Macro Tsimmis

intelligently hedged investment

Posts Tagged ‘GSS’

Ron Paul’s Portfolio: Unusual, Yes…but “Weird”?

Posted by intelledgement on Fri, 06 Jan 12

Twice in the last three weeks, Wall Street Journal personal finance blogger Jason Zweig has taken aim at GOP Presidential candidate Ron Paul…not for anything Dr. Paul has said, or for any of his policy proposals, but rather to criticise his investment portfolio. In his 21 December 2011 post, Mr. Zweig wrote:

…[W]e’ve never seen a more unorthodox portfolio than Ron Paul’s.… It’s shockingly different.…[A]bout 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds…. The remainder of Rep. Paul’s portfolio—fully 64% of his assets—is entirely in gold and silver mining stocks….

So, how has this “shockingly different” portfolio performed? Well, in his 21 December post, Mr. Zweig did not address this question. And the answer is not straightforward. Since the disclosure forms that representatives fill out only provide a range of values for each asset—and do not disclose the date of acquisition—it is impossible to calculate a precise return on investment for the portfolio. Dr. Paul’s most recent form dates from May 2010, but judging from earlier disclosure form submissions, it appears that he has held most of his mining stock investments since at least 2002. Using historical data from Yahoo!, here is a summary of how the stocks Dr. Paul owns have fared so far this Century (that is, since 29 December 2000):

Stock Symbol  Max Value ROI  CAGR
GoldCorp GG  1,000,000 1533% 29%
Barrick Gold ABX  500,000 210% 11%
Newmont Mining NEM  500,000 286% 13%
Agnico Eagle Mines AEM  250,000 527% 18%
AngloGold Ashanti AU  250,000 253% 12%
IAM Gold IAG  250,000 261% 16%
Eldorado Gold EGO  100,000 802% 28%
Mag Silver MVG  100,000 -11% -2%
Pan American Silver PAAS  100,000 736% 21%
Silver Wheaton SLW  100,000 834% 41%
Alumina AWC  50,000 -60% -8%
Claude Resources CGR  50,000 -14% -2%
Golden Star Resources GSS  50,000 83% 6%
Kinross KGC  50,000 676% 20%
Virginia Mines VGMNF.PK  50,000 59% 10%
Allied Nevada Gold ANV  15,000 451% 43%
Brigus Gold BRD  15,000 -86% -21%
Coeur D’Alene Mines CDE  15,000 157% 9%
Dundee Corp DDEJF.PK  15,000 473% 84%
Federated Prudent Bear A BEARX  15,000 41% 3%
Great Basin Gold GBG  15,000 30% 2%
Hecla HL  15,000 946% 24%
Lexam LEXVF.PK  15,000 625% 172%
Metalline Mining MMG  15,000 -59% -8%
RYDEX DYNAMIC FDS, INVERSE NASD RYVNX  15,000 -92% -21%
RYDEX SERIES FDS, INVERSE S&P 500 RYURX  15,000 -28% -3%
Wesdome Gold Mines WDOFF.PK  15,000 45% 14%
Petrol Oil & Gas  POIG.PK  1,000 -100% -47%
Vista Gold VGC  1,000 207% 11%
Viterra VTRAF.PK  1,000 -24% -7%
  • Max Value = the maximum value of the asset as listed in Dr. Paul’s disclosure form
  • ROI = the overall return on investment for that position
  • CAGR = compounded annual growth rate (annualized ROI) for that position from 29 Dec 00 to 30 Dec 11 (dates for some positions vary as appropriate…e.g., MMG was bought out by HL in 2011 so the enddate for calculating MMG performance is 29 Apr 11)

For the entire 11-year period, the CAGR for Dr. Paul’s stock portfolio is 19%. That is, +19%, on average, every year for 11 years! During those same 11 years, the S&P 500 declined overall by 5%, which amounts to a CAGR of 0%…but that does not count dividends; add them in and the CAGR is a tad under +3%. What about bonds? The 11-year CAGR of PIMCO’s massive Total Return Fund is about +1%.

