Economic Assimilation of Immigrants - Comparison of 1980's w the Present

This is interesting.  One thing that the paper does not examine in detail, and which I think is very relevant, is the geographic variation in rates of assimilation - a great topic for a social geographer.  I'll look for more studies along this line.  In The Slowdown in the Economic Assimilation of Immigrants: Aging and Cohort Effects Revisited Again (NBER Working Paper No. 19116), George Borjas finds a cohort effect not only in the level of immigrant earnings, with more recent immigrants having generally lower entry wages than immigrants did before the 1980s, but also in their rate of earnings growth, with more recent immigrants having a smaller rate of economic assimilation compared to earlier immigrants. He suggests that this slowdown in wage convergence reflects a decline in "human capital accumulation" tied to a decline in the rate at which more recent immigrants are acquiring English language skills. The issues involving immigrant assimilation, human-capital accumulation, and wage convergence have been widely studied for decades. Initial studies used cross-sectional data to compare the age and earnings profiles of immigrants and natives, and often found a rapid rate of wage convergence with native workers. The difficulty with this approach is that cross-sectional comparisons may mis-state the true rate of assimilation when there are substantial differences in earnings potential across immigrant cohorts. The current study uses data from the 1970 through 2010 Censuses to examine the evolution of immigrant earnings, and it focuses on immigrants who were 18 or older when they arrived in the United States. The analysis finds different levels of earnings between those immigrants who arrived in the United States before and after the 1980s, but it also reveals that most immigrants arriving after the 1980s had a smaller rate of economic assimilation than those who arrived earlier. For immigrants who entered the country before the 1980s, their initial wage disadvantage compared to natives typically narrowed by around 15 percentage points during their first two decades in the United States. In contrast, the immigrants who entered the country after the 1980s have a much lower rate of wage convergence, and the evidence suggests there has not been any economic assimilation at all for immigrants who entered the United States in the 1990s. The author considers three factors that might have contributed to the slowing assimilation of immigrants over time: changes in U.S. macroeconomic conditions that affected immigrant and native wage structures differently; changes in the national origin composition of the immigrant population; and changes in the geographic settlement pattern within the United States of more recent versus past immigrants. He concludes that "the data convincingly show that none of these factors can account for the severe decline in the rate of assimilation." The data instead suggest that part of the decline in assimilation appears to be connected to a discernible decline in the rate of human capital accumulation among recent immigrants. Specifically, immigrants who entered the country prior to the 1980s typically experienced a 15 percentage point increase in their fluency rate during their first two decades, while the cohorts who entered the country after the 1980s show only a 7 percentage point increase. The study focuses on one factor that seems to explain part of the decline in the rate of economic assimilation and human capital accumulation: the growth in the size of the national origin groups from which recent, as opposed to historical, immigrants are drawn. The rate of increase in English language proficiency is significantly slower for larger national origin groups. This effect accounts for about a quarter of the concurrent declines in the rate of economic assimilation and the rate of human capital acquisition. Data from a number of immigrant groups — including Chinese, Filipinos, Cubans, Mexicans, and Indians — suggest that all of these large national origin groups exhibited a decline in the rate of assimilation between the cohorts who entered the United States in the late 1980s and the late 1990s. The author notes that the payoff for immigrants to learn English is likely tied to the frequency with which they use their language skills in everyday activities, and that the incentive to learn English is likely to be lower when immigrants find a large, welcoming ethnic enclave in the United States. --Jay Fitzgerald Research generally confirms the following observation: Immigrants residing in ethnic concentrations show less English language ability, a lower educational attainment, a lower rate of naturalization, and a lower income level than do those living outside such concentrations. http://csun-dspace.calstate.edu/bitstream/handle/10211.2/1904/Allen-Turner96_SpatialPatternsOfImmigrantAssimilation.pdf?sequence=1 A variety of reasons for the concentration of new arrivals has been offered: a "clustering" of people who seek the comfort/security of sharing the same space with others who are culturally similar; the attractiveness of low rent areas (which may have been prospected by earlier arrivals within the group) in some instances, proximity to sources of employment dominated by an immigrant group e.g. meat packing houses.  In contrast to this general pattern, immigrants who arrive with higher levels of education and fluency in English do much better than their counterparts.  Other Dimensions of Immigration 1.  The Impact of Hate Crimes The integration of immigrants has other dimensions which are of special interest to security agencies i.e. the proclivity of certain groups to support activity not in the interest of the state.  The events of 9/11 are a case in point.  