Category Archives: in the news

Free Money: Portfolio Update

Here we are nearing the end of June and if you have been following the news you know that the U.S. has confirmed that the Syrian government used chemical weapons against the rebels.  You are probably interested to know the state of my portfolio because I have been pretty bad at posting updates.  The main issue was that I got impatient for the contracts to close and started taking contracts in which I had less confidence. There were also a lot of small trades. Here is an excel file so that you can see each of them.  The summary goes like this:

I cashed out my gold contracts and then tried to make money as gold went the other way and it did not bounce the way I had hoped. Also went short on Microsoft breaking 32.50 (a five year high), which it then broke. That cash was all lost.  Then I cashed out some of my Syria stock to try to benefit from the Microsoft surge and it did not quite go high enough, that money was lost as well.  So, all in all, my impatience punished me every time.  I do recommend you look at the excel sheet as you will see where most of the losses occurred.

So now we move to the interesting part.  For the last couple of weeks I have been sitting with nothing in my portfolio other than the Syria stock.  France had said they confirmed it, U.K. had done the same but there still seemed to be some uncertainty.  I had 212 contracts at an average price of about 14 cents each. A few hours after the White House made its announcement today the contract was closed at $1, which means that my current cash level is NZ$212.09.  The nine cents was leftover from before.

This little experiment began April 12th, by the time you read this is will be June 14th.  I started with NZ$60 and now have NZ$212.09, a 253% increase. Free money.

For now my portfolio is empty.  At one point it contained over 300 of the Syrian contracts so that lesson on impatience has been learned.  Also, from now on if there are any purchases made, the update will be posted here within 24 hours.  It is possible that the next purchases may be on a different site but that decision has not yet been made.  iPredict seems fairly well organized so far, perhaps another few contracts before cashing out.

Finally, the hope is that the next purchase need not involve crimes against humanity.

 

Bank of Canada. Carney’s Last Rate Annoucement

Short post tonight because tomorrow is the last time the Bank of Canada will make its target interest rate announcement with Mark Carney as governor. I know that it is too late for you to go out and make millions on interest rate predictions but the target overnight rate staying exactly the same is a pretty sure bet at this point. The BoC is reporting core inflation of only 1.1 percent which is about half of its target.  If you ask them they will of course say inflation will return to 2% all by itself near the end of their forecast horizon.  But, if for some reason inflation were to stay stubbornly low then the BoC would actually want to lower the target rate. I would really like to see the total meltdown Ron Paul enthusiasts and real estate bubble doomsayers would have in the comment sections and forums if the target rate was lowered tomorrow, but the chances of that slim to none.

 

LCBO Strike – LCBO Privatization

With the recent threat of an LCBO strike over the May long weekend we are again hearing cries for the privatization of liquor stores in Ontario.  “Down with the Monopoly!” they cry.  It seems like a good time to take a few minutes to look at what would happen if liquor sales were privatized.

First thing to do is establish how much we are currently spending on our booze. After reading this article I would like you to ask someone you know why liquor prices in Ontario are so much more expensive than they are in say… Michigan.  The answer you will get in a large number of cases is that the prices are so high because of the tax.  The person will then go on a minimum two minutes rant about taxes. There is actually no real mystery to where the high prices come from because the LCBO publishes their pricing scheme online and although there are a lot of taxes applied to booze, that is not where the majority of the price differences come from. My spirit of choice is Whisky.  Here is how the LCBO decides on the price for Whisky.
pricing of the whisky

So from a 26er of domestic whisky that costs $26.85, $20.48 goes to the government (Federal and Provincial combined). $13.53 of that is just straight mark up while the rest is tax. Similar I know,  but not quite the same. Want to know how the government prices your favourite beverage? You can check out all the pricing schemes here.

You can then join your friend’s tax rant by saying that you cannot believe how much those tax dollars are wasted by keeping government documents easily available online when no one reads even them. Use the term “bunch of crooks” for added effect.

Breaking news: As I am typing this the LCBO has reached an agreement with its workers to avoid a strike.  Hooray.  I will keep the rest of the post brief. Also, expect a slightly lower quality of editing.

Privatizing the LCBO would be an extremely difficult task. First thing to decide is the process.

Option 1: Sell the entire thing to a private company and hand them a monopoly.

