depot et Placement. And finally, RBC brought on a new Liability and Hedge Fund Trader, Paul O'Hea, from Merrill Lynch.

Merchandising and Consumer Products Analyst, Andrea Malowney left TD Securities to join Dundee Securities.

Evergreen Capital Partners has procured another former MGI Securities employee with Ranjit Narayanan joining as the Technology and Special Situations Analyst.

Adam Adamou started a new advisory firm Caseridge Capital Corp, having left Evergreen Capital Partners a few months back. Steven Ilkay has also joined Caseridge from

VenturePathways. Zhivago Sivam is now an Associate Director, Financial Engineering at Scotia Capital Markets. Zhivago was previously a software/product developer.

Bill's Buzz

2008-05-09T17:11:00.000-04:00

From http://www.vlaadco.com/bills_buzz.php

Sonia Peterson has joined TD Securities as an Associate in their Institutional FX trading desk.

Sonia was an Auto ABS Senior Analyst with DBRS. Kent Alekson has joined Teekay Corporation as a Capital Markets Analyst in Vancouver. Kent was previously an Investment Banking Associate with Scotia Capital.

Ardem Keshishian has joined Haywood Securities as a Mining Research Associate from Van Berkom & Associates where he was an Assistant Research Analyst.

Albert Imbrogno of Canamerica Capital has joined LOM as Head of Institutional Equity Sales and Trading. Joining Albert at LOM is Jeff Brandes previously a Salestrader with D&D Securities.

Tom Budd, GMP Securities President and Head of Investment Banking has decided to retire but will stay on as a Consultant to GMP.

Harris Fricker, currently a GMP Vice-Chairman will become the Head of Investment Banking.

Also retiring is Dominic D'Alessandro who will leave his post as CEO of Manulife Financial next year.

Josee Vaillancourt has joined BMO Capital Markets Montreal as an Associate in the Loan Product Group. Josee was previously an Analyst in the Corporate Finance group at CAE.

Bill's Buzz

2008-05-02T17:02:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

Braden Purkis is joining Raymond James in Calgary as a Research Associate, International Oil & Gas. Braden was previously an Associate at TD Securities.

Derek Dley, a Mining Research Associate at Raymond James has joined Genuity Capital Markets as a Consumer Products Research Associate.

Omar Murad has joined Thomas Weisel Partners as a Research Associate, Mining for Heather Douglas. Omar was previously a Research Associate at Dundee Securities.

Katie Lokash will be joining the Corporate Development team at Viterra in Calgary from TorQuest.

Courtenay Wolfe has joined Salida Capital as a Managing Director. Courtenay was previously with Tricycle Asset Management as a Senior Vice President, Sales and Strategy.

Jamie Manson has joined Investec Capital Markets as the Head of Power for North America. Jamie was with GE Energy Financial Services, where he was a Senior Vice President, Power.

Genuity Capital Markets has added Gold Analyst Tony Lesiak to their Research team who was with UBS. Additionally, Genuity has added Matthew Segal as an Associate, Investment Banking. Matthew was previously with Teacher’s Private Capital.

Jeff Bevan has joined RBC Capital Markets in Calgary as an Associate to Oilfield Services Analyst Angela Guo. Jeff was previously with Keystone Financial.

Trader Paul O'Hea has left Merrill Lynch Canada for a desk at RBC Capital Markets. For further reading about the changes at Merrill Lynch Canada see Andrew Willis’s blog.

Warren Roll has joined Aver Media LP as a Director, Investment Banking. He was previously with Blackmont Capital in Quebec.

Pammi Bir has joined Scotia Capital as an Equity Research Analyst covering Real Estate and REITs. Pammi joins Scotia from BMO Capital Markets.

Nick Coutoulakis, a Mining Research Associate has left Haywood Securities in Toronto to join the New York office of Norwegian firm Pareto Securities in Institutional Equity Sales.

Husein Kirefu, a Technology Research Analyst has joined M Partners from Evergreen Capital.
Tim Murray has joined Salman Partners as an Oil & Gas Analyst from Northern Securities.
Kevin Elliott has joined the Portfolio Management team focused on Canadian equities of Fidelity Investments Canada from Laketon Investment Management Ltd.

Jamil Murji joined Leede Capital Markets in Vancouver as an Equity Analyst covering Technology and Diversified Industries. Jamil was previously with BMO Capital Markets.
Nicolas Brunet has joined N M Rothschild & Sons Montreal as an Associate, Investment Banking from BMO Capital Markets Montreal.

Karen Taylor has joined the Ontario Energy Board as an Executive Advisor to the Chair & CEO. Karen was previously a top-ranked Research Analyst with BMO Capital Markets.

BMO Capital Markets has hired Carl Kirst as a Senior Utilities Research Analyst from Credit Suisse in Texas.