There is evidence that the backlash against Moslems in the U.S. (and perhaps, elsewhere) in the aftermath of 9/11 has resulted in a community which is: more conservative (as measured in propensity to be more observant and for women not to participate as much in the work force) less integrated (as measured in English proficiency and rates of intra-marriage with fellow Moslems).  http://www.voxeu.org/sites/default/files/file/DP8797.pdf 2.   Economic Prospects Another dimension of immigration is the generally held assumption that new arrivals will gradually close the wage gap between them and native born people.  In the past, this has been the pattern; however, there is recent evidence that the wage gap is not being closed to the same degree.  The following paper, provides some very interesting insights into this phenomenon: http://journalistsresource.org/studies/government/immigration/slowdown-economic-assimilation-immigrants# 3.   English - the Equalizer - will government screening processes insist on greater levels of proficiency? Proficiency in English is one of the major keys to "success" for new arrivals.  The poorer economic performance of new arrivals compared to earlier arrivals has received considerable attention recently.   Either way, Borjas's findings are important. Immigrants do better when they learn English, yet the incentives for them to do so decline as more arrive. If we plan on letting in more immigrants, as most economists recommend, we may need to implement policies that push new Americans to learn English to offset this troubling trend. http://www.bloomberg.com/news/2013-06-20/immigration-s-economic-boost-depends-on-learning-english.html The assumption/hope with the American approach to immigration is that immigrants will assimilate i.e. "become more like us".  Here is an interesting take on this notion of assimilation: http://www.brookings.edu/research/articles/2000/03/immigration-skerry The author argues that immigration is a great experiment in progress: fraught with risk and opportunity.  America shines as a desired destination for potential immigrants and it has a history of adjusting and accommodating to meet new needs.  The difficulties caused by two decades of an inept foreign policy may hinder this flexibility, either by creating conditions whereby new arrivals are less inclined to participate in the general society or where some very highly qualified individuals may decide to emigrate to countries which they perceive as "more friendly".   Only time will tell.  In Canada, where I live, the experiment with "multiculturalism" started in the Trudeau years.  In 1971, Canada was the first country to adopt multiculturalism as an official policy.  Canadian multiculturalism is fundamental to our belief that all citizens are equal. Multiculturalism ensures that all citizens can keep their identities, can take pride in their ancestry and have a sense of belonging. Acceptance gives Canadians a feeling of security and self-confidence, making them more open to, and accepting of, diverse cultures. The Canadian experience has shown that multiculturalism encourages racial and ethnic harmony and cross-cultural understanding. http://www.cic.gc.ca/english/multiculturalism/citizenship.asp It is worth exploring the above-noted web site to learn more about the "official" line (which surprisingly, is towed by most Canadians).   This is a "grand experiment" that contrasts with the "melting pot" approach of our great neighbour to the south.  In terms of social harmony, it appears to be working and in large urban areas such as Toronto, the various ethnic and religious groups are interacting in ways which would surprise those who lived here 40 years ago.  It is a much more interesting place to live as a result, and, we believe, it equips us to compete with more agility on the international scene (this despite an inept foreign policy agenda on the part of the current federal government).  While there are legal sanctions to address incidents of discrimination and the like, the major drive for the policy comes from civic leaders, the business class, and a host of civic organizations.  In essence, it has become embedded as a social norm.  This is not to say that there have not been challenges to this policy.  Recently, the Government of Quebec has indicated its intention to ban the wearing of religious headgear and the like within the civil service.  In the eyes of many, it is a cynical ploy on the part of the PQ to burnish its profile among its core constituency which resides primarily in smaller urban centres and rural areas.   http://www2.macleans.ca/2013/09/20/quebecs-war-on-religion/ The Canadian approach, reflected mostly in our larger cities has been characterized by a former Mayor as having the following elements: the definition of what it is to be "Canadian" has changed over time - it's a moving target our values have changed over time in response to the insinuation of cultural practices (e.g. foods, music) of new waves of arrivals in recent years especially, inter-racial/cultural marriages have become more common (it is almost the norm in some neighbourhoods) further blurring the boundary of "difference" it is a process which is hard to define at any point in time It may not be "social cohesion" as much as respect and tolerance for difference.  To my mind, it is one of the reasons why Toronto is so vibrant in so many different ways.  By several metrics, it has been identified as one of the best places to live in the world ... a far cry from the 1950's when it went by the name of "Hog Town".  ..... now, if we could only get relief from the likes of our current mayor:  https://docs.google.com/spreadsheet/lv?key=0AhpNgYjOr8FzdGhZNVFocUhERUxzRGJBMFBtVDZHaUE&toomany=true#gid=0

A Cultural Shift in Attitudes to Transportation - The Demise of the Auto and an Emerging View of Transportation For Cities

During a recent lecture I attended, the speaker noted that change is only possible when conditions are "right" i.e. that it can occur only when general sentiment is at the point where the problem is recognized and there is support for a general end point.  

