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Buy and Hold, long-term investor who is Austrian in his capitalism and who doesn't believe that governmental (Keynesian-economic-based) spending is going to do anything but increase a loss of freedom, property, entrepreneurialism, and philanthropy. See Seeking Alpha's policy on anonymous... More
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New Financial Inklings
  • Gold Debate Not About Gold
    Gold IS (is NOT) Money!
    With new record prices in gold, the debate has increased. The lines have been drawn. On the one side are those self-declared Keynesians who declare “Gold is not money,” and—in turn—label their antithesis as irrational “Gold Bugs.” On the other side are Austrian—in practice, if not also in name—investors who believe that value exists as an intrinsic property to certain commodities (in the broadest sense of the word).
     
    How’s this for a great overview of the Keynesian’s view? http://blogs.ft.com/maverecon/2009/11/gold-a-six-thousand-year-old-bubble/. To summarize:
     
    Even though, from a social efficiency perspective, the mining of new gold and the costly storage of existing gold for investment purposes are wasteful activities, they may be individually rational. There is no invisible hand here (or elsewhere) to ensure that the aggregation of individually rational behaviour (sic) adds up to anything desirable or sensible. Because to a reasonable first approximation gold has no intrinsic value as a consumption good or a producer good, it is an example of what I call a fiat (physical) commodity… In a world with multiple fiat moneys, the zero value of money equilibrium lurks for each of the fiat currencies, including gold.  Admittedly, as regards gold, so far so good.  Gold has positive value.  It has had positive value for nigh-on 6000 years.  That must make it the longest-lasting bubble in human history. I don’t want to argue with a 6000-year old bubble.  It may well be good for another 6000 years.  Its value may go from $1,100 per fine ounce to $1,500 or $5,000 for all I know.  But I would not invest more than a sliver of my wealth into something without intrinsic value, something whose positive value is based on nothing more than a set of self-confirming beliefs.
     
    The debate about gold being money (or now) is a façade, attempting to divert attention away from the greater issue at stake—namely, private property and whether an individual has a right to own and protect his. As evidence, let’s apply Buiter’s logic to other property:
     
    Land: Who would want to own Real Estate? It’s just dirt, and under the dirt is more dirt, and—maybe if you get lucky (you probably won’t)—some resource of value is under that dirt. Total habitable land is about 52,000,000 square miles. It’s fiat, because it has no real value—only the aggregation of individual rational behavior that adds up to something desirable.
     
    Grain: Who would want to own perishable commodities? I mean, people spend money growing them and then spend more money harvesting them, and finally other people eat them and “shitte them out.” Insert cash and repeat. It’s a losing proposition. I wouldn’t put a sliver of my wealth into perishables because...etc, etc.
     
    In fact, the same Aristotelian logic can be applied to everything (literally): P1, P2, P3 = C.
     
    The Rights of Property
    Fellow citizens, the debate about gold-as-money is an invitation for us to ask what we believe about private property—not to be confused with prosperity. Yes, prosperity may be derived from private property. Then again, it might not. But in either case, private property retains intrinsic rights and values for the bearer.

    This is what the Constitution is primarily concerned about—not, ultimately, whether or not there is a gold-as-money standard. Money is just one more place where the battle for the rights of private property is being waged. Does a person have the right or not to know that the value of some possession—all things being equal—is retained?
     
    Printing money is one way to undermine that right of knowledge and confidence. Selling sub-prime mortgages is another—as it disproportionately inflates (initially) the value of a privately held commodity—in this situation, my house and plot—before artificially deflating the value of that property in light of mortgage default. And there are many more ways.
     
    Lately, we’ve called such phenomena “bubbles.” Call it a bubble if you want. The fact is—these practices unhinge our connectivity to assets of true value. They inflate a sense of prosperity while leaving the large majority of people disenfranchised and bereft of property. In its place—we are sold the concept that comfort and prosperity can be attained without the expense or burden of concrete property. “Buy this stock. It’s going up.” “Borrow against your home equity. Its value is only as good as its accessibility.” “Sell this commodity/equity short.” These are all corrosive philosophies that grow out of the confusion between property and prosperity.
     
    In simple terms: prosperity is something I enjoy. Property is something I can bequeath. I may personally enjoy prosperity, while my children may not—despite my bequeathing to them all my remaining property. At the same time, I may die a man who never experienced prosperity and leave, at the same time, a great wealth of property to my children.
     
    Consider this! The government can give prosperity (for a season): health care to everybody or tax incentives for buying a car or house (Obama), education by way of “no child left behind” (Bush), and a computer with internet capabilities for every home in America (Clinton). But each one of these policies in some way erodes the idea that private property is a good thing. Heck, more Americans believe—in practice, if not in proclamation—that private property is the main evil in the world.

    So the government can give prosperity for a season. What the government cannot do is give us property! By definition, government does not own property and cannot create property. Government can hold property, entrusted by its people. Government can take property from people. Government can even return borrowed property. But never in the history of the world has government given originated property (yes, I’m ready for some know-it-all commenter to make some case from arcane history about some ruling body that did in fact give property). The point remains: property is a right of the individual. And that right can be taken by any number of means: imminent domain, on the grounds of “national security,” or eroded in value through taxation and lose monetary policy.
     
    Fellow citizens—this is what’s happening, and what’s behind the debate about gold and money. Once ideas of security and prosperity are decoupled from the reality of private property, we will find ourselves victims of privation—and the slaves of well-intended dictators. That was the primary concern of Constitution framers. The rights to vote, bear arms, have a trial of our peers, and be protected by an army—all of these and more fall out from the most basic of beliefs: that property is private—whether in the form of gold, land, grain, or our own human bodies.
     
