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Mark Wallace
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I'm an American (EEUU) by birth, but certainly a mutt by ethnicity. I prefer the Southern Hemisphere nowadays, and I try to spend time on at least 3 continents per year, in more than a few different countries. While there I explore intriguing social, investment, business and lifestyle... More
My company:
Capex Ltd.
My blog:
Capitalist Exploits
My book:
Mongolia Investment Report
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  • Cannibals, Coups, A Dictator And An Opportunity

    On my way to Asia, prior to our Mongolia Meet Up, I stopped in Fiji for 6 weeks to get an on-the-ground perspective of this South Pacific island nation. This was my first trip, and it was a bit different than I expected.

    My timing wasn't great, as they were just getting hit with a low-pressure system that would become tropical cyclone Daphne. Thankfully it skirted the islands for the most part, although the west of Viti Levu, Fiji's main island, experienced severe flooding and some tragic loss of life.

    It seems Nadi (pronounced Nandi), the tourist capital of Fiji, was built in a low-lying area prone to flooding. My wife and I got to experience this first-hand, and it was a bit devastating to see. Entire homes washed away, businesses underwater, lives shattered. We wanted to help, but in reality would have likely become just another statistic.

    This is one of the things you have to come to accept when choosing to visit or live in less-than-first-world countries. The disaster alert and response mechanisms are very poor, and if you happen to be stuck somewhere that is hard hit, you could be in for a turbulent ride.

    Of course having said that, I'm reminded of the tragedy that was (and still is for some) hurricane Katrina, and what the city and people of New Orleans have gone through, a city by the way that is located in the wealthiest country on the planet!

    We can forgive Fiji for not being able to cope with a major disaster, after all it's a poor country that has been shunned by it's wealthy neighbors. Any and all aid has been withdrawn because they don't agree with the politics. I won't go into the complete irony and hypocrisy of this, as our readers are smart enough to call bullshit when they see it!

    But alas, Chris and I love chaos, it creates value distortions that we as speculators can capitalize on. As I mentioned a moment ago, distracted by the fear of a dictator's military government, foreign aid and investment into Fiji has dried up, with the exception of the Chinese, who are visibly present.

    This "fear", as unfounded as we believe it is, has created a window of opportunity before the elections in 2014.

    A few facts

    Aside from the occasional tropical cyclone, Fiji offers a special way of life that is very difficult - make that impossible - to find almost anywhere else these days. It also offers up a lot of opportunity for those that have a pioneer's mindset.


    Located about 1,300 miles northeast of New Zealand, and dead east as the crow flies from Cairns, Australia, 3 hours by plane, Fiji consists of 322 islands, of which just over 100 are inhabited. There are about 520 smaller islets. The total area of the country is over 75,000 square miles, with only 10% being land mass.

    The two main islands are Viti Levu, home to the capital of Suva, and the tourist hub of Nadi (prounounced Nandi) and Vanua Levu, which account for approximately 75% of the total land area of the country. The islands are vast and mountainous, having been formed by volcanic activity millenia ago.

    The Dutchman Abel Tasman was the first to visit Fiji in 1643. He was followed by the British, who declared Fiji a Crown Colony at the request of Fiji's King Cakobau (a converted Christian) and other chiefs, in 1874.

    Fiji is "infamous" for its cannibals. You'll see pictures of these guys all over the place, and I'm telling you, they are scary as Hell!

    By the 1870's, the Fijian custom of using one's political enemies as an excuse for a meal was on its way out. The last recorded act of cannibalism in Fiji claimed the lives of an English missionary, the Reverend Thomas Baker of East Sussex, and his accompanying party of Methodist Fijians.

    We can only assume that Reverend Baker had insulted someone, likely a chief. I can't say that I'm sorry they ate a missionary, as those guys really messed up the Pacific and it's varied and unique cultures.

    Between 1879-1916 the British brought in over 60,000 indentured labourers from the Indian subcontinent to work on sugar plantations. This was called the "girmit" system. These people came to be known as Indo-Fijians, and their ancestors still reside in Fiji today. This history is at the root of Fiji's ethnic tensions and its coups.

    At various times the indigenous Fijians feared that the Indo-Fijian population would overwhelm them, particularly as they would outnumber native Fijians by 1946, and by the late 1960's they were counted as the absolute majority.