Additionally, BMO Capital Markets has made the following organizational structure changes:
· Bill Butt is appointed to Executive Managing Director and Head of Investment & Corporate Banking.
· Patrick Cronin is appointed Executive Managing Director and Head of Financial Products, Debt Products & Securitization.
· Peter Myers is appointed to Executive Managing Director and Head of Investment & Corporate Banking Coverage, Canada.
· Luke Seabrook is appointed to Executive Managing Director and Head of Financial Products.
FirstEnergy Capital has created a Property Acquisition and Divestiture division led by Brian Dunn and including Richard Matthews, both from Scotia Waterous.

Bill's Buzz

2008-04-25T16:44:00.000-04:00

From http://www.vlaadco.com/bills_buzz.php

Wellington West Capital Markets has brought onboard, Steve Burleton as a Managing Director, Investment Banking. Burleton was previously an Investment Banking Managing Director with Scotia Capital. Additionally, WWCM have added another Mining Analyst, Paolo Lostritto from MGI Securities.

Blackmont has hired Craig Stanley as their newest Mining Analyst, covering the exploration and junior mining area. Stanley comes over from Desjardins Securities.

BMO Capital Markets has decided to merge their U.S. and Canadian research teams and have named Jack Blackstock and Paul Campbell as Co-Heads of Equity Research.
David Fleck, formerly Co-Head of Equities at BMO Capital Markets will join Salida Capital as its Co-President.

Jeff Fallows is joining Cormark Securities as a Vice President, Investment Banking from CIBC World Markets.

David Donovan, previously of MGI Securities is joining RBC Capital Markets as an Equity Research Associate to Base Metals Analyst Fraser Phillips.

Also at RBC CM, Brent Rector is transferring from Vancouver to the New York office where he will be an Equity Sales Associate. In the Vancouver office, Amy Goldbloom will join as an Equity Sales Associate from the Economics Research Department.

At Dundee Securities, Mark Smith is making the jump to Investment Banking from Equity Research.

Cars vs. Savings

2008-04-22T14:25:00.001-04:00

A great article detailing the opportunity cost of buying something today or saving, except this time it relates to car purchases. Why brands don't always matter....

From the WSJ: http://online.wsj.com/article/SB120864930718128947.html?mod=hpp_us_personal_finance

GETTING GOING
You Can't Take Car Envy to the Bank
By DOUGLAS R. SEASEApril 20, 2008
Here's the question: How many people do you admire or respect because of the car they drive?
Note I said "admire or respect," not "envy."
No one, huh?
So now that we've established that you don't care what someone else drives and that no one else cares what you drive, let's get serious. The fact is that for most of us after our houses and maybe college educations for the kids (at a really, really good college) cars will take more of our money than anything else. And Detroit (and Nagoya and Stuttgart) want as much of that money as they can possibly get.
Hence all the expensive advertising trying to convince you that you'll feel better about yourself -- and others will feel better about you, too -- if only you drive a particular car.
What hogwash! Get past the marketing and advertising and when you buy a car you're buying something very simple: a steel box with wheels that contains about 150,000 miles. You can buy an expensive box of miles, a mid-priced box of miles or a really cheap box of miles (read "used cars") and you'll generally get the same thing: 150,000 miles (less, of course, the number of miles a previous owner put on a used car). The only difference is how much you pay to go each one of those miles.
Hidden Cost
But here's the real catch: any one of those cars winds up costing you a lot more than you think. Sure, there's sales tax and operating costs and insurance, all of which take an additional toll on your wallet. But what I'm really talking about here is opportunity cost: every additional buck you spend on that box of miles is a buck that you no longer have to invest and watch grow in value for years to come.
If you save $10,000 by buying a Toyota Camry instead of a BMW and invest that $10,000 in stocks with an average annual return of 10%, at the end of 10 years (about when your Toyota is coming up on that 150,000-mile mark) you'll have $25,937.
At that point, save another $10,000 by buying a less expensive car, invest it, and the combined savings on those two cars will, 10 years from that second purchase, be worth more than $93,000. (That's $67,275 from your initial $10,000 investment 20 years ago and another $25,937 from your latest $10,000 savings.) Can driving a car that is $10,000 more expensive than another really be worth nearly $100,000 to you?
More Than Money
Now there are certain criteria that a car has to meet if you're going to drive it 150,000 miles. Over the years I've found that the things that are important to me, in descending order, are reliability, safety, efficiency and comfort. Reliability might not seem that important in the overall scheme of things -- most people would initially choose safety -- but the fact is you won't keep a car that's unreliable for 10 years.
The real point, though, is that all four criteria are important, and you'll have to make some trade-offs. You can't have the most efficient car while still having the right balance of safety and comfort. That's why over the past 30 years I've invariably wound up driving a Honda or a Toyota. Cars from those manufacturers consistently get high ratings for reliability, safety and efficiency.
When I was working in The Wall Street Journal's Detroit bureau many years ago, a very, very high-ranking Ford executive told me off the record that the challenge facing his company was to be able to build a car as good as Honda's Accord. From everything I read today, Ford still hasn't accomplished that goal, nor have Chrysler, GM or various other global manufacturers.
Sure, the car freaks may find Toyotas and Hondas boring, but for $100,000 in savings over time I'm willing to be really bored, as long as I have reliability, safety, efficiency and comfort.
Replace That Box?
Having said all this, I acknowledge that there may be circumstances in which you shouldn't keep a car for 150,000 miles. The advent of antilock brakes and air bags were such significant strides forward in safety that they made it almost imperative that you get out of a car without those features and into one that had them.
We may be approaching another such threshold in terms of efficiency when the major auto makers begin offering plug-in electric vehicles a few years from now. We'll have to wait to see how reliable, comfortable and safe they are. But plug-ins will be a significant step beyond today's popular hybrids, which so far seem to be more expensive than they're worth in terms of overall fuel savings.
Still, the bottom line remains this: Every dollar you spend on a car (or anything else that costs more than a few hundred dollars) is a dollar that you're not saving and investing for tomorrow.

