Mayans got it wrong
World does not end with this year
Nor does fiscal cliff
Tuesday, December 11, 2012
Americans Prefer SNAP Over Job Search, Medicaid Over Wealth
Recent economic data releases show the changing nature of work preferences in America, or rather, non-work preferences.
The BLS unemployment numbers from December 7 show that the civilian labor force participation rate declined by 0.2%, the only really significant change from the previous month. That BLS report masks the true state of discouragement in the workforce. Check out Table A-16, which shows that the number of people not in the labor force is much higher now that it was a year ago. Multiple job holders are more numerous too. People give up on finding work when there's no work to be found. People take second jobs when one income isn't enough to pay for food and energy that the Federal Reserve's monetary stimulus has made more expensive. Stagflation is the new normal, until something breaks down and we head into another abyss.
Czars of government benefits programs like to see high unemployment because that drives demand for their programs. The Supplemental Nutrition Assistance Program (SNAP), aka the federally funded food stamps now delivered via EBT, showed an increase of 607,559 individual participants from August to September. The number of households participating increased by 289,235. That comes to about two people per household on the program, or in plain terms lots of single moms with one kid swiping their welfare card at Wal-Mart once per month. People respond to incentives, and many people are disinclined to look for work when welfare benefits are generous.
Some benefit programs are so generous, and the taxes levied to pay for them so onerous, that even productive people of means are looking for ways to opt out of success and become wards of the state. "Medicaid planning" is the hip new way for affluent people to become destitute enough to qualify for government-funded long-term care. People respond to incentives, and a blank check from the government for heroic end-of-life interventions care looks more attractive than a self-funded hospice stay.
It's hard for me to call poor people lazy when government EBT payments disincentivize them from seeking jobs. It's hard for me to call affluent people stupid when generous government care disincentivizes them from using their wealth productively. Public policy has become so perverse that many normal people are transforming from makers into takers because that's the financially sound thing to do. The 47% of our citizenry who see themselves as victims grows larger by the day. This will continue until the mass of takers overwhelms the productive economy's ability to support them through transfer payments.
My guess is that the madness will never cease of its own accord by reforming the policy system. The fiscal cliff negotiation pantomime under way shows us that Washington D.C. is not interested in anything other than the usual drama. The international bond market will have to be the adult in the room and stop this nonsense for us with a run on the dollar.
The BLS unemployment numbers from December 7 show that the civilian labor force participation rate declined by 0.2%, the only really significant change from the previous month. That BLS report masks the true state of discouragement in the workforce. Check out Table A-16, which shows that the number of people not in the labor force is much higher now that it was a year ago. Multiple job holders are more numerous too. People give up on finding work when there's no work to be found. People take second jobs when one income isn't enough to pay for food and energy that the Federal Reserve's monetary stimulus has made more expensive. Stagflation is the new normal, until something breaks down and we head into another abyss.
Czars of government benefits programs like to see high unemployment because that drives demand for their programs. The Supplemental Nutrition Assistance Program (SNAP), aka the federally funded food stamps now delivered via EBT, showed an increase of 607,559 individual participants from August to September. The number of households participating increased by 289,235. That comes to about two people per household on the program, or in plain terms lots of single moms with one kid swiping their welfare card at Wal-Mart once per month. People respond to incentives, and many people are disinclined to look for work when welfare benefits are generous.
Some benefit programs are so generous, and the taxes levied to pay for them so onerous, that even productive people of means are looking for ways to opt out of success and become wards of the state. "Medicaid planning" is the hip new way for affluent people to become destitute enough to qualify for government-funded long-term care. People respond to incentives, and a blank check from the government for heroic end-of-life interventions care looks more attractive than a self-funded hospice stay.
It's hard for me to call poor people lazy when government EBT payments disincentivize them from seeking jobs. It's hard for me to call affluent people stupid when generous government care disincentivizes them from using their wealth productively. Public policy has become so perverse that many normal people are transforming from makers into takers because that's the financially sound thing to do. The 47% of our citizenry who see themselves as victims grows larger by the day. This will continue until the mass of takers overwhelms the productive economy's ability to support them through transfer payments.