Option 2: Maintain the LCBO locations as they are for a time but allow private companies to open their own stores. Over time reduce the number of government run stores or eliminated them completely.

Option 3:  Sell each of the stores individually.

Selling the whole thing gives the government money upfront but it would need to guarantee some constant level of taxation for something like 99 years, similar to when the Ontario Government sold the 407 highway and gave a 99 year lease agreement.  Otherwise if I am an investor I would worry that the government would lure me into buying with the large margins they are making only to increase the taxes levels because they find they still need the $1.55 billion a year the LCBO currently generates even after getting the upfront purchase price.

Allowing private companies to open their own stores while keeping the official stores open is what Quebec and BC have done.  This would force the province to increase their tax levels significantly.  I suspect they would shrink their margins to something more in line with standard retail stores by raising the taxes for everyone; they would essentially be taxing the private companies and themselves to ensure that they still generate the same revenue no matter where you buy your booze.

I do not think selling each store individually would be likely. Their lease agreements, shipping contracts, employees, everything would need to be split up by location.  This really would be the most difficult of all possibilities.

We should also remember that LCBO wages are higher than the average retail level job.  This means that any private company that entered this market would either cuts jobs or slash wages.  If they cut jobs, those are EI premiums that must be paid out. If they reduce wages, then those workers will pay less income tax.  Either way, the government is losing revenue from another angle and this would need to be accounted for in the privatization plan.

I was going to write another section here at the end explaining why the prices that the LCBO pays for their booze are likely lower than anything that private companies can hope to get.  I had graphs and other interesting things but I think since the strike has been averted I will simplify.  If you have one big buyer in a market they will get better prices on their goods than a bunch of smaller players.  The LCBO has market power, individual private stores are prices takers.

So if you hear someone saying that we pay way too much for our booze because of the taxes and that the LCBO should privatize, now you have a real answer for them.  Actually, we currently pay too much because of high markup; if we privatize then we would be paying too much for our booze because of the taxes. Cheaper booze is just wishful thinking.

 

Recent WordPress Brute-Force Attacks

Over the last few weeks this site has been subjected to a brute force attack. I took it as a complement since it is the second hack attempt this year, the first being successful. My site must be in high demand.  The botnet is using the login name “admin” and then trying to guess the password.  So essentially this an attack targeted at people that install the WordPress system and leave everything on the default settings (my login is admin1, of course).  It seemed fairly harmless as I was only getting about 5 attempts an hour in short bursts.  Even if I had a user with the name admin, at that rate the password would never be guessed.

Earlier this week the login attempts started accelerating and I decided to look into this a little more.  Turns out this is a actually a massive attack on all WordPress sites across the internet.  You can get the details from Ars here. Not being targetted specifically is a bit of a relief but kind of a let down as well; I guess the site is not in that high demand after all.

So if you are running a site/blog using the WordPress system then you need to login and make sure that you do not have an account named admin.  For now it seems that unless you are in control of your hosting server then the best bet is to wait.  Not the most reassuring advice. Installing an IP logger on your login page will give you an idea of the size of the attack but installing any of the more server hungry PHP-based login security plug-ins is probably not a good idea at moment unless you know what you are doing.  And really, if you have your admin account set to “admin” then you really do not know what you are doing.  If configured incorrectly, some login security plug-ins will cause your server to crash under such a larger number of requests.  If you do insist on using admin as your login name then at least follow XKCD’s advice on passwords.

 

CRTC’s Canadian Cellphone Company Code of Conduct

Here in Canada you can pretty much guarantee that you will never hear this statement:

“I love my cell phone provider.  They give me fair rates and great service.  My favourite thing about them is that if I do ever have a problem, I call in and they solve it for me the first time, every time. Also, my bill is always exactly what I expected it to be and prices are fair, especially compared to the U.S.”

Well this week CRTC announced something they referred to as a draft code of conduct for wireless providers in Canada.  I would like the final document to be named the CRTC’s Canadian Cellphone Company Code of Conduct, or CCCCCC.  You can see it here.

Sighs of relief went up around the country as people felt there was finally something being done about the evil cell phone companies that had been screwing us all over since the dawn of time. Today we will look at the suggestions that have been outlined in the draft and how they might affect you as an individual.