We may be nearing that point of change with respect to transportation in North America.  

• the "millennial generation" (the largest new cohort born in recent times between 1983 and 2000) is less inclined to own and use motor vehicles - this marks a major change in North American society - further, boomers are driving less 
• North American society is becoming more urbanized with the result that people are paying more attention to intra-urban transportation.  

Depressed economic conditions aside, this is reflected in the reduced propensity of North Americans to drive automobiles.

Clearly, when we adjust for population growth, the Miles-Driven metric takes on a much darker look. The nominal 39-month dip that began in May 1979 grows to 61 months, slightly more than five years. The trough was a 6% decline from the previous peak.

The population-adjusted all-time high dates from June 2005. That's 96 months — eight years ago. The latest data is 8.97% below the 2005 peak, fractionally above the the 9.02% post-Financial Crisis low set in June. Our adjusted miles driven based on the 16-and-older age cohort is about where we were as a nation in January of 1995.  vehicle miles driven

The report, A New Direction - Our Changing Relationship with Driving and Implications for America's Future, explores this trend in more depth.  The changes are huge.  

The report starts with the observation that "the driving boom is over" and explores various implications of this development:

• traffic congestion appears to be lessening (try telling that to motorists who use cars in Toronto, one of the most congested cities in North America and whose intellectually challenged Mayor is opaque to the transportation needs of the average Torontonian ... would you believe it, this former one-term university bencher used to take time off from Council meetings and city business to coach a high school football team ... that is, until the school "expelled" him for making unguarded remarks about the situation and inclinations of the student body ... but I digress);
• America is less dependent on oil; and,
• the "shift" which appears to be led by the millennial generation and by aging boomers may signify a turning point and an opportunity for real change.

These trends are reflected in reports on transportation trends from some of the more populous states and provinces in North America. For example, see Florida Transportation Trends and Conditions

In the face of these trends, the highway lobby has been very effective in securing funding for road construction and maintenance, especially in vote rich rural constituencies where employment rates are generally lower than in urban areas. This may change.  There is a growing awareness that investment in more highways is not needed in many areas and further, that revenue from gas taxes does not begin to recoup the direct costs of government investment in highway infrastructure:

There remains a common misconception that “roads pay for themselves”—that is, that revenues from the gasoline tax are sufficient to cover the costs of highways and driving. By 2010, revenue brought in from gas taxes and other user fees (not all of which is dedicated to highways) equaled only 62 percent of highway spending by all levels of government.108 In other words, for every two dollars of highway improvements paid for by drivers, general taxpayers chipped in a third dollar—a subsidy of $73 billion in 2010 alone. A New Direction

Revenues from road tolls and taxes on fuel sales are projected to decline, further exacerbating the gulf between expenditures and incoming revenue.  

Lifestyles are changing.  My experience with the new urban professionals is that they prefer to live in downtown areas with walkable neighbourhoods where the ownership of a cool one-gear urban bike is more prestigious than a luxury automobile.  Taking different perspective, wider income disparities are reflected in a demand for lower cost public transit for a significant portion of the population - this as one ingredient of a strategy to improve employment prospects through greater accessibility to workplaces.  

In Canada, governments have been slow to recognize this fundamental change.  The federal government has been singularly negligent in addressing the needs of cities.  A content review of Hansard (the record of Parliamentary debate) reveals hardly any mention of urban issues.  Instead, we are treated to a plethora of "feel good" pork barrel schemes designed to deliver votes in rural ridings and champagne-level treatment for roads to nowhere.  

As further confirmation, nowhere in a recent report from Transport Canada are urban transportation issues mentioned - this in a glaring repudiation of the fact that there are more bums on seats in cities than in rural areas and where federal investment would have far more impact in economic terms. Outlook, Trends and Future Issues

So ... what are the drivers (pardon the pun) which could lead to a change in attitude on the part of decision makers?