My guess is that the madness will never cease of its own accord by reforming the policy system. The fiscal cliff negotiation pantomime under way shows us that Washington D.C. is not interested in anything other than the usual drama. The international bond market will have to be the adult in the room and stop this nonsense for us with a run on the dollar.
Sunday, December 09, 2012
Saturday, December 08, 2012
Friday, December 07, 2012
Thunderbird Energy (TBDYF) And Natural Gas
Thunderbird Energy Corp. (TBDYF on OTC / TBD.V on TSX) is drilling for natural gas in Utah and oil in Wyoming. Let's see if they've had any success so far.
My readers know my preference for a geologist at the helm. Their CEO is not a geologist but their Chairman is one, so maybe that plus the petroleum experience of the rest of their team is enough to get something done.
Their Gordon Creek natural gas project in Utah is notable for its 2P reserves of 39.3 Bcf, according to their NI 51-101 report. Using a current price estimate of $2.71/Mcf, this discovery has an unadjusted gross value of $106.7M. That may seem like a lot but we haven't yet annualized it based on the expected life of the property, nor have we subtracted operating costs at the wellhead. Thunderbird's own estimates are more conservative, figuring an operating cost of $1000/well/month plus $0.45/mcf, for a discounted NPV of just under $70M. Photographs on their website show an extant pipeline on the property, which is all they need to get their product to market.
Their Wyoming oil project is not as well developed, so I'm looking forward to seeing more data. I'd also like to hear how they plan to extract and market the CO2 reserves they believe they have at Gordon Creek, and how this will not interfere with the more valuable natural gas they will put through their pipeline.
The good news about their natural gas find is that natural gas prices in North America are at record lows thanks to a glut of supply, and every natural gas operator on the continent loves to remind investors of how an eventual increase in price will make their projects worth much more. It's good that Thunderbird has an agreement with another company to receive royalties and fees. It's not so good that their breakeven analysis (in their corporate presentation as of December 2012) ignores sunk costs; since they're obviously not making a decision to walk away from the Utah project, their exploration costs should be considered necessary exploration costs and not sunk costs.
Check out their financial statements from January 2012. Note 2 sheds further light on their agreement to receive royalties and fees; this relationship is contractually contingent on Thunderbird's completion of further well drills. The $25M in payments agreed upon so far won't dig Thunderbird out of its $29M retained earnings deficit. Thunderbird will have to hit significant additional 2P finds to remain a viable company.
My bottom line on Thunderbird is that it's one of those natural gas plays that has done a lot of things right up until now. Their management still has to do a lot of things right - further fundraising, further successful drilling - to keep the company alive and/or out of a forced sale to benefit its royalty partner.
Full disclosure: No position in Thunderbird Energy Corp. at this time.
Further disclosure: Please note that I use the energy sector's convention of "mcf" for one thousand cubic feet, but the financial sector's newer convention of "M" for one million dollars.
My readers know my preference for a geologist at the helm. Their CEO is not a geologist but their Chairman is one, so maybe that plus the petroleum experience of the rest of their team is enough to get something done.
Their Gordon Creek natural gas project in Utah is notable for its 2P reserves of 39.3 Bcf, according to their NI 51-101 report. Using a current price estimate of $2.71/Mcf, this discovery has an unadjusted gross value of $106.7M. That may seem like a lot but we haven't yet annualized it based on the expected life of the property, nor have we subtracted operating costs at the wellhead. Thunderbird's own estimates are more conservative, figuring an operating cost of $1000/well/month plus $0.45/mcf, for a discounted NPV of just under $70M. Photographs on their website show an extant pipeline on the property, which is all they need to get their product to market.
Their Wyoming oil project is not as well developed, so I'm looking forward to seeing more data. I'd also like to hear how they plan to extract and market the CO2 reserves they believe they have at Gordon Creek, and how this will not interfere with the more valuable natural gas they will put through their pipeline.
