Chumps stumped by Trump pump and dump

Over in Toronto there’s an ongoing saga of the hitherto poor real estate investment that is the Trump Tower.

Many buyers have tried to walk away from their investments are are being sued by the developer to make good on their agreements.

Buyers complain that vacancy rates for the hotel condo product are higher than forecast and the costs to cover operating expenses are too high.

A group of buyers attempted to escape from their contracts by complaining to the Ontario Securities Commission arguing that the developer provided financial projections which were too high and against OSC rules.

Unfortunately for them, the OSC has just decided that they will take no action on the matter.

“After a thorough review of the matter, we have determined not to pursue regulatory action,” Carolyn Shaw-Rimmington, a spokeswoman for the commission, said in an emailed statement.

The regulator began looking into the matter after a series of investors complained that they are losing money on the suites. Talon International Development Inc., the tower’s developer, has been at the centre of the controversy.

Read the full article in the Globe and Mail.

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Great headline/title, btw.


@Short’em High:
I decided to short HCG because its dividend yield is less than 1/2 that of the banks and it is far more exposed to a Canadian housing downturn than they are.

That’s about it and we’ll see the results going forward. Do I expect it to go BK? Not likely.


A lot of discussions re: HCG seemingly attempt to determine whether HCG is a zero. However, with the stock trading at almost 2x book, I don’t think it takes an Armageddon to fall back to 1x book when the RE market deteriorates further. Again, the key is to get lucky with the timing. A 50% drop in the stock price sometime in the future seems to be in the bag.

Naked Official #9000

@G Master:

Talk about getting your priorities mixed up, cadre!

My landlords son told me not to turn the heat above 20 degrees – winter came, I said fuck that – after six years I am rewarded with new windows – surely to be installed by a licensed and bonded contractor, right?

Many Franks

Rob Carrick’s newest has some pretty gut-busting stuff: The Great Canadian Borrowing Binge looks to be done. Fiscal sanity returned in 2012 to the households of the nation. Debt is still rising by every measure, and the only positive news is that its rate of increase is lower. The only thing stopping it is the swift removal of the national punchbowl, which is a far cry from a return to fiscal sanity; it marks the edge of the cliff we’ve just collectively sprinted over. Recent weakness in the housing market suggests household debt growth will slow even more than it has so far. Right, we call that bankruptcy. Mr. Alexander thinks the Bank of Canada is prudent to raise questions about the sustainability of the decline in debt growth. The reason: A potential spring resurgence by the housing market. Naturally.… Read more »

Short'em High

@YLTNboomerang: 50-75K Interesting Question

Is that what you are willing to lose or the total collateral? If it is just the total collateral, then what percentage are you willing to lose as drawdown in order say double your initial money in a few years?

In some respects the money manager answers this question for you. But, if you can answer this question yourself, you can make your own trades.

Bear! Bear! Bear!

@Ben Rabidoux:

“but it takes a lot more creativity and better timing …Reducing time decay is important and tricky in Canada.”

You’re telling me! I’ve been offside on the housing boom for more than half a decade. But when the bust happens I can take my smug self satisfaction to the bank! That’s way better than 5 years of successful condo flips.

Ben Rabidoux


Unless that investing advice is “speak to a professional”

If you were at the seminar, there are some numbers in the presentation package….last page I believe. If not, probably easiest to call them.


@Ben Rabidoux: “He’s a pretty impressive guy and his numbers speak for themselves.”

Which numbers are you referring to? Anything public?


@Bull! Bull! Bull!:

I’d think twice before getting investment advice from the comments section of any blog.

Ben Rabidoux

@YLTNBoomer I’ll strongly recommend that you talk to David LePoidevin. Now having said that, I need to get some disclosures on the table. Forgive me in advance for a lengthy post, but I’ve had a number of emails on this topic so I’d might as well post it for the entire VCI crew. I’ve gotten to know David pretty well (the housing “bear” community in Canada is surprisingly small and we all find each other). I can tell you that he knows his stuff as well as anyone I’ve met in Canada. So much so that when I introduced him to a good buddy of mine who ran the short book at a very large and well-known US hedge fund, the immediate response from my American buddy was “how do I get him down here to work for us?” He’s… Read more »

Short'em High

@Ben Rabidoux: Rotation

Correct me if you are misquoted, but why do you predict consumer discretionary issues will trail lending? In 2008, retail sales were already struggling before the official credit crisis. Wasn’t the whole situation precipitated by credit cards and lines of credit finally tapping out?

Ben Rabidoux

@HAM Solo

Yes, you and I had this conversation over drinks. A loss of CDIC coverage, and you have to think there is a clause on capital adequacy, is a 100% doomsday scenario. In that scenario, which of course would have to be triggered by rising loan losses, HCG could very well look like Countrywide. I certainly wouldn’t project it as a base, but I wouldn’t discount it either.


