Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Friday, May 09, 2008

Bank welfare reaches its zenith

Ever wondered why CEOs of the major companies are paid so much. Yeh, I don’t have any answers as well. Well it goes like this. The central bankers and politicians conspire to artificially increase money supply by stimulating debt creation. Initially everyone is happy because everyone is making money. They of course make alot more because they control a lot more. Asset prices soar, and the silly bastards that were too slow to buy lose their houses when interest rates or low yields finally deliver the ‘credit crunch’ or the ‘big squeeze’ as I affectionately call it. The CEOs are paid well for delivering years of huge profits. But were they ever really any good? Well you would never know in a bull market because its so easy to make money. It would be nice to think if they are going to get bonuses for performance, those bonuses should be tied to average industry performance. But these ‘smart bankers’ are too good for such measures of performance, they like to be tied to nominal, absolute dollar performance, even though relative performance is far more pertinent in assessing the worth of a CEO against other CEOs. I guess directors want the same deal so they don’t complain.

Are you following the logic so far? Well this is the time to swallow a few ‘magic mushrooms’ because these CEOs are just about to concede that they are not the best CEOs in the world, and that they misjudged the market. Did they really? No, its just that they had a vested interest in not caring if they were serving the long term interest of shareholders.

These bank CEOs are asking the Reserve Bank of Australia to bail them out of their non-performing debts. The Commonwealth Bank of Australia (CBA) is creating a $15.6 billion residential mortgage backed securities (RMBS) which can be used for repurchase agreements with the RBA to generate up to an additional $12.25 billion of liquidity should the bank experience liquidity difficulties. This follows similar transactions in the USA since last September. As with repurchase agreement (repo), the institution promises to reverse that swap in a year. It is effectively secured lending by the central bank. At least to the credit of the RBA and Australian government there is some semblance of rationality to the current RBA interest rates. The US Fed Reserve meantime is dealing with worse credit market conditions, but its Fed rate is a subdued 2%.

The problem as I see it is the whole structure of the market. Politicians and business push the economy or their respective business to the point of failure, collect all the credit, political power and bonuses, and then through the central bank, they are allowed to pass responsibility for their failures to the taxpayer. Any proud taxpayers out there? Any law abiding citizens who think the organised criminals have higher standards of ethics. I say that because criminals have a sense of reality. They don’t pretend to be upstanding citizens. The hide their business activities, they don’t disclose it as normal practice. How is this different from the corporate welfare we abolished in the 1980s – the tariff protection for textile and car industries. I think this is far worse.

Maybe you should interpret this as a recommendation for banking stocks. The market is no longer behaving as a market. Nothing makes any sense any more. This is fascism at its worst. Just the colours have changed. It used to be red, but the colour of today is pink.

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Andrew Sheldon www.sheldonthinks.com

Tuesday, May 06, 2008

Qantas (QAN.ASX)

Qantas (QAN.ASX) has fallen like a plane in distress of late. Looking at this monthly chart, you could be thinking that around $3.20 is support. I would suggest however that the stock will be pushed down to $3.00, if only during intra-day trading, so I'd be placing orders around $3.05.
Why are they so weak? I'm not certain, but I suspect its because of:
1. Slump in business activity
2. Slump in inbound tourism due to strong $AU
3. Higher fuel prices - though I understood Qantas had a good hedge problem. Maybe its turned awry.
4. Growing domestic competition, lower occupancy rates
5. Higher terminal charges
6. End of takeover speculation. I actually dont know the reason it ended, but I think it failed.
7. Higher interest rates - airlines carry a lot of debt and Qantas bought a lot of planes in recent years.
The stock is a great trade. If you are interested in it as a long term investment, you might consider reading a recent broker report or company-sponsored presentation on the stock. Do research them because there are a lot of negatives above. Its quite possible they will go back to $2.30. What a trade its been! I remember some bad pubicity about James Strong - the CEO.
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Andrew Sheldon www.sheldonthinks.com

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