Ritch Wigham Investment Advisor

The Russians are on to Potash!

The Russians are staring to understand Potash. Potash pricing improving internationally helped by Russian exporters!

See this article to learn more…

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

Ritch Wigham
Mackie Research Capital
http://ritchwigham.com/
PH.(604)-662-1853
T.F. 866-662-1853

TFSAs in Your Best Interest or the Banks?

This article illustrates why my opinion on TFSA accounts runs counter to what the banks would have you do.
I hardly think tying up less than $25,000 dollars makes sense at returns of less than 3%.

See the full article here.

Ritch Wigham
Research Capital
http://ritchwigham.com/
PH.(604)-662-1853
T.F. 866-662-1853

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

Tax Free Savings Accounts: What to do

…and why you shouldn’t listen to your favorite banker!

Last year in his wisdom Jim Flaherty our vaunted and illustrious Finance Minister decided to appease the trust unit’s people, the banks, and finally the markets by introducing the TFSA or Tax Free Savings Account. The premise being that you could take five thousand ($5000) of your after tax dollars and “contribute” it to this account every year and accumulate in theory a sizable portfolio in a few years, while doing this tax free. Since the money you put in was after tax dollars you would be able to accumulate wealth without having to pay capital gains tax or withdrawal (withholdings taxes) as you would in an RRSP.

Great idea.

What this did for the banks was allow them to try and keep more of your money while also charging you for the privilege. Sound familiar? You see if you set your TFSA up with the bank they could charge an admin fee like they do for your RRSP since it is another kind of registered account, and at the same time try and convince you that their in-house investment products were somehow a good idea for your future.  As a note I should mention now that my firm, Research Capital “does not” charge an administration fee but does charge minor fees when book-keeping functions are performed (withdrawals as an example).

The problem arises from here for these accounts. If it costs you anything in the form of a drawdown on $5000 dollars in charges then you must return those fees plus a percentage to make this plan worthwhile. So if you think that it is worth your while to tie up this money for a return of say $500/year (which is 10% by the way) minus anywhere up to $200 dollars for fees than help yourself and please continue allowing the banks to make more from your money than you do. At best that is what will happen if you invest in the “safe” products that you will be offered at any of the banks or mutual fund companies or credit unions that are offering these accounts. The reality is that you will more likely get a return of less than the 10% that I mentioned earlier and could well be lucky to have broken even at the end of the year.

So what is the alternative?

Well the alternative is to view this account as an account that you use to try and rapidly build up your equity until you do have it to a level where more sedentary investments do make sense. In my opinion that is somewhere north of $25,000.00 dollars. This means that you can put your $5000 in every year and accumulate the moneys at virtually no (or very little return) for five (5) years or get aggressive earlier on (first couple of years) and try and achieve that level of funds more quickly. This requires a more aggressive or if you will “riskier” approach. Personally I cannot see why I would tie that small amount of money up unless I was shooting for a superior return and willing to take the risk associated with that. I don’t mean” go big or go home” necessarily, but there are many emerging companies listed on our exchanges that make much more sense to me, as they are going (if properly chosen) to far outstrip the returns that you would achieve in a fund or some kind of similar investment.

My suggestion for your first couple of years is to take your initial money and choose no more than two companies that you think have upside. It is very hard to suggest more than that because your costs versus the leverage that you are trying to achieve have to be proportional. For example; if you buy 4500 shares of two companies @ $.50/share you will have two commissions of $110.00 (in this case I am using Research Capital minimums) and a share cost of $4500.00 dollars for a total of $4720.00. This is just under your $5000.00 contribution in year one. At this level all that you need to have happen is for your stocks to appreciate by $.05 to cover your costs. Every penny above this is potential returns on your money. (4 x $110.00 = $440.00/ 9000 x $.05= $450.00) I use the premise of both buying and selling your shares as you have made no money until you sell your stock.

 The math is not at all complicated; the complication comes with picking the right stocks, at the right level in their development. Just because it looks cheap doesn’t mean that it is.

The point that I am making is that it makes no sense “not” to take some risk in trying to maximize your returns in your TFSA. Even if you don’t make money initially I really don’t feel that with the small amount of money that you are dealing with there are other strategies that can give you a return that makes having one of these accounts worth your while. If $5000.00 dollars is going to make a difference to your status you shouldn’t be making “any” investments with anyone anyway, that includes the banks. You should just be leaving your money in a savings account or an RRSP for the tax savings that it offers you.

If you would like to discuss setting a TFSA up, and looking at higher return strategies; please give me a call we can talk and I can tell you if this is right for you!