The good news about their natural gas find is that natural gas prices in North America are at record lows thanks to a glut of supply, and every natural gas operator on the continent loves to remind investors of how an eventual increase in price will make their projects worth much more. It's good that Thunderbird has an agreement with another company to receive royalties and fees. It's not so good that their breakeven analysis (in their corporate presentation as of December 2012) ignores sunk costs; since they're obviously not making a decision to walk away from the Utah project, their exploration costs should be considered necessary exploration costs and not sunk costs.
Check out their financial statements from January 2012. Note 2 sheds further light on their agreement to receive royalties and fees; this relationship is contractually contingent on Thunderbird's completion of further well drills. The $25M in payments agreed upon so far won't dig Thunderbird out of its $29M retained earnings deficit. Thunderbird will have to hit significant additional 2P finds to remain a viable company.
My bottom line on Thunderbird is that it's one of those natural gas plays that has done a lot of things right up until now. Their management still has to do a lot of things right - further fundraising, further successful drilling - to keep the company alive and/or out of a forced sale to benefit its royalty partner.
Full disclosure: No position in Thunderbird Energy Corp. at this time.
Further disclosure: Please note that I use the energy sector's convention of "mcf" for one thousand cubic feet, but the financial sector's newer convention of "M" for one million dollars.
Thursday, December 06, 2012
The Haiku of Finance for 12/06/12
Chinese pump/dump scam
Penny stock for dumb traders
Investor beware
Penny stock for dumb traders
Investor beware
I Don't Understand iMing (IMNG)
I got a tease mailer today from Legendary Stocks touting iMing (IMNG on OTC). It's some maker of HD set top boxes out of Hong Kong. There are plenty of things about this company I just don't understand.
I don't see how they can claim to compete against Apple TV in the set top box market. I don't see any management team listed on their website, and only one person on Yahoo Finance's profile page who apparently does everything at the head office except actually make the product. So who makes the product? Is it even ready to be sold, shipped, and installed? Beats me.
They have a publicly traded ticker symbol but I can't find any financial reports on them in EDGAR. If they have not filed any reports, I cannot understand how Yahoo Finance can report their financial results. Looking at their historical prices reveals adjusted closing prices as high as $70,000/share back in 2009, but the stock currently trades under a buck. That implies a whole lot of reverse splits since then just to keep this ticker from falling off the exchange. I can't be sure of any splits since there are no SEC filings to review.
I don't understand why anyone would invest $150,000 in iMing's first round. I do not understand why this company used to be named China Career Builder Corp. and yet plans to enter the set top box market with so little capital. I just don't get it. I don't invest in things I find impossible to understand.
Full disclosure: No position in IMNG ever, but you already knew that.
I don't see how they can claim to compete against Apple TV in the set top box market. I don't see any management team listed on their website, and only one person on Yahoo Finance's profile page who apparently does everything at the head office except actually make the product. So who makes the product? Is it even ready to be sold, shipped, and installed? Beats me.
They have a publicly traded ticker symbol but I can't find any financial reports on them in EDGAR. If they have not filed any reports, I cannot understand how Yahoo Finance can report their financial results. Looking at their historical prices reveals adjusted closing prices as high as $70,000/share back in 2009, but the stock currently trades under a buck. That implies a whole lot of reverse splits since then just to keep this ticker from falling off the exchange. I can't be sure of any splits since there are no SEC filings to review.
I don't understand why anyone would invest $150,000 in iMing's first round. I do not understand why this company used to be named China Career Builder Corp. and yet plans to enter the set top box market with so little capital. I just don't get it. I don't invest in things I find impossible to understand.
Full disclosure: No position in IMNG ever, but you already knew that.
Wednesday, December 05, 2012
Uranium North (URNMF) and Diamonds North (DDNFF) Join Hands
I seldom compare two junior mining companies in the same article but maybe I should do that more often. I'll examine Uranium North (URNMF / UNR.V) and Diamonds North (DDNFF / DDN.V) because they operate a joint venture called Minerals North LLC.
It's worth noting the same CEO and corporate secretary help run both Uranium North and Diamonds North. The CEO seems to have project generator experience so it boggles my mind that he would run two separate companies simultaneously and then have them JV a third project, rather than just fold all of their exploratory projects into one company.