@Ben Rabidoux: Short on Van RE is one trade many of us want to do but don’t necessarily feel confident enough to make in he old discount brokerage. Does anyone have suggestions of MM’s out there who share this view and have a strategy that doesn’t require a 1MM min investment? I personally am comfortable doing 50-75k on this trade but not too much more as while I believe the bubble is done, I’ve been wrong since I exited the market at the end of 2007.

HAM Solo

Thanks Ben. That’s good stuff. To add 2c, I think there is a tendency to be impressed by the relative vigilence of HCG because they actually have skin in the game and act accordingly…and in a way much ‘better’ than this country’s largest mortgage brokers, the chartered banks. But there is a difference between acting like a drunken sailor and fairly pricing risk, and that is the problem HCG faces. HCG’s risk models, to the extent they exist, are backward looking historical as opposed to taking into consideration what could happen if house prices were to mean-revert. I think, at first, the problems at HCG should show up as credit card receivables growing much faster than new loan origination. Their lending officers aren’t stupid and so won’t be writing new mortgages at 80% LTV on the Trump Tower in Toronto… Read more »


@Ben Rabidoux:

Thanks for your thoughts Ben. MIC is on the radar for sure. There are a few not-so-obvious candidates also.

CWB.TO was selling mortgages very aggressively in AB and BC last few years (sorry, no good link with numbers). Trading activity is low and option bid/ask spreads are high though.

And I wonder what people think about, dare I say, shorting RBC? Of course, they will be first in line to be bailed out when TSHTF. On the other hand:

“…as you know we have the lowest insured ratio mortgages of all of the Canadian banks. And when we manage our balance sheet, we’re really managing for risk return.”
Janice Fukakusa, RBC CFO, Aug 2012

They also offer 2014 PUTs for those who are not sure about Jul 2013.

bob the builder


i agree. they are almost broke shorting the RE the last 7 years.

Ben Rabidoux

Should add that HCG is only one of a number of potential plays, and not even necessarily the most attractive. I would consider it a “first derivative” play, but there are other very compelling shorts and some other asymmetric structured trades out there. Among other “first derivative” shorts, MIC is among the most attractive. The problem there is the higher cost of carry, thin liquidity, and a relatively crowded trade on the short side. But the flip side is that it is extremely exposed to a housing correction, particularly once you consider that it operates with a significant regulatory hurdle relative to CMHC and by default ends up with a number of mortgages that CMHC won’t touch. To understand that, you have to understand risk weightings, ROE on insured loans, and the inherent incentives at the banks to place as… Read more »

Bull! Bull! Bull!

I’d think twice before getting investment advice from the regulars on this website.

Ben Rabidoux

Interesting discussion on HCG. I am definitely bearish on the stock, but it’s always good to understand the other side of the argument before jumping in. Here are a few points to consider: 1) They lend short. Typically 2-3 year terms and are under no obligation to renew. They can theoretically recover their capital *reasonably* quickly and attempt to exit a falling market. But I stress “theoretically” since in order for them to recover that capital, the borrower has to secure a mortgage from another lender. OSFI rule changes make this MUCH more challenging. The other option is power of sale….and I’d suggest people look at the severity ratios at CMHC and Genworth for a sense of how difficult it is to recover 100 cents on the dollar via power of sale. 2) They are notoriously quick to exit markets… Read more »

Short'em High

@jesse: HCG Question.

No, I don’t know anything non-public. But with the share price making new highs I ask, why short that particular one now unless something very certain is going to happen very soon…

To be clear, said he filled HCG short in his account at $54.00. So I asked what he knows or at least at what price he would cover. It’s a bold move based on the stock’s summary information and present directional momentum.


My apologies if already posted, but it’s a goodie.

Vote Down The Facts

@jesse: “It might get as bad as 2008 — not for the exact same reasons, mind — I am putting a repeat of 2008 in my plausible band of probabilities, meaning it could get even worse.”

That covers all 3 possible outcomes 😉


@Short’em High: ” if there is good reason to believe HCG is stopping dead in its tracks very soon, I’d like to take advantage”

Why would HCG stop in its tracks very soon? Have you looked at its book?


Here is the December 2011 data (for which I have recorded info; some are from 2 aggregated days so I divided the result evenly) sales listings sell/newlist 65 146 45% 134 104 129% 100 130 77% 119 114 104% 76 101 75% 97 96 101% 68.5 54 127% 68.5 54 127% 79 81 98% 91 81 112% 59.5 77.5 77% 59.5 77.5 77% 118 92 128% 77 68 113% You get the idea, a few below-1 sell-newlist days near the start of the year and then sales and listings peter off. The important stat here will be how quickly total inventory drops. If it drops significantly that will set a much lower base from which to grow in January. If it remains elevated or drops roughly in-line with recent past years that will set a higher base for 2013, and… Read more »