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(B)(N) Extreme Economics – The Coal War

May 14, 2016
Figure 1 India Coal Miner

Figure 1 The price of coal today.

Drama. Coal produces about 40% of the global energy requirement and China, the United States, and India (respectively) are currently the World’s largest producers of coal; however, the industry of mining for coal is also vital to the livelihoods of millions of workers in China, India, Africa, Indonesia, Australia, Eurasia, and South America; and it is also destructive to the livelihoods of millions more (Youth Ki Awaaz, November 15, 2015, India Says Yes To Coal Mines, No Holds Barred. Let The Environment Be Damned!); and it is also destructive to the lives of billions more as the destruction of the environment takes its terrible toll across the planet.

CoalSwarm

Courtesy: CoalSwarm, Greenpeace, and the Sierra Club

The solution, of course, is too “simple” to be respected – there is no cheap energy and there never has been and the difference between “cheap” energy today (primarily from coal) and its real cost has always ended-up in the pockets of governments and “grownups” further up the food chain.

The reason for India’s “dilemma” (as in Figure 1 above) is low productivity and much cheaper coal from more productive mines in China, the USA, and Russia, for example, and the solution is to buy the cheaper coal but spend more money on burning it cleanly rather than more money on digging it out of the ground at pitifully low wages (Boom and Bust 2016: Tracking The Global Plant Coal Plant Pipeline, March, 2016).

Everybody knows this and although investments in coal mining are shrinking fast, national and corporate investments in coal-fired generating plants are increasing and there is still a huge difference in the basement-level price of energy by dirty-burning coal and green energy and the obviously absurd nuclear megaprojects (The Guardian, May 8, 2016, Hinkley Point: UN says UK failed to consult over risks).

Slot Machine

Impossible, you say?

This market of fourteen companies (of which there are dozens more private companies, penny stocks, or insolvent companies pending bankruptcy) has lost more than 50% of its market value since 2012, dropping from USD$290 billion in 2012 to the current $140 billion.

Despite that, the (B)-class portfolio in this market has returned +200% in dividends and capital gains, or an average of 28% per year for five years, and our biggest problem is now and has been in finding companies to invest in to reduce our idle cash balance and re-deploy our profits in this market.

And that’s our problem today because we’re willing to invest in any of them (in principle) and hold twelve at the present time; please see Exhibit 1 below for more details (and click on it and again to make it larger as required).

Exhibit 1: The Coal War

Figure 1 (B)(N) The Coal War - Risk Price Chart

TGX 1088.HK China Shenhua Energy Company Limited

Figure 1.1 1088.HK China Shenhua Energy Company Limited (B+)

TGX BBL BHP Billiton PLC ADS

Figure 1.2 BBL BHP Billiton PLC ADS (B+)

TGX WLB Westmoreland Coal Company

Figure 1.3 WLB Westmoreland Coal Company (B+)

TGX WTE Westshore Terminals Investment Corporation

Figure 1.4 WTE.TO Westshore Terminals Investment Corporation (B+)

TGX CNXC CNX Coal Resources LP

Figure 1.5 CNXC CNX Coal Resources LP (B+)

TGX CZA.L Coal of Africa Limited

Figure 1.6 CZA.L Coal of Africa Limited (B+)

TGX UNV.AX Universal Coal PLC

Figure 1.7 UNV.AX Universal Coal PLC (B+)

TGX WHC.AX Whitehaven Coal Limited

Figure 1.8 WHC.AX Whitehaven Coal Limited (B+)

TGX YZC Yanzhou Coal Mining Company Limited Class H

Figure 1.9 YZC Yanzhou Coal Mining Company (B+)

TGX ZGC.F Zhengzhou Coal Mining Machinery Group Company

Figure 1.10 ZGC.F Zhengzhou Coal Mining Machinery Company (B+)

TGX CLNDY.IN Coal India Limited ADR

Figure 1.11 COALINDIA.IN Coal India Limited ADR (N)

TGX CLD Cloud Peak Energy Incorporated

Figure 1.12 CLD Cloud Peak Energy Incorporated (N)

For more information and examples of 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 an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

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 actionLa 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 AmericaBig OilShopping 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®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ 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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