Thursday, October 13, 2016

United States Corporate Tax Rate Flawed Companies Relocating Policies clinton buffett rule takeovers

The average corporate tax rate among 20 competing markets is under 20%, but in the United States this number is 35%.
A 2016 report by Ernst & Young found that a reduction in that rate to the more competitive level of 25% would have "prevented foreign takeovers of 1300 companies".  This doesn't even account for the losses attributed to tax inversions; Fewer companies relocating is a double blessing for the United States because
1) the federal government would take in more tax revenue without having to raise the rate on remaining companies.
2) becomes more attractive to foreign entities interested in relocating their legal domicile to a more tax friendly jurisdiction.  Because America is such a large market with many net benefits this should be considered the limiting factor and thus consequential.

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Between 1986 and 2016 the number of US companies ranking among the world's top 500 by revenue fell from 218 to 128.  To maintain tax revenue, the country has had to raise the rate on the remaining companies - this hasn't helped the situation which has gotten out of control : $300 billion worth of companies taken over in 2016 highest in almost two decades.

Points to consider when voting in the next election: Policies and business

My opinion

  • since when does a bankrupt nation have the luxury of choosing expensive energy? Clinton wants to add trillions more in debt to build the infrastructure needed to produce energy at a rate of 80+ cents per kwh when coal and gas is only 25 cents.  The transition to alternative forms is the reason Nova Scotia has the highest utility rates in Canada.
  • The Trump Plan will lower the business tax rate 35%->15% and eliminate the corporate alternative minimum tax.
  • unlike Trump, Clinton is not proposing a full overhaul of the tax code.  her plan is intended to make sure the wealthy pay their "fair share" in income tax. Under her the code more complex, particularly for high-income earners who might or might not meet the Buffett Rule (every individual and company making more than $250 thousand have to pay a minimum of 30%); they could also be subject to her proposed 4% income surtax on income over $5 million.

Wednesday, August 3, 2016

Gold Has Not Peaked Yuan Renminbi Will Replace The Dollar currency crisis

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According to a spokesperson at Canada's largest bank RBC, the current gold price has no legitimate support because they say, it stems from record breaking investor demand in gold ETF 's and a reshuffling of asset positions at Comex.  It sounds as if even the bank's are running low on excuses to justify their bearish positions on gold - They say that without a new risk off event the price should fall back to a long term outlook level of around $1240.
Seraphim's opinion - You want risks ? You got'em !  How about a 180 degree change in the relationship with Russia ? or an admittance that the United States is fighting an entirely different war in the middle east than what's been publicly declared ? or how about a new trade war with China ?  This is just the tip of the iceberg of what awaits the US in the coming year if Donald Trump becomes president as the polls have already tipped in his favor.
At a time when investor confidence is not just low but non-existent, money printing continues unabated, and the US dollar remains overvalued (even if just because every other currency is being devalued so as to boost gdp) 2017 is on track to be the riskiest year of the millennium.
Historically, gold's role proved to be irreplaceable - in protecting national economic security during times of financial crisis, geopolitical crisis, currency crisis.

China Will Use Gold's Unique Position to Elevate Itself

China has long sought to replace the dollar in foreign transactions with its own currency, and that started happening this year - even Canada is on board with its own Yuan clearing bank set up in Toronto.
The ultimate goal however is to usurp the dollar's position in global finance.  The only time that could happen is during a time of collapse in currency markets - even if it is just temporary gold will become the default currency of choice.  If China is the only country capable of supporting its currency with gold (aka the yuan renminbi is gold backed) then the yuan will have won !

Monday, May 30, 2016

Keep Oil and Gold In Your Portfolio, no substitutes renewables world reserve currency

No Oil Substitutes

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Oil and Gas - Despite what many western governments and environmentalists are saying, the world has not moved away from oil.  While it is true that many modern vehicles are equipped with hybrid fuel technology, they still depend on gasoline for 80-90% of their fuel needs.  Virtually every home built twenty or more years ago is heated with oil and the cost to change that is high making the change to electricity an additional expense most homeowners simply cannot handle in a depressed economy.  Additionally the more popular modern power generators are only fueled by oil and gas.

Gold - The yellow metal holds a unique status in everything from religion to jewelry to wealth storage.  Even central banks and world governments look to gold as an inflation hedge and trade gold in times of economic trouble (2016 - Venezuela); no other metal enjoys this distinction not even platinum and there's no reason to think that will change anytime soon.  The last time fiat currency wasn't being used world trade relied fundamentally on the gold standard.  With the US dollar losing popularity as the world reserve currency and China looking to gold to prop up its own currency it appears as if the gold standard will once again run the world economic system.

Oil production still powers the economies of many key nations

And these are nations of influence - Saudi Arabia, Russia, Iran, Canada, United States.  Other key countries such as Nigeria and Venezuela are developing vast oil reserves as a source of future economic growth.  As long as oil is available there will be a market for it.  (nigeria oil reserves)

Renewable Energy Sources Continue To Be Too Expensive

With the world economy slumping along there is no reason to expect people to voluntarily shift to expensive sources of energy anytime soon.  Even the cheapest of these - energy derived from corn (corn demand, ethanol) in South America - is already wreaking havoc on commodity prices in that part of the world because it takes too much of the crop to replace just a fraction of the energy it needs.