I am not the only one handy with spreadsheets. There were over 300 comments appended to Mr. Zweig’s post, many of which pointed out that Dr. Paul’s investment strategy was running rings around the market. But, while in his followup post Mr. Zweig graciously conceded the point—his guesstimate of how well the portfolio may have performed is +23% on a CAGR basis, more generous than my calculations—he was still not impressed. In yesterday’s “How Weird is Ron Paul’s Portfolio?” post, he opined:

…[P]erformance alone can’t tell you whether an investment approach is sensible or not. After all, over the 10 years ended Dec. 31, 1999, Internet stocks far outperformed most other investments. That didn’t ensure that they would continue to do so in the years to come, and it certainly didn’t mean that it was prudent to put all or most of your money into stocks like Pets.com or eToys Inc. …[I]nvesting isn’t just about maximizing your upside if you turn out to be right. It’s also about minimizing your downside if you turn out to be wrong. Putting two-thirds of all your assets into one concentrated bet is a great idea if the future plays out just as you imagine it will—but a rotten idea if the future turns out to be full of surprises. …[I]f the future happens to unfold in ways [Dr. Paul] doesn’t expect, then his hot investment portfolio is likely to go cold in a hurry.

Well, of course it is true by definition that banking on a particular outcome is more risky than hedging your bets. But that does not ipso facto render such a strategy to be nonsense!

Dr. Paul’s portfolio employs a macro-strategy approach that by its nature seeks to derive concentrated bets from political-economic-social analysis. Within the framework of this strategy, betting against the anticipated outcome is what constitutes nonsense. Risk management here is accomplished via constant vigilant attention to the macros, not by betting against yourself. If The Powers That Be stop prosecuting illegal and wasteful wars, stop printing money to bail out criminal banksters, and stop promising the future income of our children for present-day indulgences that are beyond our means, it will be evident things are going that way well before the value of Dr. Paul’s gold holdings are much affected and he or his financial advisors will have ample opportunity to redeploy his investment dollars.

In his initial blast against Dr. Paul, Mr. Zweig gratuitously pats himself on the back for having “revealed problematic trading in Congress more than a year and a half before the ‘60 Minutes’ episode that recently raised a ruckus over the same topic.” Given that it is manifestly obvious that Dr. Paul is not employing insider tips to enrich himself, it’s not clear why this topic would be mentioned.

But in this light, perhaps the word “weird” is not so far off after all. Here we have a Congressman whose investments [a] are congruent with his diagnosis of what ails the Republic, [b] are decidedly not informed by the sort of illicit inside information that Congress has corruptly made technically legal for their members to use (which if you or I used, should likely land us in jail), and [c] are highly profitable. I suppose in the statistical sense of being unusual, that is a weird combination…and too bad for that; we’d all be better off if it were more common.

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Golden Star Resources (GSS) update #13

Posted by intelledgement on Mon, 10 Aug 09

Black ink! Black ink! Black ink!

Well…when we made this investment almost two years ago, we knew that Golden Star Resources was a marginal gold miner, in the sense that the gold ore they are pursuing is relatively more difficult and expensive to process. We knew we needed gold at $750/oz or higher, and we needed management to succeed in honing the complex BIOX® process, which frees the gold ore from sulphide minerals thus rendering it more amenable to standard cyanide leaching.

We expected some teething problems. We didn’t expect electricity costs to triple, production to plummet, costs to climb to as high as $900/oz, and the company to generate red ink for nine consecutive quarters (all of 2007, 2008 and 1Q09). We didn’t expect a decline in the price of the stock from the $4.19 we initially paid to as low as 40 cents a share last December. Welcome to the wonderful world of speculation in individual stocks.

Well after the close today, management announced their 2Q09 results (click here and then select “Golden Star Reports Record Quarterly Gold Sales and Financial Results for Second Quarter 2009”) and—finally!—we have regained profitability. Admittedly it’s only two-tenths of a cent per share—$380,000 total—but after nine consecutive quarters of black ink, we’ll take it!

And it’s not just the black ink. The 99,011 ounces of gold the company produced in 2Q09 was an all-time record high. The $558/oz cost of production was the lowest in two years. As announced in June, the electricity shortage/cost problem finally seems to have been solved. Cash is up from $28MM at the end of 1Q09 to $43MM. Exploration at Wassa has yielded increased reserves. Guidance provided by management confirmed 2009 targets of 400,000 ounces and an overall projected cost of $545/oz.

If management can maintain this trajectory, and the price of gold continues to rise in the face of weakened fiat currencies through the balance of 2009, we expect to see the price of GSS stock—already up from that 40-cent low to $2.45—get back into the black for us. (We optimistically bought a second tranche of GSS at $3.08 when it started to decline in 2007 and our thus our overall basis is $3.57.)