Let me start by stating that I am no fan of cell phone companies. People that know me have heard me rant about them in the past. However, I think this draft code of conduct is not the correct solution to the problems we face as consumers. Also, I should mention that I used to work in the call centre for one of the major cell phone providers in Canada and so I have a pretty good understanding of what people are upset about when they talk about their cell phones. Let us begin.

We will use the nice summarized list of the new suggestions from the CBC.

  • Monitoring usage: Customers must be given tools to monitor their usage compared to the limits of their plan in order to be aware of extra fees they might incur if they go above the limits.

A great recommendation.  Rogers thought it was so good they travelled back in time and implemented this years ago.  You can see usage details on their website or directly on a smart phone app that is free to download and comes installed on most phones by default.  Bell had an even older service so that even before smartphones you could send in a text and it would autoreply with your usage and overage fees.

  • Bill caps: Customers must be allowed to restrict features that could incur additional fees and have the ability to cap their monthly bill at a certain amount. Once the user hits the cap, the service provider would suspend services that could result in extra fees.

This is a spending cap on Bell and CLM(Credit Limit Monitoring) on Rogers.  These are usually implemented automatically on people with weaker credit scores but you can put them on your account voluntarily as well.

  • Personalized summary of terms, conditions: Customers must receive a personalized summary of key terms and conditions in their contract, such as how much they would pay in cancellation charges at different times during their contract and what tools are available to help them monitor their usage of different services.

Yes, a normal cell phone contact could take minutes and minutes to read through and you want your phone now! Now, now. Make them give us bullet point contracts! Also, they already tell you in your quick start guide how to monitor your usage. In case you were wondering, that is the booklet you normally throw in the recycling bin after you take your phone out of the box.

  • Unlocking wireless devices: Wireless providers are required to give customers the option to unlock locked wireless devices. The fee that can be charged for this option and the time frame in which devices could be unlocked would vary depending on whether or not the cost of the device is subsidized by the provider.

I agree with this.  Locking phones is dumb.

  • No fine print: Policies governing the terms or use of service “must be written in clear, easy to understand language” and in an appropriate font size.

Confusing contracts are already against the Consumer Protection Act of 2002.    Here is a link to the summary of your rights.  So I guess now they can be fined $250,000 as a corporation AND it will be against the CCCCCC. Also, I am not sure we need to take the term “fine print” so literally as to regulate the font size.

  • Advertised prices: Advertised prices for a contract must include the total monthly amount the customer must pay on a recurring basis and indicate whether the figure includes sales tax and government-mandated fees.

Yeah we already have this protection as well.

  • Cancellation of service before contract is up: Early-termination fees can only include the subsidies the provider has absorbed to lower the price of mobile devices and discounts the customer received for signing a fixed-term contract.

I am fine with this but most people will still think these fees are too high.

 

The number one thing missing from this list is a statement about the length of contracts.  This is a huge complaint from customers in Canada.  Most countries have two year contracts, in Canada the contracts are normally three years.  Everyone is demanding that the contracts be limited, by law( or CCCCCC rules in this case), to two years.  Make three year contracts illegal! The angry internet people type (sometimes in all caps).  Of course, right now you could get a two year contract if you like, or no contract at all.  You could just go buy a phone and start a plan with a provider.  But wait! Phones are expensive, who wants to pay so much for a phone when they are practically giving them away with a contract?  In reality people want the fanciest phone at the lowest possible price and so they sign up for three years.  There is no reason to legally limit the contracts to two years.  You don’t want a three year contract?  Don’t sign one.  Pay more for your phone. Then other people do that. Then the companies start giving better deals to people on two year plans because everyone wants one.  This is a new system where people demand something and then others sup…  provide it. I have just invented it.

We should be talking about the real problem with our cell phone market here in Canada; the limitations on foreign investment on the wireless industry and the spectrum auctions.

Not too long ago it was illegal for a wireless provider to be owned by a foreign entity.  That is, only Canadians could own Canadian wireless providers. Now we changed the rules so that if you own less than 10% of the market then you are allowed to accept foreign investment. Great. As far as I could tell there is nothing written about what happens when you accept that money and then grow up to 10% of market or beyond. At 9.99% of the market you can have European or US companies investing.  10.01%? I guess you give all the money back or sell your extra share to domestic owners. It really is not clear what happens.

