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Christopher Wallace  

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  • Big Short II: Can Canada's Largest Banks Absorb Increasing Defaults From A Real Estate Crash? [View article]
    With respect, Mark0f0, Canadian bank mortgage lending is nothing like US subprime was. The underwriting criteria are simply worlds apart. While there are subprime lenders in Canada, they are not the chartered banks.
    Feb 24, 2015. 09:43 AM | 1 Like Like |Link to Comment
  • Big Short II: Can Canada's Largest Banks Absorb Increasing Defaults From A Real Estate Crash? [View article]
    While this is an interesting thesis, the glaring variable of a 7% default rate needs to be substantiated. I would agree, under a 7% default rate the Canadian banks would be in big trouble. But what reason do you have for thinking that total outlier default rate might come to be? In 1981 interest rates spiked to 20%. Even then I don't think there was ever a 7% default rate in Canada, even though some markets saw up to 40% declines in residential real estate prices. That scenario took down must of the Canadian trust companies who were employing much riskier lending practices than the Canadian banks of today are.

    A new article substantiating your 7% default rate thesis would be very interesting to read. However, to simply grab that number because US sub-prime, a very, very different animal, reached it, seems to be tenuous logic.
    Feb 23, 2015. 09:44 PM | Likes Like |Link to Comment
  • Time To Catch This Falling Knife [View article]
    I am not so sure I can agree with the author's thesis that the market has excessively discounted MHR's price. While he is correct to point out that MHR has transitioned to be a gas play and the stock has correlated more closely with oil, that is more of a coincidence than the market mis-reading the situation, IMHO. The key issue is of course MHR's balance sheet. The market has re-priced every mid-cap or small cap with that kind of leverage. A deep discount to NAV IS the current pricing for debt laden balance sheets. And I suspect that will remain the case until commodity prices improve. MHR, and a host of other highly levered gas stocks will provide multi-bagger returns if there is a quick return to $4 gas. But I highly doubt there will be any revision upward in their stock prices if gas stays at its current level. MHR could be a big gain if gas rallies, or if there is a liquidity event in the pipeline. But I don't see much opportunity for price recovery absent that.
    Feb 23, 2015. 09:15 PM | Likes Like |Link to Comment
  • Uranium Participation Corp. At Attractive Entry Price [View article]
    At Jan 31 the NAV was CDN$6.07. The stock price is currently CDN$5.57 or about an 8% discount to NAV. Premiums and discounts to NAV are all over the map for this one as shown in this graph from their investor presentation An 8% discount is not extraordinary in their history. If buying for the discount, I would wait until a 20% discount had been reached. Otherwise, you need to have an imminent belief in rising U308 spot prices.
    Feb 22, 2015. 06:38 PM | Likes Like |Link to Comment
  • Energy Fuels And Uranerz Energy Uranium Merger: More Than A Sum Of The Parts [View article]
    I have been a big fan of UUUU and wrote about them positively here at SA. I have spoken with management and think they are a capable group. However, I cannot say that I am a great fan of the deal with URZ. I thought it was too rich. But now that it is done and the price of UUUU has dropped so much, I think buying in here and holding for the long run is probably a wise investment.
    Feb 21, 2015. 11:54 AM | 1 Like Like |Link to Comment
  • Energy Fuels And Uranerz Energy Uranium Merger: More Than A Sum Of The Parts [View article]
    @Author: It seems to me that the key issue for investors was that the majority of the merged company went to the shareholders of the individual company with the smaller resource. It is hard for me to see how any of the synergistic benefits you mention counteract that basic point. And the market would seem to agree given the decline in the UUUU stock price since the deal was announced.
    Feb 19, 2015. 10:58 AM | Likes Like |Link to Comment
  • Peeling The Onion Of FXCM's Misleading Marketing [View article]
    Since much of the debate in these comments pivots around the idea that FXCM will have to live up to their ads which state they will not collect on negative balances, I did a brief search on some of the relevant case law on this subject. I am not a lawyer but I am an experienced businessman who has had to apply the law in many business dealings, so take that for whatever you may think it is worth. Carlill vs Carbolic Smoke Ball Co is one of the earliest precedents where the courts forced a company to live up to their advertising. Here the courts (it was appealed) found that the ad constituted an offer and purchasing the product an acceptance and payment of consideration and therefore formed a contract which the courts enforced. The courts in making their decision concluded there was enough specificity in the ad to form an enforceable contract. If one looks at the numerous FXCM ads describing their no negative balances policy, a large amount of specific information about the promise can be gathered. Such ads form the basis of a unilateral contract as explained here: These defenses would be used by anyone who were to be sued by FXCM, and I expect that they would be accepted by any future court just as they were in the past.
    Feb 18, 2015. 11:32 AM | 1 Like Like |Link to Comment
  • Peeling The Onion Of FXCM's Misleading Marketing [View article]
    "In a court of law, you'd lose. Not reading the contract is not a defense. Don't confuse Marketing Materials with the Contract. Marketing's job is to make Snow White out of The Wicked Witch of the West, and it's not a legal document, or binding." That is precisely the dangerous thinking that will get FXCM into trouble. You cannot have a contract and then go out and advertise something contrary to the contract and then go back and rely on that contract. The courts will take all your marketing into consideration and hold you to your promises. I predict FXCM wouldn't get a dime through the courts, and they know it and that is why they have not sued anyone.
    Feb 10, 2015. 09:22 PM | 1 Like Like |Link to Comment
  • Can Long Run Exploration Sustain Its 30% Dividend Yield? [View article]
    Being a Canadian I don't really know. But I would think asking your broker should lead to a positive result, particularly if they are of the size and stature of the ones you mentioned. The debentures trade on the TSE.
    Feb 10, 2015. 09:13 PM | 1 Like Like |Link to Comment
  • Can Long Run Exploration Sustain Its 30% Dividend Yield? [View article]
    I don't think LRE equity is a good play at these oil and gas prices. There is too much debt for the cash generated at current commodity prices. I think the better play are their convertible debs which are trading at $49. They have a 13% current yield and close to a 30% yield to maturity. The elimination of the dividend is a positive for the debs and the reduction in capex is a mild positive as well, IMO. If oil and gas both turn up in the first half, LRE equity could provide very good returns. The big risk I see is covenant defaults on their bank line if commodity prices stay at these levels for a few more quarters. If you have a better crystal ball on commodity prices than I do, LRE could be a good spec at around $1. They have good assets and recent drill results are very good. But their leverage is the over-riding factor.
    Feb 10, 2015. 12:02 PM | 1 Like Like |Link to Comment
  • Alberta Oilsands Update [View article]
    Points taken about the new boards 3 year tenure and the reduction in expenses. But I still think they have not done much beyond that to impress shareholders. Communication has been minimal. The audit process with the Alberta Government has been painfully long, with the government requesting additional documents as recently as a few months ago. The largest companies in Canada don't take more than a few months after their year end to complete a full audit of their entire business.