• at a national level, a more organized voice for change on the part of cities and advocacy for more city-friendly transportation strategies and funding programs;
• at a city level, more pressure on the part of residents for a more pedestrian and bike friendly infrastructure and transit which reduces commuting times and provides a more equal opportunity for under-serviced segments of the population (i.e. better travel to work for poor people)
• at a city level, pressure to improve safety for pedestrians and cyclists as the death and injury toll from collisions with auto continues to increase - sometimes alarmingly (as situations such as the "dooring" (collision) of cyclists with opening doors of automobiles are not reported)
• at an industry level where boards of trade and other business organizations are concerned about the implications of poorly organized transportation systems on the bottom lines of their members 
• at the level of think tanks and academic institutions which are creating a greater awareness of transportation issues by providing fodder for the information hungry media and also in training and exciting young minds

This is a complex issue - something which cannot be covered in several posts.  As a result, I will explore this in more detail in future postings.  

A key observation: this is a slow trend - something which will gather speed over the next 20 years.  Alert investors should have the insight to ferret out themes for investment and the patience to recognize investment-worthy opportunities.  At first blush, I have identified a few for your consideration.  

Some Potential Investment Opportunities

1. Automated User-Friendly Fare Collection - traditional forms of fare collection such as tickets are inconvenient and provide little in the way of in-depth, up-to-date information about the travel habits of transit users.  There are several opportunities in this area as cities start to upgrade their transportation systems: Users Prepared to Pay More for High Tech. Collection systems could also be improved for other facilities such as toll roads, parking, ferries and the like. 
2. Information for Travellers - while there are applications which provide information on traffic conditions, the range of services could be expanded considerably.  For example, consider the following scenario: incoming air traveler gets estimate of arrival time and time of connections with airport transportation services (makes on-line arrangements if required) and gets estimated ETA for hotel accommodation and makes reservations for meals or other services)
3. Hard Infrastructure - engineering and construction services (including maintenance) - these are less interesting to me with the possible exception of maintenance services and technologies

There are many other opportunities which will come to light on further reading.  (I'll leave it up to you to do some sleuthing and may report on some of my findings in later postings.)  In my search, I will look for well-managed companies with products that meet existing needs (revenue flow established) and which have business models which can be scaled up without substantial follow-on investments.  I will not spend time in looking at large industrial concerns which build costly items such as rail cars and the like as the field is rife with competition and uncertainty.  Instead, I'll look for small and medium sized companies with great products which satisfy growing market niches.  This search will take a year or two.  

Update for the Financial Log Book - Friday 13/13

Holdings performed much as expected given the nascent rebound in the North American economy, especially in the U.S. Remarks on some of the positions are presented below.

	Purchase Date	Price 2013-09-13	Gain/Loss year to date %	Gain/Loss Since Purchase %
Central Fund of Canada (CEF.A)	9.77 2007-09-04	15.4	-26.2	57.6
Silver Wheaton (SLW)	12.37 2007-09-04	25.56	-27.8	106.3
Polaris Minerals (PLS)	10.70 2007-06-01	1.59	59	-85.1
MEG Energy (MEG)	44.19 2010-12-29	35.07	15.2	-20.6
Cenovus (CVE)	32.39 2010-07-27	30.55	-6.2	-5.7
Canadian National Railway (CN)	48.88 2009-04-14	101.28	13.1	109.9
World Fuel Services (INT)	34.10 * 2009-04-14	SOLD
North West Company (NWF)	16.23 2009-05-07	23.02	6.6	41.8
Powell Industries (POWL)	36.75 2009-11-12	58.51	40.9	59.2
Waterfurnace Renewable Energy (WFI)	28.62 2010-04-12	21.5	55.2	-24.9
Orbite Aluminae (ORT.A)	3.24 2011-03-28	SOLD
ABB (ABB-N)	20.18 2012-12-13	22.91	17.5	13.5
Oceaneering International (OII-N)	52.95 2012-12-13	82.25	56.3	55.3
Deere & Company (DE)	88.07 2013-01-03	82.49	-5.2	-6.3
Rocky Mountain Dealerships (RME)	11.89 2013-01-03	11.46	-2.3	-3.7
HollyFrontier (HFC)	47.95 2013-01-28	42.04	-8.1	-12.3
Titan Logix (TLA)	1.25 2013-09-11	1.28	2.5	2.4
Kelso Technologies Inc. (KLS)	2.20 2013-09-11	2.07	-5.8	-5.9
U.S. Silica Holdings (SLCA)	25.15 2013-09-11	25.07	-0.3	-0.3

Precious Metals

The last six months have not been pretty and prices have been volatile.  To my mind, traders seem to be confused.  On the one hand, some predict further declines with the thought that interest rates will continue at low levels and that with the rebound in the economy, other investments will be more attractive.  On the other hand, fears of easing by the Fed, the very feeble condition of some economies, and increased instability in the Middle East have prompted some to lay away a stash of precious metals with the thought that gold will shine again in dark days.  I have no opinion and will maintain my current position.  In previous notes, I mentioned that I reduced my positions somewhat in consideration of other investment opportunities and a desire to enjoy some of my gains. 

