The New Mercantilism

“Mercantilism” is a defunct and largely discredited economic policy of exclusion, rent-seeking and exploitation that had its heyday in the 16th through 18th centuries – that’s quite a while ago and one would expect that our policy makers of today are exceedingly well-informed and understand exactly how it works quite clearly and, therefore, willingly demonstrate its precepts if that’s what they’re doing now piece-meal, on its merits, case-by-case, as a matter of policy.

For example,  “mercantilists” widely agreed that there was a vital need for the economic oppression of the working population – labourers and farmers at the time – who were to live at the “margins of subsistence”. The goal was to maximize production, with no concern for consumption, and extra money, free time, or education for the “lower classes” was seen to inevitably lead to vice and laziness, and would result in harm to the “economy” of colonisation, resource exploitation, and the security of foreign adventures in markets and wars. (Please see the more thorough article and references at http://en.wikipedia.org/wiki/Mercantilism.)

The “new mercantilism” is even more complicated. For example, Glencore PLC, a Swiss company and a world-leader in agri-business, has received the Canadian regulatory approvals required for the acquisition of Viterra Inc – which acquisition must then provide a net benefit to Canadians, by definition – but still awaits the results of a further review by the Ministry of Commerce of the People’s Republic of China (MOFCOM) under the Chinese Anti-Monopoly Law which might decide otherwise. We are, of course, still holding the Nexen card, aren’t we.

Fortunately, as investors, we have a different and possibly more enlightened view of consumption and the “economy” and we are prepared to buy or consume “risk” – the only “good” that is provided by investments – only at or above the “price of risk” – a fair value that is fearsome to the mere “rent-seekers” as we have often demonstrated in these Letters. Please see, for example, The Price of Risk, August 2012, or the more recent, The Greater Society Perpetual Bond, October 2012.

Moreover, we took our profits as they were presented to us – that’s our job – in order to enable the enterprise of others who may be better positioned to take these investments forward if for no other reason than that they are willing and able to pay the demonstrated price of risk. (Please see, for example, our recent Posts, The All Canadian Four Play, or (B)(N) BCE BCE Incorporated, October 2012.)

The latest entry (October 17, 2012) in the mercantile sweepstakes is CLT Celtic Exploration Limited which has received a compelling offer from no less than the XOM Exxon Mobil (Canada) Corporation.

Exhibit 1: (B)(N) CLT Celtic Exploration Limited – Price Chart

Celtic Exploration Ltd. is a growth-oriented oil and gas exploration and production company, based in Calgary, Alberta.

(Please Click on the Chart to make it larger if required.)

One sees from the Chart that we have owned Celtic for quite some time, between $7 in 2009 and $23 late last year when we “sold” the last of our holdings, not knowing, of course, that a higher price (C$24.50 plus 1/2 share in a new company “Spinco”, for the moment) might eventually be offered by an investor (XOM Exxon Mobil Corporation) who was also willing to assume Celtic’s debt and working capital obligations. Sweet. And already approved by Celtic’s Board of Directors.

Exhibit 2: (B)(N) XOM Exxon Mobil Corporation – Price Chart

Exxon Mobil Corporation is engaged in the exploration, production, transportation and sale of crude oil and natural gas and the manufacture, transportation and sale of petroleum products.

(Please Click on the Chart to make it larger if required.)

Exxon Mobil is a $425 billion company for which the acquisition cost of Celtic Exploration at C$3.1 billion would appear to be an afterthought and a decimal point in the second place although, no doubt, Exxon looks after its pennies as well as anyone else.

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”.

Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability.

We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now.

The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”,  ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.