Previous GSS-related posts:

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Golden Star Resources (GSS) update #12

Posted by intelledgement on Sun, 28 Jun 09

Our patience with our underperforming gold mining spec play, Golden Star Resources (GSS) is palpably closer to paying off in the wake of Friday’s announcement by management that “the long awaited Ghana grid power cost reduction is being implemented.” Electricity rates will be lowered from 14.5 cents per kWh to approximately 8 cents and this rate will be retroactive to 1 Jan 09. This is an interim rate which will be in effect until a final power rate formula is implemented.

“Based on the new power rate, Golden Star’s reported overall cash cost of production for the first quarter of 2009 would have been reduced approximately $56 per ounce to $515 per ounce. Assuming this rate will not change during the year, we expect an overall reduction in cash operating costs of $60 per ounce and $20 per ounce for Bogoso and Wassa, respectively, resulting in an expected $40 per ounce company-wide reduction in 2009 cash operating costs,” according to the press release (click on this link and then select “Golden Star Reports Significantly Lower Power Costs in Ghana”).

Previous GSS-related posts:

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Golden Star Resources (GSS) update #11

Posted by intelledgement on Wed, 06 May 09

Our gold mining spec play, Golden Star Resources (GSS), released 1Q09 results today and although the bottom line was more red ink—the ninth consecutive losing quarter—things are definitely looking up. The company lost $1.1 million (half-a-cent per share) on record sales of 96,971 ounces of gold, at an average price of $904/oz. It was the narrowest loss the company has had since the progression of consecutive red-ink quarters began 1Q07. The record production amounted to a 69% year-over-year improvement, and was up 13% from 4Q08. Even better, production costs were $571/oz, which was the second lowest quarterly cost performance since commercial-scale BIOX® processing began at the Bogoso mine in early 2007, and a healthy improvement over last quarter (-10%) and a year ago (-12%). The 1Q09 decrease in production costs was also the second consecutive…one more data point and we will have us a bona fide trendline!

It still ain’t all roses. Bogoso continues to lag expectations. Production this quarter was lower than projected, principally due to a two-week hiatus “due to electrical issues including an electrical fire in the liquid resistance starter and continuing poor quality power from the VRA,” according to the press release (click here and on “Golden Star Reports Record Quarterly Gold Sales of 96,971 Ounces”). And costs are still high, running $813/oz for the quarter, which was not even an improvement over last quarter’s $799. (Fortunately, costs at Wassa came in quite low at $397/oz.) Management expect the Genser power plant being constructed cooperatively by several mining companies to come online during 2Q09, which should improve the power reliability problems.

Still, it is hard to see how the company will meet their target cash cost of $650/oz for all of 2009 at Bogoso. FWIW, management are still projecting production of 400,000 ounces for the year. Be that as it may, the prospects of increased production at a profitable cost has the stock up 46% YTD as of today’s close, and with these improved 1Q09 results (announced after the market closed), tomorrow should see further gains. For now, we are staying on this train; it’s running way late and the amenities are considerably poorer than advertised, but at least it is now headed in the right direction, and appears to be picking up steam.

Previous GSS-related posts:

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Golden Star Resources (GSS) update #10

Posted by intelledgement on Wed, 25 Feb 09

Variety is the spice of life, and along with the quarterly dose of castor oil we have come to count on from our profits-challenged gold mining play, Golden Star Resources (GSS)—an eighth straight money-losing quarter, this time a record $86.8 million of red ink—there was a golden glimmer of hope: cost per ounce for 4Q08 was $637, down from $897/ounce in 3Q08 and the lowest figure achieved in 2008.

This cost number is still too high. The losses looked worse than they really were, due to a $59.1 million impairment write-off and a $16.4 million of transition ore stockpile inventory adjustments. But that still means we legitimately lost $11.3 million in 4Q08, as selling gold at $808/ounce—the lowest figure for 2008—evidently doesn’t answer for GSS when their costs are running at $637/ounce. However, at least the vector—a quarter-over-quarter decrease of 29%!—is a happy one.

And production continues to improve. Gold sales for the full year totaled 295,926 ounces, a new record…although it did fall short of management’s projection of 315-to-350 thousand ounces (the failure of the second milling unit at Wassa in the third quarter is the main reason for the shortfall). 2008 revenues amounted to $257.4 million, another all-time record. GSS ended 2008 with $33.6 million cash, up from $25.3 million at the end of 3Q08. Management anticipate that in conjunction with income generated from operations, that $33.6 million suffices to meet cash requirements for 2009.

