The Financial Passage Maker - October 2015 Edition

October 2015

The Financial Passage Maker

The Voyage

This edition is somewhat later than normal. Travel and summer life on the boat have priority over the world of investments. This edition is also briefer than normal as life has been exceptionally “interesting” in recent months.

1. The Financial Log Book

The decline in resource stocks, especially those in the oil and gas sector, has adversely affected the portfolio. I've been through this before and will address the issue at some length in a future edition.

2. View From the Masthead

The oil and gas sector in Canada has been devastated ... and changed. And a rant about the perils of an ideologically-driven government with a well-developed aversion to evidence-based policy making.

3. View From the Gun Port

Caldwell Partners (CWL-T) noted in the June 2015 edition was sold a few weeks after the purchase for a gain of 25 percent – something which I was happy with given the volatile state of the market.

I have increased my holdings in Rocky Mountain Equipment (RME) and Clean Seed Capital (CSX).

I have also started to speculate in gold mining companies.

4. Recommended Reading for the Moorings

Bare shelf.

5. In the Wake

The joys of life afloat.

1. The Financial Log Book

Entity	Initial Price/ Purchase Date	Price Oct 27/15	Gain/Loss since Jan 1/15 %	Gain/Loss Since Purchase %
Central Fund of Canada (CEF.A)	9.77 2007-09-04	14.89	10.6	52.4
Silver Wheaton (SLW)	12.37 2007-09-04	19.23	-17.9	55.5
Polaris Materials Corporation (PLS)	10.70 ** 2007-06-01	1.83	-19.4	-82.9
Cenovus (CVE)	32.39 2010-07-27	18.93	-18.4	-41.6
Canadian National Railway (CN)	48.88 * 2009-04-14	SOLD
North West Company (NWF)	16.23 2009-05-07	29.02	15.6	78.8
Oceaneering International (OII-N)	52.95 2012-12-13	43.68	-24.5	-17.5
Deere & Company (DE)	88.07 2013-01-03	76.12	-12.1	-13.6
Rocky Mountain Dealerships (RME)	11.89 2013-01-03	6.9	-24.1	-42
HollyFrontier (HFC)	47.95 2013-01-28	46.92	28.1	-2.2
Oak Tree Capital Group (OAK)	56.45 2013-10-28	48.55	-3.1	-14
High North Resources (HN)	0.62 2014-03-06	SOLD
Fairfax Financial Holdings (FFH)	477.98 2014-3-25	654.57	9.7	36.9
Clean Seed Capital (CSX)***	.51 2015-01-07	0.48	-6.4	-5.9
Ceres Global Ag. Corp (CRP)	5.75 2015-02-19	SOLD
Hi-Crush Partners LP (HCLP)	37.65 2015-02-16	5.16	-85.5	-86.3
Questor Technology Inc. (QST)	1.74 2015-05-22	0.75	-56.8	-56.9
Caldwell Partners (CWL)	1.30 2015-05-2	SOLD

*CN split 2 for 1 on 2013.12.02

** does not reflect impact of follow-on investment @ $.67 per share
***does not reflect several additional purchases

General Comment

I am not particularly perturbed by the recent performance of the portfolio for a variety of reasons:

• The size of my holdings are roughly proportional to the size of each company. Recognizing that smaller companies are generally more volatile, I have invested proportionately less, meaning that my losses are less than would appear on the table. Further, the profits taken on recent sales has been such that I am in the black on the year to date.
• Dividend income has cushioned the impact of declining prices.
• Some very sound companies have declined significantly as a result of sour investor sentiment. To my mind, they represent potential buying opportunities e.g. Questor, Rocky Mountain. By investing more in Polaris Materials when its share price fell into the pits, I made a significant amount of money on the rebound. I have maintained a small “watch position” in order to remind me to monitor the company and watch developments in the sector. It may be positioning itself for a take-over. To my mind, its management is not the equal of its stellar resource base. It needs better management with deeper pockets to unlock the value of the company.

The Oil Patch

See View from the Masthead. For patient investors, there may be a few opportunities in that cash-strapped juniors are ripe for the picking. It will be interesting to monitor the activities of private investment funds with the “long view”.

Canadian National Railway (CNR)

I sold off my position on June 10, 2015 for $72.34 in order to take some profits (which were more than 200 percent excluding dividends). I plan to use the funds for a “higher purpose” (part went to a new piano fund). Nothing is forever.

Ceres Global AG (CRP)

Sold on June 6, 2015 for $6.59, a profit of 14.6 %.

Rocky Mountain Dealerships

I plan to increase my stake in the company. Shares have fallen in response to investors' concerns about the impact of lower sales of new equipment. (See the company's quarterly reports for a more detailed assessment of the company's operating environment.)

The company is sound and its management has experienced similar challenges in the past. My expectation is that the company's share price will improve significantly once the agricultural cycle turns. (I suspect, however, that it's non-agricultural market will continue to languish as the woes of the oil patch will remain with us for quite some time.)

If there is any concern about the company on my part, it is that the senior executives are accountants. The experience of running the day-to-day operation of a dealership and consolidating dealerships into a going concern generates a perspective which differs markedly from one which is focussed in the office and the bottom line. Will this result in a change in the company over time? What impact will it have on customer relationships and service, the key elements of farm implement dealerships? Many expanding companies have experienced this type of change in leadership, often with less-than-desired outcomes. However, in the case of Rocky Mountain, I am comforted by the long relationship that the President and CEO has had with the company and especially, by his experience in navigating through tough times. (Read the 2008 Annual Report.)

