Lee W. Appleton, CFA is Vice President, Portfolio Manager at Matco Financial

Biography: Mr. Appleton is a member of the Matco investment committee and Matco’s Canadian Equity Group, which is responsible for managing the Canadian Equity, Small Cap, and Energy Portfolios. Prior to joining Matco, Mr. Appleton was with Computerized Portfolio Management Services Inc., one of North America’s leading independent equity research firms. He can be reached by email at: lappleton (at) matcofinancial (dot) ca or by telephone (toll free) at: 1.877.539.5743

Is the economy going to fall back into a recession or not? Not, at least not in the near term says Lee W. Appleton, portfolio manager at Matco Financial. Lee points to the steepness of the U.S. yield curve as having been a historically accurate precursor of recessions, with nine yield curve inversions followed by nine recessions. With the current yield curve being as steep as it’s been in 45 years, if one were to make an inference it would be that a recession is not on the horizon. However, Lee also notes that trends take time to develop and that the shape of the yield curve needs to be closely monitored for any signs of change.

Another point brought up by Lee is that current projections for expected earnings per share for the S&P/TSX Composite stand at 881 for 2011, a 21% increase year over year. Given a mandate to be invested in the markets today, Lee believes his “Canadian equity
picks are well-suited to the tug-of-war of worries and opportunities that is underway.”

2 of Lee’s top picks are Domtar Coporation (UFS: TSX) and Saputo Inc. (SAP:TSX). Read on below for why he likes them so much.

Is There Going To Be A Double Dip by Lee W. Appleton, CFA, Portfolio Manager at Matco Financial

For your information:

Matco Financial Inc. is a privately owned and independent Wealth Management Office. The material presented in the Matco Report is intended to provide information to Matco Financial clients, contacts, and affiliates. Readers should not act on this information without first consulting their investment advisor, tax advisor, financial planner, or lawyer. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

Management fees, commissions, and expenses may be associated with investment management services and mutual fund investments. Please read the applicable information such as the prospectus, which contains detailed investment information and is available from your advisor before investing. Most marketable securities such as mutual funds are not guaranteed or insured, their values change frequently, and past performance may not be repeated.

Maria Gabriella Khoury, CFA is SectorHead of LUSIGHTs GEMS Consumer team

Equity markets throughout the Middle East and North Africa – a group that has been labeled ‘MENA’ – have been outpacing global equity markets in recent months, despite low volumes. However, seldom if ever do we hear about the ‘MENA’ acronym or what goes on in that region, barring military actions. This might simply be a result of the out of sight and out of mind phenomenon but wait a minute – how is it that we still hear about the BRIC (Brazil, Russia, India, China) countries and the oft associated two words ‘booming economies’? If one were predisposed to investing globally wouldn’t it make sense to explore all your options and not simply restrict yourself to Brazil, Russia, India, China? Well, here at Investing Thesis we’re always thirsty and welcoming of new information and opportunities to broaden not only our horizons but perhaps our bank accounts too. Thus, we are extremely excited to present to you out interview with someone who has extensive equity research experience covering the MENA region.

Biography: Maria-Gabriella Khoury, CFA is SectorHead of LUSIGHT’s GEMS Consumer team, and oversees LUSIGHT’s coverage of theMiddle East, the Gulf and North Africa. She graduated from McGillUniversity with a Bachelor of Commerce degree and later received her MBA degree from HEC Montreal. Maria-Gabriella is a CFA charter-holder. Maria-Gabriella has extensive equity research experience covering the MENA region which she gained while working for the Atlas Investment Group and Jordinvest.

Q: Maria , why don’t you begin by telling us the regions/countries that fall under the ‘Middle East’ moniker? To follow-up, on an economic (and demographic) basis can you please enlighten us on some of the specifics of this region as opposed to the mature western economies or even the BRIC countries?

A: The term Middle East actually refers to three distinct regions, two can be grouped under the Middle East and North Africa (MENA) moniker and the third is the Gulf Cooperation Council (GCC). MENA includes exchanges in Egypt, Jordan, Lebanon, Morocco, the Palestinian Territories, and Tunisia while GCC includes markets in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. These markets vary widely in terms of maturity, for instance the Alexandria Stock Exchange (in Egypt) can trace its roots back to the late 1800s while the Qatar Exchange only began formal activities in the 1990s. There is a broad spectrum of companies that are listed in these markets but the most predominant sector is banking. Investors should note though that each market has a different set of rules and limitations on foreign ownership. What I would say differentiates these exchanges from mature, or even other emerging markets, is the way in which they react to global events. Unlike BRIC exchanges which are becoming more and more affected by foreign stimuli, Middle Eastern markets would tend to react more, or let us say faster, to local or regional happenings versus international incidents.