All the best for now,

Ritch Wigham

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

Questions about Agriculture & Potash

An interesting link to a Globe and mail blog with Ravi Sood taking questions about agriculture and “Potash” companies

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

This sums up nicely the current problems in the U.S. crops

See this post on The Pig Site about the current grain market situation in the U.S:

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

Standoff over fertilizer prices imperils world food supply

After reading this article from the Globe and Mail: I have just finished a special report that you can request with my current recommendations on the Potash companies that we follow.

-Ritch

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

It’s up to China

This article by Kenneth Rogoff helps explain why we have a dynamic change in the way the world is going to work moving forward. As you know if you have read any of my recent blogs/posts I am a firm believer in the premise that it will be Asia (read China primarily) and the other BRIC economies that will lead the world recovery.

The way that I interpret Mr. Rogoff’s assumptions is essentially that China primarily, and other emerging economies, can either spend their U.S. reserves back into their own economies or buy what they need in the open market for what their economy needs to develop further on it’s own. Spend it or loose it.

In the case of a currency that means basically spend it or watch it devalue ‘till you will only get a fraction of what it was once worth. The unwritten and verboten subject, and attitude in the U.S. may well be to allow their currency to devalue vis a vis the Yuan/Renminbi until it hurts. Remember that all those dollars have already been devalued by as much as 50% depending on when they were accumulated by the Chinese central bank. We also have almost everything that these economies needing, having gone up substantially in U.S. dollar terms. Copper, oil even the prices of the grains should continue to get support as these dollar rich economies continue to “spread the wealth” before it devalues further. Other producers such as the Oil cartel will continue to try and force higher prices from their production as the value of dollar pricing continues to decline and the monies they receive in U.S. terms diminishes their ability to support their own economies, and import purchases.

Again, as I have said before, as long as U.S. interest rates stay low, the need to spend dollars will continue, as the currency relationship is the proxy for these rates and gold becomes also the store of wealth that you would normally ascribe to the U.S. dollar as the primary reserve currency in global terms.

In essence Mr. Rogoff is suggesting as we have that Chinese spending will be of benefit to all and they not the U.S. consumer will lead world economic recovery.

Talk to you soon

RitchResearch Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

Being wrong and being right.

By, Ritch Wigham

We have all had situations were we have been right longer term and wrong on the near term. Very frustrating, but also very human. For those of us in the investment business this can pose a bit of a problem. “Sticking to your guns”, as they say, could result in some serious stress while you are trying to decide if you are still right or are simply WRONG.

One of my favourite sayings regarding this principle is often repeated by my friend Dennis Gartman: “The market or markets can stay illogical longer than you can stay solvent”. This is particularly true if you are covering margin call after margin call in the futures markets.

This blog is not about how to fix this aspect of trading, this is about recognizing that if your first assumption is correct (or proven to be) you must still recognize this and act accordingly.

I found myself in this position all summer as we watched the best crop in a generation crumble agricultural stocks, fertilizer stocks and grain futures in spite of an unusually cool and late growing season. There were no sun-spots, but it didn’t matter until now!!

I had suggested that:” if you weren’t going to be long this group, you had better not be short.” I said this early on in the year just as farmers in North America were seeding their fields and preparing for the summer growing season. Was I wrong? Near term it appears I was. Now that we have had a very early freeze, and snow through a vast stretch of the crop area in central North America, maybe not so wrong after all.

If one had gone long stocks you are fine. Most of the favourites didn’t really move higher but are now certainly poised to do so. Potash Corp., Potash One, Agrium etal, are now finally in a position where all the great crop news is behind them. The world still needs fertilizer, and that season is now upon us. (Improving exports,etc)

If you had been long the grains, one can only hope that you were able to go to the sidelines early in the summer as this “great” crop emerged. If that was the case now “IS” the time to get long again. There will not be any more great crop news to come. It can however get rather lousy. Frost and wet ruin crops. If the Great Plains don’t dry out quickly from here, yields will tumble for corn and beans, and grade for what wheat is still standing. Large amounts of the corn crop in particular may be affected by the recent weather. Follow this link for a good article on this by Stu Ellis.
If he is correct and we see as much of a yield decline as he suggests, we will see some very smart price increase. Either way, we have put the big bottoms in.

So we go back to the top. Sun spots (lack of them) did muck up the weather. I guess I was “Right” longer term. The ability of this cooler than normal weather to give one of the best crops in a generation, did however have me very “Wrong” for the bulk of the summer, or for the “near term”.