Clean Seed Capital Group (CSX)

My investment in this company has quadrupled since my initial purchase. CSX has made steady progress and, unlike many nascent enterprises, its burn rate is sustainable. Financing has not been an issue even in today's climate of caution on the part of lenders. In fact, the agricultural community has invested heavily, a vote of confidence by people in the market for this equipment. Readers may be interested in the following report. In my opinion, some of the conclusions are not unreasonable even if the piece is a bit boosterish.

https://www.agletter.com/clean-seed-capital-the-iphone-of-agriculture/

l like the “chemistry” of this enterprise. It is still directed by people with “muddy boots” - individuals who have a long-standing connection with the technology and the experience of the farm field. I also have the sense that the company has a participatory culture – that it is able to harness the expertise of people from different backgrounds in a productive way. There is a tendency for many start-up companies to become captivated by the technological brilliance of their products/services and not to pay sufficient attention to bringing them to the marketplace. In my view, CSX has done well to advance the marketing, financing and technological aspects of its business. For those with an interest in following up on this comment, I would suggest that they check regional newspapers and trade publications – often a useful way to “take the pulse” of business enterprises.

I was impressed by the technological superiority of the CX SMART Seeder, Clean Seed's flagship product:

• tailored to meet evolving agricultural techniques
• superior performance over competing seeders as measured in field tests
• measurable cost savings for farmers
• possible reduction in operating down time due to a modular system in which non-functioning parts can be replaced quickly in the field – this is especially important for farmers during time critical periods such as seeding

I contacted the company for more details on the performance of the SMART seeder and the CEO quickly provided me with additional documentation. It presents a compelling case for the technology.

As it is a small enterprise, I expect that CSX will experience more volatility in its share price than larger, more stable companies.

A Note About Small Technology Companies

I have a soft spot for small technology companies, having worked with them in various capacities: developing new capacities to assist with wildlife research (rabies control, and the first GPS collar for tracking wildlife) and funding innovative technologies to “de-risk” them for the marketplace.

Over the years, a few small technological innovators have been featured in The Financial Passage Maker: Titan Logistics, Questor Technology Inc. and Waterfurnace Renewable Energy. Clean Seed Capital is the most recent crew member.

Technology start-ups can be risky for a variety of reasons:

• They are cash hungry. The greatest need for cash typically occurs after most of the research has been done. The commercialization of a product/service so that it can be sold takes a lot of money: scaling up production, establishing effective marketing and distribution programs etc. In most instances, companies' earnings (if any) are insufficient to fund these critical activities. New companies “burn” through loans and other financings only to find that they need more funds just at the time when cash is hard to get, especially if sales are non-existent.
• Many find it difficult to raise capital during periods when financiers are risk averse. During such periods, the terms can be very onerous as financiers want to be compensated for risk. One need only look at what has happened with Polaris Materials (PLS) to see the impact of dilution on the value of share owners' holdings as the company has gone through subsequent rounds of financing.
• There is always the spectre of issues which may arise during the normal course of business: staff changes, technological problems, regulatory hurdles for product approval, marketing (product awareness, distribution channels), production issues, and the like.
• Matters beyond the control of a business can upset the best-laid plans: regulation/taxation; the emergence of competitors with deeper pockets, superior technology or better marketing infrastructure; changes in the marketplace e.g. reduced demand for the product or service during the recent dip in the oil and gas market.

Despite the difficulties posed by this mine field, some companies are able to bring products to market and reward share owners richly. Here a a few of the characteristics I look for in my efforts to find potential crew members for my portfolios:

• excellent management (the most important attribute): proven track record, ethical, willing to make changes and hire new expertise to fill skills gaps as the business develops, significant ownership stake and not overly greedy re compensation
• a business plan which is clear, focussed, purposeful and understandable: includes, staffing, product development, marketing, distribution, servicing, financing
• excellent financial condition: preferably with earnings which lessen the need for borrowed capital; also, the ability to tap new sources of funding at reasonable terms
• products/services which meet a real need and confer a measurable benefit to target markets;
• a substantial market for a superior product (here I'm focussing on a “real” market as opposed to “conjured markets” - those products of the imagination which have no barriers to entry, assumptions of unlimited capacity in terms of product refinement, marketing, distribution and service support

I stay clear if I find any of the following things:

• unethical behaviour which violates regulations and generally accepted codes of behaviour (I ignored this when checking the pedigrees of the board of one mining company featured previously in The Financial Passage Maker – should have stayed clear of the beast as it said much about the attitude of management and the rest of the board in that they would accept a person who had been sanctioned by a regulatory agency – always Google the names of all people who are part of the company structure
• management which has an “unenviable” track record: there is a variety of things one can do to check track records of incumbent executives and I may write about it in a future edition
• a business plan which does not make sense, lacks direction or changes frivolously
• an unsustainable “burn rate” which forces companies to cut corners in the rush to get product to the market or dilutes the value of the share structure in subsequent rounds of financing
• management which is unresponsive or evasive

Once a new crew member is brought aboard, I have patience. Nascent enterprises often encounter rough seas but if the boat and crew are well prepared, their odds of reaching the next port are excellent.