Management have lowered their guidance for 2009; they now project production of 400,000 ounces of gold—down from their prior projection of 460,000-to-520,000 ounces—at a cost of $550/ounce.

Another ill effect of the higher costs of production in 2008 was the need to reclassify mineral reserves—estimated gold reserves that can be economically mined—to mineral resources (which may not be economically recoverable). According to the press release (click here and then on “Golden Star Reports Record Annual Gold Sales and Financial Results for Fourth Quarter and Year-End 2008”), “Mineral Reserves, after mining depletion, decreased by 1.65 million ounces, or 33%, during 2008 to 35.5 million tonnes grading 2.87 grams per tonne (g/t) for contained gold of 3.28 million ounces at year end. The decrease was the result of a combination of factors including depletion, increased costs associated with mining and processing, and design and engineering changes resulting in increases of cut-off grades…. Measured and Indicated Mineral Resources, exclusive of Mineral Reserves, increased to 27.0 million tonnes grading 2.76 grams per tonne of gold while Inferred Mineral Resources decreased slightly to 19.0 million tonnes grading 3.94 grams per tonne gold.” It is likely that if the company succeeds in reducing costs to $550/oz, some mineral resources could be reclassified to mineral reserves.

Golden Star continued to conduct exploration activities, to the tune of $15.8 million in 2008. Most activity was in Ghana near the existing operations and “We have had encouraging results during the year and a number of these targets merit follow-up work in 2009,” according to the press release. Other exploration actvities are ongoing in Sierra Leone, Côte d’Ivoire, Burkina Faso, Niger, Suriname, French Guiana and Brazil.

All-in-all, GSS has been a major disappointment. Many other gold mining companies have done much better over the last couple of years. We calculated that Golden Star’s relatively challenging operational environment in Ghana had been discounted and that they would gain outsize benefits from the run-up in bullion prices. Alas, it seems everyone including us underestimated their challanges. At this point, we are looking to take advantage of the increased price of gold and—we still hope—late-but-better-than-never improved operational performance by Golden Star to drive the stock price northwards from here. We are willing to give it another quarter or two, and then we will re-evaluate.

Previous GSS-related posts:

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Dec 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Tue, 13 Jan 09

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 30.38 1,731.66 23.55% 30.78% -4.44% -2.63%
NBIX 22-May-07 158 11.33 1,798.14 3.20 505.60 2.89% -29.52% -71.88% -54.47%
GSS 19-Jul-07 451 4.19 1,897.69 1.00 329.23 36.99% -68.35% -76.23% -62.78%
GSS 24-Aug-07 613 3.08 1,896.04 1.00 447.49 36.99% -68.35% -67.67% -56.53%
BBY 19-Sep-08 -58 41.49 -2,398.42 28.11 -1,638.50 35.73% -46.61% 31.68% 165.39%
MA 19-Sep-08 -11 225.18 -2,468.98 142.93 -1,573.88 -1.70% -33.58% 36.25% 199.51%
WMT 19-Sep-08 -40 59.70 -2,380.00 54.77 -2,200.32 -1.99% 15.23% 7.55% 29.45%
CAB 19-Sep-08 170 14.08 2,401.60 5.83 991.10 -6.72% -61.31% -58.73% -95.67%
APWR 18-Dec-08 422 6.14 2,599.08 4.30 1,814.60 n/a -67.79% -30.18% 100.00%
SOHU 18-Dec-08 58 45.13 2,625.54 47.34 2,745.72 n/a -13.17% 4.58% 251.66%
cash -189.22 19,669.50
ISOP 03-Jan-07 10,000.00 24,923.44 -2.21% 14.09% 149.23% 58.12%
Global HF 03-Jan-07 10,000.00 9,340.35 0.74% -15.95% -6.60% -3.37%
NASDAQ 03-Jan-07 2,415.29 1,577.03 2.70% -40.54 -34.71% -19.25%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2008 inclusively) provides a CAGR of around 13.4%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 9.6%. Note that for the portfolio, dividends are added back into the value of the pertinent security—or subtracted from the value of short positions—and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance.

Transactions: The market calmed down considerably in December, and—following three consecutive months of unmitigated disaster—closed up. With the immediate risk of a financial meltdown reduced and the probability of a post-election “Obtimism” rally increasing, we liquidated our four financials sector shorts as well as our real estate short.

