Introduction and Disclosure.
This is the start of an entirely a personal-view blog, started in the early weeks of 2010.
For a number of years I had been asked to write, mostly by my wife but occasionally by other family members, some sort of material. I have avoided this on the grounds that in my own opinion I had nothing to say that was more original, insightful or germane than pieces that I have read, written by others. On the other hand, they don't read material in my particular fields of interest.
With respect to financial comment, to the extent it may refer to any particular stock, investment vehicle, point of view, strategy or action, under no circumstances are such to be construed as actionable recommendations, advice or ideas appropriate for the reader's circumstances. In fact, they may often be counter to accepted investment techniques with which it would be useful for the reader to be familiar. Any person reading this and interested in taking financial action should do their own research and/or consult a reputable financial institution or their own accredited advisor. While not necessarily the case, I may have a vested interest in specific investments mentioned.
That having been said, my interests are both macro- and microeconomic. They range from specific corpoate situations to international political and economic policies, particularly those pursued by central banks, the worldwide financial structure and the socio-economic-political responses that form its orbit or bear its consequences.
Unfortunately, young people are not routinely and formally taught about money, or anything whatever about how and why the financial system works. Everything is assumed and they are turned out on the street like creatures in the field, to figure it out for themselves - mostly from totally clueless sources. That eventually means that adults know precious little and while it may sound extreme, there are capable and expert accountants (just to use an example) who know money like a mechanic knows a car, without knowing how to run a successful auto manufacturer, its place in the world-wide auto industry or the impact of international policies. This is a social shortcoming and disadvantages most of the populace of most countries.
Beyond this, after years of institutional investment involvement and subsequent decades of observation, it is my opinion that many educated and otherwise well-informed persons see a financial world largely contrived by others for their view. This fact that this macro-level effect works against them (although opportunity does exist for anyone sufficiently determined to find out) is not so much planned that way as indifferent to them (the derogatory description of "them" is sheeple) - except with respect to the latter's broadly predictable collective responses. Eventually the larger populace is sufficiently co-opted that even when a matter can be made plain, a blind eye is turned to the disclosure so that the distortion - even though against their interest - is accepted, forgotten and even denied.
When Nelson said he had not seen the flagship signals to break off naval combat, he asked for the spyglass to look for the admiralty code flags. When he placed the glass to his sightless eye, he knew what he was doing. He continued to fight, and won. Wilful public blindness not just to the consequence, but to the very meaning of events is a very different thing.
---------------------------------
Current happenings: right now, the markets are demanding both discipline and attention.
Tues Jan 19, 2010
The day after the US MLK holiday has become a trial to one's courage and conviction. (Convictions, of course, must always and continuously be tested for validity). After deciding last week that my JIN target re-entry point was probably too low - despite being staged over a week - this morning the price slumped exactly to my original calculated area. "Catching a falling knife" is invariably a tough act when cool intellectual plans meet the emotional turmoil of actual action: fear and greed. Economists loftily call the effect "animal spirits". This combination invariably leads to the question - 'did I just misjudge the volatility a bit or is this the start of something worse'. Looking up from the bottom of a pit feels more uncomfortable than looking down from the top.
Fri Jan 22, 2010
Among classes of active investors, day traders (who are always flat at the close) can't live without at least moderate volatility. Other types of investors including myself (...if I had to pick a term I would probably class myself as a swing trader), use volatility to differing degrees. But essentially the purpose is the same - an effort to increase returns over a given period of time to a degree greater than a 'buy & hold' investor, broad market-based mutual fund or its modern competitor, a market ETF would give. The movements which are viewed from minute-to minute up to daily are a separate phenomenon from whatever the secular gaining or losing trend might be. But when volatility pushes to very high levels (there is an index, the VIX, that measures this) it becomes dangerous to the health of many participants. This is where we have been this week.