While Clean Seed Capital is by no means a “sure thing” it has, in my opinion, all of the attributes of a successful enterprise. The CEO responded to a recent e-mail request about the performance of the Smart Seeder within hours and with a level of detail which exceeded my highest expectations. In the end, it's all about people: those with the vision, tenacity and ability to realize a dream. It will be interesting the chart the voyage of this company.

2. View From the Masthead

Oil and Gas – Has the Party Ended?

In a few years will the refrain, been down so long it likes like up to me, be standard fare in western beer halls?

The sector has been devastated in Canada. Falling demand, an overabundance of supply from low cost producers and lower demand have created a very bleak environment for investment in the sector at present. Nevertheless, I think that the potential for geopolitical surprises could change this situation. The Middle East is undergoing a major upheaval and there appear to be some significant political realignments in process there and elsewhere. I will comment on this at some length in a future edition.

I was slow to recognize these developments and held on to some positions, partly because I have distracted by other things. It's been painful but the industry is cyclical. As always, surprises cause resource markets to gyrate in heart-stopping motions. I'm now undertaking a detailed assessment of these considerations in order to arrive at my own conclusions. I will report on my findings in future editions.

Here are a few of the ports I have visited on the early legs of this voyage.

The following report issued by the HSBC in April 2015 is compelling: Stranded Assets:What Next – how investors can manage increasing fossil fuel risks

http://www.businessgreen.com/digital_assets/8779/hsbc_Stranded_assets_what_next.pdf

The opener:

Stranded assets are those that lose value or turn into liabilities before the end of their expected

economic life. In the context of fossil fuels, this means those that will not be burned – they

remain stranded in the ground. We believe the risks of this occurring are growing.

Here is a list of the way points in the piece:

Stranded assets: what next? 3

From assets to liabilities 3

Stranded by climate change regulation 3

Fossil fuels and the carbon budget 4

Pollution and safety regulation also pose stranding risks 7

Regulatory drivers still in place 7

Stranded by economics – the risk of today’s lower

energy prices 8

Stranded by energy innovation 9

Efficiency drivers 9

Technology drivers 10

Renewables: cheaper as well as cleaner 10

Electricity storage 11

Enhanced oil recovery 11

Conclusions 12

Investors: Divest or Hold and

engage? 13

Devising an investment strategy around fossil fuels 13

Which assets are unburnable? 13

Divestment is one approach to managing the risk 15

100% divestment 15

Partial divestment (Tilting) 16

Value chain analysis 16

Worst-in-class analysis 17

Challenges with a divestment strategy 18

Reinvestment (or what to do with the freed up cash) 18

Performance 19

Does divestment extend the carbon budget? 19

Hold and engage 21

How companies have responded 22

The risks to remaining invested 23

Conclusions 24

A rant. Canada recently had a federal election. The ruling Conservative Party was rejected soundly by the electorate for a variety of reasons. Some observations re the Harper energy policy:

• Shamefully, Canada does not have a national energy policy, nor has the federal government engaged the provinces which have constitutional responsibility for natural resources. Domestic policy for energy-related matters has been fragmented and reactionary.
• Former Prime Minister Harper hitched his political wagon to the fossil fuel industry, particularly the oil sands sector and was blind to developments which are transforming traditionally-held views e.g. fracking in the US, a dramatic drop in the cost of solar energy (note that I do not use the term “alternative energy” for non-fossil fuel energy sources).
• There has been a significant diplomatic failure to cultivate support for a transnational pipeline to the US with the result that bitumen cannot be transported cheaply to US refiners. Resources have essentially been stranded or sold at bargain prices.
• Harper was singularly unable to recognize Canadians' reservations about trans-mountain pipeline proposals to export oil and gas to the west coast. The ecological implications in the event of a spill in one of our most productive and sensitive marine areas are unfathomable. When one considers the cost/benefit equation, it is clear the the rewards will go to the few while the risks will be borne by the many – math which is certainly not in the national interest. There has been no reluctance on the part of the Conservative government to vilify opponents to the pipelines: http://www.theglobeandmail.com/news/politics/ottawas-new-anti-terrorism-strategy-lists-eco-extremists-as-threats/article533522/
• Further, the former Conservative government had a ideologically-driven inability to recognize the implications of climate change with the result that Canada has become an “international outlier” in the court of public opinion. The reputational risk to Canada through this and other policies was such that Canadians think twice about affixing small Canadian emblems to their back packs – perhaps the best barometer of the way we believe that our national image is perceived by others when we are abroad (only in the Netherlands will I openly advertise that I am Canadian)
• One of the boys in short pants in the Harper PMO advocated the abolition of the mandatory long form census ... unbelievably the idea was implemented! This, coupled with the gutting of Statistics Canada, perhaps the best national statistics department in the world, has greatly compromised social and economic planning in Canada in the public and private sectors. Fortunately, the new government plans to restore the long form census. Take time to read this:
  http://voices-voix.ca/en/facts/profile/statistics-canada-mandatory-long-form-census
• An ideologically-driven foreign policy has compromised Canada's reputation to the disadvantage of our national interests e.g. the flip flop on China: at first it was viewed as a pariah state and now Canada has bent over backward in an effort to curry favour with a nation it once slighted (a poor negotiating position which may be appreciated by any husband who has “wronged” his wife)
  http://www.cbc.ca/news/canada/fipa-agreement-with-china-what-s-really-in-it-for-canada-1.2770159
• This and many other bone-headed policies from a person who hid in a closet when threatened by an armed intruder to the House of Commons, all the while leaving his fellow caucus members to barricade the doors and arm themselves with flag standards. He had a choice. http://news.nationalpost.com/news/canada/canadian-politics/as-ottawa-shooting-broke-out-stephen-harper-hid-in-a-closet-unknown-to-his-own-caucus-in-the-same-room

... I feel better now ...