    Fiji remained a colony up to 1970, and until the recent coups was still considered part of the British Commonwealth, a grouping of 53 former British colonies, dependencies and other territories that includes its neighbors Australia and New Zealand.

    Today Fiji's population is about 50/50 split between native Fijians and the Indo-Fijians. After the first coups many Indo-Fijian families fled Fiji back to India, reducing their numbers.

    This turned out to be unnecessary, and unfortunate for those that left, as they often sold their property and possessions for pennies on the dollar.

    I met a very savvy Australian guy, whom I'll tell you about in another post, that took full advantage of the panic that was occurring. He was on the receiving end of deals so good that if I were to describe them you would simply call me a liar.


    This shocking "giveaway" of value has happened to some degree in each of the last 4 coups (yes, 4 coups in the last 25 years). They've all been bloodless, and mostly bullet-less too, which is a story I can only tell you over a few beers in a pub.

    No words or pictures can possibly describe Fiji's natural beauty. At any moment I expected a Pterodactyl to pass overhead. The jungle in most places is almost impassable. The beaches are unspoiled and the jagged interior peaks look like something out of Jurassic Park or Avatar.

    In full disclosure, Chris and I have a large investment in the country, and we're looking to add to it. It's bar-none our favourite place on this ball of dirt, which is why we've decided to host our next Meet Up there November 8th - 14th. We'll send out a special issue with all the information in a couple weeks. Meanwhile, over the next several posts I'll get you up-to-speed on the place.

    I know you will be as excited about the possibilities as we are!

    - Mark

    "My greatest aspiration was always to live in the tropics." - Manuel Puig

    Sep 27 11:11 AM | Link | Comment!
  • Crowdfund This!

    Crowdfunding will change Wall Street for the better! There, I said it...let the hate mail ensue.

    This view is held by a new friend of ours, Dara Albright, the founder of NowStreet Media. She's a pioneer in reforming the financial markets, and my new hero. Plus she's just a cool chic!

    Her site, NowStreetJournal.com is a primary provider of analysis and insight into the private company marketplace. She is intimately involved in the legislation and innovation that is currently powering the Crowdfunding movement.

    Dara, through her work at NowStreet, is known in various financial circles as someone who is committed to repairing a damaged capital markets system. Saying the markets are damaged is like saying venereal warts is a mild skin rash.

    Prior to founding NowStreet, Dara had a distinguished 20-year career in investment banking, investor relations and institutional sales. She serves on the boards of both the Crowdfund Intermediary Regulatory Advocates (CFIRA) as well as the Crowdfunding Professional Association (CfPA). She is a graduate of the George Washington University and holds securities industry Series 7, 24, and 63 licenses. Smart women are sexy!

    On that note, let's get on with it...

    --------

    Mark: Dara, you recently spoke at an event in Washington DC where top lawmakers, regulators, Crowdfunding enthusiasts, entrepreneurs and investors all came together to discuss the rules that will eventually govern Crowdfund investing under the JOBS Act. Bureaucrats and entrepreneurs make strange bedfellows. Can you talk a little about the mood of the event?

    Dara: That's true! Sure. I would love to.

    It was truly a historic moment in the progression of our capital markets where all of the parties - the legislators who drafted the Crowdfunding legislation, the regulators (SEC & FINRA) who have been tasked with implementing the new rules, as well as the entrepreneurial and investing public whose lives will be affected by the rule changes - were all able to band together, have meaningful dialogue and understand one another's particular concerns.

    The overall tone of the event was congenial and I got the sense that regardless of one's occupation or political belief, one common objective was shared by all - to see the US financial markets thrive once again.

    Mark: Cats and dogs, living together (laughs).

    Dara: Nice reference...I have to say that I arrived at the event somewhat skeptical that anything would really get accomplished. However, I left feeling hopeful that our regulators are making a genuine effort to understand the intent of the legislation and to create a regulatory environment that will not only protect the investing public but help capital proficiently reach the nation's smaller businesses.

    Mark: I don't normally consider regulators to be too forward-looking or innovative. Aren't you worried that overzealous regulation could end this market before it really begins?