Q: How did Middle Eastern countries weather the most recent 2008-09 recession? Furthermore, how dependent are the countries in the Middle East dependent on monetary/fiscal stimulus and oil and gas (commodities) prices to fuel economic growth?

A: Although it took almost six months for Middle Eastern countries to begin to feel the impact of the most recent recession, each economy was affected but in different ways. The MENA economies who have little or no oil/gas reserves felt the effects of the recession quickly and the recovery has been slow. Economies such as those of Egypt and Jordan who are more reliant on tourism and the export of commodities such as cotton, phosphates and potash are still trying to stimulate growth using monetary and fiscal policies. On the other hand, the effects of the recession on GCC (Gulf Cooperation Council) economies was less pronounced as these countries, whose main revenue source is oil and gas, were still being driven by the high oil prices of 2006 and 2007. The GCC countries had embarked on many infrastructure projects in the mid 2000s which during the recession acted as driver to allow these economies to still post positive growth in GDP. Despite the fall in oil prices similar new schemes are still being planned and announced, albeit at a more modest scale and pace and in smaller quantities.

Q: Have there been any moves either by the Gulf Monetary Council or any countries in particular towards a move away from pegging their currency to the US Dollar? What global implications do you think this might have should a move like this occur?

A: Countries in the Gulf Monetary Council have been talking about moving away from the US Dollar tie to a peg of a basket of currencies that includes the Euro for many years now. Kuwait has been the only country in the area to successfully do so in 2007. There is no definitive information about a similar move by other member states but in my opinion this would only likely happen if the price of oil stops being quoted predominantly in US Dollar terms.

Q: Maria, we’ve witnessed the banking systems in a numbers of developed economies falter recently, are there any systemic risks or vulnerabilities to the banking systems in the Middle East?

A: Banks in the region are closely monitored by systems that were put in place by their respective central banks which are mostly government controlled. This places more restrictions on Middle Eastern banks in terms of the areas of business in which they can operate versus their global counterparts. Nevertheless, we saw a few cases (particularly in Kuwait, Dubai, and Bahrain) where local banks who had financed non-sovereign real estate or other investment projects fell in the red and had to be either bailed out directly, forced into restructuring due to bankruptcy or given guarantees by the governments themselves who stepped in to act as backers for these projects. The reactions were swift but it did outline the vulnerability of local banks in terms of their large exposure to the regional real estate market, however, poor disclosure makes measuring the extent of the exposure very difficult.

Q: Compared to the rest of emerging markets, how do the Middle Eastern economies compare on a valuation/earnings basis?

A: Again, quite varied. You can see high double digit P/Es in a market such as Morocco while Kuwait enjoys single digit multiples, and this will be true across the board for most of the stocks that are listed on a particular exchange which could be misleading. This makes comparison to other peer groups quite difficult. As such I tend to put more weight on the actual valuation and the growth potential of a company rather than the multiples it trades at.

Q: Despite the economic concerns in the United States and Europe, there are still a number of opportunities for investors in the Middle East. What are some of the key sectors experiencing secular bull markets right now and forecasted to be above average growers in the future?

A: I would say the infrastructure and utilities sectors are quite attractive given all the projects that began to be implemented around 2005. The consumer sector is also moving ahead although at a slower pace than what is seen in other emerging markets, especially the BRICs. I believe, however, that in the future this sector should follow a similar trend to that experienced by the BRICs seeing as most of the countries in the Middle East have very young populations that should begin joining the work force in the next ten years thus driving growth and consumption even further.

Q: With regards to the emerging markets, can you please elaborate on the quality of disclosure in the different countries you focus on (relative to disclosure standards in North America) and provide us with a few examples of companies that do have good disclosure comparable to that of developed markets?

