Blessed by the Potato

Note: I’ll be updating this post through the night and next few days as I try to process the transaction…

It was almost exactly a year ago that I called Canexus my “ace in the hole”. With a ~28% return, it wasn’t too shabby, but others have outperformed it. Part of that was based on the business itself, and part was on the theory that if Nexen was trying to sell its ~65% stake, it might lead to a buyer taking out the whole thing for a tidy return.

Now though, it’s been announced that Nexen has sold it’s portion of Canexus to a group of underwriters in a bought deal for a secondary offering. What that means is that the risk of selling all those shares (way more than is currently in the public’s hands) lies with the banks now. Because of that, they usually get a sweetheart price, in this case $6.40 (it closed at $7 yesterday, but was down to $6.80 today — with the trading volume, it looks like there was a leak of the news).

So, I had figured instead of a secondary offering to the public, one big company (or pension fund) would try to take over the whole of Canexus. I figured it was worth at least $8 in such a scenario (and given the cash they spin off, probably still worth that in a few years).

Now I have to ask myself, even though I already own a fair bit of Canexus (it’s something like 10% of my portfolio), do I want to take the opportunity to buy more in this offering at $6.40-ish? The cashflow and yield are still there, though part of me does feel cheated that the offering price is “so low”.

Update: Well, the take-up went well, with Canexus almost immediately trading above the offering price. I still think it offers good value, and the latest results indicated that it is going to convert to a corporation, so that distribution will become an even more tax-efficient dividend, without any cut!

First up, the 5th edition of the Canadian Real Estate Blog Carnival is up on Landlord Rescue.

In the news today, the government tweaked mortgage lending rules slightly, reducing the maximum insured amortization to 30 years, maximum refinance LTV to 85%, and removed government insurance for HELOCs.

The various financial forums are still discussing the HELOC issue — I’m not sure myself how many HELOCs were actually insured, so it’s probably a minor issue. Refinances should likewise be a small piece of the pie. So that leaves the reduction in amortization. On the one hand, this is something that will influence almost every first-time buyer, as huge swaths of that section of the population have been opting for the maximum amortization to grab as much RE as they could. I myself would have preferred an increase to the minimum down-payment at the same time, but we’ll take what we can get. What’s the impact? Very briefly, if someone had a maximum mortgage budget of $1000, then:

At 35 years, they could get a $260k mortgage at 3%, or $198k at 5%. With the new 30 year maximum amortization, that same $1000 monthly budget gets $237k at 3%, and $187k at 5%. The effect is interest-rate dependent, but it means that for someone at the very edge of affordability, their maximum house price just went down something like 5-9%. Not a huge effect, but hopefully something to get the ball rolling.

Nikki made a dangerous gamble, going for a healthy oatmeal pumpkin cookie with raisins (blech) against my tried-and-true brownie cookie with peanut butter chips. Both were soft-textured cookies, so no one could get the upper-hand based purely on texture.

The judges were impressed with both cookies, and smiles were to be found all around. Several people independently reported that Nikki’s cookie was “like a muffin”, and mine had an “incredible brownie quality while still being a cookie.” I have to say, for a healthy cookie with pumpkin no less, Nikki put up a fierce fight. While I picked out the raisins, I was nonetheless pleased with the taste and texture of her cookie. Surprisingly this was her first cookie battle — but no mercy is shown upon the newblars purely for being new. If there was, well… this might have turned out to be a very different match-up.

In the end, experience prevailed and I got to keep my title, with two of three judges picking my cookie. It was by the skin of my teeth though: though the judge that voted for Nikki’s cookie admitted that it was the health benefits that gave her the edge, the other two judges said that on purely taste merits alone it was a tough call to make. I can’t rest on my laurels any more, assuming my best cookie ever title is unassailable.

I think the lesson we learned here today is that in a cookie showdown, everyone is a winner.

Nikki made a cookie.

A big cookie.

A giant, beautiful cookie that deserves respect. And I will pay my respects, right now: that was a damned fine-looking cookie. But then the respects went too far: “Best cookie ever!!” Sam exclaimed. Hey, whoa there, let’s not get ahead of ourselves. It is a most excellent and large cookie, but, I told them, I hold the title to best cookie ever… unless this is a bake-off challenge?

“Bring it, beeyatch.” – Nikki.

The oven mitt has been thrown down, and the challenge is on! May the best cookie win!

My bork-bork-bork-fu is strong, and at the risk of falling into hubris, I think I’ve got this one in the bag. I’m going to be bringing my chocolate brownie cookies to this battle.

See you tomorrow.

Time, I suppose, for another round-up links post. Writing went much better this week, but I have completely fucked up my sleep schedule, and the diet was out the window.

Some webcomics I haven’t seen before:

Buttersafe: I will never understand bees. Pajamaforest: Zing fail, It’s a date.

A quick post at the Globe and Mail about finance pay scales compared to other professions. As a scientist, I do have to lament the misallocation of resources in our society towards the allocators of capital. Don’t get me wrong: someone has to do that job (capital is but one of the world’s limited resources), but I don’t think it’s a profession that should be sucking away our best and brightest (especially if they insist on blowing up the economy every other decade).

Xceed mortgage, a subprime lender in Canada (they do exist!) is having trouble getting financing, and is not renewing mortgages of its clients. It’s no longer accepting mortgage applications from new customers. Though I expect most people with schedule 1 banks will have no problem renewing their mortgage even if they’re underwater in the future (though I expect some loss of negotiating power on rate), this should serve as a reminder that a renewal is not guaranteed, even if you’ve made all your payments!

A neat youtube video on side-scrollers and moving your own body with a 3rd-person perception.

Whiterock (WRK.UN) is once again doing a share split, 3-for-2. I don’t know why they keep splitting the shares: $20 is not exactly dear, especially for a REIT. I suppose it might help a few investors with synthetic DRIPs get more whole shares, but these arrangements do have a cost. A trivial one, perhaps, but not zero. I don’t get why management doesn’t just wait until it’s high enough for a 2-for-1 split. Last time this happened I sold a chunk just because I didn’t like the taste of the shenanigans, even though I still thought Whiterock was undervalued (and boy was it: WRK.UN returned approx 85% from that sale). I think in an absolute sense it’s fully valued now, but since the rest of the REITs are also up huge over the last year, I still think it’s just a touch undervalued on a relative basis, so this time I won’t sell my last little chunk of it, even though I don’t like the whiff of share price manipulation that the frequent splits suggest.

Netbug shares this video of a ketchup-dispensing robot and I have to say, if this robot neatly dispensed an appropriate amount of ketchup, the video probably wouldn’t be worth watching. I don’t know what that says about the human condition, but I’m sure it’s worth reflecting on.

How stupid are US kids that these need to be banned so they won’t choke on them? What else might they choke on? Pebbles? Bits of food? Food wrappers? Screws? Cat toys? Their socks? Where does the madness end? Does the US border guard, tasked with keeping terrorists and science fiction writers in line really need to worry about a single Kinder Surprise egg? (It’s not even like she was trying to smuggle in a case of them as contrabrand).

For fans of Community: “Fact: In 100% of fake gun related shootings, the victim is always the one with the fake gun.”