Vancouver Investment Advisor Ritch Wigham

Potash Corp. of Saskatchewan is finally in play!!!

Well it is about time, and boy has it been busy for the last couple of days. The worst kept secret in the mining world has finally been aired in public. It has been known for some time that BHP was scrambling to be in the potash business. What wasn’t confirmed until yesterday was exactly how they were going to facilitate that entry. Would the acquisition of Athabasca adjacent to their other land holdings in the Jansen project satisfy them or would they want immediate gratification by acquiring one of the big producers?

That was certainly answered when they decided that POT(Potash Corp.of Sask) was of immediate interest with a low ball bid of U.S.$130.00/share.

All knew that that would not be enough money. That bid has now gone” hostile” and POT has entered into a “poison pill” shareholder agreement to try and buy time for future machinations. This story will not end quickly or maybe quietly.

If you are a conspirasist you will believe that the two CEO’s (that have known each other for many years), have already struck a deal over cocktails, that is only being played out in public to satisfy the regulators, but has already had a pre-determined and ordained outcome behind the scenes. I find this quite reasonable actually, since you all know I have said that a series of takeovers in this space (Potash producers/juniors) was inevitable. The only question is to guess what happens from here.

I have my own “hunches”. I will talk more about them in coming narratives but suffice it to say “this game has only just begun”. There will be a few twists I believe I have the answer to that will change the way potash is marketed from now on. If you are not huge you will not last, and never forget the Russians.

Talk to you soon,

Ritch

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC 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 MRCC.

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 Mackie Research Capital Corporation (”MRCC”). 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 MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC 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-Canadian Investor Protection Fund / member-fonds canadien de protection des épargnants.

I guess someone else is talking about it too

The article below from the Globe and Mail nicely quantifies what is currently moving the currency in Europe.

Economic strength is what ultimately drives the direction of a currency; something people are beginning to realize now that their fears are subsiding.

This may well impact the price of gold as the cost governments will incur to raise capital may well create inflationary pressures on their respective economies as austerity measures are implemented in the weaker economies. Greece, Ireland, Spain et-al may find that inflation is more of a concern than deflation due to economic austerity.

Follow this link to view the full article

- Ritch

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC 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 MRCC.

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 Mackie Research Capital Corporation (”MRCC”). 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 MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC 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-Canadian Investor Protection Fund / member-fonds canadien de protection des épargnants.

Euro Panic 101

Please take a long look at this chart:

So, what do you see?

In the last 30 days the Euro has come from a low of around 119 up to a current intra day high of 130.

The level of panic that was evident at the start of June with the immanent collapse of the world financial system due to Euro default was deafening. I was inundated with calls from people panicked that a new sell off similar to the one we all bled through in late ’08 early ’09 was about to happen again. For some reason that fear is still running through this market place in spite of almost all of the negative indicators becoming more positive, not more negative.

Follow me:

1. Gold has stabilized at roughly $1200/ounce.
2. Copper has stabilized around $2.95/lb
3. The Euro as you have seen above has recovered $.11 and seems to be quietly (since no one but me seems to talking about it) re-establishing a “normal” level vs the U.S. dollar.
4. The bond markets seem to be able to absorb whatever is being printed whether it is Greek Euro debt or U.S. Treasury debt at much lower returns.

So what is going on?

First of all it seems rather evident to me that if you are still afraid, “quit it”. The markets whether I understand why or not have once again done their job of re-establishing the working relationships that they need to function all on their own. To me the most telling argument is that the Euro dollar has recovered as much as it has. What this tells us is that the U.S. dollar needed to decline to maintain its relative advantage for exports against what appears to be a relatively more competitive Euro zone. I know some people have a hard time either believing this or understanding this, the reality is that a cheap currency is the best tool to stay competitive relative to your trading partners.

So if you had bought U.S. dollars through the purchase of treasury bonds from the Euro zone in Euros’ back when the Euro was trading at say 144 to the U.S. dollar and then sold those treasuries when the Euro dropped to 120 to the U.S. dollar you can now buy 15% more U.S. treasuries than you held then, back if you so desire.

This now has been the currency trade that I tried to convince everyone was going on, when no one wanted to believe me, when I said that is why you buy U.S. treasuries at virtually no return a year ago. It wasn’t then and isn’t now the interest rate that is fuelling the massive movement into the bond markets we saw in the last two years with interest rates at historically low levels, it is still a currency trade. This is why you should also not be afraid of the stock markets.

Money managers in Europe have now been given an opportunity once again to swap some of there strong Euros back into U.S. equities at a very reasonable level. 130 buy’s a lot more IBM than 120. The Dow also now has more than 40% of its profits generated internationally as opposed to less than 10% in the 1980’s for example. In past times we would call this arbitrage now it is simply a currency trade and has the function of helping to stabilize the markets internationally when one area gets out of line with another. So if Proctor and Gamble is not doing so well in the U.S. it can make that up in Asia where it had never really profited before. But then becomes a more attractive buy for an investor in Europe where the currency has appreciated against the dollar.