    Dara: Appropriately imposed, regulations can be beneficial not destructive. I believe that the entire private company marketplace (Crowdfund offerings as well as private company secondary transactions) needs to have suitable regulatory controls in place so that investors can feel comfortable investing their money there. Investors need to have exposure to this marketplace because this is where today's growth companies live.

    Mark: I agree with that statement wholeheartedly!

    Dara: Interestingly, when the 1964 Securities Acts Amendments extended the mandatory disclosure requirements, many in the investment community were in a panic thinking it would destroy the OTC marketplace. Studies have shown that the additional regulatory requirements actually led to a boost in share prices of OTC securities as a heightened level of integrity and investor confidence penetrated the marketplace.

    Mark: Yes, investor confidence is productive. But actions speak louder than words. Over-regulation that strangles issuers such as Sarbanes Oxley and Dodd-Frank is not productive. How can we be confident that the regulators can protect investors without stifling the small business capital formation that leads to economic growth and job creation?

    Dara: That will be a challenge. I believe that regulating fraud is imperative; however, regulating the risk out of the marketplace is counterproductive. Risk is what built our capital markets and made them the envy of the world. It is what led a small boutique investment bank in 1971 to take a chance as the lone underwriter on a little known company called Intel.

    Once Wall Street stopped risking its own capital and starting "guaranteeing" returns for its institutional clients, as seen with certain PIPE financings, was when the markets began to dismantle. Look how much the Street has changed since the dot com bubble burst - most broker dealers no longer commit capital to their banking deals or their trading desks. They act strictly on an agency basis. Many investment bankers even demand upfront retainers, eliminating any risk whatsoever. I guess Wall Street isn't so different from the vast majority of entitled Americans who count on guaranteed stipends without feeling the least bit guilty for not laboring to earn them.

    The truth is, as in life, investing is a risk. It is a gamble. It is a constant challenge. It is about acquiring wisdom through mistakes and achieving success out of failure. Our ancestors took unthinkable risk to build America, and they endeavored to succeed. If society does not reclaim those strong work ethics and the aspiration to venture, our assurances and complacency will, without a doubt, destroy everything our predecessors worked so hard to construct.

    Thankfully we still have a few risk-takers left. They are today's entrepreneurs - the ones who work tirelessly for little to no pay in hopes of changing the world with innovation and securing their family's financial future. Like our forefathers, they have no guarantees, no assurances and no safety-nets. Our successful entrepreneurs are the ones who advance this planet with invention and who create jobs for the masses. Ironically, they are also the ones who are viewed as the potential fraudsters whom the regulators must "protect" us from.

    Mark: Lately I feel like we're living Atlas Shrugged.

    Dara: So here's a thought - instead of over-regulating our small businesses and making it virtually impossible for them to flourish, perhaps our regulators should prohibit Wall Street from guaranteeing its investment returns through the manipulation of our small-cap issuers?

    Mark: Amen to that. It's criminal, and it's rampant. The big trading houses use algos and all kinds of high-tech wizardry to manipulate...sorry, I mean "trade" the markets. So how can the regulators make use of today's technologies to detect fraud and better regulate the capital markets?

    Dara: Global communications is light years ahead of what it was in the 1930s when much of these securities laws were enacted. The amount data we can access from the comfort of our own living room is incredible. And it makes it much easier for us to detect fraud than it was in the days when we had to wait for the delivery of our morning paper. Here's an interesting example: a company called Mythic tried to launch a campaign on Kickstarter recently. Unfortunately, it was a complete scam. Yet it took the crowd all of 2 days to detect the sham and "NOT ONE PERSON" lost a dime. That is the power of social media - where the crowd and technology finally converge.

    Mark: I wrote a post called Take Me Public! a while back. In that post I described the seedy underbelly of the micro cap market. I laid out the pump-and-dump roadmap for those who don't know how it really works. I think Crowdfunding can put a damper on that business, thankfully.

    Dara, the regulators missed the July deadline for implementing the removal of the solicitation ban. Do you think they will miss the Jan 1, 2013 deadline for employing the Crowdfunding rules?

    Dara: I personally don't think they'll be ready by January 1st. I think that more than likely Crowdfund investing will be a 2014 story. However, I am hopeful that the solicitation ban will be lifted in 2012.