Let's take Uranium North first. They have three gold projects, five uranium projects, and one graphite project at present. That Amer Lake graphite project gives them justification for continuing to explore for uranium there, but the property is 70km from the nearest all-season road. Nunavut is a popular area for exploratory mining but miners need to figure the cost of grading winter ice roads into their capex before they estimate cash costs of production. The company's grab samples from their gold projects look attractive at first glance but there needs to be a 43-101 report estimating 2P reserves for me to take those grades seriously. Only Amer Lake has a 43-101 report at present, and it estimated the cost of continued drilling at about $2.2M as of September 2009.
Consider Uranium North's financial results since that NI 43-101 report was prepared in 2009. They lost over $1.5M in FY 2009, lost $2.2M in FY 2010, lost $1.5M in FY 2011, and lost $5.4M in FY 2012 (their reporting year ends in February). They raised and burned a lot of money with very little in the way of solid exploratory results to show for the number of properties they have open.
Now let's move on to Diamonds North, the CEO's other entity. The Minerals North LLC entity contains the Poland China, Golden Reward, and Empire Creek properties. They all have some decent gold grades after test drilling but I cannot find a 43-101 report. It's fine for them plan to use a mill at a nearby Kinross property if they think that will reduce the cost of processing gold ore, but they need a complete PEA to know what those costs will be. Their Esker gold property is showing better grades than the Minerals North sites, so I wonder when they will focus attention there. Their Amaruk diamond project has some mineral chemistry results but frankly I have no idea how to interpret them since I'm not a diamond expert.
Diamonds North had an annual net loss of $3.3M as of December 2011. What really stood out for me in their 2011 annual report was the retained earnings deficit of over $52M. These guys have been a money sink since inception, so no matter how good their grades from test drilling appear to be they have been unable to turn those first-round results into properties a major producer would find desirable.
I'm skeptical of both of these companies and their JV. Their "lottery ticket" approach to identifying economically viable ore bodies has not generated any shareholder value. They won't be able to do so without completed drilling results suitable for a 43-101 report. I think it's hilarious that these two stocks' OTC shares traded at more than a buck after their debuts years ago. The share prices of both companies now languish below a nickel for good reason.
Full disclosure: No positions in Uranium North or Diamonds North at this time.
It's worth noting the same CEO and corporate secretary help run both Uranium North and Diamonds North. The CEO seems to have project generator experience so it boggles my mind that he would run two separate companies simultaneously and then have them JV a third project, rather than just fold all of their exploratory projects into one company.
Let's take Uranium North first. They have three gold projects, five uranium projects, and one graphite project at present. That Amer Lake graphite project gives them justification for continuing to explore for uranium there, but the property is 70km from the nearest all-season road. Nunavut is a popular area for exploratory mining but miners need to figure the cost of grading winter ice roads into their capex before they estimate cash costs of production. The company's grab samples from their gold projects look attractive at first glance but there needs to be a 43-101 report estimating 2P reserves for me to take those grades seriously. Only Amer Lake has a 43-101 report at present, and it estimated the cost of continued drilling at about $2.2M as of September 2009.
Consider Uranium North's financial results since that NI 43-101 report was prepared in 2009. They lost over $1.5M in FY 2009, lost $2.2M in FY 2010, lost $1.5M in FY 2011, and lost $5.4M in FY 2012 (their reporting year ends in February). They raised and burned a lot of money with very little in the way of solid exploratory results to show for the number of properties they have open.
Now let's move on to Diamonds North, the CEO's other entity. The Minerals North LLC entity contains the Poland China, Golden Reward, and Empire Creek properties. They all have some decent gold grades after test drilling but I cannot find a 43-101 report. It's fine for them plan to use a mill at a nearby Kinross property if they think that will reduce the cost of processing gold ore, but they need a complete PEA to know what those costs will be. Their Esker gold property is showing better grades than the Minerals North sites, so I wonder when they will focus attention there. Their Amaruk diamond project has some mineral chemistry results but frankly I have no idea how to interpret them since I'm not a diamond expert.
