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What We Saw On Bay Street & Mulberry Street Last Week

March 20, 2013

Drama. The investors on Bay Street were pumping oil & gas on Mulberry Street (Dr. Seuss, 1937) last week for a lot more than $4 per gallon or $160 a barrel. For two days, the stock prices of the “Oil & Gas Leaders Of The Day”, Canadian Natural Resources and the Encana Corporation, “popped” and were up by +4% and +5% on Thursday, respectively (Reuters, March 14, 2013, TSX holds steady; Canadian Natural leads gainers), and a further +1% and +1.5% on Friday, for total gains of +5% in Canadian Natural Resources and +6.5% in the Encana Corporation. But it didn’t last. After a weekend of genuflection, the stock prices went the other way, down, and Canadian Natural Resources lost -1.5% and the Encana Corporation lost -2.5% in the next two trading days.

Is that the kind of life that we, as investors, want to live? If we just want to buy things that go up and down, and up and down, with small purpose, we could have booked our “profits” on Friday and bought a fleet of corporate jets, one would think. More than 26 million shares of Canadian Natural Resources worth $800 million or 2.5% of the equity changed hands and, similarly, 9 million shares of Encana Corporation worth $180 million or 1.2% of the equity also changed hands on Thursday and Friday of last week. That’s a billion dollars that went from one group of investors (the buyers) to another group of investors (the sellers) and it looks like they are shaking hands and doing it all over again this week, although some investors are “holding back” and it might not be a level playing field, after all. Please see our Posts, The All Canadian Four Play, The New Mercantilism, The Canadian Oil Patch, and Churn, Churn, Churn, October 2012, for more information on how this tends to work out, and has worked out already, and how unlikely it is that we’re going to get $650 billion to develop the Canadian Oil Patch in the next ten years, at home (Reuters, October 7, 2012, Canada says India slow to invest in Alberta oil sands).

The TransCanada Corporation was also one of the beneficiaries of last week’s largesse and it gained +1.5% on Thursday and Friday and a further +1.5% on Monday and Tuesday this week. We don’t know the future, of course, but we do know how to deal with it, as investors. Please see our Post, (B)(N) TRP TransCanada Corporation, March 2013. In contrast, neither Canadian Natural Resources nor the Encana Corporation are in the Perpetual Bond™ and, so, we are not only not surprised by the events of the last four trading days, but also indifferent, as investors and not just “pump & dump jockeys”. Please see Exhibit 1 and 2 below.

Exhibit 1: (B)(N) CNQ Canadian Natural Resources Limited – Risk Price Chart

(B)(N) CNQ Canadian Natural Resources Limited

Canadian Natural Resources Limited is a Canadian-based senior independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, NGLs, and natural gas production.

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

The Company pays a dividend of $0.125 per share per quarter or $546 million per year to its shareholders for a current yield of 1.4%. However, it has not been in the Perpetual Bond™ since stock prices of between $28 and $45 in 2009 through early 2011 (Red Line Stock Price (SP) above the Black Line Risk Price (SF)).

Exhibit 2: (B)(N) ECA Encana Corporation – Risk Price Chart

(B)(N) ECA Encana Corporation

Encana Corporation is an energy producer that is focused on growing its strong portfolio of diverse resource plays producing natural gas, oil and NGLs.

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

The Company pays a dividend of $0.20 per share per quarter or $588 million per year to its shareholders for a current yield of 3.9%. The current Risk Price SF) is $21 and just above the ambient stock prices of $20 which are down from $30 two years ago. The Risk Price (SF) is our best estimate of the “price of risk” which is the least stock price at which investors have demonstrated a determination to buy and hold the stock at prices above the price of risk. It is also the stock price at which a Nash Equilibrium is established between “risk seeking” and “risk averse” investors. Please see our Posts, The Price of Risk, August 2012, and The Nash Equilibrium & Its Stock Price, October 2012, for more information.

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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