Monday, November 06, 2006

What a week

I was on vacation last week. I have noticed before that important turning points tend to happen when I’m away, last week was no exception!

  • The tax rule change on Canadian Income Trusts was the bombshell of the week. Double digit red marks were across the board for CANROYs. Frugal has already talked about this. I took a smaller hit than him through PDS and PWI. Although aware of the taxation “loophole” enjoyed by the CANROYs, I never imagined such a draconian measure. I was quite disappointed with the Harper Government which was supposedly center-right. On the other hand, I find the selling over-done. As many have pointed out, the rules don’t take effect for existing trusts till 2011 – when the favorable US 15% dividend tax rate is set to expire. It is also incumbent upon the trusts to maximize shareholder returns by, for example, increasing payouts before the deadline, reverting to a normal operating company, etc. There’s a lot of work to be done by a tax expert here. Since I purchased them for income generation, I didn’t have a stop-loss order, not that it would have helped. My current plan is to hold pending further developments.
  • Gold did extremely well by advancing 5% last week. As I noted on Oct. 25, gold’s price action was encouraging. The 320+ level in the HUI was identified as critical for the HUI, where it now sits. The latest move from Oct. 4 came without much fanfare from the gold bulls, timid as we all were from a vertiginous drop in May and a false break-out in September. Some of that timidity was evident in my own writings as well as the comments on the last post. This is nothing more than the gold bull at work: as Richard Russell likes to say, its very nature is to throw off as many people along the way as possible. My philosophy in investing in PMs has always been: keep a core position and trade some to take advantage of the volatility and for emotional management. There will be inevitable errors in timing, but err on the long side and let the secular trend take care of the rest.

    For whatever it’s worth, I caught CNBC’s Fast Money briefly (synopsis) on Friday, and heard Eric Bolling recommending gold among other commodities.

  • The last major development was the decline in the major indices (finally) after many weeks of doing nothing but going up. Before the bears rejoice, the declining volume must be noted. There are finally talks of a slowing economy (really?) by financial journalists. I’m a bear on record, but I think this latest weakness has more to do with pre-election jitters that will dissipate next week. There has to be much greater downside volume for me to add to take a serious look at shorting the general market again. Housing and related sectors, however, may have already initiated another leg down (Disclosure: shorting BZH, CTX, NEW).