News:

Comments: To quote our IMSIP 4Q08 report, “Let’s hope for the best. The incumbent crew was most definitely leading us deeper into the morass; the new crew recognizes we are in a big hole…perhaps they will be smart and brave enough to stop digging. We subscribe to the injunction to make love, not war, but we still believe in being prepared for both.” Accordingly, while we do not believe it is likely we can avoid a crash, it does appear likely that the herculean efforts of the powers-that-be to paper over the cracks in the system are taking hold (for now) and that, combined with optimism that the new regime might work miracles is likely to buoy markets in the short-to-medium term. This we are still short retailers—because we don’t believe the American consumer has any spare cash or credit to spend—but have covered our financial sector and real estate sector shorts for now. Plus in congruence with our long-term belief in the prospects of China, we have filled a gap in the port with two Chinese-market acquisitions.

At the end of the month, we were -2%, the hedgies were +1%, and the NASDAQ was +3%. For 2008 overall, we were +14% while the hedgies lost 16% but still handily beat the NASDAQ, which was -41% (worst year ever!). Overall after two years since inception, the ISOP is now +149% compared with -7% for the hedgies and -35% for the NASDAQ. Please note we generally consider the purchase of individual stock equities to be speculation, rather than investment, because of the high risk associated with owning a particular stock…and we recommend that the ratio of funds under management be about 10:1 in favor of investment over speculation—which is why this speculative portfolio started with $10,000 while our Intelledgement Macro Strategy Investment Portfolio started with $100,000 back at the beginning of 2007. (Of course, speculative risk can be mitigated by owning large numbers of stocks; this is why we recommend investing in exchange-traded funds, which typically do just that.) While this order of volatility is not unusual for speculative positions, the ROI we have attained here is unrealistically high. Over 40% of our net profits after two years still derive from trading one stock and associated options—DNDN—in the first few months of 2007. So, we’ve been lucky and good so far…but it could just as easily go the other way in 2009-10.

While there was lots of macro news—mostly desperate (and ill-considered) attempts by the government to fend off immediate collapse, it was a quiet month for our stocks. Our gold miner Golden Star (GSS) was up big (+37%) mostly on a rebound in the price of gold and possibly also on an unusual lack of bad company-specific news. Vertex (VRTX) recovered nicely (+24%) from last month’s overblown concerns that the new Obama administration would be anti-biotech. Neurocrine Biosciences (NBIX), our other biotech stock, was up 3%. Of our four retailers, two were flat (Mastercard/MA and Walmart/WMT) while Cabelas (CAB) which we are long was down 7% and Best Buy (BBY) which we are short was up 36%. And despite the fact that the price of oil declined in December by 18%, our double inverse oil ETF (DUG)—instead of being up 36% as we might have expected—was down another 20%. Clearly something is wrong there. Finally, our Chinese newcomers were a mixed bag: Sohu.com (SOHU) was up 5%, but A-Power (APWR) was blown down 30% on revised guidance.

The risk of a serious downturn remains but appears to be less immediate, and consequently we reduced our short positions. Unfortunately, it still appears that the new administration is angling to establish continuity with the old one with respect to the policy of material intervention in the market to prop up insolvent “too-big-to-fail” enterprises. While we feel these policies are long-term disastrous, there is some “upside risk” should the collective wisdom of the market come to think otherwise. Generally, new political leaders get some benefit of the doubt. So we will be prepared for a “melt-up” as well. With systemic risk on the loose, the variation in plausible valuations for almost anything is very wide and consequently the risk of volatility—which reached record levels in 2008—remains high.