    There is just so much fear and skepticism regarding Crowdfund investing. I believe that much of it is a result of Crowdfund investing being misrepresented in the media as the "next fraud-infested sector of the market". Many people have a difficult time making a distinction between Crowdfund investing and penny stock investing. The truth is, the ONLY similarity these asset classes share is a "small capitalization".

    Mark: I agree 100%. Can you describe the differences for readers?

    Dara: Gladly.

    For one thing, Crowdfund investors do not share the same investing philosophy as the typical micro-cap public investor. Penny stock investors aren't buying shares of a pink sheet stock because they believe that the company may eventually become the next Apple. They are buying stock because they think they could make a quick buck.

    Crowdfunding breeds an entirely different type of investor - the long term, benevolent shareholder. Crowdfunders are not interested in trading tickers; instead, they are drawn to a company's products, its mission, its value to the community and its positive impact on society. They envision a more profound upside - one that is unfathomable to the trading mentality.

    Unlike the public micro-cap markets, Crowdfunding allows issuers to obtain shareholders whose interests are more aligned with their own. This alliance gives companies a greater chance to succeed. If Crowdfunding achieves nothing else but altering investing behaviors and making it "chic" to be a long term shareholder again, it will go a long way towards improving our capital markets, our economic future and even advancing society as a whole.

    Mark: It is interesting that you bring up the shareholder. There has been a lot of rhetoric about how the JOBS Act will impact issuers. But very little is being discussed about how it will impact investors. Will the JOBS Act benefit investors and if so, how?

    Dara: I am glad you asked, Mark. The JOBS Act will undoubtedly benefit investors. In fact, it will save them. Here's the harsh reality:

    • DJIA 2011 performance: +5.5%
    • Nasdaq 2011 performance: -1.8%
    • S&P 2011 performance: FLAT
    • Current yield on a 10 yr T-Note: 1.57%
    • Savings account interest: 1% (high-end)
    • Average yield on a junk bond: 6.95%
    • 2011 Inflation Rate: 3.2%

    THERE IS LIMITED GROWTH LEFT IN CONVENTIONAL ASSET CLASSES! Investing in the public markets barely enables investors to keep up with inflation.

    Nasdaq was once upon a time the greatest wealth generator that the world had ever seen. That was because it took a "chance" on small innovative businesses and allowed them list on its platform. Business like Intel, Microsoft, Dell, Adobe, Oracle, Cisco, Amazon…you get the point. The investing public back then had the opportunity to invest in these companies when they had tremendous growth in front of them. That is no longer the reality today.

    Today, Nasdaq deserts America's small caps as it chooses instead to compete with the NYSE for the larger, "more mature" company - the $100B company, like Facebook, whose growth was achieved in the private markets and captured by venture capitalists, angels and other accredited investors who took the early investment risk.

    Because small investors are legally prohibited from investing in private companies, they have been forced to become the "exit strategy" for those who are allowed. I will never understand the logic behind laws that permit average citizens to purchase stocks only when "sophisticated" investors are ready to dump them.

    Mark: Chris and I beat this drum constantly. Hey, it's OUR MONEY. If I want to give it to a homeless guy, that's my prerogative, and no one will stop me; in fact they will applaud me. Meanwhile, if I want to actually do something productive with my cash, like back an entrepreneur who is trying to cure cancer, I'm told I cannot. What kind of crap is that?

    Dara: Exactly! Unfortunately, without the ability to invest in growth companies, the investing public is not given the chance to build wealth. In fact, with social security likely to be bankrupt and most retirement portfolios underperforming because they are restricted to investing in public assets, the majority of today's American workers may never even get the opportunity to retire!

    Investors need to diversify outside conventional asset classes. They need the same access to growth that investors were given in previous decades. And since the public markets no longer possess the infrastructure to support smaller growth companies, today's investor must learn how to restructure his portfolio in order to gain access to privately-held companies.

    Mark: You seem to be pretty passionate about this marketplace and the passage of the JOBS Act. Why is it so important to you?

    Dara: Mark, I really believe that if we don't do something to repair U.S. market structure, my children will end up raising my grandchildren in the United States of China.

    With the U.S. regulatory environment, its capital markets and the innovation that drives those markets simultaneously on the threshold of extraordinary change, there has never been a more opportune moment to act. I believe that we are currently witnessing the embryonic period of the next great stock market which is being fueled by unprecedented advancements in mass communications and regulatory reform. And I believe that this incredible configuration is what will reignite our economy. In fact, with escalating domestic debt and Europe in fiscal ruins, the rising private markets are our only hope.