Oil

The tar sands companies are marking time, but I think that better days are ahead for a variety of reasons:

• costs of production are more or less known (fewer surprises these days as experience has worked out many of the bugs in the technology)
• an infrastructure is rapidly developing to move bitumen to a greater variety of markets, meaning that producers will likely get a higher price for their product: rail transport has expanded tremendously; a variety of pipelines will ultimately be completed (west-east line in Canada and the Keystone in the U.S) - I am less optimistic about proposals to move bitumen across the Rocky Mountains and, in fact, do not support them as the environmental risks are far too high ... and besides, why should we ship unrefined product which has a relatively low return yet a very high environmental risk?  

Holly Frontier has been punished by a narrowing of the spread, but it is a fine company.  I will bide my time and enjoy the dividends. 

Rail

CN continues to light up the portfolio.  Some recent investments along the theme of "rail safety" have promise.  I have spread my bets and will likely add a few more positions over time.  

-------------------------------

Note that the performance of individual equities is not an accurate measure of the performance of the portfolio as the weightings of investments in various companies varies widely.  The differential in investments is largely a matter of risk management.  I tend to invest lesser amounts in smaller, more speculative ventures and more in well managed companies which have records of steadily increasing dividend payments.  

I don't tend to get bothered by declines in stock prices if I believe that the fundamental reasons for the original purchases remain unchanged.  An example is Waterfurnace (WFI) which was punished when the housing market tanked.  It's recent performance has been spectacular and the temporary dip in the share price has been offset somewhat by a nice flow of dividends.  Company management continued and even expand its R&D activity and also took measures to build its market share. Powell Industries (POWL) has a somewhat similar story in that it has rebounded nicely with the beginnings of economic recovery.  Infrastructure will be required in good times and bad, just sometimes more and sometimes less - over time things will even out and good companies such as Powell will do just fine. 

My foray into smaller companies reflects a more active interest in investing on my part.  After a brief hiatus and some time to reflect, I decided that I liked the intellectual challenge of investing - that it was a good use of my time.  Some people like woodworking; some like flying model aircraft and so on.  I find that investing incents me to learn more about the world around me.  Each day is a new day of learning ... but on my terms ... and that is indeed precious. 

Passwords

Accepted wisdom is NOT to use one's surname or given name as a password.  Well ... in Hawaii it actually might be good practice, especially if your maiden name is "Worth".  

BBC announcers are quite good, but this guy is really good. Password

Some New Investments in the Transport of Petroleum by Rail

In a previous post, I identified a few potential themes for investment along the lines of "safety".  Government and regulatory agencies have a renewed focus on tightening regulations due to the aftermath of some noteworthy derailments in recent months. 

As a result, I have established positions in two companies:

Kelso Technologies (KLS-X)
Titan Logix (TLA-X)

During the course of my research, I also decided to buy shares in another company which supplies material to fracking operators:

U.S. Silica-Holdings (SLCA-N)

With one exception, the companies are very small and focused on meeting very specific markets.  In my estimation, they are led by very able people and have superior technologies which address real needs.  They also share common challenges:

• expanding the customer base;
• securing financing;
• managing expansion;
• developing strategies to compete with larger entities with more resources.  

A more detailed explanation about the reasons for establishing positions in the companies is presented below.  

Kelso Technologies (KLS-X) http://www.kelsotech.com

Kelso describes itself as follows:

Kelso is an innovator in the railroad equipment supply industry in North America.  The company is engaged in the design, engineering, sales, production and distribution of patented technologies.  A series of external pressure relief valves, eduction tubes and a revolutionary new manway design for rail tank cars and roadway tank trailers are product lines available from Kelso.  These innovative technologies are designed to reduce the risk of environmental harm due to non-accidental releases (NAR) in the transport of hazardous commodities in North America.

Since I cannot do a better job of presenting the company history, I have included this item from the company's web site:

The public company Kelso Technologies Inc. began as a mining equipment supplier in March 1987.  Over time the focus of the company moved into the railroad supply industry.  By 1996 Kelso's new VP of Engineering, Barry LaCroix, had developed a pressure relief valve for the North American rail tank car market for which Kelso would act as the distributor.  The company was a small player and they never really gained sales traction with the pressure relief valve that received regulatory approval and became available for sale in 2001. 