High volatility like this comes especially at times of great confusion, conflicting opinions relative to the economic outlook or when there are overhanging political or international events in which outcomes are difficult to foresee. Even worse, if among the events an' inflection point' is near. An inflection point is a market level where technical indicators broadly accepted by some groups of analysts tend to trump fundamental business data, and suggest that a move to certain levels could precipitate a sharp and lasting aggregate change up or down, based on near-term market action.
We have all of these right now. The US and international markets are really spooked. Partly I feel locked in and could kick myself for stepping back into the market and committing too early. The plan was perfect but the execution was off by a couple of days. Any other time, it would be immaterial. Still, with 2009 a stellar performance I can hardly complain.
There is a dichotomy between the popular stock market indexes, which give a mid-term view of its national economy (as modified by events in the broader world economy), and the progress and valuation of individual stocks. On the other hand, in most cases an individual company can be damaged seriously or even bankrupt with little or no danger to the market as a whole because it is not ordinarily big enough to impact the overall economy. Obviously there are narrower indexes tailored for specific groups, depending on what stock (companies) are selected to comprise the index.
If an investor is not in danger of of forced liquidation in a sudden and sharp downturn as might be the case using borrowed money (margin or leverage - where the broker or financial institution can force the sale), most good companies in time revert to their mean growth rate and price. If this occurs, a trading profit may be missed but there is no existential damage. This relates to the old (currently out of favour) "buy & hold" strategy made famous by Warren Buffet (Buffet's company had a major fall in '09). Another view in a specific decline (in the absence of actual detrimental news) is the percent the stock fell in comparison to the market or within an index. If that percent is high, there is a possibility it will rebound more actively than the market as well and is therefore potentially susceptible to specific good news than the group.
Along those lines, I think the time to really benchmark again is after Feb 15. Let the Year of the Tiger begin!
-------------------------------------
Jan 29, 2009
As a therapeutic exercise, I'm going to do a bit on Jinshan Mines Ltd. (ticker JIN-T), which as disclosure, I am long. Also see the notes at the top of this blog.
-------------------------------------
Jinshan Overview and Indicators:
JIN is a Canadian mining development company headquartered in Vancouver and listed in Toronto. It controls a newly productive gold property in China called the CHS mine, which is what I learned of during research before I even identified the company. All of the books use Canadian accounting methods and all mine testing is done to Canadian standards.
As I expected before it took place, share control of JIN was acquired from its previous Canadian controlling shareholder (Ivanhoe Mines) by China National Gold (CNG), which now holds 41.2%. JIN started production in mid 2009, is now earning and for most practical purposes its future financing has been assured through CNG. CNG is the principal Chinese state entity in this field.
All production from the Canadian-developed CHS mine is sold to CNG in remnimbi (Chinese currency) at world price equivalents. It therefore has an immediate, unhedged market for all production but - this is key - not earning actual US dollars (therefore it has no US currency risk) but still earns at international gold values.
The original Canadian management wanted to co-list the shares in Hong Kong, but this was too expensive during their pre-production, pre cash flow period. Future listing in Hong Kong or Shanghai is now feasible and a source of future equity funds. Chinese IPOs have been frequent and successful. This would be easier starting from a higher market price. We can reasonably expect that the stock price is a very important consideration for CNG. The additional market exposure to millions of new investors also greatly improves the liquidity of the shares, thereby would confer the beginning of investment grade status to them. I expect such an event within 2 years.
China National Gold:
In December 2009 the new controlling shareholder, CNG, applied for and has now received approval from Chinese authorities, JIN shareholders and the Toronto Stock Exchange to change the company's name to China International Gold. This has not yet occurred and has been explicitly described as an indication of the status being conferred on the company. This kind of status company is often referred to as a "dragon head". I expect this change to occur during Q1 2010. The change also enhances prospects for expanded listing.