Those wishing to acquire a better understanding of some of the history behind the quagmire which characterizes the Middle East could do no better than to read, Lawrence in Arabia: War, Deceit, Imperial Folly and the Making of the Modern Middle East by Scott Anderson (McClelland & Stewart 2013). It is written from a western viewpoint. Anderson's research is exhaustive and the narrative is presented adroitly. There is a nice selection of books which present viewpoints of people native to the regions which are well worth reading – also reports from organizations such as Chatham House.

Here are some selected readings which present a few views on the oil and gas industry in North America.

The Shale Delusion: Why the Party is Over for US Tight Oil

The article describes the dire situation faced by US producers. However, things change. In my view, geopolitical risk in the Middle East is a major factor which cannot be discounted. Further, the US government is not about to ignore the tremendous boost to its energy security provided by tight oil and gas plays in North America.

http://www.mineweb.com/articles-by-type/analysis/the-shale-delusion-why-the-party-is-over-for-u-s-tight-oil/

New Marecellus Pipelines from the Northeastern US Squeezing Out Canadian Natural Gas

Much has been made about changes in the distribution pattern of oil and gas in North America. It is well worth reading this interesting article. Fundamental change is underway.

http://business.financialpost.com/news/energy/new-marcellus-pipelines-from-northeastern-u-s-squeezing-out-canadian-natural-gas?__lsa=e511-16f9

The following link leads to a very insightful article by Deborah Yedlin, one of my favourite observers of the oil patch. If you are considering investing in the sector, you would be well advised to read this first.

http://calgaryherald.com/business/energy/rising-costs-challenge-oilpatch

3. View From the Gun Port

Precious Metals

I have started to speculate. When placing my bets, I look at companies with the following characteristics:

• seasoned management with proven track records
• good balance sheets (reasonable amounts of cash on hand and minimal debt loads) and a demonstrated ability to secure financing
• production underway or to begin shortly
• low costs of production and profitable operations in the face of low metals prices
• mines in geopolitically stable jurisdictions and good relationships with local residents
• mines within established mining camps (benefits of infrastructure, established labour pool etc.)
• a “good story” which is understandable

I do not involve myself with major companies at this stage in the mining cycle as the upside is generally not as great as more junior members of the community when gold prices increase notably. I ignore exploration companies and other ventures which have yet to reach production status as the risks are too high. Many of them are finding it very difficult to obtain financing. Later on in the mining cycle, I may look at such beasts, but not now. A textbook case of the difficulties faced by cash-strapped mining companies is presented in the following link. Testosterone-fuelled decisions on the part of management in many of the major mining companies have placed existing share owners in an unenviable position ... the buzzards are circling:

http://www.mineweb.com/news/platinum-group-metals/lonmin-can-it-get-its-rights-issue-away/

I have placed bets on the following companies:

OceanaGold (OGC)

Integra Gold (ICG)

St. Andrew Gold Fields (SAS)

There a few streaming companies in my portfolios as conditions for acquiring streams with cash-strapped miners are excellent.

Franco-Nevada Corporation (FNV)

Silver Wheaton (SLW)

I've also placed a bet with Asanko Gold. Ghana is one of the most stable countries in Africa but still not without a variety of risks. However, the estimated cost of production and the size of the resource makes this an attractive proposition. Further, I've read a variety of articles which suggest that mining operations often continue even when rebel forces displace government troops from mining sites. The reason? A desire to profit from mining taxes. The more things change, the more

I am a bit of a contrarian. Metals prices have tanked and pessimism is rife in the mining sector. I've experienced this situation before. By waiting patiently, I have made a lot of money in the sector. As always, I limit my stakes to what I am prepared to lose if everything goes south. However, my selection criteria are intended to minimize that possibility. With luck, the profits will help

finance a new German-made grand piano. I'm now so captivated by Bach that I spend about two hours a day at the keyboard.

I am starting to investigate a few sectors in my search for new investments. There are a few companies in the pet industry that warrant further research. The growth in pet ownership in our neighbourhood has been phenomenal and owners are not reluctant to empty their wallets on high end (read high margin) products and services for their pooches. I will report on my findings in the next edition.

Agriculture continues to interest me, especially now that prices in the sector are depressed. Originally, I had thought that water conservation might be a promising theme. However, with further thought, I thought of another approach which combines conservation with more effective resource use, especially in resource-stressed environments. I will report on that theme of the “new agriculture” in a future edition.

4.  Readings for the Moorings

Nothing of note to report for this edition.

5.  In the Wake

We spend a lot of time on our boat in the summer months. We are based in northern Georgian Bay, one of the best cruising areas in the world – the other is the west coast of British Columbia.

As opposed to making great distances on the day, we prefer to select interesting and remote locations and stay there for prolonged periods. Only then can one get a sense of the “rhythm of place” - the change of the light, the daily routines of animal life, the diurnal breath of lake and shore. We have learned to live in concert with the rhythm of the day – to rise with the sun and sleep when it dips below the horizon.

As part of the routine, I usually take the kayak out just as the promise of a sunrise starts to express itself. It is then that I stop “thinking” and start to “settle in” - to listen, or rather, feel the sounds around me and to see without looking. I know when I reach this state when I forget that I'm paddling.