So everyone please re-read what I wrote 05/25/10 “What Are You Still Waiting For” and take a breath and start to take some action. The world isn’t perfect but it’s not so bad either!!

Talk to you soon

Ritch

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC 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 MRCC.

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 Mackie Research Capital Corporation (”MRCC”). 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 MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC 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-Canadian Investor Protection Fund / member-fonds canadien de protection des épargnants.

Spurious Science

A friend asked me to read an article that appeared in Yahoo Finance and to then comment.

The article was written by Tom Fennel and is titled “Beware the Dow-Gold Ratio”

Mr. Fennel parses a piece that was actually written by David Rosenberg who is apparently the chief economist at Gluskin Sheff & Associates.

Basically Mr. Rosenberg postulates that the price of gold will reach $3000/ounce and when that happens theDow will have retreated to 5000 or lower based on his interpretation of the historic ratio of the price of gold when it reaches record levels. From his research that would suggest that the ratio will decline to a 1 for 1 level when gold reaches these record levels based on correlations from the past. For example when gold reached $850 in 1980 the Dow was roughly 800 bringing the ratio to nearly 1 for1. Well that certainly did occur, I was there then also. The reasons were all rational then,

the same as they are now, but it was a very different financial world.

Before we go further, I should say that as any of you who have read what I have written on gold in the recent past, know that I am bullish on gold and do feel it is going to higher levels. At the same time I also believe that the Dow will be higher than it is now. Maybe not 20,000 but I can certainly see 14 or 15,000 in the next two or three years. That would make the ratio maybe 5 or 6 to 1.

So why do I say “Spurious”?

Jimmy Hoffa (yes that Jimmy Hoffa) had the best quote for economists when he was head of the teamsters union and negotiating a labor contract:

“Economist is the only profession where you can be constantly employed while being constantly wrong”

I may be paraphrasing a wee bit but I am sure you get the gist. We are dealing in this article with exactly what Jimmy meant. The premise may not be completely wrong ($3000 gold) but the facts used to reach the conclusion are at best open to interpretation.

Mr. Rosenberg fails to include in his interpretation for example the relative value of each Dow point relative to the value of the equity markets in real terms today versus 1980 for example when the Dow was at 800. He also fails to take into account the total value of all gold ( about one trillion dollars) and the total value of the equity markets world wide. That is a number that I can only imagine but I do know it is many times the total value of gold. Back in 1896 and in 1932 and finally in 1980 when the ratio was at or nearly 1 for 1 the value of the equity markets was a fraction of what it is today. Depending on whose figures you wish to use, every day on our ever shrinking planet somewhere between 8 and 13 trillion dollars worth of money is converted. This also doesn’t take into consideration the value of the bond market that dwarfs the equity markets. The actual value of gold in real terms in today’s sophisticated financial markets constitutes a fraction of what really transpires internationally. Gold is an alternative investment to equities or holding your money in cash (dollars) nothing more. The price of gold is an interesting barometer of sentiment and predicated on the same influences as any other commodity, supply and demand.

Since 1980 the population of our little blue star has reached north of 6 billion people. Something like 2 and a half billion more than when gold reached $850/ounce. It seems to me you could make a very real argument that the current price (roughly$1200) is right in line with the population ratio compared to gold, compared to 1980, the last time gold made a new record high.

The point is to not make simple assumptions based on some historical occurrences and then try and mold those occurrences’ so they fit into our modern model. The differences

Or similarities between what was then and what is now must be viewed in the context of the time that the event occurred. History very much does teach us about the future and helps us not repeat our mistakes (hopefully), but must be interpreted and thoughtfully reviewed. It must not be dealt with in a straight line as Mr. Fennel interprets Mr. Rosenberg’s thesis.

The best that I can say for this article is that if you are a doom and gloomer you would have loved it. If you are a bit more rational you had a good chuckle.

Talk to you soon

Ritch

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC 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 MRCC.

What Are You Still Waiting For??

The last two years have been nothing short of historic. I can say the same about the two years before that and the two years before that, and before that… So, what is my point?

The market has never been a static place. On a short term basis the market is always changing up or down, on a long term basis the market has a definite upward bias.

For the last two years however the market has seen a fairly persistent rally from what were lows of devastating consequence. The previous five months before March of ’08 resulted in a wealth destruction in equities that truly had no precedent. I do not believe at any time in the modern financial system did we have a period were we were literally set back by a decade in the development of personal wealth. The result in Canada was the massive move into all things real estate while, the U.S. saw real estate wealth destruction that had never been seen before, as banks collapsed and record numbers of home foreclosures devastated the real estate market. Price declines back to levels not seen in twenty years in some places. This reaction occurred due to a massive flight to safety as interest rates declined in some places to levels not seen in literally hundreds of years, as liquidity was injected into the international monetary system to thwart a meltdown of international commerce that could have resulted in the collapse of the world economy as we know it.

