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(B)(N) CCL Carnival Corporation

March 4, 2013

Drama. The Carnival Corporation is a closely held multi-billion dollar company ($30 billion) incorporated in Panama and the U.K. and its stock trades in New York as both CCL Carnival Corporation and CUK Carnival PLC ADS (American Depository Shares). The ADSs do not have voting rights but the “Carnival Corporation” (CCL) has recently announced its intention to sell, from time-to-time, some of its holdings of the ADS (up to 32 million shares which is less than 4% of the equity) into the U.K. market and use some of the proceeds to re-purchase some of the CCL common stock (please see PRNewswire, January 31, 2013, Carnival Corporation & plc Announces Carnival plc Share Sale and Carnival Corporation Stock Repurchase Program). The company is, in effect, a transparent and active trader in its own stock and unlike many public corporations, the Chairman of the Board and CEO is firmly at the helm and is said to have a beneficial or controlling ownership of more than 27% of the common stock.

The “risk factors” of daily operating over one hundred ships in exotic locales throughout the world would appear to be enormous (please see the company’s recent Annual Report, SEC 10-K Form, November 2012), but investors are willing to pay, in effect, $300 million for each “ship” ($30 billion for 100 ships, down from $350 million in 2010) and on an average trading day, every day, 5 million shares or 1/2 of a “ship” will change hands “in transit” (or, a whole ship from port to port every two days). But that’s how the equity markets work. If no one is willing to buy the stock that the current owners are selling, for whatever reason, then the price will go down.

As “risk averse” investors – we want our money to be safe – 100% Capital Safety – and to obtain a hopeful but not necessarily guaranteed rate of return above the rate of inflation – we are more steadfast in what we buy and sell, and when, and tend not to “abandon ship”, so to speak, on a daily basis because one of the “risk factors” makes the press (for example, Politico Pro, February 27, 2013, Horrific Carnival cruise gets D.C.’s attention), although it’s a complex issue and we have more to say about that in the context of  “Intra-National Risk” which affects all companies that are active on the high seas (please see below)

As investors, however, we only buy or hold the stock when the ambient stock prices appear to be at or above the “price of risk” summarized as the Risk Price (SF) (please see Exhibit 1 below, Black Line, a step-function which value is only changed as new balance sheet information becomes generally available to investors). The “price of risk” is provably “the least stock price at which a company is likeable” (Goetze 2009) and the properties of “likeability” can be verified by portfolios of such allegedly “likeable” companies. Please see our Posts, The Price of Risk, August 2012, and The Nash Equilibrium & Its Stock Price, October 2012.

Based only on that simple rule, we last owned the stock of the Carnival Corporation between $35 and $45 in 2009 when we were “stopped out” at $42.50 (please see Exhibit 1 below, Red Line Stock Price (SP) above the Black Line Risk Price (SF)) and again last year between $34 and $36 when we were “called out” at $38. (For more on the mechanics of price protection, please see almost any of the (B)(N) company Posts or The Wall Street Put, August 2012.)

The dividend rate is $1 per year ($0.25 per quarter) or $808 million a year to the shareholders for a current yield of 2.8% and although the company has been in the Perpetual Bond™ at various times, it is trading below the Risk Price (SF) of $38 at the present time.

Exhibit 1: (B)(N) CCL Carnival Corporation – Risk Price Chart

(B)(N) CCL Carnival Corporation

Carnival Corporation & PLC is the largest cruise company in the world, with a portfolio of cruise brands in North America, Europe, Australia and Asia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, Ibero Cruises, P&O Cruises (Australia) and P&O Cruises (UK).

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

From the Annual Report: Together, these brands operate 100 ships totalling 203,000 lower berths with nine new ships scheduled to be delivered between March 2013 and March 2016. Carnival Corporation & plc also operates Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon. Traded on both the New York and London Stock Exchanges, Carnival Corporation & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices.

Intra-National Economics & Risk

The Gulf of Mexico is one of the great industrial basins of the world but, like so many other centres of world commerce and traffic – such as the North Sea, the Baltic Sea, the Mediterranean Sea, the Indian Ocean, Red Sea and Gulf of Aden, the Bay of Bengal, the China Sea, the Arctic and Antarctic, and so forth, to which we might add the “Blue Sky” at 30,000 feet – there is no jurisdiction there that exceeds that of the Captain of the vessel and when there is a disaster or trauma (such as the Costa Concordia in Italy in January 2012 or the Carnival Triumph in the Gulf of Mexico in 2013) the matter must eventually fall to the coast guard, naval vessels, mutineers or pirates, and ex post to whatever resources individuals might be able to muster in jurisdictions in which both the vessel and the individual (person or company) have standing and which could be anywhere (or nowhere) in the world (Politico Pro, February 27, 2013, Horrific Carnival cruise gets D.C.’s attention).

Because so much of the world commerce is always in traffic, so to speak, we are obliged to be sensitive to issues of  “Intra-National Economics and Risk”, that is, between nations absent a terra firma rather than within or among nations under treaty, but our situation today is not materially different from that of any adventurer of thousands of years ago or, more recently, Marco Polo (13th century) or the Virginia Company (17th century and an inspiration for The Tempest by William Shakespeare) or the Carnival Corporation (last month), among others such as British Petroleum, Transocean (please see our Post, January 2013) or the Halliburton Company in recent memory. But the “risks” are unknown and unquantifiable “acts of God” for which mere stock price volatility (“acts of Men” or “Persons” in the thrall of greed and fear) is but a cipher.

In our view, the current practice of portfolio management by “volatility and diversification” is just a statistic and tells us nothing about what investors are actually thinking, now, nor what the company resources, management and its employees are able to do to address the problems of their business as they inevitably emerge.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

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*.

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