Trouble for Linens N Things

2008-04-14T17:00:00.002-04:00

A sign of the times reported in the New York Post:(http://dealbook.blogs.nytimes.com/2008/04/14/apollo-struggles-to-keep-debt-from-sinking-linens-n-things/).

The first of many? Probably. Maax (Canadian manufacturer of housing related products) is facing similar problems as Linens N Things. And we're likely to see more of this in the coming months. And how could we not. Buyouts financed by cheap credit and debt piled on to the point where a hiccup could cause the company to fail.

And what we're seeing is a series of hiccups. Housing markets in the States falling quickly. Housing in Canada quickly becoming neutral. Consumer spending on both sides of the border starting to become tighter. Companies that were bought out whose business is tied to the housing market and consumer spending are the first to go. Watching how the PE funds deal with the emerging issues of bankruptcy should make for an interesting read. Look for other cyclical consumer spending buyouts to be next.

Bill's Buzz

2008-04-11T16:11:00.004-04:00

From http://www.vlaadco.com/bills_buzz.php

CIBC World Markets Healthcare Analyst Joe Walewicz has left to join a new Healthcare Fund based in Montreal whose details will be officially released in the coming weeks. Joe’s Associate Maxime Paris has been promoted and is the new Healthcare Analyst, based in Montreal.

Tommy Trinh, previously in Investment Banking at LOM has joined M Partners as their newest Institutional Equity Sales person covering the Montreal market.

Genuity Capital Markets Technology Research group is undergoing changes. David Hodgson the senior Technology Analyst and Co-Head of Research has decided to leave and go back to the buy-side. Additionally, Richard Sung the other Technology Analyst has decided to leave as well.

At BMO Capital Markets there have been the following changes:
Mark MacPherson will be transferring to the Melbourne office as a Vice President in the Mining Group. In Toronto, Mark is a Vice President in the Diversified group.
John Easson who headed the Media, Communications & Technology group has left for Private Equity. In light of John’s departure, the group is being separated into two separate entities, namely the Technology group and the Media & Communications group.
David Wismer is joining as Managing Director and Head of Canadian Technology Investment & Corporate Banking from CIBC World Markets.
Darryl White and Ashi Mathur will Co-Head the Canadian Media & Communications group.

Canadian Pension Plan Investment Board (CPP IB) has hired William Tilford to Head Global Securities for their Public Market Investments. Tilford was at Connor, Clark & Lunn as a Senior Portfolio Manager for the Quantitative Equity team.

Alpha Trading Systems, the upstart trading system has undergone the following changes:
Martin Piszel, CIBC WMs’ representative on the board has resigned. Piszel remains at CIBC WM overseeing electronic trading operations. CIBC has shifted responsibility for Alpha from CIBC WM to the corporate development arm of the overall bank.
Ed Cass, the new Head of Capital Markets at CPP Investment Board is joining the board to represent CPP IB interests.

Reggie George has become the newest Equity Proprietary Trader at TD Newcrest. Reggie came from the Investment Banking side of TD where he was a banker for four years.

RBC’s Wealth Management unit in the U.S. has hired Beth Rosenwald and her team from Citigroup’s Smith Barney to join their Baltimore office where she and her team will focus on wealth planning for clients. The team consists of Beth as well as Steven Abrams, Matthew Kunkel and Leksi Sviridova.

Morlan Reddock is joining XM Satellite Radio Canada as their Manager of Corporate Development & Investor Relations from Direct Energy where he was the Manager of Acquisitions & Planning.

Dundee Securities has brought in Clarke Herring to Head their combined Investment Banking team in Alternative Energy & Technology. Clarke was previously a Managing Director and Co-Head of Technology, Media and Telecom banking with NBF.

Sprott IPO - A Contrarian View

2008-04-08T08:01:00.003-04:00

Sprott Asset Management is planning an IPO during the worst IPO market we've seen in quite some time. Which makes sense if you think about it. Quality IPOs often command premium prices. And right now, with money managers searching for quality names to hold and hot IPOs to include in their funds, the timing could be perfect for Sprott as the current scarcity of these deals could drive the valuation up.