A: Good quality disclosure is still an issue in the Middle East but it is improving as more foreign institutional investors begin to take notice thus enticing companies to divulge more information. The situation is similar to that of Latin America in the early 2000s, and as we saw in those markets companies took long strides to organize and ameliorate the quantity, quality and frequency of their disclosures in order to attract and keep investors from developed markets. For example I have dealt with two companies which are very investor/analyst friendly and are consistent with the information they disclose, Kingdom Hotels of the UAE and Lecico in Egypt. Potential and existing investors can find plenty of reports and presentations on these companies’ websites.

Thank You, Maria!

Canadian Personal Finance and Investing Carnival

Ladies and Gentlemen. Boys and Girls. Children of all ages. It’s time for the fourth edition of the Canadian Personal Finance & Investing Carnival. Once again we didn’t receive as many submissions as we’d hoped for so we went ahead and rounded up the best of the best in the realm of Canadian personal finance and investing and will now serve up our findings in this edition of the Canadian Personal Finance & Investing Carnival.

In addition, we would like to take this opportunity to invite submissions for the fifth installment of the Canadian Personal Finance & Investing Carnival slated for publishing on September 15th, 2010. So if you’re a Canadian blogger specializing in personal finance and or investing, make sure you submit your best articles for inclusion and while you’re at it, perhaps spread the word on the Canadian Personal Finance & Investing Carnival.

Without further ado ….

Myke Czikk presents Do It Yourself, saying, “A post about saving my mother-in-law a few hundred dollars by taking care of some gardening clean-up rather than hiring a landscaping company.”

Big Cajun Man presents OK My Man! (Rudeness in my Opinion), saying, “When did being rude become a sales technique in Canada?”

2 Cents presents The Periodic Table of Deflation: How Many Elements Do You See?, saying, “With all the talk of deflation and the effects it may have on your personal financial and investment planning, it might be a good idea to take a look at what elements come together to form deflation.”

MoneyNing presents Money Mistakes That (Mostly) Women Make, saying, “Women are prone to make certain money mistakes more often than others.”

Financial Highway presents 5 Steps to a Debt Free Life, saying, “A blissful debt free life is within your reach. You only need to live smart to stay away from debt. Here are some tips that would help you to achieve the feat:”

Where Does All My Money Go presents Interview with the Secretary General of Luxembourg for Finance, saying, “A little while ago, I had noted that Luxembourg had a population of roughly 500,000 yet had the second largest investment fund industry in the world, second only to the USA. I interview Mr. Jean-Jacques Picard, the Secretary General of Luxembourg for Finance, for more details.”

Canadian Dream presents 50 and Broke? Early Retirement Planning Can Help, saying, “Early retirees have some particular issues that are unique, like a reduced CPP pension, but otherwise planning to retire at 65 when you haven’t started planning at 50 is similar to what I’m doing. You have a really tight time frame to save and not much compounding interest to help you out.”

Michael James on Money presents Unrealistic RRRSP Contribution Expectations, saying, “We hear frequently that young people should start contributing to an RRSP early in life.However, there are some unrealistic expectations buried in the assumptions used.”

Money Smarts Blog presents 8 Things You Need to Know About Withdrawing Money From Your RESP Account, saying, “I’ve put together a useful list of all the information you need to know in order to get your money out of an RESP account.”

Beating The Index presents Stock Trades: Sold Fortuna Silver (TSE:FVI), saying, “I sold the last of my shares in FVI, deep down I feel I might have sold too fast since Silver just hit 19$ yesterday and could continue its run.”

Million Dollar Journey presents The Downside of Owning REITs, saying, “One of the major problems when buying REIT’s is the lack of control. When buying you make a number of assumptions that you may not be aware of such as the value of the assets they hold and the benefits of professional management.”

Canadian Capitalist presents Do Advisors Add Investment Value?, saying, “A recent research paper out of Germany provides ammunition to those who question the value of investment advice.”

Canadian Couch Potato presents Investing Lessons From the Poker Table, saying, “I’m just a guy who loves to play poker, and on Tuesday I took a day off to visit the local casino, where I played poker at a table with several amiable older gentlemen. The experience got me thinking about how poker and investing teach many of the same lessons:”

Boomer & Echo presents Insider Tips: How To Save Money On Hotel Rooms, saying, “Most hotel chains have an employee rate program starting at $39 – $69 per night to stay at their sister hotels.Here are my top 5 tips to save money on hotel rooms:”

A Leveraged Life presents The Lifelong Learning Plan, saying, “For those familiar with the Home Buyer’s Plan (HBP), where you are permitted to withdraw up to $25,000 from an RRSP for use towards the purchase of a home, the Lifelong Learning Plan (LLP) is almost identical.”

