The Haiku of Finance for 12/18/14

Opening Cuba
Travel and tourism boom
Light up a cigar

The Limerick of Finance for 08/17/14

Carlos Slim says Latinos need wealth
Pushing funding for training and health
There's no doubt they'll succeed
Following Slim's own creed
No need to chase business by stealth

Financial Sarcasm Roundup for 06/30/14

Sarcasm is all around us, much like the Force in the Star Wars saga.  It permeates everything.  All living creatures, inanimate objects, and natural phenomena contain sarcasm.  I only address sarcasm in the finance sector.

China removed its foreign currency interest rate cap in Shanghai.  That tells me just how excited the PBOC is about enticing foreign investors to prop up Chinese banks.  I've covered China's precarious shadow banking system and fragile WMPs in past articles.  Foreign investors chasing cash yields in China are suckers.  Most conventional analysts will celebrate this move as a successful innovation pioneered in the Shanghai FTZ.  They have to cheer on the remaining China bulls in the West.  Anyone who forgot the sky-high cash yields available in Cyprus prior to that country's crisis will ignore similar conditions in China.  

A US federal judge blocked a payment Argentina was scheduled to make to US bondholders.  Sovereign immunity usually prevents these types of maneuvers from creditors but savvy US hedge funds have figured out how to use lawfare to extract full payments from Argentina.  The risk these hedge funds take is that blocking a partial payment to all of its bondholders, both exchangers and holdouts, will push Argentina to default.  I cannot know whether the holdouts relish the prospect of competing investors in the exchange group getting hurt first, but the thought of hedgies salivating at the chance to destroy competitors is the type of behavior I expect from people used to getting their way.  Argentina wouldn't have to worry about committing half their currency reserves to debt service if they hadn't messed up their economy so badly with hyperinflationary policies.  Buying debt from countries with a history of default and mismanagement is a fool's game but many fools on wall Street are determined to play it.

The BIS warns central banks that they must end their freewheeling experiments with money.  The bank gave the same warning last year and hardly anyone caught it - except me, of course.  I even mentioned the BIS's graphics during my talk at the San Francisco Money Show in 2013.  The BIS also helpfully names China as the country leaving its borrowers most vulnerable to rates.  Go back up to my comments on China's interest rate liberalization to see why they want to attract deposit money so badly.  The IMF in particular has made it a point to ignore warnings while it pushes the ECB into stimulus beyond its legal mandates.  Central banks playing catch-up behind rising real rates will demonstrate their impotence to stop either higher rates or currency devaluations.  There's even a helpful BIS warning about PIIGS home bias for sovereign debt, which will of course come back to haunt those countries when the next crisis hits their banks with more sovereign debt defaults and currency devaluations.  

The preppies and trust fund babies running most Wall Street firms all read the above news items to look busy.  They don't grok the insights or reduce their exposure to obvious threats.  That's okay.  I want them all fired and bankrupt when the pro-cyclical policy dysfunctions I've cited above destroy their AUM.  The BIS is correct and a lot of stupid people are wrong.  

The Haiku of Finance for 06/20/14

Mexico linking
Latin bourses one market
Stocks speaking Spanish

Tahoe Resources Goes Digging for Metals in Guatemala

Tahoe Resources (TAHO) is digging for silver and other metals in Guatemala.  Transparency International ranks that country 123rd out of 177 countries on its Corruption Perceptions Index.  Uh-oh.  The Heritage Foundation ranks Guatemala 85th out of 177 countries on its Index of Economic Freedom.  Uh-oh.  I know that some mining companies make a difference in emerging economies by investing locally and employing local workers.  I must still pause when a country has sub-par rankings (compared to the US) using objective international criteria.

Tahoe's CEO is a mining engineer and a previous CEO of Goldcorp, a company I respect.  The rest of the team has done time at Hecla, Rio Tinto, and Kennecott, with some previous experience in Guatemala.  These are all good things that help make up for whatever macroeconomic and political deficiencies persist in Guatemala.  Good local relations can help build success even in a bad neighborhood.