Friday, April 29, 2016

Dollar Falling Gold Rising price commodities rally silver mining production

What's different about this commodities rally is that it's not just the gold price that's up - gold equities and mining stocks in general are starting to exhibit overall growth, even the ones with known risks kinross, anglogold ashanti.

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Get Used To The Dollar Falling

  • A deteriorating relationship with Saudi Arabia means we might be witnessing the last days of the 'Petro Dollar' - at best this translates into even less support for US dollar denominated trade.
  • China backed gold certificates issued by the BRICS fund gain traction
  • The Federal Reserve The Fed losing control of situation it attempts to solve due to plunging interest rates and lack of interest in treasury notes

Diversity Is Important

  • Don't limit your purchases to just one company spread it around but do favor companies that already have the infrastructure in place to produce gold since it can take a long time to develop a mine.  
  • Also keep in mind that many established companies shuttered a large portion of their mine portfolio over the past few years due to declining prices
  • Focus in on companies that weathered the storm and didn't resort to closing mines - in the short run they will yield the best returns.

Don't Ignore Silver

The gold silver ratio exceeded 80 for much of the last year but now with a new commodity bull run starting to take place, the ratio has already declined to 70.  Considering the recent past (10-15 years) the ratio has the potential to decline even further to below 40, leaving the possibility of a 2 to 1 return on silver verses gold.  Demand for silver remains strong but remember that central banks don't buy it - this means that global economic instability is less likely to benefit silver price and more likely to benefit the price of gold.  In the meantime make silver mining companies a priority.

Kinross Gold NYSE:KGC - has most to benefit from a new gold rally.  kept mines despite downturn in stock in recent years - weathered the storm.
iamgold NYSE:IAG - stock suffered more than competitors last five years down 85%.  key mines remain operational and showing robust growth.
Seabridge Gold NYSE:SA - 40 million ounces gold 300 million ounces silver and that's just 2P proven reserves.  any news regarding mine development will double the stock price overnight.
spdr gold trust
sprott gold trust - can redeem shares for physical gold

Tuesday, March 29, 2016

Stocks to Watch 2016 Valeant Pharmaceuticals nyse:VRX Sobeys tse:EMP.A undervalued

Valeant Pharmaceuticals nyse VRX

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Although the specifics regarding Valeant's problems won't be aired out until the company releases it's 10-k annual report in April of 2016, it's safe to say the stock has borne the full brunt of investor scrutiny (high institutional ownership has been a factor).  The biggest risks here on out are revenue growth, write-offs, and lawsuits - but even in a worst case scenario there is no way these three will severely impair earnings for two or more quarters.  Valeant continues to own a number of game changing drugs and products - a non-ownership relationship with Philidor doesn't change that !

revenue stream remains strong this will be key in keeping operating costs per unit within reasonable levels.

- xifaxan is approved
- diversity of portfolio
- global exposure - problems in the USA do not affect Valeant's ability to affect/control prices in other countries.
- sales in China since 2013
- ranks high among diversified companies

Sobeys tsx:EMP.A

The large quarterly write-off related to the Safeway assets should be seen as a one time occurrence; the affect on future earnings is being exaggerated.  This makes it a stock to watch in the second half of the year.

A recovery in the price of oil (will average $45 this year and $72 in 2017) will be a boost to Alberta's economy - big Canadian companies have been able to withstand volatility more than shale companies south of the border/rig count down in USA = less oil glut in North America = more opportunity for Canadian oil price to close gap with WTI.  Since acquiring Safeway, Sobeys has been the number one grocery chain in Alberta.  For the first three months of 2016 calendar year same store sales +0.4% chain-wide despite being up +2.7% in its base of eastern Canada.  2016 has thus far been an extremely volatile time for Alberta's economy (keystone pipeline rejection/oil price dropped to historic low/oil companies slashed capital spending); it is likely that the situation will improve later on this year and into next year.

  • price/earnings ratio greatly undervalued versus alternative stocks Loblaw Companies, Metro Inc.
  • book value per share is at a discount.

Royal Bank of Scotland Group plc

Since coming off one of its worst earnings quarters in the bank's history the stock is off 30%.  The write-offs which hampered the stock last year will become less of a burden in the future thanks to

  • time deadline for claims related to mis-selling scandal (risky loans, payment protection insurance in US) now almost a decade old
  • 1.5 billion pounds of the latest write-down relate to a settlement with the US Federal Housing Agency for mis-selling of mortgage backed securities
so expect these write-downs to become smaller over the next 1-2 years which will allow the bank to return to profitability - and perhaps even start paying a dividend.

Risk is not a major factor - the bank is 73% backed by the British government.