After the US economy shrank in late 2008 and throughout 2009, Kelso struggled financially.  At this time a business developer by the name of James R. Bond was asked by the Board of Directors to review the company's financial status to see if he could help to turn it around.  He recognized the potential of the company and in April 2010 he and other key management began the rebuilding process.  With a newly patented manway technology to offer in addition to the pressure relief valves, the company began the regulatory approval process for the manway and commenced the marketing of their ‘safer technology for the transport of hazardous goods’ to the rail tank car industry.

The company has three main product offerings which are sold to OEMs, repair and retrofit customers:

1. Kelso Clincher Manway - a tanker car portal which is more reliable than older-style manways and much quicker to use
2. Kelso Tiger Tube - the "pipe" which is used to load/unload corrosive chemicals from rail and road tankers (key for hydraulic fracking and the processing of oil sands)
3. External Pressure Relief Valve - a more reliable and "operation friendly" valve for class 111A general purpose tank cars and which are more "roll-over friendly" in the event of derailments
   

The company is based in Vancouver BC, with operations in Lisle, IL (rail); Houston TX (design and trucking); Bonham TX (production) which is close to the company's major customers.  

A brief overview of the company is available here: Company Overview

My reasons for buying shares in the company:

• superior technology
• the likelihood of a growing market due to more stringent regulatory standards for tank cars and a general increase in the number of rail tank cars either new to service or about to be replaced 
• experienced management with deep connections to OEM's such as Trinity
• the company's approach to source components from expert suppliers mainly in North America, thereby reducing initial financial outlays for plant facilities

There are risks.  Some of the major ones:

• competing products may be developed by more well-established competitors, thereby threatening the long-term viability of the company
• financing activity may further dilute the value of company's stocks
• I would prefer to see some younger people in key management positions as evidence of the company's strategy for the future
• there will be inevitable glitches as manufacturing ramps up, although it does not appear that there will be many problems associated with the realization of very sophisticated new technologies (on a related note, the company's adroit management of its parts suppliers will be a key element of success)
• I don't have a sense of the cost competitiveness of the company's offerings in comparison to alternatives
• although "rejuvenated" the company is a young, tiny, fledgling enterprise and thus more 
• vulnerable than larger entities, especially when bad news (e.g. earnings surprises) is encountered

In recognition of these and other risks, I have limited my stake as one component of my risk management strategy.  I expect that the stock will be volatile and will watch it more closely than my other holdings.  (I have established a series of e-mail alerts for the stock as I don't normally view my holdings on a daily basis.) 

Titan Logix (TLA-X) http://www.titanlogix.com

Titan is Canadian high technology company based in Edmonton, Alberta which designs, manufactures and distributes instrumentation and communications systems primarily for the oil and gas, chemical and transportation sectors.  

It offers a range of products:

1. Gauges and control systems for mobile tankers to monitor inventories in tanks and as part of alarm systems to minimize the occurrence of spills of environmentally hazardous materials
2. Burner controls - rugged systems to control ignition and monitor the operation of heater flames for a wide variety of field applications including various types of heaters (line, tank) and incinerators
3. Liquid level gauging systems for storage tanks and process vessels
4. Telemetry and control system - control and communications systems for remote sites for a variety of purposes, including: alarms, data logging, and control.  

The company is positioning itself to meet needs associated with the efficient monitoring of remote sites.  This is important to the field operations of the oil and gas industry, especially in an environment of very high labour costs.  

Most important for the purpose of this investment, there is a heightened public awareness of the dangers of the hazards of handling and transporting materials such as petroleum products and other hazardous chemicals.  This will likely result in more stringent regulations and standards and an increased demand for technologies to increase the safety of operations such as the loading of tankers and the monitoring their contents.  The company has profited mightily in meeting this need (you can check the most recent financial reports).  While the stock has increased substantially in price, I figure that it has room to grow.

My reasons for investing:

• the company has a good record of developing and delivering new products to the market
• it has an established and growing customer base
• senior management is stable: knows the industry and the company through years of experience in the company
• the market for its products will increase substantially concurrent with a more stringent regulatory environment in North America
• the company has an excellent balance sheet and a performance which should facilitate its ability to secure financing for expansion

There are some downsides:

• competition will increase as other companies seek to exploit Titan's market niche
• the company is tiny (50 staff) and, like many small enterprises, will have to demonstrate its ability to "graduate" into a much larger entity: current management may not be able to manage the transition
• the rise of the stock has been stratospheric: can this continue or will investor sentiment sour just as quickly when disappointing news surfaces (as it undoubtedly will - smaller companies are affected by these developments more than bigger fish in the investor universe)

There are many other companies which are seeking to exploit market opportunities in the general area of "safety".  As a result of lessons learned during my previous experience with precious metals mining, I will manage risk by spreading my bets by investing in several companies - this as opposed to staking everything on one or two up and comers.