Diamonds North had an annual net loss of $3.3M as of December 2011. What really stood out for me in their 2011 annual report was the retained earnings deficit of over $52M. These guys have been a money sink since inception, so no matter how good their grades from test drilling appear to be they have been unable to turn those first-round results into properties a major producer would find desirable.
I'm skeptical of both of these companies and their JV. Their "lottery ticket" approach to identifying economically viable ore bodies has not generated any shareholder value. They won't be able to do so without completed drilling results suitable for a 43-101 report. I think it's hilarious that these two stocks' OTC shares traded at more than a buck after their debuts years ago. The share prices of both companies now languish below a nickel for good reason.
Full disclosure: No positions in Uranium North or Diamonds North at this time.
Tuesday, December 04, 2012
Greece Surprises With Generous Bond Buyout Terms
Well, I'm shocked. I wrote yesterday that Greece had a stronger position than its European funders and private holders of its outstanding debt, but I theorized that it would use this position to force hedge funds to eat losses. It turns out that Greek leaders (or their masters in Brussels) are savvier than I estimated. Greece obviously has the backing of the European finance ministers to make an extremely generous buyback offer to its debt holders. Offering 30-40% face value is way more than a lot of hedge funds paid for this distressed debt, so the ones that agree first will walk away with the largest payout. Holdouts risk taking any subsequent offer that will far less generous, or eating losses on defaulted distressed sovereign debt. This is clearly an attempt to quickly clear the market of any obstacles to further bailouts.
Hedge funds that got in late by paying 29% in late summer can lock in a 35% sale price, for a total appreciation of about 20% more than what they paid a few months ago. The annualized gain on this kind of deal can be anywhere from 60%-80% depending on how much they paid and how long they held. That is a whopping incentive to sell now and not wait for the EU/IMF to backstop a second buyout round.
Europe's elites are indeed very serious about saving the euro, even to the point of throwing more money at private bondholders just to make them go away.
Hedge funds that got in late by paying 29% in late summer can lock in a 35% sale price, for a total appreciation of about 20% more than what they paid a few months ago. The annualized gain on this kind of deal can be anywhere from 60%-80% depending on how much they paid and how long they held. That is a whopping incentive to sell now and not wait for the EU/IMF to backstop a second buyout round.
Europe's elites are indeed very serious about saving the euro, even to the point of throwing more money at private bondholders just to make them go away.
Monday, December 03, 2012
Financial Sarcasm Roundup for 12/03/12
My sarcasm spews forth in a torrent of verbiage. It will cease when I am no longer alive. No one can silence me; many have tried and none were successful. I am genius personified.
The fiscal cliff nonsense continues unabated and the non-Beltway media personalities hyping this non-event can't see through the smoke. Republicans say they want big cuts in Medicare and Social Security. That position is for the benefit of home audience voters, just as the President's opening offer of massive tax increases on the rich was for the benefit of his party's base. The intractability of both sides' positions isn't a signal that they can't agree. They have agreed to disagree for years while raising the debt ceiling time after time. The dollar's reserve status and the Fed's bond buying have enabled this charade to continue. Whatever 11th-hour legislation is needed to keep kicking this can has already been drafted and merely awaits some signal from both parties' Congressional leadership that they've "given up" on negotiations. The can-kicking bill will then fly through a joint session at warp speed and the President will sign it with a wink and nod. Presto, crisis avoided. Our elected leaders have done this many times before and are practiced hands at getting it done. They will continue this behavior until the bond market rejects dollar-denominated sovereign debt.
Europe's leaders have obviously been taking notes on how to avoid solving fiscal problems. The Continent's finance ministers are coming up with some very creative ways to pretend to bail out Greece. Athens continues to oblige them with creativity of its own. I believe Greece will have no difficulty forcing some hedge funds to disgorge the Greek sovereign debt they own at far less than 30% of face value. All of the cards are on Greece's side in this game; Greece can walk away from buyback talks and immediately tank the secondary market for its debt. Athens can risk panicking its EU/IMF creditors for a few days because that's all it will take to force hedge funds back to the table. The half-life of a hedge fund's margin call is a lot shorter than a European finance minister's conference call. Quite a few hedge fund managers are about to learn that they were too smart for their own good. The only winners might be the ones who took out short-duration CDS spreads in hope of a blowout.