Here are a few shots to give you an idea of this world:

              While watching a beaver from the kayak I looked over my shoulder ...

Purpose of the Newsletter

The Financial Passage Maker provides ideas for people interested in building wealth. It is aimed at thinking people who have decided to take on personal responsibility for their financial well-being.

The newsletter is issued more or less quarterly, a reflection of the fact that good investment ideas are not all that plentiful ... certainly not sufficient to justify a monthly or bi-weekly report. All ideas presented in this newsletter are ones that I have invested in personally. I am not interested in filling space with observations on stocks I do not own. I eat my own cooking.

The Financial Passage Maker chronicles the messy process of building a financial portfolio. I hope that it will provide some useful insights and enable readers to think critically for themselves. As in all things, however, the path to financial well-being takes consistent effort coupled with humility and a knowledge of self. This can only be developed through practice over many years. My personal voyage to financial well-being has had unanticipated benefits that are worth far more than my balance sheets: new found friends, new perspectives on the world, and a greater knowledge of self. Further, I am now more able to help others.

The Financial Passage Maker chronicles my voyage in the investment world. For the most part, it addresses investments which are in the “growth” part of the portfolios I manage. In no way do I recommend that you base your personal investment decisions on the contents of the newsletter unless you are prepared either to consult a financial adviser qualified in your area of interest or undertake due diligence on the basis of your own research - or both. Remember, in the final analysis, you are responsible for your own financial well-being. Would you have it any other way?

The Financial Passage Maker is issued more or less quarterly; however, I make more frequent postings on a blog by the same name. It can be accessed here: http://finanacialpassagemaker.blogspot.ca/

Some of those postings are included in the e-mail version while others are not.

The Wonders of Eleuthera ... and Rabies - Sometimes a little knowledge is useful

Earlier this year, I spent some time in Eleuthera, one of the Family group of islands in the Bahamas.  You can read a thumbnail description here: https://en.wikipedia.org/wiki/Eleuthera

It is a sublime place: uncrowded, replete with miles of pristine beaches (take your pick - the waves of the Atlantic on one side or the warmth of the Caribbean on the other).  It is largely undeveloped for tourism with the exception of some high end residential areas in Governor's Harbour.  Although we stayed at a friend's house, there is a wide offering of rental houses at reasonable rates. 
http://www.discover-eleuthera-bahamas.com/eleuthera.html

The best approach to visiting this wonderful place is to slooowww down, rent a 4-wheel drive vehicle to negotiate back roads, and visit the various small settlements and beaches strung out along the Queen's Highway.  Remember to drive on the LEFT and keep pace with the 45 mph speed limit.  Due to very high import charges, your vehicle is likely to be a clapped out Jeep w/o air conditioning and with engine lights and the like in alert mode.  The daily rental cost is about US $60.  

This said, the main attraction is the friendly residents.  Everywhere we went, we encountered open, smiling people with a wonderful sense of humour.  They were genuinely glad to have tourists around.  And forget about the crime rates that are present on other islands in the Caribbean: no one locks their cars or houses.  There is a real sense of community in Eleuthera.  

While simple, the food was fresh, tasty and very satisfying.  We were especially fond of the food at Billy and Brenda's BBQ in Jame's Cistern: the ribs and boiled mutton were to die for; also the pumpkin and rice (a first for me); and never have I had macaroni as good.  If you visit, get there between 11:00 AM and 2:00 PM every Friday and Saturday .... any later, and they will likely be sold out of everything.  For those with a sweet tooth and a distain for waist watching, Brenda's deserts are very tempting.  

Now to my adventure with rabies.  

We stayed at a small beach house.  Weather, especially the hurricanes, is hard on buildings.  The house was a bit porous to things such as insects, the occasional mouse (intruders were dispatched promptly by trapping), and surprisingly, a brown racer (snake) which I initially thought was a twig by the fridge.  I gently herded the 3' creature out the door with a broom.  We were not at all put out by this circumstance as we've learned to take things in stride as they are part of the environment of places we visit.  

However, one night, I awoke from my sleep to find something working on my ankle.  I awoke quickly from a stupor and kicked the thing off.  When the lights were turned on, there was no sign of the critter ... only two small puncture wounds about .5 inches apart. 

I went on the Internet to check out possible culprits.  The bite was consistent with that of a brown racer (they are only very slightly venomous and have been known to be aggressive in biting people). I hoped that this was the instigator.  However, there was another, more sinister possibility ... a bat ... an animal which produces a similar wound.  

I was very alert to this possibility as I was, for 10 years, manager of Wildlife Research for Ontario.  We ran a large-scale rabies control program which was successful in eliminating terrestrial rabies from the Province.  (At one time, Ontario was the "rabies capital" of North America due to the prevalence of human and domestic animal exposures to rabies in foxes and skunks.)  And although I had received pre-exposure treatment decades ago, there was no assurance that my antibody levels were adequate to overcome a challenge from bat-borne rabies, strains which are especially aggressive in human beings.  

I looked for signs of bats, and sure enough there were potential signs, including a sighting one evening while we were outside admiring an exquisite sunset.  I checked wildlife reports for the island and sure enough, there were some roosts.  Further, there was evidence that the incidence of bat rabies was in the range of 1 to 3 percent of the sampled populations.  