Their Escobal project has photos of fully developed infrastructure and MII resources, although I would prefer to see 2P reserves in a company that's ready for production.  The assumptions they published for long-term metal prices ($1100/oz Au, $18/oz Ag) are higher than those metals' historical average prices, so they need to keep their all-in sustaining costs (AISC) significantly below those average prices over the projected 18-year life of this mine.  Look at Kitco's multi-year charts for the price of silver.  The long-term silver price used to range between four dollars and nine dollars per ounce for much of the past three decades.

Tahoe shipped its first silver concentrate in October 2013, so it looks like everything is a "go" for full-scale production this year.  Their Q3 2013 financial statement dated September 30, 2013 shows that their $39.2M in cash on hand is barely able to cover their $38.7M in accounts payable, so it's good that they have a $50M credit facility to keep operations going while they ramp up.  BTW, read that PR statement about the credit facility to see other risks tied to this project.  Like I said above, Guatemala has some persistent deficiencies.  I'd prefer to see Tahoe's operations at a mature stage before I consider this stock as an investment, but it's still nice to see a mining company doing some actual mining at a time when much of the sector has crashed.

Full disclosure:  No position in Tahoe Resources at this time.  

IMF Smacks Argentina on Economic Data

When you play with fire, you're bound to get burned.  The IMF has put Argentina on official notice that its fraudulent economic data places its standing with the organization at risk.  It's nice to see an international body enforcing rules for rogue players.  The funny part is the hypocrisy of the IMF's main sponsor - the United States.

Argentina underreports its annual inflation by 14% or so by private estimates.  Compare that to ShadowStats' estimate of the U.S.'s CPI, which is underreported by about 4% right now.  America has a ways to go to catch up to Argentina's statistical flights of fancy.  Don't expect the IMF to enforce any kind of action against the U.S. once our economy starts hyperinflating.

The Limerick of Finance for 02/05/12

A south-of-the-border joint bank
Fuels Chavez's image as crank
With a nebulous goal
Funds are hard to control
Its credit won't have a high rank

Colombia Energy Resources (CERX) Applies Coal Expertise To New Projects

The U.S. is the "Saudi Arabia of coal" with enough proven supply in the ground to last for centuries at present rates of consumption.  One of the main problems in digging it out is the high cost of operating a coal mine in the U.S.  Colombia Energy Resources (CERX) is ready to dig coal in - you guessed it - Colombia, where labor ought to be cheaper.

CERX's four properties in Colombia look attractive, and not just for their deposits.  They are close to viable road and barge links that can handle existing traffic.  The company may have to budget more capex to facilitate barge operations on the Magdalena River if it cannot benefit from the Colombian government's efforts to upgrade infrastructure.  This will help ensure it has the logistics capacity to meet its production targets for 2013.

CERX claims that its cost of production is $50/ton.  Consider that coal prices in many producing locations in the U.S. were under this threshold in 2010, and that the price of coal in the U.S. has rarely been above $70 in the past three years.  The good news is that the export price of coal from the U.S. averaged $120 in 2010.  Perhaps CERX should target export markets other than the U.S.  CERX's advantage is that its deposits contain mid-volatility coal, used to make coking coal.  The price outlook for coking coal is much more attractive, with some forecasts predicting it to sell for $226/ton in 2012.  South Korean steelmakers are willing to pay as much as $235/ton for coking coal.  The company does not yet have funding for the coking facility they plan to install in a wholly-owned energy park (according to their 10-K filed on March 30, 2011) but I give them credit for acknowledging the need to raise capital to do so.

The strongest aspect of this particular company is its management.  It is rare for junior explorers and producers in the resource sector to have an entire top management team with careers exclusively in that sector.  CERX comes closer to an ideal team than any junior coal company I have seen.  I have been skeptical of other resource companies with histories of negative net income, free cash flow, and retained earnings.  Those other companies were almost invariably run by inexperienced teams who didn't understand mining.  I am willing to be more patient with CERX in awaiting improvement.  This one is worth tracking for future developments.

Full disclosure:  No position in CERX at this time.

The Limerick of Finance for 06/05/11

U.S. firms are shut out of Iraq
Oil and gas deals are things that we lack
We are losing this race
So let's pick up the pace
Lest China's deals crowd out the greenback