    Remove that singular right—and it’s no far cry to see all else fall to the wayside: land, gold, silver, possessions, and our own bodies. (Lest one balk at this last application, keep in mind two points: first, no genocide began with a self-governed people waking up one day with the sudden desire to eradicate others; and, our own government has spent the better part of two years debating to what extent the care and oversight of our bodies is going to be regulated…by them.)
     
    Seeking Alpha is about stocks. So here are some stocks: Central Fund of Canada Limited (CEF), Hecla Mining Co (HL), and Vista Gold Corp (VGZ). These are a few of the stocks I own. Does this make me a “Gold bug”? Sure—if it makes you feel better to label me such. Frankly, I’m not asking you to buy these stocks, or even—if you are of such a mind—to abandon a view that gold is overvalued. Ultimately, I don’t even care where you come down on the “Gold is Money” debate.
     
    But please—out of respect for those who died to declare this nation free from tyranny, and out of care for those who will inherit this country from our dead grasps—do not buy the lie that prosperity equals property and vice versa. Otherwise, the price of gold (and every other commodity) is a moot point, and we become little more than a satiated people doped up on the highs of temporary comfort.
     
    To which we can cry, “The king freedom is dead. Long live freedom the king.”
    (disclosure: Long HL, CEF, and VGZ)
    Tags: CEF, HL, VGZ
    Nov 13 04:43 pm | Link | 1 Comment
  • Sirius Radio: Glowing Along or About to Burn Up?

    Lying under the Midwestern night sky—free of light pollution—I watched a satellite pass over and could not but wonder if that brief glimmer of light was but a foreshadowing of Sirius Satellite Radio’s (SIRI) recent run-up in price. SIRI has doubled in the past 3 months—while the broader indices have gained some 14%. Inclinations suggest that SIRI experienced an undervaluing greater than the broader markets.

     

    But did it? The fundamentals are much less free of pollution than the Midwestern sky. With 3.9 billion shares outstanding, the current PPS puts SIRI market cap at $2.93 billion—or 39% SIRI claims that its current assets are worth: $7.5 billion.

     

    The major problem with this (asset value) number is that $1.8 billion falls under the intangible assets of Goodwill (separate and unrelated to FCC licensing fees). For comparison—Google’s (GOOG) intangible Goodwill is $4.8 billion (or 15% total asset value), and Coke’s (KO) Goodwill runs $4 billion (less than 10% total assets)—SIRI’s $1.8, a whopping 24% total assets, runs far outside the realm of acceptability.

     

    Graciously granting SIRI a comparative right equal to Google’s (very graciously!), a grant of 15% goodwill-to-asset value, this brings SIRI’s Goodwill down to $1.12 billion and total asset value to $6.8 billion. But that’s still only half the picture. Outstanding liabilities are $7.3 billion; and total debt currently runs $6.73 billion—the majority of which is at rates of more than 10%. (Outstanding cash obligations for the next 6 months are $749,000, and $871K in 2010, $1 billion in 2011, $900K in 2012, and a whopping $2+ billion in 2013.)

     

    Even if the PPS reaches $1 (a market cap of $3.9 billion, minus further dilution), or even passes that mark, the constant threat of Liberty Media’s conversion of their 12,5 million Class B shares—an option come Feb 2012—looms on the horizon, and would amount to a 40% total ownership of SIRI. This forebodes either a) a necessary reverse split in order to reduce total shares outstanding or, more likely, b) further dilution. Keep in mind—this is a second lien provision.

     

    Could the recent run up in price be a result of the “Cash for Clunkers” program? Unfortunately, the Clunkers program has done nothing to promote long-term economic growth and stability. Other than spend over $3 billion US and increase the amount of trash the US produces—it merely invited people out of a paid-car situation into a payment-plan option. Many US manufactured vehicles come with a 6- or 12-month free subscription to SIRI. But unemployment hasn’t gone down. Even if it’s nearing a bottom, there are still far too many people looking for work than can find it. So we are right to ask—how long will people pay extra for satellite radio, with subscriptions running $11.99 to $16.99 monthly?

     

    Could the increase in price be related to the pending iPhone antenna? It could be—but that’s a lot of hopeful speculation for something that’s just a possibility, especially when one takes into considering the poor response to the SIRI’s iPhone (mobile) app.

     

    Could the increase be due to increased subscribers? Actually—no! Fleet based revenue has declined over the past 3 and 6 months. One shouldn’t expect that to turn around, with comments like this from leading rental companies: “While we continued to face sharply reduced demand for vehicle rentals in the second quarter, rental volumes did stabilize, and the actions we took to keep fleet levels in line with demand allowed us to achieve a stronger-than-expected 7 percent increase in domestic time and mileage revenue per day" (Ronald Nelson, Avis Budget chairman and CEO). The key phrase here is “keep fleet levels in line with demand.” Translation—“reduction.”  And I’ll refer you to current US automobile sales to see how that vein is fairing.

     

    Then there is the problem of hardware inventory, which is up significantly over the past 6 months—yet another indicator of less—not more—demand. To add insult to injury, what does it say about SIRI that it is dependent upon a bankrupt company to launch its next satellite? Even SIRI’s recent royalty revenue stream from SIRIS Canada seems little more than a play on the strong Loonie and weak US$. (SIRI owns 49.9% of Sirius Canada, and 23.33% in XM Canada).

     

    Try as I might—I can’t make fundamental sense out of a stock that has doubled in 3 months, is struggling at the core, and has more debt than it knows what to do with. Looking for the bright spot in SIRI’s quarterly report is like…well, like trying to spot a fast-moving satellite in the Midwestern sky. There is always the chance of finding one.

     

    Just be mindful that it’s most visible when burning up in the atmosphere.

     

    Disclosures: no positions (long or short) held.

    Aug 24 12:38 pm | Link | Comment!
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