I consulted with a local doctor, Dr. Bacchus, a wonderful, cultured gentleman, esteemed greatly by island residents.  He checked with the local vet, and was informed that no cases of rabies had been reported in people and domestic animals since 1972 - also that the "scene" was quiet.  He thought that I might want to get post-exposure treatment on my return to Ontario in a week's time. (Eleuthera and the Bahamas do not have the resources for rabies treatment, so the only options were to go to the U.S. or return home.)  Dr. Bacchus was not willing to take any payment, so I reached into my pack and gave him a book: The Brain That Changes Itself: Stories of Personal Triumph from the Frontiers of Brain Science by Dr. Norman Doidge.  He was delighted as it is one of his professional interests (he operates a pain clinic in Spanish Wells). 

I weight the odds.  Dr. Louis Pasteur had studied rabies mortality in humans and discovered that the odds of dying increased as the site of the bite got closer to the brain.  The reason for this is that the rabies virus replicates along the nerves.  The body has more time to produce antibodies for bites on legs than, for example, on the neck or face before the virus reaches the brain.  You can read more about Louis Pasteur here - a giant in the scientific world whose legacy has benefitted everyone: 
http://www.britannica.com/biography/Louis-Pasteur

Using this logic,  I should be OK as my antibody response system is excellent.  

However low the odds of contracting rabies, I was mindful that bat rabies is very aggressive in humans ... and that the overwhelming majority of cases of rabies in people in North America (with very few exceptions) can be attributed to exposure to bites by bats.  

I decided to return home for treatment.  I Skype'd my local health unit and discussed my situation.  It was agreed that post-exposure treatment was appropriate and they went about preparing the medication for my arrival. 

A hint: I tried to contact the health unit by cell phone and land line to no avail - the circuits were overloaded and unreliable.  The owner of the nearby Rainbow Inn (a fellow Canuck) advised that Skype is a more reliable option.  It worked flawlessly from a WiFi access point.

For convenience, I received my first injections at our local hospital. While in a sick bay at the emergency department, I overheard the nurse at the nursing station mention something like ... "poor guy". Although it was her first experience, she did a wonderful job.  There was only minor discomfort when 10 cc's of rabies immune globulin was injected at the site of the wound and a shot of vaccine was administered in my deltoid.  I experienced no adverse reaction to this and three other follow-up injections.  There is nothing to fear from the sometimes painful stomach injections and allergic reactions which sometimes resulted from treatments in years past.  

Bottom line: 

1. Elethera is a wonderful place.  We will return very soon.  We left with the sense that we had only begun to turn the first few pages of a very engaging book.  
2. Be very careful of bats.  In wild populations, the incidence of rabies can be in the vicinity of 1 to 3 percent.  In one study in Colorado, it was ascertained that 50 percent of the bats recovered that had bitten people were infected with rabies. (Rabid bats are more prone to bite.)
3. Do not handle bats.  Dispose of dead bats with a shovel and bury them.  
4. If you think that you have been exposed (sometimes bites are missed/ignored) go immediately to your local health unit.  Read more about it here: http://www1.toronto.ca/wps/portal/contentonly?vgnextoid=6daa548c35432410VgnVCM10000071d60f89RCRD  
5. It is useful to keep things in perspective.  For many years, I was exposed to bats during spelunking expeditions. Those were early days and we took a cavalier attitude to life.  However, it seems that society is becoming more risk averse (to its detriment) and the age of helicopter parents and those afraid of risk are occupying a larger measure of our public discourse.  "Prudence" is fast-becoming an artifact of the past.   The fear mongering of politicians, those with a self-focussed "agenda" and a sensationalist public media should be dismissed out of hand. Live life large, prepare for contingencies and be flexible in responding to unanticipated events.  And make sure that you don't become a candidate for a Darwin Award: http://www.darwinawards.com/

Some photos of Eleuthera

Rainbow Beach - community maintained

Evening fishing Rainbow Beach

iconic pier shot James Cistern

Rainbow Beach - idyllic and uncrowded

  

Atlantic meets Caribbean at Glass Door

 

lucrative crab fishery Spanish Wells

Food Security and Why to Invest in North American Agriculture

Maplecroft's Food Security Index 2013

The Food Security Risk Index has been developed for governments, NGOs and business to use as a barometer to identify those countries which may be susceptible to famine and societal unrest stemming from food shortages and price fluctuations. Maplecroft reaches its results by evaluating the availability, access and stability of food supplies in 197 countries, as well as the nutritional and health status of populations. 

https://maplecroft.com/about/news/food_security_risk_index_2013.html

There are several inter-related mechanisms which affect food security: 

• governance: rule of law, effective institutions
• poverty
• civil unrest, armed conflict
• drought and water availability
• farming practices
• distribution networks for farm supplies and crop movement
• food inflation i.e. increased cost of importing foodstuffs when global shortages are present (especially important in the Middle East where governments subsidize food to maintain social peace)

If anything, climatic variability will place additional stress on the global food system.  Much of that impact will be expressed most profoundly in some of the most densely populated areas of the world.  

I would argue that developed western economies have an advantage due to better performance on the above-noted metrics relative to other jurisdictions.  Further, they have a greater amount of arable land relative to their human populations ... also the fortunate geographic situation to be somewhat less impacted by variations due to climate change than other regions of the world. 

For these reasons, I will continue to invest in agriculture in North America, New Zealand and Australia.  I have yet to investigate possibilities in northern Europe and Chile.  The potential for increased exports of foodstuffs remains attractive from an investment perspective and the efficiency of producers is second to none.  