And lets not forget that Sprott has made itself, and the holders of its funds, a lot of money over the last 1o years with average returns of 28%. Sprott made these returns by correctly calling the rise in various commodities and being short the right stocks when the recent credit crunch hits.

Which causes me to think - is Sprott about to be right again? Are the gold bugs that work there thinking the rise in gold has run its course? Are these commodity guru's seeing the peak of commodity prices and not telling us? Are we nearing the top of a commodity bubble?

As we saw last year with the much anticipated Blackstone IPO, what we actually were seeing was a private equity firm, and one of the best, take its money off the table at the peak of the private equity boom and easy credit cycle. Investors would have been wise to sell when Blackstone did. "Their filing had pretty much signaled a frothy equity market, and certainly a top for the private equity business, due both to the "perfect" environment for raising debt capital (e.g., savvy, opportunistic issuers coupled with liquidity-rich, brain-dead investors) and that some of the smartest money in the business wanted to take chips off the table and raise permanent capital. And were willing to take this step even in the face of much criticism and consternation from their LPs and others."

And now at the height of a commodity boom, Sprott, the people that know commodities the best, are selling. Granted, initial indications are that Eric Sprott will still hold 67% of the company after the IPO but may be able to slowly sell that into the market over time as well. Its his substantial holding that will remain after Sprott goes public that causes me to think that although we might be nearing the top of the commodity cycle, it still could be far enough in the future to not panic yet.

But seeing the overwhelming news of the Sprott IPO this morning causes me to think, perhaps its time to lighten up on commodity holdings. After all, when the individual who knows commodities best is selling, who I am to tell him he's wrong?

Bill's Buzz

2008-04-05T10:14:00.001-04:00

From http://www.vlaadco.com/bills_buzz.php

BMO Capital Markets has merged its Canadian and U.S. Equity Research departments appointing Jack Blackstock and Paul Campbell as Co-Heads reporting to Mike Miller, Head of Equities.

David Guenette is joining BMO Capital Markets as a Paper and Forest Products Research Associate. Guenette was previously at Deloitte in Transfer Pricing.

Robert Lyon has joined AGF Management to run the Precious Metals, Canadian Resource and Global Resources Class funds. Lyon came from the Proprietary Trading desk at TD Securities.
Keith Carpenter has joined Canaccord Capital as the new Agriculture Business Analyst. Carpenter was a Base Metals and Agriculture Analyst at Interward Asset Management.
Christos Doulis, Vice President, Mining Investment Banking at Blackmont Capital has left to join TD Securities.

Robert Dennison has filled one of the holes in Desjardins Securities’ Institutional Equity Sales desk. Dennison was a Hardware and Software Technology Analyst at UBS in Toronto. Additionally, Brendan Kielty has joined the desk in Toronto after taking some time off to travel. Brendan was previously with CIBC World Markets in Vancouver.

RBC Capital Markets (“RBCCM”) has made some changes to Credit Research. Roger Appleyard was appointed Head of Global Credit Research from his current role of Head of European Credit Research. Jonathan Allen was made Director, Credit Research (Canada) reporting to Appleyard. In addition to his current responsibilities as an Equity Analyst covering Canadian Telecom Services, Allen will also be responsible for leading the Credit Research team in Canada. Allan will also assume primary coverage of several industry sectors from a credit perspective.

National Bank Financial picks up two RBCCM Research Associates. Hussein Sunderji, former Technology Associate joined as a Consumer Products Research Associate. Jamie Riff, Base Metals Mining Associate will join NBF's Institutional Sales desk.

Jeff Gamble has joined Cantor Fitzgerald as a Trader coming from MGI Securities.
Research Associate Forbes Gemmell has decided to leave CIBC World Markets to join his Analyst Brad Humphrey at Raymond James.

Faroukh Kanga, previously a Managing Director at TD Securities, has joined Avenue Investment Management as a Partner.

Bill's Buzz

2008-03-28T19:24:00.003-04:00

As i'm too busy lately to post anything else it seems:

from http://www.vlaadco.com/bills_buzz.php

Read about recent management changes at Desjardins (link)

Recent Thomas Weisel Partners' hires:
Eamon Hurley joins the Energy Investment Banking practice in Calgary. Most recently, Hurley was the Vice President & General Counsel at TAQA North Ltd., a wholly owned subsidiary of the Abu Dhabi National Energy Company.
Dan Bruno left GMP Securities to join as a Managing Director in Technology group in Toronto.

Mark Armstrong is joining National Bank Financial to head up its Electronic Trading initiative. Most recently, Armstrong was a Trader and Portfolio Manager at Amaranth.

Dr. Geoff Houlton has joined Union Securities as their Healthcare Analyst with Associate, Ilya Shubin. Houlton and Shubin were at LOM.

David Conacher, most recently with Clarus Securities, is joining Evergreen Capital Partners on their trading desk.