    AOS has become a blind pool with an expected cash resource somewhere between 50 - 60 million. Investing in a blind pool is purely a bet on management. What has this management done to give shareholders confidence in their abilities to manage this pool? I don't see evidence of much. Altacorp may be a fine banker and might bring them a deal. Lots of bankers can do that. They will receive banking fees for making a transaction, that is their short term motivation.

    Personally I think some shareholders could potentially do a better job managing that capital and putting it in to investments of their choosing.

    Also, would there be a shareholder's meeting required to approve a major transaction involving spending a substantial portion of the proceeds? I would think so.
    Feb 10, 2015. 11:34 AM | Likes Like |Link to Comment
  • Alberta Oilsands Update [View article]
    Thanks for the detailed reply, Andrew. I am no tax expert either, so let's hope that your assumptions and not mine are the correct ones!

    I am sure that there are a number of over-leveraged juniors that could benefit from $60 mm cash. But can this board and this management team find, vet and negotiate the right deal? Having followed them for the last 2 years and having observed what they had accomplished before that time, I must confess that I have my doubts. Not to put too fine a point on it, but I am unable to find any particular "win" in their last 4 years. Why would their next deal all of a sudden be the good one?

    My own preference would be for them to dividend out the cash to their long suffering shareholders. This is not the team I want controlling my money. Re-investing their shareholder's money in a new deal just perpetuates their own board fees and management salaries. I note there has been no insider buying from management or the board for the last year. Perhaps they share my lack of confidence in their own abilities.
    Feb 9, 2015. 10:15 PM | Likes Like |Link to Comment
  • Peeling The Onion Of FXCM's Misleading Marketing [View article]
    "it is silly to think that you can borrow money and nor have to pay it back." Unless that is an explicit term of the loan. FXCM cannot collect those negative balances through the courts; it would appear there is overwhelming evidence in their marketing that clients do not have to pay negative balances. The clients simply offer the defense that they relied on FXCM'x published words and wait for the judge to say "FXCM, you cannot have it both ways. You cannot entice clients to trade by saying that you won't go after negative balances and then ask the court to ignore what you have said."
    Feb 9, 2015. 05:57 PM | 2 Likes Like |Link to Comment
  • Alberta Oilsands Update [View article]
    Thanks for this informative update, Andrew. I have been stuck in this value trap for over a year. I hope the pay day is soon.

    You may want to double check your assumption about zero tax. I am not certain, but it is possible they raised the money to acquire the expropriated leases with flow through shares and that could affect their cost basis in those assets.

    Mouserman's first comment about doing a deal with an over levered e and p company echoes rumors I have heard. Whether that would be a plus or minus remains to be seen. Sounds a bit grand for a 60 million dollar treasury, though.

    I cannot help but think the application process must have been poorly handled given how long it has taken. That does not give me confidence in management which extends to their deal making abilities. To carry on in Namibia strikes me as lunacy. If there is a worthwhile asset there, they need to bring in a financial partner or else drop it. My guess is this will trade at a discount to cash, the degree will reflect the market's view of management.
    Feb 9, 2015. 11:12 AM | 1 Like Like |Link to Comment
  • Don't Let Oil Pressure Affect Your Blood Pressure [View article]
    M Cutler,
    I have put my toe back into the E and P water in a conservative way with some convertible debs paired against an inverse oil etf. Not terribly sexy, but not too risky either.
    Feb 8, 2015. 11:35 AM | 1 Like Like |Link to Comment