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Nov 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Wed, 10 Dec 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 24.59 1,401.63 -6.18% 5.85% -22.65% -14.70%
NBIX 22-May-07 158 11.33 1,798.14 3.11 491.38 -24.70% -31.50% -72.67% -57.35%
GSS 19-Jul-07 451 4.19 1,897.69 0.73 329.23 -17.05% -76.90% -82.65% -72.33%
GSS 24-Aug-07 613 3.08 1,896.04 0.73 447.49 -17.05% -76.90% -76.40% -68.07%
BZH 24-Mar-08 -214 10.99 -2,343.86 1.81 -387.34 -20.61% -95.61% 83.47% 143.57%
BAC 8-Sep-08 -69 34.73 -2,388.37 16.25 -1,121.25 -32.77% -60.62% 53.05% 581.57%
GS 8-Sep-08 -14 169.73 -2,368.22 78.99 -1,110.76 -14.61% -63.27% 53.10% 582.44%
HBC 8-Sep-08 -30 79.11 -2,365.30 54.37 -1,658.10 -7.85% -35.05% 29.90% 225.29%
DUG 10-Sep-08 56 42.83 2,406.48 30.40 1,814.51 -17.95% -15.51% -24.60% -72.89%
BBY 19-Sep-08 -58 41.49 -2,398.42 20.71 -1,209.30 -22.95% -60.66% 49.58% 717.44%
MA 19-Sep-08 -11 225.18 -2,468.98 145.40 -1,601.05 -1.64% -32.43% 35.15% 381.54%
WMT 19-Sep-08 -40 59.70 -2,380.00 55.88 -2,235.20 0.13% 17.57% 6.08% 36.09%
CAB 19-Sep-08 170 14.08 2,401.60 6.25 1,062.50 -21.38% -58.53% -55.76% -98.58%
WFC 09-Oct-08 -73 33.06 -2,405.38 28.89 -2,133.79 -15.15% -2.89% 11.29% 118.47%
cash 16,906.53 31,396.20
ISOP 03-Jan-07 10,000.00 25,486.15 2.70% 16.67% 154.86% 63.50%
Global HF 03-Jan-07 10,000.00 9,271.73 -1.67% -16.57% -7.28% -3.90%
NASDAQ 03-Jan-07 2,415.29 1,535.57 -10.77% -42.10% -36.42% -21.18%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.1%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 10.1%. Note that for the portfolio, dividends are added back into the value of the pertinent security—or subtracted from the value of short positions—and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: Another crazy month in which the ISOP was a haven of sanity. Volatility was extremely high—seven trading sessions in which the NASDAQ finished up or down between 5% and 7%—but it was a bit less wild than October (when there were two days the market moved 10% or more and a third day it moved 9%). Meanwhile we stood pat…hmmm…perhaps when everyone around you is frenetically dashing about like a chicken with it’s head cut off, standing pat is no longer a reliable indication of sanity.

  • 5 Nov—paid out WFC dividend of $0.34/shr
  • 19 Nov—paid out HBC dividend of $0.90/shr

News:

Comments: If anyone was still thinking that “change we can believe in” would be any different from frontrunning for the-powers-that-be, it only took Barack Obama 20 days to put that concern to rest. The appointment of Timothy Geithner—one of the architects of the bailout under Bush aegis—is a clear signal. The import is that the new administration will be working just as assiduously as the old one—di rigueur objections from right-wing zealots that the agenda is focused on promoting socialist/statist solutions notwithstanding—to commit taxpayer money in support of the cabal of financial services leaches who crashed the system. Instead of cutting those bad boys loose and blaming the consequent chaos on W—which would have meant taking a lot of immediate pain, but also purged of the poison, a swift and healthy recovery by the economy—the Obama folks have evidently decided to take the path of least resistance and continue the policies of papering over the cracks in the walls. We can look forward to more easy credit, more bailouts of “too-big-to-fail” companies, more Keynesian stimulus, and—if this “works”—a Potemkin-village “recovery” just in time to support Democrats in the 2010 election.

Although the odds are improving, it is still not clear if the man behind the curtain can pull off the illusion that all is well again here or not. Reflecting the consequent uncertainty, the level of volatility this month was again—as in October—extremely high: an average daily change of ±3.8% as compared with the normal index change (up or down) an average of about 0.5% each day.

At the end of the month, we were +3%, the hedgies were -2%, and the NASDAQ was -11%. Another great month for the good guys! Overall after 23 months of operations, the ISOP is now +155% compared with -7% for the hedgies and -36% for the NASDAQ.

It was another heavy news month. Of our four retailers, two were flat and two were down big. Unfortunately, while we are short three of the four, the one we are long, CAB, was one of the ones down big (-21%) after reporting good 3Q08 results but providing very guarded guidance going forward. We still think CAB will shine for us in the long run. BBY was down 23%, MA was down 2%, and WMT was +0.13%, the only stock in the port to be up on the month. All four of our financial services shorts obligingly tanked: BAC -33%, GS and WFC each -15%, and HBC -8%. We did have a pang of regret over WFC’s victory over Citigroup (C) in the bidding to acquire Wachovia (WB) last month; had C won the bid, we most likely would have shorted their stock instead (we had previously been short WB) and they were down 39% this month. Actually, they were down 72% on 21 November before being bailed out by Treasury in yet another egregious misappropriation of taxpayer money. The next day—as referenced above—the Fed committed another $800 billion to bail out Fannie (FNM) and Freddie (FRE).