Steven Velimirovic has left his position as an Investment Banking Associate in the Metals & Mining group at BMO Capital Markets to join UBS as a Vice President in Toronto.

Canadian boy, Mark Dalton has agreed to move from UBS` London office to New York to assume responsibility for Structured ECM in the Americas.

Some changes at RBC Capital Markets:
Vito Sperduto has joined as a Managing Director in M&A in New York.
Corporate-Loan Banker Patti Perras Shugart has joined as a Managing Director from CIBC World Markets.
Daniel Heimowitz is now a Managing Director of its Infrastructure practice in New York. Heimowitz was previously at Lehman Brothers.
Ryan Dolan is moving to the Institutional Equities desk as a Mining Specialist from his desk as a Research Associate in the Global Mining Research team.

Daniel Wong joins Jeff Wigle (BB Mar. 20) at Connor, Clark, and Lunn Private Capital as a Junior Portfolio Manager in Vancouver.

Rafi Khouri is leaving Canaccord's London Research team where he was an International Oil & Gas Analyst to move back home joining Raymond James' Calgary Energy Research team covering the same sector.

Sean Boyle is also joining Raymond James to cover U.S. accounts on the Toronto Institutional Equity Sales desk. Boyle was previously at Coventree Capital Group.

Allan Candelario has left Fraser Mackenzie to join TD Securities' Technology - Software and Services Research team as Scott Penner's Associate.

Bill's Buzz

2008-03-20T18:59:00.003-04:00

From http://www.vlaadco.com/bills_buzz.php

In addition to the moves last week (BB March 14), here are several more Desjardins departures this week:
Pesach (Pace) Goldman and Kristine Sonnenberg, two salespersons left to join Research Capital's sales desk.

Chris Shaw, Investment Banking Associate left to join Cormark Securities.
Adam Zive, Oil and Gas Analyst has left to join Renaissance Capital, a Moscow-based investment bank and will be based in Africa, covering energy plays in that region.
Ben Perlman has left the trading desk in Montreal, and will be joining GMP there as a Junior Trader.

Jon Muller was an Institutional Salesperson covering west coast U.S. and Vancouver. Muller is joining CIBC World Markets to focus on U.S. clients.

However, Desjardins did pick up Versant Partners Salesperson Chung Kim.

Now for a few RBC moves:
Bill Moriarty has left his post as Head of Global Research and Vice Chairman for a new role as President and CEO of University of Toronto Asset Management. Canadian Director of Research ("DoR") Richard Talbot and U.S. DoR Marc Harris were promoted to Co-Heads of Global Research.

Derek Holt is joining the Scotia Capital trading desk as Vice-President, Economics.

David Ing has joined the Mining Research team as an Associate. Ing was previously an Associate at Pacific International Securities Inc.

Stuart Morrow, Retail/Consumer Products Research Analyst at Research Capital, has left the sell side to take a Senior Analyst position at RBC Asset Management focusing on Global Consumer Products and Global Financials.

Phil Hardie has joined Scotia Capital as its third Financial Services Analyst. Hardie was previously at Dundee Securities.

Jeff Wigle, most recently a Vice President with Richardson Capital's Toronto office (private equity division of Richardson Financial Group), accepted a position as President of Connor, Clark & Lunn's newly formed private equity group.

Quantitative Analyst, Yin Lao, is joining Macquarie Capital Markets Canada from CIBC World Markets.

CPP Investment Board has hired Ed Cass as Head of Global Capital Markets. Cass was previously the Chief Investment Officer of Fortress Investment Group's Drawbridge Relative Value Fund.

Wolverton Capital Markets hired one-time Cannacord Oil and Gas Analyst Gordon Currie as its Oil and Gas Analyst. Immediately prior to this role, Currie was the Vice President of Investor Relations at NAL Trust.

Phil Williams, Uranium Analyst from Thomas Weisel joined Clarus Securities.

Bye Bye Bear

2008-03-16T23:10:00.004-04:00

Fitting with the markets these days that we bid farewell to Bear Strearns. Scary stuff for how bad things really are.

http://www.informationarbitrage.com/
http://www.wellingtonfund.com/blog/

and from the WSJ:

A DEAL FOR BEAR STEARNS
J.P. Morgan Rescues Bear Stearns
U.S. Pushed Deal To Avert Crisis; A Fire-Sale Price
By DENNIS K. BERMAN, SUSANNE CRAIG and KATE KELLYMarch 17, 2008

Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.
The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.
Effective immediately, J.P. Morgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. The deal isn't subject to any conditions, except shareholder approval. It is expected to close before the end of the second quarter.
Government regulators, including the Federal Reserve and the Office of the Comptroller of the Currency, have given their blessing to the transaction
Many well-known investors, from billionaire Joe Lewis to Bruce Sherman, the head of Legg Mason Inc.'s Private Capital Management Inc. money-management firm, have seen the value of their stakes in Bear Stearns plummet. The pain could be most acute for Bear Stearns's employees, who are steeped in a culture of personal ownership -- and hold about a third of the firm's shares outstanding.
Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on New York's Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear Stearns's senior management. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.
Bear Stearns shares, which traded as high as $170 in January 2007, fell 47% on Friday after the firm was forced to seek emergency funding from the Federal Reserve and J.P. Morgan to stay afloat amid a severe cash crunch.
One stumbling point for a sale appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan was eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter. Spokesmen for Mr. Dimon couldn't be reached yesterday.
Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking on the 85-year-old firm. Late Friday, credit-ratings firms downgraded Bear Stearns to two or three levels above junk status. The downgrades also had a big impact on Bear Stearns's viability, as they severely crimped the firm's number of potential trading partners.
Regulators, bankers and investors are concerned Bear Stearns's stock could plummet even further when the stock market opens today. A continued exodus by parties with which the investment bank trades could even cause it to collapse. Still, unwinding Bear Stearns could be a nightmare because of the plethora of Wall Street firms with which it has dealings.
Analysts and investors are bracing for more bad news as securities firms report earnings this week, though Bear Stearns's results are expected to surpass the average estimate from analysts surveyed by Thomson Financial, say people familiar with the matter. A Bear spokesman declined to comment.
Meanwhile, worries are deepening that other securities firms and commercial banks might be on shaky ground. Lehman Brothers Holdings Inc. Chief Executive Richard Fuld, concerned about the markets and possible fallout from Bear Stearns's troubles, cut short a trip to India and returned home Sunday, ahead of schedule, according to people familiar with the matter. The decision came after a series of calls Saturday to both senior executives at the firm and Treasury Secretary Henry Paulson, these people say.
Investors' concerns that the flight of worried Bear Stearns customers last week might spread to other firms is likely to make for a tense opening today on Wall Street. Yesterday, Mr. Paulson said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.
On several occasions over the weekend, Mr. Paulson spoke about the Bear Stearns negotiations with Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank President Timothy Geithner, according to people familiar with the matter.
The takeover agreement signals an abrupt and crushing end for Bear Stearns, one of Wall Street's best-known firms. Though it had survived many previous market swoons, it was savaged by the crisis in the nation's mortgage market, which began last August.
Over the weekend, some Bear Stearns employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than in a domestic acquisition. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire the firm.
For J.P. Morgan, a Bear Stearns deal essentially would be one of convenience. The big New York bank hadn't planned on buying a Wall Street firm. It was focusing instead on the prospect of buying a large regional bank. But people familiar with the matter said that the Bear acquisition doesn't preclude J.P. Morgan from pursuing that strategy.
One of Bear's biggest attractions for J.P. Morgan is its prime brokerage business which caters to hedge fund clients. J.P. Morgan doesn't have such a business and executives there have long said that they would like to add those operations to the bank's portfolio. J.P. Morgan has been one of the banks eyeing the prime brokerage business of Bank of America Corp. That business reportedly is on the auction block.
J.P. Morgan executives, however, are far less interested in the rest of Bear's operations, including its investment-banking unit. J.P. Morgan already has a substantial investment-banking operation with ties to many high-profile clients. Indeed, executives have scoffed at the idea that J.P. Morgan would buy a large Wall Street firm despite repeated speculation that the bank would ultimately buy a rival such as Morgan Stanley.
"Fill-ins, piecemeals, joint ventures, small purchases, where they're filling gaps, [we are] absolutely, always open, always interested. But on doing something major that would create a dramatically different landscape, not in my lifetime," Steve Black, co-head of J.P. Morgan's investment bank, said last year.
Over time, Bear Stearns's misfortune could bear fruit for J.P. Morgan. Bear Stearns's investment-banking unit, which underwrites stocks and bonds and advises on mergers, and its fixed-income and capital-markets trading businesses have been badly bruised by the credit crunch but still have some value.
Likely even more valuable are Bear Stearns's clearing unit, which settles trades and also services and lends to hedge funds, and an investment-advisory business catering to wealthy customers. Both of those operations have suffered from withdrawals in recent days.
The probable sale of Bear Stearns is the latest in the cascading mortgage-related blows that began last summer and have resulted in staggering losses and write-downs on Wall Street, the ouster of several high-profile CEOs and an epidemic of worry that the financial system faces even more turmoil.
On Friday, Bear Stearns sought and received emergency funding backed by the federal government. Both the Fed and J.P Morgan stepped in to keep Bear afloat as investors moved to pull assets out of the firm. In stepping in, the Fed was trying to move aggressively to prevent the firm's from spreading to the broader economy. The lifeline gave Bear access to cash for an initial period of 28 days -- but it was widely believed Bear would be sold within days to keep it from going under.
The Fed's unusual intervention was motivated by a concern that a rapid and disorderly failure of Bear Stearns would wreak havoc on the markets in which the firm is an intermediary, particularly the huge and important securities-repurchase, or "repo" market.
Bear Stearns risked defaulting on extensive "repo" loans, on which firms pledge securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would find their access to repo loans restricted. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.
As a result, one of regulators' priorities in any deal for Bear Stearns or its parts is to minimize the risk to the financial system. That suggests that they want those counterparties furthest removed from Bear Stearns itself to know immediately where they stand in any deal, and for a buyer to have sufficient financial strength to reassure those counterparties.
Bankruptcy experts said filing for bankruptcy protection wouldn't have been an attractive option for Bear Stearns, partly due to recent changes in the federal Bankruptcy Code relating to financial instruments like derivatives and repurchasing trades. Unlike most parties in bankruptcy, lenders in such transactions aren't stayed or prevented from acting to seize or control the assets involved in those deals.
"They can send you a letter saying the value of the assets is falling, so either pay us back or we will liquidate the asset," said Holly Etlin, a managing director at AlixPartners, a turnaround and business advisory firm.
Financial regulators, which had been monitoring the situation at Bear on a daily basis leading up to Friday, beefed up their presence inside the firm over the weekend. Staff from the Securities and Exchange Commission's examinations group and trading and markets division, which monitors capital levels for soundness, worked with representatives from Wall Street's self-regulator, the Financial Industry Regulatory Authority, and Federal Reserve.
The SEC and Finra staff inspected Bear's books to ensure that if customers began pulling their accounts that there was a process to unwind the positions fairly, so as to prevent additional losses.
The regulators also had staff at other firms to monitor the brokerage firm's capital level amid speculation it could face liquidity problems. A person familiar with regulators said their presence wasn't to suggest that any particular firm was in trouble, rather it was to examine whether there was enough cash on hand to deal with potential problems.
--Robin Sidel, Michael M. Phillips, Greg Ip, Gregory Zuckerman, Kara Scannell, Heidi N. Moore, Jenny Strasburg and Jeffrey McCracken contributed to this article

