Wednesday, November 15, 2006


eee... my micro-small cap babies!
Triple good news today! And in the words of the great Dave Chappelle, I'm Rick James! I'm rich bitch! But long-term greedy, not short... and though this feels good... let's see some risks, and

Let's see if the hike lasts!

ETLT hiked 26% today on earnings due to significant increases from the E-Sea acquisition (that everybody thought was moot). Sales of embryo transfers declined as expected, but offset by increases in sale of meat. This will probably be just another blip on the stock-chart, because the long-term viability of this company is still in question... not to mention... is the 39m cash and no debt real on their balance sheets, and if it is indeed real why do they have an enterprise value that's still below it. It's a nice small bet in the portfolio... due to the tremendous upside potential, but in case everything goes south, it is, after all a smallllll bet (but still profitable!)

GRZ hiked 10% today on news from Crystallex that a forum between the Canadian companies and the Venezuelan government political and commercial entities of MARN. The news wasn't even GRZ's... but I guess investors got a whiff that... hey... now there's more certainty regarding the recovery of the properties. Of course, no one exactly knows what the "agreements" as a condition to getting the Permit to Impact Natural Resources is, but I don't think anybody cares at this point. Now it's just a nice thing to know that their concessions won't be expropriated or forced into 50% joint ventures. Political risk is still there, but I think we can all take a breather at least.

GBN announced new developments in their Hollister joint venture property in Nevada, and man I've never seen Au results so good. As opposed to before, these new holes seem to prove that not only is Ivanhoe a viable project for silver, but the gold is not so bad either--in fact, this is what the company highlighted:

- Hole HDB-045 intersected 9.2 ft (2.7 m) grading 1.12 oz/t (34.8 g/t) Au and 5.85 oz/t (202.3 g/t) Ag from 344.1-355.0 ft (104.9-108.2 m).

- Hole HDB-048 intersected 3.8 ft (1.1 m) grading 1.27 oz/t (43.4 g/t) Au and 6.15 oz/t (212.6 g/t) Ag from 132.4-136.2 ft (38.9-40.1 m).

- Hole HDB-049 intersected 2.7 ft (0.8 m) grading 3.46 oz/t (118.6 g/t) Au and 32.04 oz/t (1098.5 g/t) Ag from 92.2-95.3 ft (27.1-28.0 m).

- Hole HDB-050 intersected 1.9 ft (0.6 m) grading 7.22 oz/t (247.5 g/t) Au and 34.4 oz/t (1179.4 g/t) Ag from 236.8-239.1 (72.2-72.9 m).

- Hole HDB-057 intersected 1.8 ft (0.5 m) grading 4.13 oz/t (141.6 g/t) Au and 23.70 oz/t (815.6 g/t) Ag from 248.2-250.0 ft (73.0-73.5 m).

- Hole HDB-062 intersected 1.8 ft (0.5 m) grading 7.42 oz/t (254.4 g/t) Au and 41.6 oz/t (1426.3 g/t) Ag from 129.2-131.1 ft (39.3-40.0 m) and 1.6 ft (0.5 m) grading 1.30 (42.48 g/t) Au and 3.61 oz/t (123.8 g/t) Ag from 140.8-142.8 ft (42.9-43.5 m).

- Hole HDB-063 intersected 3.8 ft (1.1 m) grading 3.81 oz/t (130.3 g/t) Au and 25.8 oz/t (884.6 g/t) Ag from 126.8-131.4 ft (38.6-40.0 m).

Yeah, they might run into some investor backlash when it comes time to finance, but with Burnstone and this baby, it's now officially 50 cents on the dollar. What could go wrong? Project time lines, gold & silver price fluctuations... still GBN pays off handsomely.

Saturday, November 04, 2006

Alpha/Beta Anemia by the Bond King

A good article by Bill Gross, on "this time its different". Not in the sense that it's really different, but on economic reality that information travels much faster than the old days, and the narrowing of risk/return spreads. It's a very interesting proposal/investor outlook letter on how modern investment instutions must "scale up" good ideas in order to make excess returns in tandem with the double digit alphas of the past. A great essay, and a great perspective on perhaps why hedge-funds and private equity are proliferating, and why there might be a blow-up if enough people actually believe that leverage and scale is the answer (that tidbit on Ponzi finance).

Thursday, November 02, 2006

Goodbye, sweet corporate structure arbitrage... oh Caaaanada

You know, income trusts are pretty sweet--until today that is, when the finance minister of Canada Jim Flaherty took the markets by surprise (if not the market, then definitely little old me) by announcing plans to effectively end the tax-free benefits enjoyed by companies that opt to structure themselves legally as an "income trust status". This move cost me an alpha of 2%... my first reaction was, of course, THAT BASTARD!

You know, it's really funny because this thing happend september of last year too when the guy came out and basically said the same thing that he has said today, except he repudiated it later by saying that the government actually has no intention of revoking the tax-free structure of income trusts (the markets were relieved, but proceeded still with some suspicion still). I bet he only revoked it because his friends begged him to too... haha

"Hey jim, buddy, can you help us out? Can you just tell the market 'nevermind' until next year, at least after we get rid of all of our own income trust holdings?"

Conspiracy theory? I hate politics.

While I still think he's a bastard, this sort of thing was probably too good to be true in the first place. It was a good thing, income trusts, but sometimes all good things must end. I know of no other developed country with a business structure like that of Canadian income trusts--simple, elegant, and sweet sweet cash flow to shareholder absent of tax on the corporate level. Canadian income trusts are like REITs, except they can be virtually any business that any normal company can engage in. From frozen food distribution and medical supplies distribution, to matress manufacturing, or air cargo services... sounds pretty sweet, and yes, it was indeed too good to last.

When a business is structured as an income trust, it usually means that despite inability to reinvest more than 10% of free cash flow to the underlying business and grow organically, it could still take on leverage to grow from acquisitions. When an income trust acquires another entity that have to otherwise pay 35% in tax to the Canadian federal government, and if these acquirees are valued solely on its ability to generate bottom-line to shareholders, then income trusts can effectively pay the market (assuming market price is a function of after-tax earnings) and pocket the spread between free-cash-flow after tax, and free-cash-flow before tax for free... which claims value (at the marginal tax rate) from the government and gives it to investors.

This is a sort of "corporate structure" arbitrage opportunity that has existed for a while... until today. Maybe the government realized that, maybe the government just wanted more tax revenue. Whatever the reason, the conservative government completely broke the election promise of leaving the income trust status alone. 10-15% losses across the board on income trusts today, and the hardest hit were seniors retirement funds.

Shit happens.