So for the last two years the market recovery from Dow 7000 left many if not most retail investors, behind, perplexed and licking their wounds. A most understandable reaction. I have heard every excuse from” I don’t need the money” to a more truthful “ My wife won’t let me, we are buying more real estate” for not investing in the capital markets. Well, no more excuses. We have now made a classic 10% correction in a bull market. Is this the new bottom? I believe it is.

Before I give you my reasons for this I would like to deal with why this has occurred.

From my experience the market is always looking for a convenient excuse to make a move whenever it has become either overbought or oversold. If you look at the recent correction it has been blamed on the “CRISIS in EUROPE”. This crisis has now overshadowed all the other positive market fundamentals. Such as:

1. Great earnings recovery across almost all sectors.
2. The prospect of higher interest rates to slow inflation brought on by recovery
3. Stabilized real estate in general in North America
4. Relatively low earnings multiples in most industries and sectors
5. Low commodity prices for most food stuffs.
6. Still historically low borrowing costs
7. Modestly improving employment picture in most countries

There are more, and the bears would love to knock the ones I have mentioned, but it doesn’t change the fact that we are substantially better off than we were two years ago if only because there is a level of stabilization. After the actions that were taken during and after the melt down of ’07 and ’08 I have to feel that this can be dealt with. The world now has an understanding that it has never had, that what is bad for you is also bad for me and if my population suffers from your problems then I have a problem. Politically you might not like each other but economically there is an understanding that we are “joined at the hip” like never before. This is why we are going forward.

As for the European problem, let’s put this into a little bit of context as to just really how harmful this is:

After the Second World War Europe was devastated; the countries were broke, there was destruction of infrastructure, destruction of political stability, destruction of any form of cohesive economic future. Destruction of hope in the terms of many millions of people. Individual countries survived by surviving. As time passed Europe as a whole survived by relying on neighbors and creating new alliances that ultimately resulted in the European Economic Union (The EEC). Arguably the most important series of agreements in human history. This series of alliances also resulted in a nearly common currency, naturally called the EURO. (Britain and Switzerland maintain their own old script) In the last few years this currency has become a “reserve currency” like the U.S. dollar. A supposed storehouse of wealth, that other wealth can be measured against. Before the current troubles, by most estimates about 20% of the world’s reserves were in Euros’. Very convenient compared to the baskets of currencies that used to clutter up central bank books, prior to the advent of the EURO. This is where the current problem occurs. For the last number of years you could own Euros’ versus the relative value of the U.S. dollar and feel good about the fact that you might be hedged against problems in the U.S. You could also borrow Yen at a zero or near zero interest rate and buy European assets while not holding U.S. dollars. This is very good if it lasts, not so good when it comes to an end. So for the last couple of years you could borrow cheap Yen to buy strong Euros’ to buy cheap U.S. assets in dollar terms. What could go wrong? Well if the European Union collapses there is no strong Euro to base this trade on and consequently the Yen gets very strong as everybody scrambles to pay off their Yen denominated loans. This cross or “CARRY” trade occurred to a lesser degree in a number of other currencies as well. As of this morning, the Yen /Euro cross is at 110. A level it has not been at since 2001. The Aussie dollar is probably the most affected currently having lost 15% of it value as it is being sold for a number of reasons on top of the problems in Europe.

The end result of all of this is a concerted effort by all of the world’s central banks to try and fix this problem:

Look at the charts above and you will see some very dramatic moves. Now look at the chart below and you will see that the EURO has only gone back to where it was before the crisis:

Now you can see that Euro/U.S. have really only gone back to were they were not more than a year ago.

So if you look at all of these charts I have posted, what strikes me is that all of these “currencies” have gone back to levels that are by no means excessive or even record setting over a period of time. What we really have here is a re-alignment of the current currency or economic relationship of the different primary world economies.

Short term dramatic, but really not more than a correction or if you will a slowing down or even a “rationalization” in the economic relationship of these countries. Does it hurt? Yes. Is it a crisis? Sort of.

I suggest that there have been many much greater hurdles overcome since the Second World War in Europe than the one that is dominating the headlines now. The stakes for Europe are un-doubt ably high economically, but are much more dramatic politically. I personally believe that if Europe could recover from the calamities of the last one hundred years that this is simply not much more than a higher hurdle than has been overcome in recent times. Not to mention the vested interest that Japan, the U.S. and China have in the “Union” overcoming this disruption to their own respective trading plans. The last thing that the U.S. needs is a stronger dollar to thwart the gains in trade it has made as the “recovery” takes hold. Or the Chinese loosing one of their great consuming markets. As the French and British stop buying Chinese made goods. I haven’t even mentioned the problems everywhere else(Middle East oil exporters) as they are hung with reserves that are loosing their purchasing power very quickly.

So what we have is a very propitious correction that has allowed us to take another look at the capital markets before they recover from this correction, and move inevitably higher as the world wide recovery continues to expand and the commodity markets also, inevitably move to higher pricing points.

So don’t wait again sitting on the side lines saying to yourself “I should have gotten in last year” here is your opportunity to enter at levels not seen for some time.

Looking forward to talking to all of you soon, give me a call

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

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC 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 MRCC.

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