Research - Taking the Pulse of Mid-America

For the next few weeks I will be taking the pulse of mid-America from the vantage point of a bicycle.  There's no better way to meet people.  For some reason, people open up to cyclists and unburden themselves, knowing that the likelihood of meeting itinerant travellers again is remote.  It will be good to be on the road again.  

The trip starts in Washington DC and may go north to the environs of Pittsburgh.  From there, I have no idea where the trip will end up: Omaha, Chicago, Syracuse.  The idea is to "ride free" and let decisions about the day's travel be made on the momentum of the moment.  This is travel at its best. 

If the trip leads to insights about potential investments, that is well and good.  We'll see.  It's all about being open to chance. 

Canam (CAM) Sold

Yesterday Canam was sold at $8.15 for a gain of 25 percent.  A significant increase in debt coupled with a change in management (and my sense of apparent shift in the company's culture) led me to take profits at this time.  Further, I have a concern that issues associated with the indebtedness of governments at all levels have yet to be resolved.  Many cash-strapped provincial, state and municipal governments are in survival mode.  

I am looking at potential infrastructure-related investments in growth areas of the U.S. but am cognizant that there is the potential for some infrastructure companies to enter unprofitable bids as order books slim down.  

Governments have a variety of options to address infrastructure renewal and maintenance:

• sell off assets to the private sector ... generally a losing proposition in the longer term ... but one which transfers a significant part of liability to the private sector (for a price to users)
• contract management to the private sector and let it take the heat for price increases ... for some reason the public is more willing to accept increases from "more efficient" operators than fat cat swivel servants 
• mothball facilities
• re-engineer facilities into lower maintenance ones e.g. some counties in the U.S. have changed some paved roads back to gravel.

As a result of this, I have decided to concentrate on infrastructure companies which provide services to the private sector, especially to the burgeoning rail industry and electricity distributors.  I have mentioned these in previous postings and editions of The Financial Passage Maker. 

Gold ... and Believing

Over the past six months or so, I have gradually reduced my positions in gold and silver. Why?

• The business of mining is not as profitable as in years past. Rising costs (labour, materials, energy, transportation etc.) have not been offset by commensurate increases in the prices of gold and silver.
• It is becoming more difficult for companies to replace depleting reserves. Political corruption (often in the guise of resource nationalism), armed conflict, and opposition from local residents (sometimes abetted by watchdog organizations) have led to the abandonment of several major and minor projects. Further, explorers and junior companies have found it difficult to obtain financing. In light of this, several companies are positioning themselves for take-overs by larger members of the mining pack in an effort to salvage some value for shareholders.
• I have decided to take some profits and to use the funds for a variety of purposes, including portfolio diversification. For example, a major review of the past year has led me to shift holdings to American companies and multinationals with operations in a variety of markets.

As a result, I have no positions in precious mining companies – all sold off. The remaining positions in precious metals are with Silver Wheaton (a company which has great cash flow) and bullion (Central Fund of Canada). I will continue to maintain these positions without too much consideration for the recent gyrations in the market. I've been through this before.

I am not particularly bothered by recent predictions about the demise of gold and silver as safe havens. Most of the commentary is the product of content hungry media outlets. The recent exploits of the Beave, bombings, spats about casinos in Toronto, the Iron Lady's funeral ... it doesn't make much difference provided that it puts eyes on paper or the screen and ears on sound waves.

From my perspective, the conditions which led to the rise of precious metals remain unchanged:

• the background threat of political instability in energy producing areas of the world;
• mistrust of fiat currencies and fears about the implications associated with the indebtedness of governments at all levels;
• a growing number of examples where governments have expropriated the savings of citizens – not the least of which are rates of return on bonds, CDs and savings accounts which, after taxes, are less than the rate of inflation.
• the general sense that people are more apprehensive about the future.

While I am not inclined to believe in conspiracy theories, there is a growing body of thought that gold and silver markets are being manipulated. Check this:

There are two things to note in these snippets. The first is that the main ideas being promoted about gold are that it is no longer to be trusted, and that somehow the recent move is a result of "risk off" decisions meaning, conversely, that there is increased trust in the larger financial markets that 'investors' are rotating towards. Note that these ideas are exactly the sort of messages that central bankers quite desperately want to have conveyed.

The second observation is even more interesting; namely that the only people quoted work directly for the largest bullion banks in the world. These are the very same outfits that stood to gain enormously if precious metals dropped in price. Of course they are thrilled with the recent sell off. They made billions.

http://www.financialsense.com/contributors/chris-martenson/gold-slam-massive-wealth-transfer-our-pockets-banks?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fso+%28Financial+Sense%29&utm_term=FSO

As always, it is useful to balance this take against others which proliferate in the media. Many pundits contend that the monetary value of gold is a cultural artifact – an illogical construct based on a thing which does not produce income and, therefore, cannot be valued objectively. They ignore human nature and the propensity of people to be motivated by a host of things which are not driven by economic theory e.g. religion, the “right to bear arms” and all manner of other belief systems. In fact, most of the things we value most in life are not economic constructs: the beauty of a rising sun and the sound of birds starting their day, the satisfaction in completing a difficult task, the comfort of family – golden moments all.  

Measures of Well-being

As part of a continuing effort to understand the restructuring in the US, I investigated some social aspects of American society.  A preliminary investigation would indicate that economic strength is expressed in several ways, including the Gallup-Healthways Well-Being Index.  The index takes into consideration the following factors:  

• life evaluation (present life situation now and five years hence),
• physical health (an amalgam of nine factors e.g. obesity, disease burden), 
• emotional health (ten factors ranging from depression to learning or doing something interesting), 
• healthy behaviour (four lifestyle habits e.g. smoking, exercise frequency), 
• work environment (four factors e.g. job satisfaction, supervisor's treatment), and 
• basic access (access to thirteen necessities crucial to well-being e.g. enough money for food and shelter, community safety). 

On a national basis, there are several noteworthy trends:

• the resiliency of Americans as they struggle with the repercussions of one of the most serious economic depressions in modern history; 
• the decline in key metrics such as access to health insurance, attitudes toward the workplace; and,
• the rise of obesity and associated health problems.

The report advanced a few key demographic findings:

• that men have slightly higher states of well-being than women (middle-aged women with families are particularly stressed);
• the sense of well-being generally increases with age;
• Americans earning  more than $90k annually have the highest sense of well-being whereas those earning less the $20k have the lowest; 
• Asian Americans have the highest scores, followed by whites, hispanics and blacks;
• well-being scores for westerners are highest whereas southerners have the highest levels of obesity and associated medical issues

http://www.well-beingindex.com/findings.asp

Here is how the rankings pan out nationally by state.  Note the general congruity of well-being with trends in economic growth as reported in an earlier post. It is also noteworthy that the condition of lowest-ranked states is remarkably persistent i.e. low is always low.  In contrast, there is more dynamism in the more highly ranked states.  

http://www.well-beingindex.com/snapshotFindings.asp

A review of the economic well-being of cities is quite interesting as some cities in otherwise low-ranked states have high scores, especially those which more or less conform to Richard Florida's thesis.  In other instances such as Texas, the sheer size of the rural area masks the dynamism of cities such as Houston and Austin.  

The full report can be accessed here:http://www.well-beingindex.com