Spectrum Auctions.  It may not seem like it but there is only so much air to go around when it comes to cell phone signals. This year sometime there is going to be an auction to see who can take up what parts of the air that has recently become available. You may have heard about how over-the-air TV(antenna, bunny ears, etc) switched from analog to digital in the not so distant past.  Well, that freed up some spectrum space that is really nice for wireless companies. It turns out that the signals that travel in this spectrum space are great for high speed data and for going through walls.  So you can get faster speeds and your signal will work in more places like parking garages and elevators. Good news right?

The auction process the CRTC came up with is that each major service area will have its spectrum divided up into four blocks.  Yes four.  You would not want three because that would benefit only Bell, Telus and Rogers.  Remember, this is an auction so the highest bidders get the spectrum space. They have basically left one block open for another company to buy in each service area. See, competition. Rejoice. Although not too much competition because if those smaller firms that are supposed to come 4th in these auctions got an influx of money and were able to buy too much of the spectrum then they would go over 10% market share and then they would not be allowed to use the money that allowed them to grow over 10%…  I wish I was making this up.

There is only one solution to this.  DE-regulation. Rather than trying to get better customer service and lower prices through adding more laws which cost the government money to enforce, we need to remove restrictions on who can buy our spectrums.  The idea here is that if the big companies in the U.S. had access to our market some of their deals might start showing up here.  Or, they would start moving up here and all of a sudden it becomes cost effective for Canadian companies to decrease their pricing. I am not normally so Fraser Institute on topics but in this case it makes so much sense to just de-regulate the market and watch the benefits roll in.

Although, we should make sure the de-regulation is printed in a nice easy to read font.

 

It’s the End of the World as We Sell It

Well the world is coming to an end tomorrow so this will likely be the last time I post on this site.  If you are reading this then either nothing at all happened or you managed to survive and for some reason you are spending your time in the post-apocalyptic world on the internet.  In reality end-of-world predictions are pretty profitable.  Tomorrow’s Mayan based prediction seems to be a particularly good one.  A quick Amazon search returns about 2000 books about the topic.  Add in TV interviews, websites, end-of-world food stock-ups and people like this guy and you have a pretty hefty money making machine.

So today we will discuss another End of the World (EOTW) scenario that might gain popularity once tomorrow passes without incident. There will be no politics or economics in this post so you can relax.

The earth’s crust is constantly being reformed at mid ocean ridges, big long craters where the hot stuff from the centre of the earth rises up to cool. (Yeah I am dropping some geology on you) If you look at the crust of the earth carefully you will see banding and the bands are magnetic.  That is, for alternating bands in this sequence the polarity of the rocks is reversed.  The magnetic orientation of these rocks is determined by the Earth’s field at the time that particular portion of the crust was formed.  Therefore, the conclusion is that from time to time the magnetic poles of the Earth change.  We are in a period that we consider “normal” and everyone’s compass works.  There are also periods called chrons where the magnetic poles flip, last time this happened was about 41000 years ago. North is south and vice versa – to a compass anyway.

What is the effect of this?  Well the EOTW scenario here is that when this happens all the radiation from the sun and cosmic radiation from deep space will no longer be deflected around the Earth(the magnetic field does this normally) and we will all die.  It is pretty straight forward but there are a few different variations.  The solar wind will rip away our atmosphere, we will all die of radiation poisoning or something else horrible.

In reality when the poles flip the Earth’s field becomes very distorted and weak, estimated at about a quarter of its normal strength.  It is still, however, strong enough to deflect everything it normally does and keep us safe. So you can strike this theory off your list of possible causes of the apocalypse.

Fortunately if you really are in the business of selling fear then you still have lots of material.  Some crazy virus (zombies are so hot right now), nuclear weapon, rapture, aliens and Illuminati conspiracies are always good for a book or two.  So just remember, the only thing you have to fear is that we will run out of things for people to fear.

And fear is just so good at getting people to spend and help out the economy. (had to)

 

Interest Rate Sledgehammer

I am currently in the middle of changing cities so I am going to make today’s post short and to the point.  Mark Carney is leaving the Bank of Canada for the Bank of England and so I think it is a good time to consider what challenges are facing Canada as he departs.