    Mark: I couldn't agree more Dara, and I love your passion...thanks for sharing your views with us!

    --------

    You know how Chris and I feel about Crowdfunding by now. It WILL change the way that entrepreneurs fund their businesses.

    For those that don't know about the Pebble watch campaign...these guys set out to raise $100k to manufacture a watch that downloaded your email, and did some other "fancy" stuff. The VC's laughed at them, so they put the project on the crowdfunding platform, Kickstarter.

    The market laughed at the VC's...within weeks these guys had raised over $10M from almost 69,000 people!! How much did they pay in marketing, legal and underwriting fees? How much dilution were they forced to endure? You figure it out.

    If I were an investment banker looking to buy a summer house in the Hamptons, I might step back and reassess... Welcome to a brave new world!

    - Mark

    "The most dangerous poison is the feeling of achievement. The antidote is to every evening think what can be done better tomorrow." - Ingvar Kamprad, Founder of Ikea

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Sep 02 6:45 AM | Link | Comment!
  • Buying Cash At A Discount And Getting Gold For Free!

    Value always exists, somewhere...you just have to be determined to find it, and patient enough to wait when it isn't immediately available.

    The West finds itself in a tough place right now. Deficits have swollen, tax receipts have plunged, derivative books are imploding...things are crazy globally.

    As a result of all this insanity we are seeing some ridiculously cheap asset pricing. It's getting very easy to find bargains if you know where to look.

    Right now my penchant for bargain hunting has led me back to the junior mining sector, where things have been on sale for quite a while. That sale is now looking more like a giveaway!

    Gold stocks - are you kidding me? I have written about this sector a couple of times. It's true what the "smart" mining guys say - that most junior mining and exploration companies are worthless. However, many of the ones I've been watching for years, those with real assets, operating mines and cash in the bank are so cheap that I can't believe it!

    Take Canaco, a Canadian-listed junior explorer focusing on a Tanzanian gold project. The company was the darling of the TSX-V until their initial resource estimate disappointed investors. The market decimated the company's shares, crushing them from over $6.50 to below .35!

    (click to enlarge)

    The result is that I can buy Canaco for less than it's cash in the bank, which is a respectable $95 million. The company trades at about .35 cents, yet it has .48 cents per share in cash.

    This is an anomaly that won't last. Don't forget that they still have a decent gold property with around 1 million ounces of indicated and inferred gold ounces. I'm getting that gold for free.

    The company's CEO, Andrew Lee Smith, said that he believes "Canaco's solid cash balance gives the Company a strategic advantage in this market." I think he's probably right. That cash hoard will get put to use. Maybe they'll use it to acquire another beaten-down peer, or drill more of their property and prove up more resources?

    They pissed off a lot of investors when they disappointed, so it's likely to suck wind for a while. I'm happy to sop up the leftovers. I bought some last week, and I'll buy more as long as it stays this cheap.

    You can find this story repeated across a swathe of junior resource companies, including: Canadian Phoenix (CXP.V), Phoscan (FOS.TO), GobiMin (GMN.TO), and Kobex Minerals (KXM.V) to name a few...

    Keegan Resources is another that comes to mind. You aren't getting the cash at a discount, yet, but it's very close. The stock has been severely beaten down, but the company has over 5 million ounces of gold in all categories, valued at only $8/ounce in ground! They have almost $200 million in cash, or over $2.50/share. The stock is hovering around $3 as I write this.

    There are no guarantees that these companies won't blow their cash hoards, burn through them or otherwise make bad decisions that erase that cash-to-market-cap discount. However, I'm a bit more comfortable putting my capital to work when I can get in on fire-sale situations like this.

    This is also what we try to do when we get involved in private placements or private equity deals. We want to buy in on the cheap, and right now we're seeing those kinds of opportunities, because frankly, money is tight!

    - Mark

    "I was seldom able to see an opportunity until it had ceased to be one." - Mark Twain

    refer a friend

    Disclosure: I am long OTCPK:CANWF.

    Jul 04 11:54 AM | Link | Comment!
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