Areas of focus include:

• equipment/services suppliers
• seed companies
• fertilizer/chemicals
• knowledge management
• related transportation services

Buying a New Car - Lessons Learned from a Sour Experience with Toyota

I thought that I'd provide an account of my dealings with Toyota Canada.

Round One

In August 2014 I ordered a 2015 Toyota Highlander from a Toronto dealership, Toyota on the Park.  I was informed that it would be delivered in about 8 weeks as the company was having trouble satisfying the demand for this popular vehicle.  I was surprised that we were kept waiting for more than 20 minutes to do the paperwork for the deal.  We were about to walk out before someone finally came to see us.  This should have been a warning sign about what was to come.

In October, we arrived at the dealership to pick up the truck.  The following things happened:

• The salesman greeted me but failed to acknowledge my wife (big mistake);
• The salesman passed us off to a colleague, saying that he had been promoted (big mistake);
• The colleague showed us the vehicle and it was the wrong colour - this happened even though the dealership had checked with us 10 days after we had made the order.
• We refused to take the truck.  The deal was terminated. 

The fallout:

• The sales manager apologized but other than that, made no effort to address the situation. In fact, he mentioned that if we wrote Toyota Canada, the letter would be sent to him for a response.  (He has most assuredly misjudged us on that one as we know how to work the system.)
• The reputational damage to the dealership continues ... it has been bought out by a conglomerate and the service which usually comes from a hands-on owner is gone
• The deal was not concluded ... cynically, we think that the dealership did not really care because they could sell the Highlander within days ... we think that the dealership realized that they had made a mistake with the vehicle colour and decided to proceed with the expectation that we would accept the car.

Round Two

On January 12, 2015 we visited another dealership, Downtown Toyota in order to place an order for a Toyota Highlander.  The service was absolutely wonderful - smooth, competent, pressure free.  

However, after more than four months of waiting for delivery, I contacted the dealership and informed them that I wished to cancel the contract.  (A clause noted the the contract could be voided if a vehicle was not delivered within three months of the signing date.)

Of course, the dealership was disappointed.  They offered additional financial compensation but I pointed out that the wait was unreasonable and further, that receiving a 2015 vehicle so late in the model year would mean entail an accelerated depreciation.  I noted that they had been failed by the parent company, Toyota. Why offer a car when you cannot deliver?  

Some Key Points in Purchasing a New Vehicle

Assuming that you have done your due diligence in selecting a vehicle, here are a few guidelines which I have found helpful in making a purchase. 

1. Always read the contract carefully.  Ask for time to read it alone.  Always include a clause specifying the deadline for vehicle delivery and that the contract will be null and void if the condition is not met.  (Some dealers will even offer to supply a courtesy car if vehicles are not delivered by the specified date ... check this out.)
2. Check out the dealer ownership.  Do business only with dealer-owned establishments as they are more accountable and interested in their businesses.  Ask to meet the owner and make your own assessment of his/her character.  If you cannot meet the owner ... walk away. 
3. Check out the dealer's reputation.  There are many sites which provide opportunities for customers to provide feedback. While there will always be cranky people who are impossible to satisfy, you will quickly see emerging patterns. 
4. For pricing, use on-line auto pricing services to get an idea of dealer costs and pricing patterns.  (Some reviewers have criticized these services but having some basic information is useful for one's negotiations.)
5. Visit web sites which provide advice on vehicle purchases in order to prepare yourself for negotiations.  
6. Realize that the dealer has to make a profit.  

I will make a future posting on Toyota's response to my letter. 

In the meantime, I have decided to purchase a different SUV.  After my experience:

1. I reviewed potential vehicles using a variety of sites including: Consumer Reports, Edmunds, Kelly Blue Book.  I did not pay much attention to automotive writers.  I did scour vehicle owner websites as they are perhaps, the best indicator of vehicle quality/owner satisfaction. 
2. I reviewed potential dealerships for quality of service etc. 
3. I visited the most highly-rated dealer on a low activity day (morning early in the week) and test drove two models in a variety of situations.  I started by saying that I had selected the vehicle and that my purchase was contingent on a test drive, approval by my wife, and price. 
4. I made sure to meet the owner.  I was impressed.  He loves the business and dealing with people and is focused on customer service.  (You can deal with him directly in getting vehicle service as he is right on top of his business.)

At all times, I was in control but gently so.  There was give and take.  The experience was cordial and friendly.  When the time comes, I'll buy a second vehicle there and will get both of our vehicles serviced there. 

Best Credit Cards for Canadians Traveling in the United States

Using Credit Cards with Discretion

With the exception of purchasing a house, I have always subscribed to the dictum: "If you can't pay for it in cash, dash."

There is a difference between "wants" and "needs",  although through the process of rationalization, the difference can often be narrowed.

It is somewhat easy to diminish the stock of one's "wants".  I have always had the practice of waiting for at least a month before making a prospective purchase.  It's amazing how many "wants" and even "needs" disappear as a result.

When I make a purchase, I always try to buy an item or service "on sale".  At the very least, I always comparison shop.  The only time I make an exception is when I determine that the supplier provides superlative service or where the difference of patronizing a local supplier and a more distant supplier is negligible.  (I prefer to support neighbourhood establishments in the interest of maintaining a vital community.)

When paying for a purchase, I always try to use a credit card in order to receive the benefit of "points".  I NEVER run up a balance on the card as it defeats the objective of purchasing things cheaply.

