Sunday 20 June 2010

Investment Note: 16/03/2010 - Loonies, Titanium and a Rant By Gareth Milliams

This note looks at loonies, titanium and finally I have a rant.

Canadian Dollar

The only G8 country that has appeared to have completely avoided the banking crisis is Canada. Their financial system was protected by strong, enforceable legislation and their housing market by prudent lending. Now that commodity prices are firming, the Canadian dollar is doing likewise. In fact, it is today at its highest level since July 2008.

Are the Canucks overly concerned? No. Finance Minister Jim Flaherty said on Friday that whilst he is always worried about volatility in the currency, that for a second time in a week, he also noted that a stronger currency did have advantages, in that it helped Canadian manufacturers acquire foreign technology and thereby become more competitive. That is a far cry from last summer when Flaherty raised the possibility that "some steps" could be taken to slow the rise of the Canadian dollar that seemed to be partially spurred by speculative buyers.

However, we can expect the Canadian central bank to raise rates well before the US Federal Reserve, particularly if their economy and housing market continues to grow at a rapid pace.

Kenmare Resources

I had never heard of this company until I read an article in (of all places) the Daily Mail and was then called by a client who had also read the article. Midas' column noted that Kenmare Resources, presently in the process of raising new funds presents an 'opportunity to pick up shares on the cheap'. Midas commented that demand for titanium is good for Kenmare Resources and thinks that whilst the price is at the current level that the shares are a buy.
Basically, Kenmare Resources intends to raise almost €200 million to boost production at its African titanium mine in anticipation of growing demand for the mineral in emerging economies.

“The issue price of 12 pence per new ordinary share represents a 41.8 per cent discount to the closing mid-market price of 20.625 pence per ordinary share on the London Stock Exchange on March 4th and a 45.7 per cent discount to the closing mid-market price of 24.3 cents per ordinary share on the Irish Stock Exchange on March 4th,” the company said yesterday.

It’s an interesting long term opportunity, particularly as the discount is 41.8% to fair value.

A Rant

There are many things that I like about the offshore investment business. I like that I can set my own level of regulation whilst being able to invest via numerous jurisdictions. I like that should I do my job well that my clients will reward me with even greater fidelity and in turn will achieve financial security.

What I hate (other than outright dishonesty) is unthinking stupidity. The first duty of a financial adviser is to protect his client’s assets. In the last week, I have been sitting down with people who were sold products from LM and Brandeaux. Both offered funds that traditionally offered returns in excess of 9%. Both have funds in their range that (for various reasons) have been suspended. Brandeaux now has a six month redemption period, but also has the option to extend the redemption for a further six months thereafter, ad infinitum. LM have to sell their assets to reduce debt, in a difficult market. None of you reading this mail has ever been sold these funds by me. Everything that you have had bought for you is intraday traded. In a credit crunch, liquidity is king.

That’s the end of the rant. That is the end of this note. I feel better now.

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