The European ministers' negotiating leverage with Greece is also deteriorating. The credit ratings of their bailout funds are in perpetual jeopardy. Greece knows it can force further downgrades just by making some aggressive noises about noncompliance. The mechanisms' credit ratings downgrades do not mean Europe's bailout artists will be unable to borrow. The Federal Reserve's unspoken arrangements will see to it that the funds' coffers are filled, with the U.S. central bank demanding a higher risk premium as appropriate compensation. This is why the European ministers hold the weakest hand in these multilateral negotiations. They are simultaneously subject to Greek threats of nonpayment and American threats of higher costs for dollar swaps. The financial media reports the tips of icebergs.
Sometime next year I'll be laughing very hard at a lot of broke money managers who went long Greek bonds, long the euro, long China, long U.S. housing, and long other things. I just continue to marvel at how high the ruling elite can stack its house of cards. They're quite skilled but not omnipotent.
The fiscal cliff nonsense continues unabated and the non-Beltway media personalities hyping this non-event can't see through the smoke. Republicans say they want big cuts in Medicare and Social Security. That position is for the benefit of home audience voters, just as the President's opening offer of massive tax increases on the rich was for the benefit of his party's base. The intractability of both sides' positions isn't a signal that they can't agree. They have agreed to disagree for years while raising the debt ceiling time after time. The dollar's reserve status and the Fed's bond buying have enabled this charade to continue. Whatever 11th-hour legislation is needed to keep kicking this can has already been drafted and merely awaits some signal from both parties' Congressional leadership that they've "given up" on negotiations. The can-kicking bill will then fly through a joint session at warp speed and the President will sign it with a wink and nod. Presto, crisis avoided. Our elected leaders have done this many times before and are practiced hands at getting it done. They will continue this behavior until the bond market rejects dollar-denominated sovereign debt.
Europe's leaders have obviously been taking notes on how to avoid solving fiscal problems. The Continent's finance ministers are coming up with some very creative ways to pretend to bail out Greece. Athens continues to oblige them with creativity of its own. I believe Greece will have no difficulty forcing some hedge funds to disgorge the Greek sovereign debt they own at far less than 30% of face value. All of the cards are on Greece's side in this game; Greece can walk away from buyback talks and immediately tank the secondary market for its debt. Athens can risk panicking its EU/IMF creditors for a few days because that's all it will take to force hedge funds back to the table. The half-life of a hedge fund's margin call is a lot shorter than a European finance minister's conference call. Quite a few hedge fund managers are about to learn that they were too smart for their own good. The only winners might be the ones who took out short-duration CDS spreads in hope of a blowout.
The European ministers' negotiating leverage with Greece is also deteriorating. The credit ratings of their bailout funds are in perpetual jeopardy. Greece knows it can force further downgrades just by making some aggressive noises about noncompliance. The mechanisms' credit ratings downgrades do not mean Europe's bailout artists will be unable to borrow. The Federal Reserve's unspoken arrangements will see to it that the funds' coffers are filled, with the U.S. central bank demanding a higher risk premium as appropriate compensation. This is why the European ministers hold the weakest hand in these multilateral negotiations. They are simultaneously subject to Greek threats of nonpayment and American threats of higher costs for dollar swaps. The financial media reports the tips of icebergs.
Sometime next year I'll be laughing very hard at a lot of broke money managers who went long Greek bonds, long the euro, long China, long U.S. housing, and long other things. I just continue to marvel at how high the ruling elite can stack its house of cards. They're quite skilled but not omnipotent.
Sunday, December 02, 2012
The Limerick of Finance for 12/02/12
Fiscal cliff talks have hit a stalemate
Pundits worry and claim it's too late
But the real deal is done
No concessions were won
Kicking can until some future date
Pundits worry and claim it's too late
But the real deal is done
No concessions were won
Kicking can until some future date
Saturday, December 01, 2012
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