The Passive Income Earner presents Dividend Yield: Bank of Montreal (TSE:BMO), saying, “With the recent correction BMO has had. It is worth having a look at it as it is paying a good dividend yield of 4.86% from Friday’s close of 57.60$.”

Lastly, if you haven’t already subscribed to InvestingThesis.com, allow me to reiterate a few reasons to do so:

1. You never have to check the site for updates again, and you get the latest and greatest first.
2. It’s totally free.
3. Your info will never be shared with anyone. Never. Ever. I hate spammers as much as you do.
4. Subscribing is worth testing for a few days just to experience it. Decide you prefer visiting? Just unsubscribe with one click and it’s happy times again.
5. Subscribers are smart and cool.

That’s a wrap, folks! Have a smashing day!

Tristram S. Lett is the Chief Investment Officer of Integra Capital Management

Biography: Tristram S. Lett is the Chief Investment Officer at Integra Capital Management. Established in 1987, Integra Capital Management has two core businesses: the management of institutional assets for Canadian pension and endowment funds and foundations; and, the representation in Canada of high quality foreign asset managers who use our registrations and distribution channels to build a book of Canadian domiciled assets.

Rarely do we get to ask questions of those who research hedge fund strategies and hedge fund managers on a professional level. Mr. Lett, in his role as Chief Investment Officer of Integra Capital Management spends a great portion of his time allocating capital on behalf of pension, endowment funds and foundations into hedge funds. Given his extensive experience in the area of alternative investments, we are glad to present the following interview with Mr. Lett.

Q: Mr. Lett, what do you look for when selecting funds and hedge fund managers to invest in or recommend?

A: The main things you look for are quality, comprehensibility, repeatable and scalable investment processes within a framework of operational risk control. Having said that, the important exercise is to create a portfolio of firms which work well together, not just a bunch of superstars. This means that after the first cut, one is paying attention to correlation and a number of key risk measures.

Q: How do you evaluate the funds and the fund managers?

A: The working assumption is that you are looking at a set of managers that have passed a risk/return screen. After that concentrate on the operational questions first because operational failures are the largest source of underperformance. Who are the service providers and are they independent from the fund manager. This includes prime brokerage, administration, custody, legal, audit, pricing and portfolio valuation. Those that pass those tests learn and understand their investment process, its size and continuity constraints and above all, their risk management practices.

If all this is satisfactory and one invests, it is important that you re-evaluate all these questions at least once a year.

Q: What red flags do you look for in deciding to withdraw your investments in a fund?

A: Critical ones are change or changes in key personnel, style drift, operational issues and if you can get the information, excessive leverage.

Q: With the recent announcement of 2 prominent hedge fund managers (Stanley Druckenmiller and Paolo Pellegrini) exiting the hedge fund industry as a result of not meeting expectations, be they personal (in the case of Druckenmiller) or those belonging to investors (in the case of Pellegrini), Mr. Lett, do you think the reasons cited by Mr. Druckenmiller & Mr. Pellegrini may be more prevalent than one may think (in terms of others hedge funds not meeting their highwater marks and maybe closing shop)?

A: This is a complicated question. The investing world has changed profoundly since the credit crisis making productive investing a real challenge. After a long and very successful career, Stanley has decided to move on to other things. Paolo probably can’t find the big play that will enrich his clients and him at this time. Reasons are varied, but it’s not likely all managers will be so forthright. During this settling out period, managers will face these challenges as best they can.

Q: Mr. Lett, US equity mutual funds have been hit by 13 straight weeks of outflows totalling more than $50 billion. While these maybe retail statistics, have you been noticing a similar trend among the hedge funds you monitor/track? Are there any other trends that you are noticing in terms of money flows or investment strategy in the hedge funds you monitor/invest in?

A: This is well documented and was predicted long ago by anyone following both demographics and pension funding. The real question is where is the money going to? Quick answer-yield bearing assets. The reason it has become very noticeable is because of the shock created by the credit crisis finally making investors take stock of risk and liabilities. This will not be going away for a long time.