Household debt levels are too high, this is a common statement made by Mr. Carney, the government and whoever is being quoted in the daily business section of your favourite news outlet.  If we are talking about analysts and journalists then the suggestion is invariably for interest rates to rise.  Raise the interest rates to slow the borrowing of Canadians they say as if is was some fine tuned instrument that will target the housing market to deflate, but not pop, the bubble. Of course if rates go too high then people on variable rate mortgages will see their payments rise and some will default.  That would not be very good for the economy, but it would likely slow borrowing.  Higher interest rates would drive up our dollar as foreigners try to get in on the higher interest rates from countries where rates are still at rock bottom.  The higher dollar would make the all the neat things we import cheaper but it would make our exports more expensive at a time when Canada is trying to expand its trading horizons beyond the US.

However, as we have seen many times on this site the BoC keeps an eye on these things but its main concern is core inflation. The BoC philosophy is that the best way to keep the economy humming along is to maintain a core inflation level of 2%. Right now that inflation level is sitting at 1.3% — below target.  If we ignore the new thoughts we had about inflation for now and stick with traditional thinking the correct step at this point would be to lower interest rates.  Of course we know the BoC understands the delayed effects of anything it does and will likely not move the interest rates because their latest Monetary Policy Report (October) showed that they expect core inflation to return to a nice stable 2% near the end of 2013 or beginning of 2014.

So given the information that we have at the moment it appears that changes to regulation similar to the new mortgage rules are probably a better way to cool the housing markets because the BoC is not likely change its mind on the target overnight rate.

 

Dalton McGuinty Resigns After Digging a Huge Hole

Today, Dalton McGuinty, leader of the Ontario Liberal Party and Premier of Ontario, announced that after nine years he would be stepping down. At this point you may be cheering or crying or not caring at all, but I assure you that in the next little while we are going to hear about all the good and bad things that the Liberal party has done during their time in power. I am not going to write about every decision during that period that I agree or disagree with but I thought that now would be a good time for a quick mention of one project that does not get enough time in the press.

The Niagara Tunnel Project.  Started in 2005, this is the project that dug a 10km long, 14m in diameter tunnel under the city of Niagara Falls. The tunnel will be used to bring more water to the existing Sir Adam Beck power generation station at the base of the falls. The tunnel itself is complete and they expect the power generation to start in 2013.   Total output should be about 1.6 billion kilowatt-hours per year which is, in the more popular measure, enough to power 160,000 homes.  This is a project that both the Conservatives and the Liberals supported, something you do not get that very often.  Yes, it was five years late and yes it cost $1.6 billion instead of $935 million but I still think this is something that people should be hearing about more frequently.  The problem is that most of the time you get reports that are very similar to what I have just written, full of boring numbers. Instead we need more pictures and videos – this tunnel is an extraordinary engineering achievement. So here you are. That is a link to a history of the tunnel with pictures and a couple of videos.

So whenever you start to think that the government is incapable of getting anything right just remember this amazing project and maybe it will help restore a bit of confidence.  This tunnel is designed to provide power for a hundred years. I doubt the citizens of Ontario in 2113 will be thinking The clean, easy power is nice but do you remember the Liberal eHealth boondoggle of 2009?  

Want to read more about the tunnel?  Here is the official site.

 

CNOOC-Nexen. Just the Beginning.

Currently the Canadian government is trying to decide whether or not they should allow the Chinese National Offshore Oil Corporation (CNOOC) to purchase 100% of Nexen, a Canadian oil company that operates in the Alberta oil sands.  This is going to come down to our old friend “net benefit”.  I must always be sure to include the quotation marks because its definition has never been clear. Some time ago I wrote about the how the Canadian government had blocked the sale of Potash Corporation to BHP, an Australian company. I ended that post hoping that the government would eventually explain the exact reasons for blocking the sale but they never did. The consensus in the media seems to be that there was no way we could sell the Potash Corporation because it is unique and it controls a huge amount of the world’s potash supply.  Nexen on the other hand only controls about 5% of the Alberta oil sands and so everyone seems to think this deal will be allowed — under certain conditions.  Conditions like keeping the Nexen head office in Canada with at least 50% of the board being Canadian, keeping 80-100% of the current workforce levels and maintaining the company’s commitments for capital investments for a certain number of years as well as posting the company’s stocks on the TSX.