None of our other long positions had a good month. Golden Star (GSS) reported their worst-ever gold production costs and our patience with management is growing very thin; the stock was down another 17%. Neurocrine Biosciences (NBIX) tried making no news and that worked even less well, with their stock down 24%. We still think we need to give their GnRH antagonist candidate drug for fighting endometriosis, elagolix, more time. Vertex (VRTX) went to the other extreme of issuing good news—fresh positive results for their telaprevir anti-hepatitis C drug candidate—but ultimately, it did not save them from a drubbing late in the month over fears the Obama administration will limit the prices of new drugs. These concerns may be justified in the fullness of time, but are unlikely to be an issue for telaprevir in any case, as curing many otherwise uncurable patients of hepatitis C is extremely cost-effective (in that the cost of treating advanced cases of hepatitis C far exceeds the cost of telaprevir).

Finally, our oil short ETF, DUG, continues to disappoint, down 18% on the month despite a decline in the price of oil.

The risk of a serious downturn continues to be significant here, and consequently we remain net short. However, it does appear that the new administration is angling to establish continuity with the old one with respect to the policy of material intervention in the market to prop up insolvent “too-big-to-fail” enterprises. While we feel these policies are long-term disastrous, there is some “upside risk” should the collective wisdom of the market come to think otherwise. Generally, new political leaders get some benefit of the doubt. So far the the market has not rallied in reaction to the election results (except for the five days leading into the election), but it could still happen.

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Oct 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Wed, 12 Nov 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 26.21 1,493.97 -21.15% 12.83% -17.55% -11.79%
NBIX 22-May-07 158 11.33 1,798.14 4.13 652.54 -11.94% -9.03% -63.71% -50.40%
GSS 19-Jul-07 451 4.19 1,897.69 0.88 396.88 -42.11% -72.15% -79.09% -70.36%
GSS 24-Aug-07 613 3.08 1,896.04 0.88 539.44 -42.11% -72.15% -71.55% -65.28%
BZH 24-Mar-08 -214 10.99 -2,343.86 2.28 -487.92 -61.87% 69.31% 79.18% 162.20%
BAC 8-Sep-08 -69 34.73 -2,388.37 24.17 -1,667.73 -30.94% -41.42% 30.17% 515.49%
GS 8-Sep-08 -14 169.73 -2,368.22 92.50 -1,299.90 -27.73% -56.99% 45.11% 1201.23%
HBC 8-Sep-08 -30 79.11 -2,365.30 59.00 -1,770.00 -27.01% -29.52% 25.17% 369.76%
DUG 10-Sep-08 56 42.83 2,406.48 37.05 2,186.91 -4.63% 2.97% -9.12% -49.60%
BBY 19-Sep-08 -58 41.49 -2,398.42 26.88 -1,567.16 -28.32% -48.95% 34.66% 1230.08%
MA 19-Sep-08 -11 225.18 -2,468.98 147.82 -1,627.67 -16.64% -31.31% 34.08% 1180.79%
WMT 19-Sep-08 -40 59.70 -2,380.00 55.81 -2,232.40 -6.81% 17.42% 6.20% 68.75%
CAB 19-Sep-08 170 14.08 2,401.60 7.95 1,351.50 -34.19% -47.25% -43.73% -99.33%
WFC 09-Oct-08 -73 33.06 -2,405.38 34.05 -2,485.65 n/a 14.45% -3.34% -43.08%
cash 16,906.53 31,343.96
ISOP 03-Jan-07 10,000.00 24,826.77 7.70% 13.65% 148.27% 64.54%
Global HF 03-Jan-07 10,000.00 9,429.20 -6.01% -15.15% -5.71% -3.17%
NASDAQ 03-Jan-07 2,415.29 1,720.95 -17.73% -35.11% -28.75% -16.94%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.1%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 10.1%. Note that for the portfolio, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: The ISOP was a bedrock of stability this month; with the market going totally insane in terms of volatility, we felt constrained to make only one transaction…and that was essentially a move to bring the port more into congruence with the way it used to be, in that we replaced our Wachovia (WB) short position (covered last month) with a short position in the stock of the company that acquired WB, viz. Wells Fargo (WFC). A big contrast from last month, when we had a portfolio-record 14 transactions in moving to a net short stance. Speaking of our shorts, we did cheerfully pay out several dividends for our financial services and retailing stocks (when you are short a stock that pays a dividend, you have to pony it up).