The really important thing is to recognize when you are wrong. In the futures markets that is important very quickly. In the stock markets, that is important, but you have more time to decide whether you can hold through the pain of waiting. In this case I am very bullish all that is agricultural still. On the near term, and the long haul as well.

Talk to you soon,

Ritch

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

A Quote From John Stephenson

John Stephenson is “Portfolio Manager” for First Asset funds.

When someone says it all in a very short form, I will always pay attention. This is what John said recently on his outlook for Canadian markets:

“As the world begins to grow, a bull market in Canadian equities is about to wash up on our shores. Banks, high-technology companies and our much-maligned resource sector will move sharply higher as global growth resumes, led NOT by North America, but rather by Asia. While this growth will occur in fits and starts, the long term trend is one of higher growth and greater prosperity for Canadian investors”

I suggest that for all those who have sat on the sidelines for a very long time, now would be a very good time to give us a call and see just where some of these very exciting Canadian opportunities’ are going to “GROW” from.

Talk to you soon

Ritch Wigham

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

The Great Inflation!!

By Ritch Wigham

In the last piece I wrote on the gold bear argument I used the term “The Great Inflation”.” What the heck does that mean”, I was asked by a friend.

Let me try and explain:

Back in the old days of the late 1970’s and early 1980’s interest rates were taken into the stratosphere and reached into the high teen’s and low twenties for borrowers in North America and Europe. It wasn’t pleasant. They reached these levels because the world was caught in a spiral of ever increasing costs directly related to ever increasing wage pressures. If it costs me more to feed my family, you must pay me more and therefore it costs more now to produce the product that my company sells. This nasty circle created a time when everyone went on strike for a “fair” living wage. It is when “cost of living” clauses were introduced into almost everything. Consequently,” The Great Inflation” became the economy’s greatest test.

In Canada wage and price controls were tried for a period but ultimately it was the use of interest rates to sky-rocket that was the mechanism that brought inflation back into check. This of course shut down the economy and a recession ensued that can be argued lasted until the great expansion of the nineties. Productivity was crushed and inflation finally receded.

See the following report. (opens a .pdf)

If you look at the charts from the link above you will see a very close correlation from 1980 onward between the CPI (consumer price index) and the bond rates in the U.S. The interest rates were how the Federal Reserve and the Bank of Canada here in Canada were able to finally get inflation in check. At different times the economy suffered but it was realized (or at least believed) that short term interest pain was much better than longer term price pressures that were more economically deleterious. So the balance between price and interest rates has dictated what has happened since roughly 1980. So far that balancing act has been relatively successful with the central banks world wide collectively patting them selves on the back for their collective interest rate policy.

Gold and the present

Sooooo, this is why the gold bugs are saying that gold prices are going to the MOON. The theory is that the central banks will no longer be able to control inflation through monetary policy (interest rates) without throwing the entire world into a deflationary recession. Raise interest rates, stop the economy or allow rates to stay low and allow inflation to rear its ugly head and recreate the wage/price/production cycle of the 80’s but on steroids. What has been left out of all of this is the effect that these rates have on the currency markets.

Normally low rates happen when your currency is strong and getting stronger. Everybody else is “buying” your currency and consequently rates on your financial instruments decline. Hence lower rates. But if inflation is causing your currency to “cheapen” or decline, so you have to raise interest rates to support your currency and make yourself more attractive to foreign investors. i.e. Give them a better rate of return on your financial instruments (T-bills, Bonds, Corporate paper)

Well the problem has been that we have effectively no interest rates on anybody’s financial instruments and the currencies of the world (in general) have been appreciating against the U.S. dollar anyway. So the price of gold has gone up, and so have most other commodities relative to the U.S. unit since most world commodities are priced in U.S. dollars. The problem that the gold bugs have is that inflation may seem to be happening in the U.S. but it is not happening in everybody else’s terms.

The really big question is how long this balancing act can continue were the currency market in effect is enough of a proxy to keep inflation in check.

The simple answer is as long as money continues to plow into the American bond market. There is effectively no return on this money at this time, and as I have said before, coverage on U.S. bond auctions has been stunning. This means that if you are buying these bonds it must be that you think your “safe” return will be made up from an appreciating U.S. currency. And if you believe this than the appreciation in gold will come from tightness of supply and not inflation on the near term. This last week saw gold go back under $1000/ounce the stock market slightly decline, and the U.S. dollar to appreciate against most currencies. Sooooo,”Where is the GREAT INFLATION”?

Talk to you soon,

Ritch

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

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