This is where you say Hey that does not sound very much like a free market to me! You are correct.  In the Potash post I mentioned that at the meeting of the G20 countries the Canadian government said they would refrain from adding any new trade barriers and then went ahead blocked that purchase anyway.  Maybe now they will say that by allowing this new deal they are honouring the commitment? There needs to be some consistency.

The current government hates getting involved with running companies.  Remember the Canadian Wheat Board?  I wrote about it a few posts back.  That was an evil State Trading Enterprise (STE) that sucked profits from hardworking Canadian farmers.  We had to get rid of it because a government had no place in markets.  You may have already guessed where I am going with this. A quick look at any reliable source of information will tell you that CNOOC is a Chinese STE. That is correct, it is owned by the Chinese government. So while our government tells us how terrible it is for an STE like the Canadian Wheat Board to exist here in Canada it is likely to approve the entrance of a Chinese STE into our market.

On the positive side Harper has claimed that they will push the final decision back 30 days (into November).  The government is going to take the extra time to create a framework for this type of foreign takeover. This is long overdue; it will finally get rid of the “net benefit” stipulation which is the political equivalent of “if we feel like it”.  My hope is that they do it properly and completely.  Right now people are saying that 5% is okay to sell, but we need to set specific guidelines.  Can one foreign entity own 5 companies in Canada that each account for 5% of oil sand operations?  10 companies?  Do we limit companies by their country of origin?  Does it matter if they are state owned or not?  Will the limits be firm or will they be altered in each trade deal we negotiate?  There are a hundred more questions we need to answer.

The CNOOC-Nexen deal is worth about $15 billion and has taken up most of the recent headlines but it is just the appetizer for the feeding frenzy to come.  There has been almost no talk about the fact that Oil and Natural Gas Corp and Oil India Ltd, along with refiner and retailer Indian Oil Corp have put in a $5 billion bid on a share of the oil sands owned by ConocoPhillips.  All three are STEs operated by the Indian government.  The framework that is promised along with the CNOOC-Nexen decision needs to lay down exactly how Canada intends to handle these cases.  We have the third largest supply of oil in the world; if Harper wants to diversify away from U.S. exports he better make sure we are ready for it.

 

Quebec Votes.

To celebrate labour day people in Quebec will be voting in a provincial election. The election takes place on September 4th. The current government is the Quebec Liberal Party (QLP) lead by Jean Charest.  The other major parties are the Parti Quebequois (PQ) lead by Pauline Marois and Coalition Avenir Quebec (CAQ) lead by Francois Legault. In the most recent polls the PQ have a slight lead with 32% of the vote.  I thought it would be a perfect time to take a look at the things being said by the leader of the PQ just in case there are any readers from Quebec that are not aware of her positions. I will take statements from a speech made in Montreal this week.

“I need a majority mandate to make Quebec a country,”

Yes that’s right.  She will fight to give Quebec its independence. Although most polls show the support for a referendum somewhere down near 28% we need not worry about that because Ms. Marois will fight for it in any case.

“I have chosen to make the mining companies pay.”

She is planning on raising the mining royalty in Quebec from 16% to 30%.  She did not mention that this would make Quebec one of the most expensive places on earth to mine, but I am sure she is aware of that fact. In that statement she is referring to paying for a tuition freeze.  She supports the student protests and has promised to make sure that there is no increase in tuition.

Those two statements alone should make it clear that the PQ is not the party to vote for but then again, I think for most Quebec voters this election is more about NOT voting for the Liberals (who are sitting at 26%).

The CAQ is polling at 28% of the vote which places it in second. Francois Legault used to be a member of the PQ and fought for Quebec independence. He now says that if his party gets the majority that a referendum would be taken off the table for at least 10 years. His platform is based on saying that the PLQ is corrupt and the PQ is under the influence of the unions. He claims that his plan will save 2.5 billion dollars in the first year. This party is less than a year old and so has no political history. This might be to its advantage because no history is better than bad history.

This is obviously not a comprehensive examination of the parties but I felt it necessary to at least point out some of the basic facts. I will not give an official webernet.ca endorsement to a single party but I think the responsible decision here really is between the QLP and the CAQ.