I will leave it up to readers to undertake their own research and arrive at their own conclusions.  This is an area where I figure that fine profits can be achieved by investing in smaller companies which are focused on very specific market niches - this as opposed to larger entities where "wins" will have a disproportionately smaller impact on their bottom lines.  I will also leave it to readers to do their own analysis of financial statements and the like as this is standard fare in the investment process.  

I'll write about U.S. Silica-Holdings in a later post.   

Brain Pickings - A Treasure Trove of Interestingness

During my university years, I worked in one of the campus libraries for two reasons: to help pay for my education; and, to provide me with an opportunity to browse the stacks while going about the mundane activity of re-shelving books.  During the late hours especially, I had free rein to explore the library holdings.  It was a gift.  I was surprised constantly by what I found.

For over a year, I have subscribed to an RSS feed from Brain Pickings.  In many ways, it brings me back to those early days - a virtual amble through the library stacks.  The web site is described as follows: 

Brain Pickings is the brain child of Maria Popova, an interestingness hunter-gatherer and curious mind at large, who also writes for Wired UK and The Atlantic, among others, and is an MIT Futures of Entertainment Fellow. She has gotten occasional help from a handful of guest contributors.

Brain Pickings is a human-powered discovery engine for interestingness, a subjective lens on what matters in the world and why, bringing you things you didn’t know you were interested in — until you are.

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Government Regulation of the Rail Industry - Investment Opportunities

In the United States and Canada, a series of events have led the public to question the current approach to rail safety: the adequacy of regulations and methods for their enforcement. In Canada, two derailments in urban areas have brought these matters into the spotlight: 

•  a derailed CP tanker train which almost slipped into the Bow River on a flood-weakened bridge in Calgary, Alberta  CBC News Report
• the disaster in Lac-Megantic, Quebec when a Bakken oil laden train operated by the Montreal, Maine & Atlantic Railway derailed and exploded destroying the downtown and killing 47 residents.  A revealing account of the disaster and its implications is presented here Chronology and Impacts

Upon further investigation by the Transportation Safety Board of Canada, it was determined that the petroleum aboard the tankers which derailed in Lac-Megantic was far more flammable than indicated on the waybill.  It also made the following observation:

The lower flash point of the crude oil explains in part why it ignited so quickly once the Class 111 tank cars were breached. Since product characteristics are one of the factors to consider when selecting a container for the transport of dangerous goods, this also brings into question the adequacy of Class 111 tank cars for use in transporting large quantities of low flash–point flammable liquids (PG I and PG II).

September 11, 2013 Rail Safety Advisory Letter

Two outcomes are likely:

• tighter regulations/procedures for the labelling of tanker-borne petroleum products;
• a thorough review of standards for tanker cars with the prospect that specifications for new cars will be tightened and the possibility that retrofits may be required for older cars which carry more flammable liquids. 

Predictably, railroad companies will rail against tighter standards, but the reality is that the public is not prepared to accept major accidents as a cost of doing business.  In their competition with other modes of transportation, chiefly pipelines, rail companies will be forced to adapt. 

The transport of petroleum products, especially crude oil, has increased dramatically in recent years.  

With the advent of fracking technology, vast new supplies of crude oil have dramatically changed the business of moving oil to refineries.  North Dakota is now the second largest producer of oil in the U.S.  The flood of oil has overwhelmed existing pipeline capacity with the result that rail transport has stepped into the breach. 

Why?

• local refineries do not have the capacity to process the crude with the result that it has to be shipped to large refinery complexes elsewhere;
• there is insufficient pipeline capacity to move crude to refineries in other areas;
• pipelines take time to develop and given the tendency for "fracked fields" to deplete more quickly, a well developed network of intermediate and major lines may not be a viable long-term economic proposition (my conjecture);
• existing rail networks are well-developed and adaptable;
• capacity can be increased quickly by adding new cars and loading facilities;
• the networks serve the dual purpose of moving fracking sand and other materials to well sites and moving product to markets;
• the rail networks provide sellers with the flexibility to exploit and respond quickly to price differentials in different geographic markets;
• oil can be moved quickly;
• competing modes of transport (truck or barge) cannot compete for a variety of reasons: trucks are too expensive over anything but the shortest distances and barges are limited by geography and undependable water levels.

