Canadian Energy Trusts. . .

take it on the chin. If I understand it correctly, existing trusts will be taxed in four years while any new trusts get the tax shaft next year. Now this sort of thing plays right into my bias of following the stampede and looking for the carnage, so long as there is some risk mitigation. My expectation is that something happening in 4 years is not a reason to give up the ghost now.

In looking over the trusts, I elected to buy some ERF. Here's a look at the chart (Click to enlarge):


My average cost is $41.87 today. It closed at $42.29. They pay a .42 dividend on 11/08. Here's my thesis.:

Don Coxe (BMO Harris), who is no longer freely available, has been a huge proponent of geopolitically safe oil reserves. The Canadian oil plays fit that bill. I imagine though that any who have loaded the boat on these must be in pure agony now, for these oil trusts have declined 20+% over the news.

Now if my gourd is working correctly (and we are in the right season for gourds), the real risk is the price of oil, which I grant has been under much suspicion of late, and that's a discussion for another day. The price of oil affects earnings (near and far term) regardless of tax implications. And oil has been under pressure. But a 10% dividend rate is nothing to sniff at--and if in the US rates start to decline,--the search for yield will be relentless.

If there is such a thing as due process in Canada, there is a potential upside: the hew and cry may be so great that the politicians may come up with something more palatable for existing trusts while achieving their goal of abating the massive conversions to a trust.

In summary for ERF my investment thesis is

• + dividend of .42/share provides downside protection of same (though the shares may dip post 11/08)
• + greater clarity post exodus by clearer thinking may provide boost in share price
  
• - oil price decrease will deflate shares as income will be reduced
• +oil price increase will inflate shares..............
  
• - hew and cry may result in some repeal or softening...think about what that might do (but I don't know the predispositions of the Canadian government, but I think that some mitigation via due process could very well be likely--though complete conjecture, it is a possibility).

I was listening to Peter Eliades today and was reminded of the psychology of the markets. Let's see what happens to the thesis above.

I found this article post post....I feel like my thinking is sound.

http://www.marketwatch.com/news/story/story.aspx?guid=%7BA46AED29-0D72-4965-82E9-E4F2CFD1FC57%7D

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An update on my other theses for IVGN and MIND. IVGN currently has an .82 (1.46%) per share gain over my entry point and MIND has a .04 (.4%) gain over my entry point. Pretty thin margins!