Foreign Exchange Fees - the added burden of using credit cards

I do not travel in foreign countries without a credit card for the following reasons:

• Transactions are fast and easy.
• There are records for review.
• Many cards come with insurance benefits such as emergency health, travel interruption some auto insurance coverage which can reduce the cost of vehicle rentals. Credit cards represent a major improvement over travellers cheques and carrying large sums of cash. 

However, there is a downside which is sometimes unappreciated. Each time you make a purchase in a foreign currency for a Canadian credit card issued in $Cdn, you are liable for a foreign exchange fee.  The fee is generally in the range of 2.5 percent! This fee is in addition to currency exchange rates. 

The combination of these charges, can easily exceed the earning power of the card and leave one in a "deficit" position.

(Note that many Canadians use credit card denominated in $US; however, they still are still liable for exchange rate differences if a conversion from $Cdn to $US is involved in the payment out the outstanding balance.)

Here is a synopsis of rates on various cards which Canadians routinely use in the U.S.

Credit Card	Foreign Transaction Fee	Signing-Bonus Points	Annual Fee
Chase Marriott Rewards Visa Card	0%	30,000	$120 Waived 1st Year
CIBC Aventura Visa Infinite	2.5%	15,000	$120
TD Aeroplan Visa Infinite	2.5%	25,000	$120
RBC Avion Visa Infinite	2.5%	15,000	$120
BMO Rewards World Elite	2.5%	30,000	$150
Scotiabank Gold Amex Card	2.5%	15,000	$99 Waived 1st Year

http://www.greedyrates.ca/blog/travel-tip-avoid-foreign-transaction-fees-canadian-credit-card/#.VVpBFlVVhBc

I initially thought that I could avoid this situation by taking out foreign cash in my local bank branch or an ATM stateside. However, this approach does not save money.  I came across this graphic on the website: http://www.greedyrates.ca/

The situation is not much changed from March 13, 2004 when the preceding chart was prepared ... with one exception which should interest Canadian travellers who stay in hotels in the U.S.

Mariott Rewards Premier Card

Click on the preceding link to see the benefits associated with this card.  Included:

• No foreign exchange fee
• Sign-up offer which includes free nights which can amount to several hundred dollars
• Fee waiver for the first year

I applied for the card and have received a free night in the Mariott chain.  I figure that the card will more than pay for itself even with the addition of annual fees which apply after the first year. The Marriott chain and its affiliates cover a wide geographic area and the hotels provide fair value and quality.  In a future post, I will report on my experience with the card.  Even when travelling cheap while on long distance cycling trips, I have always found that the Marriott group and like hotels provide that little measure of added value over most competitors in that they allow bikes in the rooms. The generally spacious rooms are great for drying clothes and spreading out one's kit.

Investing in Part Time Employment Agencies - Part Two - Context

Contextual Framework

It is always useful to be mindful of high level "drivers" when one is investigating potential investments in a given sector.  I have learned that they contribute to an operating environment within which companies can either thrive, founder, or just get by.

Here are a few key variables which, in my view, will affect the performance of the sector:

1.    State of the Economy

As noted in Part One, the level of activity in the sector is correlated directly to fluctuations in GDP.  When times are good, the companies prosper.  Is it now timely to invest in these companies (when times are good) or does it make sense to invest following a major correction and when valuations are low?  This is definitely one instance where it makes sense to time the market - something which seasoned investors as Herr Buffet would discourage.  I would contest his view.  In fact, his practice of "waiting for the fat pitch" is just another way of timing the market i.e. he makes his purchases when valuations are low and there is a wide margin of safety.

2.    Long-Term Trends in Human Resources Management

It would appear that there is a well-established trend to the increased use of temporary/contract employment.  The advent of the Internet has facilitated this trend and increasing the size of the talent pool that companies can access.  Further, in some areas such as the EU, treaties have increased worker mobility, thus enlarging to pool of potential workers.

3.    Disposition of the Work Force

People are adapting to the world of contract work.  It has always been a feature of the non-unionized, low skill work force, something which has been addressed by government in social assistance programs such as unemployment insurance schemes.

Times have changed.  No longer do people associate with a company for their working life.  Nor do they work within one occupation given the pace of technological and social change.  For a variety of reasons, people have accepted that they must be more adaptable to survive.  The same applies to companies who must be more nimble in the face of increased globalization.  "Temporary" work is the new normal.

4.     State of the Part Time Employment Industry

Evidence would suggest that the sector has room to penetrate further the world of HR management.  It also suggests that models for HR management are changing in that some in-house functions are being outsourced to an increased degree.  In my opinion, there is room for considerable growth in the sector.

The industry is fragmented in the US, less so in Canada, and very much less so in several European countries.  I have not yet investigated this in South America and Asia.

In the last decade, the Internet has expanded the pool of talent and several companies have done well by making connections between service providers and companies.  The market has room to grow, especially given that high level services are being outsourced on a more routine basis.  It is generally not recognized that this would not have been possible without much improved education levels throughout the world.

A Few Observations About Investing in the Sector

1. The market in Canada and the US appears to be fairly flat over the past few years.  I plan to review the market in other jurisdictions.
2. The market is very cyclical and is tied directly to the performance of the economy.  Many regard temporary employment indices as leading indicators of economic performance. 
3. Labour laws are an important consideration.  
4. The "pool" of available workers may be shrinking due to lower birth rates and a more "mature" population profile in Europe and North America.