Bill's Buzz

2008-03-14T22:35:00.002-04:00

From: http://www.vlaadco.com/bills_buzz.php

Dirk Lever has moved from his role as the Oil and Gas Trust Analyst at RBC Capital Markets to their Institutional Sales desk as Managing Director and Head of North American Energy Sales.

Franco-Nevada has hired BMO Capital Markets' Mining Research Associate Jason O'Connell to work in their Corporate Development team.

Jessy Hayem, Special Situations Analyst at Desjardins Securities, has joined TD Newcrest as a Vice President and Director, covering Special Situations and some Consumer Products names. Hayem's Associate Shane Leech-Porter is also moving to TD.

Mike Tintinaglia has left Desjardins' trading desk to join Research Capital.

Norm Chang has joined the management team of the Ark Canadian Long/Short Equity Fund, joining his former colleague Ed Hughes. Chang was previously a Research Analyst at Epic Capital Management.

John Pelletier, formerly with Blackmont Capital, has joined CIBC World Markets in Calgary filling a void in the Oil & Gas team.

Dan Fraleigh is the new Head of the MBS/ABS team at BMO Capital Markets. Fraleigh was the Head of the Fixed Income group that was disbanded at Dundee Securities.

Banking Research Associate at Dundee Securities, Phil Hardie, has left for Scotia Capital.

Paradigm Capital has hired Melanie van den Berge as an Oil & Gas Analyst with a focus on Junior Canadian Internationals. Van den Berge was at Humboldt Capital.

Two ex-Burgundy Asset Management Investment Analysts, Jonathan Bloomberg and Sanjay Sen left to start their own firm BloombergSen. Sen was at Cumberland Private Wealth Management immediately prior to starting this new company.

Precious Metals Analysts Brad Humphrey has moved to Raymond James from CIBC World Markets.

Estimating Anything...Part I

2008-03-07T21:19:00.004-05:00

So in between working and studying, I'm trying to read a book about estimating anything.

And since i haven't posted in about two weeks, I'll give this one a shot.

To get better at estimating anything try answering the following question:

How big is the wingspan of a 747?

First off, don't come up with an exact value, you'll be wrong. So come up with a range. Ideally you'll want a range that you're 90% confident the answer will be in between. But you say you have no idea where to start? I bet you're wrong. You know the wingspan must be greater than 20 feet. Is it bigger than 50 feet? Probably. I'll say its probably at least 100 feet long. I'm not sure about that, but I'm fairly certain its longer than 40, 50, 60, and 80 feet. So we've now established our lower bound.

How long is the wingspan however? I have no idea. But i know its probably not 500 feet. Or 300 feet (the width of a football field). I bet its probably 200 feet or maybe even 250. So with 90% confidence, I'm willing to say that a 747's wingspan is between 100 feet and 250 feet.

How did we arrive at this? We knew more than we realized we knew. We knew that some absurd values couldn't be true (our higher and lower bounds of 20 feet and 500 feet respectively). So we were able to work backwards. Try working from the extremes and moving backwards next time you get a question that you initially believe you have no idea how to answer.