The following link provides an excellent overview of the seismic shift in rail transport caused by new oil and gas extraction technologies: Moving Crude Petroleum by Rail

Investment Opportunities

The Lac-Megantic disaster has raised disturbing questions about the safety of the existing fleet of tanker cars, especially the older stock. Regulators are being pressured to upgrade technical specifications for a variety of reasons:

• it is suspected that many of the chemicals used in the fracking process are contaminating the extracted crude with corrosive materials which, over time, have the potential to weaken tank walls (producers are reluctant to reveal their formulae - trade secrets - so the extent of the problem is not well characterized);
• a significant percentage of the existing fleet is estimated to have a high incidence of failure in the event of an accident;
• there is a continued concern about staffing levels and monitoring during all phases of the rail transport cycle: loading, transport (both while rolling and idle when loaded) and unloading.

To my mind, this presents a few themes for further investigation.

1.  Construction of New Rail Cars to Renew the Fleet

This is rather obvious.  There are several major tanker car manufacturers.  Before the Lac-Megantic disaster, I considered that future deliveries were built into the price of tank car manufacturers; however, the imposition of new, more stringent specifications may be on the horizon despite intense lobbying by the industry.  

The following article identifies some of the major rail car manufacturers in North America: Trinity Industries, Union Tank Car, Greenbrier Companies, FreightCar America, and American Rail Car. Most of them have done well recently. 
Rail Car Manufacturers


Estimates of future production will hinge on the U.S. Department of Transportation's decision of whether or not to upgrade the standards for tanker cars.  The crux of the issue is as follows (extracts from the following article: Tanker Car Standards

The DOT-111 tank car makes up more than two-thirds of the rail fleet carrying crude oil ...

The soda-can shaped car, known as the DOT-111, has come under scrutiny from safety experts because of its tendency to split open during derailments and other major accidents ... The DOT-111 car’s steel shell is too thin to resist puncture in accidents, the NTSB said, and the ends of the car are vulnerable to ruptures. Valves used for unloading and other exposed fittings on the tops of the tankers can also break during rollovers.

The AP had reviewed 20 years of federal rail accident data involving DOT-111 cars used to haul ethanol and found that the cars had been breached in at least 40 serious accidents since 2000. In the previous decade, there were just two breaches...

The Obama administration has delayed by nearly a year a plan to boost safety standards for the type of rail car involved in a fiery explosion that killed at least 47 people in Lac-Megantic, Quebec in July.

The Rail industry has lobbied vigorously to delay and modify the proposed regulations, contending that compliance costs could be in the range of $1 billion. 

2.  Monitoring

There are many aspects to this, including: loading levels, enhanced monitoring of rail cars when underway, security while loaded cars are at rest, and so on.  

Least you think that monitoring the level of liquids in tanker cars is a trivial issue, read this:
Road and Rail Tankers with Level Gauging

3.  Chemical Analysis and Threat Mitigation 

This is critical, especially given that previous assumptions about the low volatility of crude went up in flames due to the experience of Lac-Megantic.  There are several dimensions to this: the chemical composition of crude about to be loaded; monitoring temperatures while on board, analyzing the chemical composition of residue in empty tank cars and so on.  Added to this are measures to reduce or eliminate hazards once they are identified. 

It is not generally appreciated, but employment in the transport equipment manufacturing sector in the U.S. has increased substantially in recent years. 

The fastest growth has occurred in the railroad stock manufacturing sector. In three short years, the workforce grew by an impressive 36%, adding 6,500 jobs to total 25,000. As a result, the total workforce is only 3,000 fewer what it was in 2001.

Employment Patterns in Transportation Manufacturing

To my mind, the increase is symptomatic of the economic recovery and the resilience of American managers.  There are investment opportunities as this trend is not a short-term phenomenon.  

There are other themes which warrant further investigation; notably the logistics of moving petroleum. When researching potential investments, I often review the agendas of industry conventions to "take the pulse": to get a sense of key themes of interest; to identify key players (personalities, companies); to get leads for further research.  

The agenda for the following conference, The Crude Markets & Rail Takeaway Summit 2013, provided a treasure-trove of information ... and some key leads for what I hope will be profitable investments.  Conference Agenda

In later posts, I will report on of some of my activity along the theme of rail transport, especially the movement of petroleum products.  My experience with Trinity Industries (TRN) since establishing a position in January 2013 has been positive: a gain of 17 percent plus receipt of quarterly dividends.  

Further background on trends in the rail industry are presented in the following article http://www.railwayage.com/index.php/finance-leasing/railroad-financial-desk-book-2013.html


The article provides a comprehensive overview of trends in rail car use and explores the all-important facet of financing e.g. purchasing/leasing arrangements.  Savvy investors are well advised to read this closely.