Monday, July 28, 2008

Extreme makeover: Foreclosure edition

Not much I can really add to the story that a house built in 2005 for a down-on-their-luck family on the TV show Extreme Makeover: Home Edition has gone into foreclosure.

The four-storey mini-mansion, built for the Harper family with the help of 1,800 volunteers and residents from Lake City, Georgia, will be auctioned off to the highest bidder on August 5th. The house was used as collateral for a $450,000 loan that went into default.

Sad, really. Obviously in retrospect, it's not always the greatest idea to shower people in dire financial straights with windfalls like this because they don't always know how to handle it, but this whole story also says some particularly sad things about the worsening state of the U.S. economy in general.

Tuesday, July 22, 2008

Thoughts on the wireless spectrum auction

Much as I'd love to believe Industry Minister Jim Prentice's claims that the recent auction of new wireless spectrum is going to revolutionize the industry in Canada by giving consumers more choice for less money, I don't.

Whether you're one of those early adopters willing to pay Rogers' exorbitant rates to get your hands on the iPhone, or just a Luddite shelling out a $7.95 "system access fee" on your no-option phone for no good reason every month, it should be painfully clear that Canadians pay more than almost anyone else in the world to use cellphones.

The CBC's handy iPhone index calculates that Canadians will pay a minimum of $2,572 over three years to use the new iPhone, under Rogers' cheapest plan. That's well over the global average, and almost three times as much as the basic plan's costs in Switzerland, for example.

I think it's great that new entrants like Quebecor, Shaw, and Yak have bought tiny slices and will presumably soon be rolling out service plans in the near future. I have especially high hopes for Yak because they run a GSM network (currently Rogers is the only one, which explains the iPhone exclusivity) and they've been a genuinely cheap alternative in conventional long distance and Internet service.

But the cynic in me finds it hard to believe that Yak, for example, is going to be particularly motivated to undercut the Big Three's prices after they've just dug themselves a $423-million hole just to get in the game in the first place. The whole thing looks like an oligopoly to me.

I'm trying to be optimistic, but we'll see how this plays out.

As for what Ottawa should do with the $4.5-billion windfall, I normally hate the knee-jerk partisan bitching that usually comes out of the opposition no matter who's in charge, but I find myself nodding in agreement with Liberal critic Scott Brison's suggestion that some of the money should be used to bring high-speed Internet to remote northern and rural communities.

Monday, July 07, 2008

BCE -- too good to be true?

I did something very unlike me this morning -- I bought a stock that I have absolutely no intention of owning for more than a little while, for no other reason than its price is too low and bound to be higher in the very near future. Crazy, I know. But there's a catch...

The stock? BCE, one of Canada's best-known, and oldest companies. Not exactly your typical candidate for a speculative flyer.

I've been sitting on the sidelines, watching the BCE drama unfold as the buyers who pledged to take the company private and the bankers who promised to loan to them bickered with bondholders and stockholders eager to make sure they get their pound of flesh.

For a while, it was looking like the whole thing was about to blow up as bankers who greenlit the sale when times were good, had second thoughts at the price they had promised to pay once times went bad and world stock markets were tumbling. The original deal was that BCE would be taken private at $42.75 a share. But due to the uncertainty and the sabre-rattling of bondholders who were leery at the amount of debt that was being taken on, the stock lagged as low as $33 not that long ago.

A few weeks ago, Canada's top court essentially approved the deal, at the original price of $42.75, and all sides appear to be appeased. Which is why I've been curious about why the stock continues to stagnate below that $42.75 level. It closed at $39.64 on Friday, roughly 8% below what Teachers & Co. have promised to buy it for.

"That's more than $3 below the agreed-upon - and now confirmed - takeover price of $42.75. That's easy money for investors who are willing to wait until December to cash out," The Globe's David Berman wrote in his marketblog on Friday.

That description sounds like me, so I picked up 100 shares of BCE this morning. Thanks to a broad-based market rout, BCE slipped even further today, and I paid $39.40 per share. That's 8.5% below what the stock's going to sell for in the fall, so I'm having a hard time seeing the downside. Sure, there's still a microscopically small chance this could all far apart, but when things have been elevated to the level where the Supreme Court of Canada is stepping in, I think that's a pretty solid foundation to build an assumption on.

I won't get any dividends as they've been suspended to help finance the deal, but in this market, 8.5% for owning a stock for 4-5 months is a gain I can live with.