Q: Another interesting observation that has been cited by the media, especially in the United States, is that an increasing number of large hedge funds are reporting (via 13F’s) that they are invested in large capitalization equities like Apple, Pfizer, Exxon Mobil etc. Given the large cap nature and familiarity of these equities, one might wonder why these hedge fund are being paid the enormous fees that they demand, when it seems highly unlikely that they are generating any ‘alpha’ from Apple, Pfizer and Exxon Mobil as opposed to an ETF mirroring an index? What are your thoughts on this assertion, Mr. Lett?

A: That’s easy – next week they could be long small cap growth equities and short large caps. They are being paid to make the reallocation decisions, not to index to large cap equities.

Q: Any final nuggets of wisdom?

A: Diversification is still the best risk-reducing strategy known.

Thank You, Mr. Lett!

Update: This post was included in the Carnival of Personal Finance #272 – The Yogi Berra Edition

Biography: Matt Miller joined Chanticleer Holdings, Inc. in 2005 when the company began operations.  He helped launch Chanticleer Investors II, a value oriented fund, on January 1^st 2007 and has served as co-portfolio manager of that entity since its inception.

Chanticleer Holdings specializes in investing in small and micro-cap value stocks that exhibit predictable future returns/cash flows, a margin of safety, strong future business prospects and reputable management.

Why small caps?

Chanticleer Holdings takes it cue from multiple studies that have demonstrated the outperformance of small company stocks versus those of larger company stocks. While this outperformance may only be by 2 or 3 percent per year, this can make a material difference in the total value of a portfolio when compounded over a long period of time. The firm believes that there exist a number of factors for the outperformance of small cap stocks, namely: less analyst coverage, less competition form other investors (especially institutions), lack of abundant information, smaller companies have more room to grow and can be more flexible in managing their business, smaller companies are more likely to be acquired and small and micro-cap companies generally have a higher level of insider ownership. By willing to put in the time, effort and research to uncover these undiscovered gems, Chanticleer Holdings is setting itself up to make big profits for its investors.

Q: Mr. Miller can you tell us a little bit about Eastern Insurance Holdings, Inc. (EIHI), what it does, where it does etc.?

Eastern Insurance Holdings Price Chart - Courtesy StockCharts.com

A: Eastern Insurance Holdings, Inc. is a $100 million market cap insurance company headquartered in Lancaster, PA that focuses primarily on workers compensation coverage.  Earlier this year it sold its group benefits business and the company is contemplating strategic moves with its specialty reinsurance operation.  The company’s focus is on what I would call lower risk workers comp lines in mostly non-urban settings.  By lower risk I mean that the company tends to stay away from lines where the potential for catastrophic injury is more prevalent, like saw mills for instance.  The specialty reinsurance business, which reinsured underground storage tanks, is in run-off and so no new policies are being written.  Unfortunately, this line of business has created a bit of a black eye for Eastern, as over the last few years the company has had to add significantly to its reserves for this segment.  In the recently released second quarter we saw some additional adverse development of those reserves.

Q: Can you talk a bit about the sector and its outlook going forward? How much is this an “industry pick” as opposed to a pure bottom-up pick?

A: We really focus on the individual circumstances of particular businesses.  Now this is not to say that we ignore what is happening in an industry, but our thesis with Eastern is quite specific to Eastern.  We believe, as has been shown with the recent sale of the group benefits business, that Eastern is in the process of becoming a “pure-play” workers compensation company.  When that transformation is complete, we believe the strength of that business will be quite clear.

With all that said, as someone who looks at a number of insurance companies, I do think the industry is at least fairly attractive given the number of companies trading at fairly large discounts to tangible book value.  There are of course head winds given current pricing and macro concerns, but in a number of situations it is my opinion that investors are being more than adequately compensated for those concerns.

Q: How is Eastern Insurance Holdings positioned versus its competitors in terms of market share, margins, competitive advantages etc.?

A: Eastern, which began its corporate career in Pennsylvania, is a top 10 writer of workers compensation in that state.  Back in 2008 the company acquired an underwriter of workers compensation in Indiana that is a top 20 writer in that state.  In terms of these rankings I am referring to their premiums written, but what I think is actually more interesting from our investment thesis perspective is the view from a loss ratio perspective.  Eastern, both in Indiana and Pennsylvania, is consistently among the top two or three most profitable companies on this metric.

Eastern has more recently moved further south with an office in North Carolina and an office in Tennessee.  In those newer markets and some additional states, the company currently has a much smaller presence.