Since this notification, the Jinshan web site has been changed to state these goals:
Maintain Top Gold Player in China Status, expand in China and Globally
Focused on Becoming a Leading Gold Producer supplemented by Non-Ferrous Metals
Committed to Global Expansion and Efficiency in Mineral Resource
Large Scale and Low Cost
Financing Opportunities in Asia and North America
Acquisition of Quality Projects from Major Shareholders and Third Parties
I have observed and consider Chinese policy statements at this level generally credible.
China:
JINs CHS mine is located in the Chinese province of Inner Mongolia, north of Beijing. The territory stretches east and west as China's northern border and adjacent to the country of Mongolia. The area is rolling and within direct driving distance from a new Terex mining truck and equipment factory. It has already been announced, without details yet, that JIN will participate in an additional gold property controlled by CNG in the extensive and prolific mineral belt elsewhere in Inner Mongolia.
In addition, JIN has been extensively drilling the Dadiangou gold prospect in the central province of Gansu within the prolific Qinling Fold Belt. A mineralized zone has now been defined. I expect details on these to be released by Q3 2010.
Mongolia:
Ivanhoe used the proceeds of the 2008 JIN share block sale in part to carry forward development of it's world-scale Ovu Tolgoi copper and gold mine property, together with a major coal deposit, in southern Mongolia. JIN and Ivanhoe are on cordial terms.
At the end of 2009 JIN entered a "Memorandum of Understanding to Develop Gold Business" with Monnis International, the official Mongolian distributor for Nissan automobiles and many heavy equipment manufacturers from around the world, including the mining industry. Monnis is also developing expertise in geology, construction and finance. JIN will hold a majority position. I expect the first operational announcement before the end of 2010.
Pakistan:
At the end of 2009 major Canadian miner Barrick Gold (the world's largest gold producer), together with a Chilean partner, were preparing to negotiate a formal mining lease with the government of Pakistan's state of Baluchistan, on the Reko Diq gold project - this after they spent US$300 million doing tests, feasibility and environmental studies over the past several years. In late December, Baluchistan announced it was severing ties with Barrick, reportedly under pressure from China. This is being contested by Canada. China is also financing the construction of a new commercial port in the region, operates a small copper mine near Reko Diq and is a major supplier of arms and economic aid to Pakistan.
In view of the announced Chinese strategy for JIN, it is not far-fetched for rights to Reko Diq, if acquired by China, to be exercised by the future China International Gold. Ruffled Canadian feathers would be smoothed by allowing the project to go forward with another Canadian entity. If this occurs, the project and nature of the transaction would catapult JIN into international attention. This could be possible in 2010 or 2011.
Russia:
Along with the statement of agreement with Mongolia, CNG made a similar statement regarding Russia. To date there has been no further comment. Large energy resource and pipeline deals with Russia have been jointly announced and are now underway.
Saskatchewan:
In Ocober 2009 JIN appointed as a director, John K. Burns, former VP and CFO of Drexel Burnham Lambert Commodity Group in New York and London, and former Managing Director and Global Head of the Derivative Trading and Finance Group of Barclays Metals Group of Barclays Bank. Mr Burns is Managing Director of NuCoal Energy Corp., a private company in Saskatoon. NuCoal is the largest coal landowner in Saskatchewan. Its main direction is in Coal to Liquids (gasoline) technology.
The CEO of 49 North Resources (FNR-T) in Saskatoon, well-known mining expert Tom MacNeill, points out that Saskatchewan has amazing unexploited resources and offers high sovereign security, having now changed from decades of socialist policies. FNR is both a mining investor and developer. He reports a recent discussion with a high-level advisor to a Chinese Sovereign Wealth Fund. There was recognition that Saskatchewan has incredible prospects but not the capital to develop them. The Chinese observed that they had the exact opposite - trillions of dollars and not enough projects to support the country's demand for resources (including potash, of which Saskatchewan is a world supplier).
These connections are not going to go unappreciated by either Saskatchewan or China, especially in view of the JIN web site reference to investments in North America, which I had never seen before.