And for the record, it turns out a 747's wingspan is 211 feet 5 inches. Who knew!

http://www.airliners.net/info/stats.main?id=100

Condo Vs. REIT Part II

2008-02-23T15:41:00.003-05:00

I touched on this topic in July (http://strikershank.blogspot.com/2007/07/alternative-investments.html). Recently I got my hands on a research report from National Bank Financial that analyzed the returns of Boardwalk REIT (BEI.un) vs. owning a condo in downtown Calgary over a 3 year, 2 year, and 1 year holding period.

What did they conclude?

Despite the turmoil in the markets and many REITs trading well below NAV, the REIT outperformed (albeit slightly) a condo in the hottest real estate market in Canada in 2007. If the condo couldn't outperform the REIT in what essentially amounts to a perfect storm (ideal condo market conditions vs. adverse capital market conditions for the REIT), it should make you wonder if there really is a efficient reason for owning investment real estate or simply investing with professional management, diversification, and liquidity that you find with a well run REIT.

National Banks return data below:

3 Year Holding Period Return (2005 - 2007)
REIT: 164%
Condo: 93.5%

2 Year Holding Period Return (2006 - 2007)
REIT: 124%
Condo: 67.5%

1 Year Holding Period Return (2007)
REIT: 11.8%
Condo: 11.6%

Information Arbitrage

2008-02-23T11:01:00.003-05:00

Courtesy of Information Arbitrage, the following is his latest post which speaks volumes of the need for a responsible board of directors. The link to his blog can be found up and to the right.

http://www.informationarbitrage.com/2008/02/yahoo-vs-its-in.html

---------

Yahoo vs. Its Investors: Let the Litigation Begin February 23, 2008

It is really hard being right, but someone has to do it. Now we see that some Yahoo shareholders are getting really pissed off with the Board and simply aren't going to take it any more. This from the AP via Yahoo News:
DOVER, Del. - Two Detroit pension funds have sued Yahoo Inc. and its board of directors, saying they breached their duties to shareholders in trying to thwart a takeover by Microsoft Corp.
The lawsuit was filed in Delaware Chancery Court on Thursday by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as "all other similarly situated public shareholders."
According to the lawsuit, Yahoo's board is pursuing "value-destructive" third-party deals in an effort to fight off Redmond, Wash.-based Microsoft, which on Feb. 1 announced a takeover bid of $31 per share in cash and stock, a 62 percent premium over Yahoo's previous day's closing price.

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"Yahoo's directors cannot 'just say no' indefinitely to legitimate acquisition offers," the lawsuit reads. "Likewise, Yahoo's directors cannot pursue transactions that do not require shareholder approval for the primary purpose of making Yahoo unattractive to Microsoft."
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"An imminent proxy fight necessitates judicial intervention since it poses a deadline for Yahoo's board to place shares in friendly hands," according to the plaintiffs, who allege that Yahoo board members have placed "personal distaste for Microsoft" ahead of shareholder welfare.
"Regardless of their emotional ties to Yahoo and their desire to retain their positions as directors at the company, the Yahoo directors owe fiduciary duties to Yahoo and its shareholders," the lawsuit states.

If this isn't a wake-up call to Yahoo's Board and its advisers I don't know what is. The writing is on the wall, guys. You'd better have some serious cards up your sleeve, arrows in your quiver of whatever other hackneyed phrase you'd like to roll out, because time is running short. Being labeled as un-shareholder friendly and obstructionist isn't the best thing for your company or your careers, so get off the stick and take some decisive steps. Because maybe, just maybe, if you embrace Microsoft you might be able to squeeze a little more value out of the deal. But each day that goes by without this insight will cost both you. Big time.

Round 2

2008-02-15T21:54:00.002-05:00

Next up on the chopping block - Dundee Securities. They let 9 individuals go. Two were income trust analysts (in line with Blackmont's firings a few weeks ago). In addition to the two trust analysts, another analyst, two investment bankers, and three other staff (research associates perhaps?) were given the pink slip.

Looks like the mid-size shops are taking a hard look at staffing needs which is generally the case as they have fairly high overhead (compared to the smaller shops that have a lower break even point when sourcing work). Also, the mid-size shops have a much more volatile cash flow than the banks meaning shops like Blackmont and Dundee are usually the first to trim. This is the second shop in as many months to let significant staff go.

Another data point for a crappy 2008. Short the index, long good fundamental names.

Retailers

2008-02-07T20:08:00.000-05:00

Look out:

Walmart reports a 0.5% same store sales (SSS) increase in January.
J.C. Penny -1.9% SSS
Nordstorm -6.6%
Limited Brands -8%
Gap -2%
Abercromie & Fitch 0%
Pacific Sunwear -7.4%

UBS Council of Shopping (a survey of 43 retailers) said SSS rose just 0.5% in January. This after only 0.7% in December.

What does this mean - the aforementioned are data points that allude to a tighening spending environment for consumers. It's another set of points that help tell a story that North America is in for a heck of a 2008.