I would say it is really tough to have significant competitive advantages in the insurance business, generally speaking.  Now certainly the company does a number of things right, but at the end of the day price is a pretty big factor.  Eastern really takes the approach of partnering with their insureds and to really try and collectively reduce a company’s loss experience over time.  This obviously helps the company from a profit perspective, but also helps to develop a better risk profile for the insured over time which in turn can reduce what they would expect to pay in the future.

Q: According to Google Finance, Eastern Insurance Holdings has a P/E of 10.24 and a dividend yield of 2.4% at a price of $11.48/sh. What exactly does Chanticleer value EIHI at? Do you have an NAV (or what is the appropriate valuation metric used by Chanticleer to value EIHI)? How does the valuation of Eastern Insurance Holdings compare to its peers?

A: The stock has recently traded down into the mid-to-low $10 range and so the stock is currently yielding a bit more.  We actually began buying shares in the low $8 range and bought more in the mid $10 range after the sale of the group benefits business.

Currently, diluted tangible book value per share, which I know is a mouthful, is $15.95.  We generally start at that figure and apply a discount or premium depending on the business.  In this instance, we actually think around $16 per share is the low end of what we think the stock is currently worth, which incidentally is nearly 60% above the current price.  As the company becomes a pure play workers compensation company and the strength, and by strength I mean profitability and return on equity, of that business begins to show, I think the market will recognize that with a premium to tangible book value per share.  Given the current soft market in a number of insurance lines and the softness in the employment picture, I’m not sure a multiple of 1.2 to 1.4 times tangible book value is immediately on the horizon, but it is surely not out of the question over the next three to five years.  Given the growth prospects of the business and current share repurchases, we suspect that tangible book value could be in the mid to upper $20’s in three to five years.  A multiple of 1.2 to 1.4 times gives you a range of $30 to $42 in that period of time, which I think is an interesting return possibility given our views of the downside.

Q: What is the current consensus sentiment on Eastern Insurance Holdings, and how does your view differ?

A: Generally speaking expectations are not all that rosy. I think there are maybe three analysts following the company, each with varying degrees of support for the company.  The general range of “price targets” is not all that different from the range the stock has been in over the last year.  Our view is different in that we see limited downside and real upside as the company executes on becoming a pure-play workers compensation company.  I would bet that the general consensus just doesn’t see a clear catalyst for the industry and this name in particular to be revalued at close to tangible book value per share.  We are willing to make the bet that that happens over the course of our holding period.  Also, I don’t think enough credit is given to the excess capital of the company and the share repurchases which I think are generating great value at these prices.

Q: According to Chanticleer, how has management at Eastern Insurance Holdings performed thus far? Have they delivered on their promises? What is it about the management that Chanticleer likes and dislikes?

A: We think management hast done a great job over the last few years, notwithstanding the problems of the specialty reinsurance business.  To begin with and go back further, the soon to be retired CEO, Bruce Eckert was one of the founders of the business which grew into an extremely profitable top 10 Pennsylvania writer in approximately ten years.  That is quite an accomplishment in our opinion.  The current strategy to focus on workers compensation is a good one we believe and one area where the company has started to deliver on their intentions.  We think management has done a fine job stewarding the company’s balance sheet through the most recent financial turmoil and as I mentioned, we also are quite impressed by the buyback the company is currently in the process of executing.  At these prices we think that adds tremendous value.  We might like the company to be a bit more aggressive with it, but that is merely a matter of degree.  We appreciate that Eastern is focused on underwriting business profitably in workers compensation, as their results clearly show and we like that the company focuses on important metrics like returns on equity and diluted tangible book value per share.

Q: What catalysts do you see that could move Eastern Insurance Holdings?

I think one thing that could prove to be a catalyst is some transaction involving the specialty reinsurance business.  The difficulties of this run-off operation came to the fore again this last quarter and so clearing that up would be an important step for the company.  It would allow it to remove some of the uncertainty regarding that business and it would allow the company to deploy that capital into value creating initiatives like expanding their workers compensation foot print and buying back more shares.  Fortunately, while we are waiting for all this to play out we are being paid a bit under 3% at current prices from the dividend.

Question: Lastly, what are some potential risks associated with Eastern Insurance Holdings that could hamper Chanticleer’s investment thesis?

