Why I’m not shorting Canadian real estate

  • Comparing Canadian real estate to the US, Canadian underwriting is tighter.  Compared to the peak of the US subprime bubble, Canadian underwriting is far more conservative.
  • Comparing real estate to oil&gas and mining, there is far less fraud in real estate.
  • Based on price per square foot… the most overpriced market is China, then Australia, then Canada, and then the US.

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I’m staying away from oil and drilling

Lately, independent E&Ps have been beaten down due to lower commodity prices.  Drilling stocks (e.g. NADL) have been beaten down due to US sanctions on Russia and lower oil prices.  Some shipping stocks (e.g. DRYS, PANL) are beaten down.  In these situations, I will not be greedy when others are fearful.

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The situation in Egypt

TransGlobe Energy (TGL.TO, TGA) and Centamin PLC (CEY.L, CEE.TO) are two publicly-traded companies that have not been able to get their profits out of Egypt.  The end game may be awful for shareholders if they cannot get any profits out of the country ever.  While I am interested in shorting companies with Egyptian assets, the obvious danger is if the Egyptian government begins to respect foreign capital.

*Disclosure:  No position in either TransGlobe or Centamin.

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Notes on cable – Part 2 – The future

I think that it’s likely the following trends will play out in the future:

  • On-demand television will become widespread because it is the most compelling delivery mechanism.
  • Technologies incapable of on-demand viewing (terrestrial broadcasting, satellite) will become less profitable.
  • High-speed Internet providers (cable and telcos) will be able to exercise increasing pricing power over their customers.

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Thoughts on oil and gas (Oct 2014)

  1. Ethane prices will collapse.  The pricing for natural gas liquids (NGLs) will also probably collapse though I am less sure of that.
  2. There is a very high amount of fraud when it comes to exploration and production (E&P) companies.  This creates opportunities on the short side and makes the long side difficult.
  3. Going forward, midstream will be an attractive place to be for shareholders.

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What happens when technology is good enough?

There are some areas in technology that have reached maturity and are at the point of being good enough.  Take JPEG image compression for example.  This old technology is used on websites everywhere to compress images.  There is a newer JPEG2000 format which is technically superior.  However, this superior technology has seen very little adoption on websites.  Internet speeds are so fast that the benefits (webpages loading slightly faster) aren’t important enough for webmasters to switch.

For some shareholders, there may be a disappointing future ahead.  Once the demand for more computing power stops, there is no longer room to create value with newer technology.  Often what happens is that mainstream consumer demand goes away first.  This can devastate the business model of companies developing new technology as it can only be sold on a smaller scale to niche markets.

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