Monday, February 29, 2016

Seller Beware China Taking Over companies foreign takeovers technology ChinaChem, Whampoa, Syngenta, Haier, OmniVision

In 2015 Chinese companies took over 103 American companies up from 100 the year before and way up from the average of 43 in the three years prior to that and 13 in the second half of the previous decade.  Total overseas takeovers valued at $110 billion last year up 86% from 2014, led by energy and utilities (worth $50 billion).
There are now serious questions stateside with regards to the intentions of the Chinese - you see, the Chinese government has more direct control over its companies than any other government does theirs (total currency control gives their companies competitive advantage overseas).  China's leadership prioritizes all aspects of the economy with domestic issues taking precedence - this negatively affects innovation and a company's ability to operate freely overseas.

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There's also the fear factor - it is not uncommon for Chinese executives to be given the death penalty for making harmful decisions even if they are made accidentally.

Then of course there's the fact that most major companies are indirectly owned by the government itself - RDA Microelectronics is controlled by government owned Tsinghua Unigroup.

A Matter Of National Security

The takeovers now pose a direct threat to United States national security, particularly in the semiconductor industry where China holds a strategic advantage thanks to a series of takeovers which have gifted them advanced technology.  Even China acknowledges sectors involving industrial products and chemicals are critical its leader recently made it a priority to have 70% of these components made in China - China uses 60% of the world's chips (China now has 10 of the world's 50 biggest chip makers up from one seven years ago that rise is coming through takevers, not home grown innovation).

Silicon Valley has another problem here too - The world's other major semiconductor producer is Taiwan, a territory that China wants more control over.

it's not just the technology industry that China's after either - already in 2016 Chinese companies have taken over
1) Europe's Monsanto - Syngenta the world's leader in the manufacture of insecticides fungicides and herbicides bought by ChinaChem for $43 billion after the Monstanto deal was scrapped

2) OmniVision Technologies a maker of advanced chips used in smartphones and cameras. bought by Hua Capital Management for $1.9 billion.

3) Foxconn $6.4 billion takeover of Sharp makes Foxconn less reliant on Apple for its business.

4) Chicago Stock Exchange says it's being sold to Chongqing Casin Enterprise Group for $100 million gives Chinese company access to the US equity market and the potential to take trades away from the other big two Nyse and Nasdaq (by listing new stocks or versions with lower stock prices).

5) Hong Kong's Hutchison Whampoa becomes UK's largest cellphone plan service provider after basically receiving approval for O2 - the European Union rejected UK concerns regarding the deal (since O2 was operated by Telefonica a non UK but European company) nullifying the need for regulatory approval.

6) Just this month China's Haier takes over General Electric's applicance unit for $5.4 billion Haier immediately becomes a global player thanks to the deal.  Quingdao a state owned enterprise now runs the show !

then of course there were other pivotal deals made within the last two years such as Lenovo's purchase of Motorola making it the world's number three player in the smartphone market - this doesn't even take into account Huawei, the world's largest telecommunications equipment maker that just launched its own smartphone the Honor which is already becoming popular in the UK and the Huawei Y3, the cheapest smartphone in the UK

February 2016 : Xiaomi to start selling smartphones in the United States for first time.

United States Losing Companies Not Just To China

Biggest Insurer Chubb Corporation uses Ace Limited Takeover to form Chubb Limited a new Switzerland based company.  That means the United States lost Aon and Chubb to Europe in just two years !

Sunday, January 31, 2016

The Canadian Petro Dollar & Alberta Petroleum Industry Oil Price

The first month of 2016 turned out to be quite harsh for the Canadian dollar and those who use it, giving even more meaning to its pseudonym "the loonie".
Unlike the US Dollar which is riding high at the expense of nearly every other currency, the rate given for the Canadian (and Russia) version dipped to just under 68 cents breaking 25+ year lows (early 1990's was the last time the currency was anywhere close to current levels).

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You might ask: why is there such a strong correlation between the loonie and the oil price ?  and why doesn't the US dollar share that relationship to oil all things considered. 

ExxonMobil XOM, Chevron Corporation CVX are two of America's largest companies; oil companies represent 6% of the nasdaq 500; 3 of the 5 highest yieilding s&p 500 stocks are oil companies; United States oil production now ranks second behind Saudi Arabia.

look no futher than gdp vs the petroleum industry

Canada may produce less oil than the United States but its economy is nine times smaller and that makes it more dependent on the commodity (7% of gdp directly - tens of billions of dollars in capital expenditures by big oil which for the last five years fueled all of the growth in the only job-creating provinces of Alberta, Saskatchewan).  Also note that the USA only recently started exporting oil abroad - Canada exports nearly all of its oil to the United States thanks to a lack of oil refineries out west (Canada's biggest refinery is on the east coast and there are currently no pipelines going west to east).
Another thing to consider is the quality of oil that Canada produces.  Canadian oil is more like tar - it requires heavy processing before it can even be used by refineries.  This adds costs to usage and makes it less attractive to potential buyers.

What was the perfect set of conditions stateside turned out to be the perfect storm for Canadians

While Americans were being spoiled with 10 cents per litre gas price, Canadians faced rapid inflation thanks to their dependancy on the US for food ($8 cauliflower was commonplace).

Costco Conquers Canada

According to the most recent results out of Costco Canada, same store sales are up by a record 9% twice what it is stateside and triple that reported by Canadian grocery leaders Loblaw Companies and Sobeys.