A: The big risks here are really two-fold.  The first is most definitely the specialty reinsurance business.  If this business could not be sold or disposed of on reasonable terms or if it became a source of consistent significant reserve strengthening that would hamper book value growth.  The other big risk is that as the company expands its workers compensation business it takes on poor, inappropriately priced business in those new markets.

Thank You, Mr. Miller!

Let us know what you thought of this interview or anything else about the site in the comments.

Canadian Personal Finance & Investing Carnival

Ladies and Gentlemen. Its time for the third edition of the Canadian Personal Finance & Investing Carnival. This week, we received 4 submissions that complied with our stipulations. Since 4 articles do not comprise a carnival, given our role as the host of the carnival, we’ve decided to go ahead and roundup the best of the best in the realm of Canadian personal finance and investing and present it to you in one neatly packed post. We hope you like it.

In addition, we would like to take this opportunity to invite submissions for the second installment of the Canadian Personal Finance & Investing Carnival slated for publishing on August 31, 2010. So if you’re a Canadian blogger specializing in personal finance and or investing, make sure you submit your best articles for inclusion and while you’re at it, perhaps spread the word on the Canadian Personal Finance & Investing Carnival.

So without further ado ….

Big Cajun Man presents RDSP the Completion of Initial Work, saying, “My continuing saga of attempting to get an RDSP up and running.”

Boomer presents Asset Allocation, saying, “Forget the standard “investment profile” that the banks give you to determine your asset allocation. Your individual investment choices should have some meaning to you and your plan and should be unique to you and your circumstances. Here’s how my asset allocation is set up…”

Tiny Potato presents iShares, Please Split XDV 3 for 1!, saying, “A recent change to a monthly distribution for several iShares ETFs has a negative impact on small investors in the accumulation phase. This article outlines reasons why iShares should issue a 3 for 1 stock split to accommodate the change.”

Tom @ Canadian Finance Blog presents What Are Locked-In Retirement Accounts (LIRA) And Life Income Funds (LIF)?, saying, “Locked-In Retirement Accounts (LIRA) and Life Income Funds (LIF) are simply money that originates from a pension plan when you leave that company.”

CanadianFinancialDIY presents Pension Reform: a Comparison of CPP(IB) vs RRSP / RRIF / LIRA / LRIF / LIF, saying, “There’s been a lot of talk lately in Canada about pension reform, a very necessary and worthwhile subject, but unfortunately most of the analysis is from the viewpoint or from the self-interested position of government, regulators and the financial industry. Herewith I present a modest contribution to the debate by comparing two of the existing major options from the viewpoint of the retiree or pensioner, in whose interest all this reform supposedly is ultimately most important.”

Larry MacDonald presents Ride Buffett’s coattails?, saying, “A recent study by three researchers found that it has been possible to achieve investment results similar to Warren Buffett’s market-beating returns by simply following his trades as disclosed in 13F filings.”

Money Smarts Blog presents Borrowing Money to Invest – Is The Strategy Back In Black?, saying, “While people who had borrowed money in 2006 are still paying interest without really understanding why they had done such a “stupid” thing since their investments are still in red, I think it could be the perfect time to start a new investment loan.”

Frugal Trader presents How to Calculate the Dividend Payout Ratio, saying, “here are more details about what payout ratios are, why they are important and how to go about finding or calculating it.”

Canadian Capitalist presents One Reason to Obtain a US Dollar Credit Card, saying, “Frequent travelers to the US or those who incur regular expenses in US dollars might want to sign up for an US Dollar credit card. It might work out cheaper to convert Canadian dollars into US dollars using this gambit than paying a 2.5% premium that credit cards typically charge for currency conversions.”

The Passive Income Earner presents An alternate option to breaking your mortgage, saying, “A friend of mine is a little stubborn about paying the penalty for breaking his mortgage and came up with a creative way of transferring portion of it to a lower mortgage rate.”

SquawkFox presents Don’t blow your dough! Use the Windfall Planner Worksheet , saying, “It’s a pretty sweet day when a nice tidy sum of cash falls into your wallet. Perhaps you’ve earned a bonus, received an inheritance, won the lottery, or found another source of financial fortune. Whee! Free money! Now what?”

Financial Uproar presents Kids and Money, saying, “Yes, I’m all for teaching kids the basics of personal finance. Unlike a lot of personal finance bloggers though, I feel that message is one better delivered at home, mostly because teachers aren’t the best role models for that kind of things.”

