(B)(N) Gold? What does it do?

Gold? What does it do?

Drama. The Canadian Mines are on sale today at $220 billion and nearly 50% off from $380 billion three years ago which is hardly enough time to dig a new one.

They lost $15.5 billion last year on net earnings of $5.5 billion and are trading at just 25% above their net worth ($178 billion) and the net plant & equipment ($190 billion) and only 10× their inventory ($20 billion) which somehow manages to secure only $135 billion of debt.

Is it possible that there is an even more dismal picture of this industry?

Yes, there is. The “Free Market Yield” of the Canadian mining “economy” which consists of sixty-two companies in our portfolio of the majors (including potash) is negative (-1.666%) – hugely negative in this context in which government bonds yield 25 basis points (0.25%) – and it means that this economy of the Canadian mines is in a depression like 1929 and that it is still overvalued because it is better to hold cash as money than to buy these companies as an investment for income.

 Gold? What does it do?

Nothing. It waits on wanting a proposal.

Obviously, investors have lost a lot of money in the past few years by betting and holding (or fixating) on the importance of gold, silver, diamonds, copper, and other difficult or precious metals and rare-earths in the world economy.

We don’t have a problem with the “courage of their convictions” – they can believe in gold and scarcity if they want to – but what about the conviction that says that investing is not about losing our money – we want our money to be safe, 100% capital safety – and to obtain a hopeful but not necessarily guaranteed return above the rate of inflation.

And the other one that says that we should not expect to extort money from our trading partners (who are our friends) merely because we’re sitting on a pile of something that they want and we can’t eat.

And another one that says that if all we’ve got is gold, silver, et cetera, empathy for our fear and greed is not a strong suit and our trading partners can last a lot longer than we because they have food and money.

Moreover, “investing” is artificially and speciously made hard by the huge offerings in number and diversity from the “investment vendors” who make these offerings and keep coming up with new ones not that we might profit from them but that they might profit from them.

That model is easily defeated (please see below) if we require a 100% capital guarantee – 100% capital safety guaranteed – and a hopeful but not necessarily guaranteed return above the rate of inflation (and we note that the insurance companies have been providing that type of investment for years in their “segregated funds” but have generally failed on the hopeful return part).

And we should remember that stocks have a price only because somebody might pay it (The Tao of Stock Prices).

Come A Great Nation On A Pale Horse

In our view, a great nation is not defined by its success in making “world-beating” armaments (however necessary and defense is a very large part of the world economy) but by its success in making cheese, wine, whiskey, wheat, and so forth in other foods and produce, and by making other products such as cars, computers, or telephones that other people are willing to buy in competitive markets.

And it’s not defined by how much oil & gas, woods (forest products), and minerals we’re able to pillage from the ground – that’s a hard lesson and the road less taken but investors in said oil & gas, woods, and minerals that would hold us hostage to them just don’t seem to get it.

We’ve also looked at the “pillage industries” in the recent past (just ask in the Search Box on the upper right) but we’re particularly moved now by the plight of Canada as a “Resources Empire” that is currently living on the edge of the holes that they have dug in their landscape and which they expect us to buy. All in good time but not today.

The charts in Exhibit 1 below show the devastation of the Canadian woods, oil & gas including Syncrude and the tar sands but excluding the pipelines and electricity, and the mines including potash and diamonds; please click on it and again to make it larger as required.

And our Post today is about devastation and how we might profit from it – a theme that we might see a lot more of this year.

The Profits of Loss

Exhibit 1: (B)(N) The Canadian Mines – Risk Price Chart

Figure 1.1: The Profits of Loss – Risk Price Chart

For more information on the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

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*.