Financial Highway presents 75 Phone Apps + 10 Tips that Will Save You Money, saying, “Phone apps that allow you to save money are one of the best tools that your mobile phone offers you. Whether you’re using a barcode scanner to find a better deal at a nearby store or you’re taking advantage of a mobile coupon, these apps reduce your daily expenses.”

Lastly, if you haven’t already subscribed to InvestingThesis.com, allow me to reiterate a few reasons to do so:

1. You never have to check the site for updates again, and you get the latest and greatest first.
2. It’s totally free.
3. Your info will never be shared with anyone. Never. Ever. I hate spammers as much as you do.
4. Subscribing is worth testing for a few days just to experience it. Decide you prefer visiting? Just unsubscribe with one click and it’s happy times again.
5. Subscribers are smart and cool.

That’s all, folks! Have a great weekend!

The following is an article authored by Dave Tout, Mortgage Broker with Dominion Lending Centers in Vancouver, BC.

Dave Tout is a Mortgage Broker with Dominion Lending Centers in Vancouver, British Columbia

For US homeowners, mortgage interest is automatically tax deductible. But for Canadians, the write-off is not so straightforward. In order to make your mortgage interest tax deductible, homeowners must be able to prove that the money is being reinvested and is not being used for personal expenses.

A properly structured mortgage-centric tax strategy has several key elements – the most important of which is a multi-component, readvanceable mortgage or line of credit.

It’s best to have a single collateral charge with at least two components – usually a fixed-term mortgage and an open line of credit – that can track and report interest independently. This is absolutely essential under Canada Revenue Agency (CRA) rules and guidelines.

Second, the strategy must employ conservative leverage-investment techniques – which is why a financial advisor must be involved in order to comply with federal regulations. The financial advisor should be a Certified Financial Planner (CFP) who is experienced in leveraged investing and able to actively monitor a homeowner’s portfolio on an ongoing basis.

Homeowners who opt for a tax-deductible mortgage interest plan make their monthly or bimonthly mortgage payments the same way they would when making any type of mortgage payment. The payments go towards reducing the principal amount of the mortgage and are then moved over to the line of credit as the mortgage is paid down. But in order to be tax-deductible, the funds must then be transferred to an investment bank account, which can be done automatically by your CFP.

Once the money is in an investment bank account, it can be reinvested and the money becomes tax deductible. Essentially, the homeowner is borrowing from the paid portion of the mortgage for reinvestment purposes.

On average, a typical 25-year mortgage can become fully tax deductible in 22.5 years.

If you have a rental property, you can also use this tax-reduction strategy even further. When you receive your rent, you can then use the funds to help pay down your personal mortgage. Once paid, the rental funds move to the line of credit and are then transferred to the investment bank account. They are then used to pay down the mortgage on the rental property. Using this method, it is possible to have your mortgage interest become fully tax deductible in only 3.5 years.

Ideal Client

Ideal borrowers for an advanced mortgage and tax strategy are typically professionals or other high-income earners who have a conventional mortgage (have at least 20% of the cost of the home to put towards a down payment) and have built up substantial equity.

As high-income earners, their total debt-servicing ratio will be quite low and they will have excellent credit (700+ Beacon scores). These borrowers are financially sophisticated homeowners that are keenly interested in establishing a secure financial future and comfortable retirement. They also have good investment knowledge.

Risks

The financial benefits of tax-deductible mortgage interest are indisputable and justify the risks to the right borrower. That said, a problem can arise if a homeowner spends the funds as opposed to reinvesting them. As well, any tax refunds have to flow through the investment cycle in order to realize the benefits of paying down the mortgage as quickly as possible – and making as much of the interest payment as possible tax deductible.

Short-term financial risk is liquidity risk (sometimes referred to as cash flow risk). Cash flow risk addresses the possibility that interest rates will sharply drive up the cost of borrowing at the same time as markets falter, resulting in a negative client monthly cash flow for a brief period of time.

This short-term risk is typically only prevalent in the first two to four years because, after this period of time, the homeowner has stockpiled enough equity through annual tax refunds that other liquidity options exist and the risk is fully mitigated.

Liquidity risk varies widely based on the balance sheet strength of the homeowner. Highly qualified homeowners are easy to manage as these borrowers have no difficulty meeting the short-term cash flow demand should the need arise.