  • 3 Oct—paid out BBY dividend of $0.14/shr
  • 8 Oct—paid out MA dividend of $0.15/shr
  • 9 Oct—Sold short 73 WFC for $33.06/shr
  • 23 Oct—paid out GS dividend of $0.35/shr

News:

Comments: LOL you might think that the amount of effort that goes into managing portfolios in a month with one transaction would be a lot less than the effort expended in a 14-transaction month…but when the market is going insane and repricing everything from day-to-day, just about the same degree of close attention is required, regardless of whether or not anything is being bought or sold. On average, the NASDAQ goes up about 10% a year…well there were two DAYS in October where the NASDAQ index was up 10%+…and this in a month were overall, the index was down 18%, the two gigantic up days notwithstanding.

The level of volatility this month was positively staggering. Normally, the index changes (up or down) an average of about 0.5% each day. The average daily change in October: ±3.7%…more than seven times normal!

Obviously, when the level of systemic risk is high, the potential variation in the value of any given company is extremely high, depending. For example, if the economy recovers, then Best Buy (BBY)—which we are short—is worth, say, $15+ billion. But if we fall into a depression where no one can afford to buy big flat screen TVs, then maybe they go out of business. Pretty big range in valuation! Add to that the complexities of the economy, and the impossibility of instantly and accurately calculating the impact of the latest government actions, the inevitable result is a wildly gyrating consensus.

Be that as it may, when the dust settled, we were +8%, the hedgies were -6%, and the NASDAQ was, as we said, -18%. A great month for the good guys! Overall after 22 months of operations, the ISOP is now +148% compared with -6% for the hedgies and -29% for the NASDAQ.

It was a bull market for news this month. On 3 October, W signed the bank bailout bill (after rejecting it last month, the House took another vote after some fig leaves were applied and enough Republicans changed their votes to “yes” to pass it). Also on 3 October, Wells Fargo (WFC) outbid Citigroup (C) for our former short, Wachovia (WB). On 6 October with the market tanking, the Fed announced an emergency $900 billion in short-term loans to banks (this is in addition to TARP funds). On 7 October with the market tanking still more, the Fed announced an emergency move to lend $1.3 trillion to non-financial services companies. On 8 October with the market still on the express elevator headed for the sub-basement, the Fed cut interest rates in a move coordinated with other prominent central banks including those of China, the ECB, the UK, and Switzerland. Overall, the S&P 500 dropped 18.2% for the week ending 10 October, its worst week ever. On 14 October, the US Treasury announced distribution of $250 billion of the TARP funds in the form of loans to several large banks, including our shorts Bank of America (BAC), Goldman Sachs (GS), and Wells Fargo (WFC) as well as C and others. On 21 October, the Fed announced another emergency short-term loan program, this time to money market mutual funds, which had stopped lending to banks in the wake of a huge wave of redemptions.

The fix is clearly in, with Democrats in Congress and working hand-in-glove with the Republican Secretary of the Treasury and Republican appointee Fed Chairman Ben Bernanke to “stablize” the current broken-down system. It appears that none of the broken financial services companies—not even AIG, Freddie Mac (FRE), or Fannie Mae (FNM), who are in the worst shape—will be allowed to fail so long as the Fed’s printing presses are still able to pump out funds to loan them to “tide them over.” W has practically turned invisible during the crisis but evidently has no objections (if any opinions whatsoever). Senator Barack Obama, the Democratic party nominee for President, has pretty carefully avoided saying much of anything, but on 1 October he voted for the bailout (as did his running mate, Senator Joe Biden). The GOP standard bearer, Senator John McCain, has been somewhat more vocal and way more incoherent; in the event, he, too, voted for the bailout on 1 October. We believe this approach is both morally wrong—bailing out wealthy bankers with taxpayer money—and shortsighted, in that it will only delay the day of reckoning and ensure both that the eventual nadir will be lower and the recovery therefrom harder and longer.

Speaking of hard, that it was for our portfolio, as ever single equity was down in October. (WFC, which we are short, was up between the day we bought it—9 October at the open—and the end of the month but we obviously sold it short too late because it was down overall for the month.) Fortunately, we are now short eight positions and long only six so on balance, a down market is a good thing for our portfolio. Among the long positions, our two biotech companies (VRTX down 21% and NBIX down 12%), our gold miner (GSS down 42%), and our relatively new retailer (CAB down 34%) were no help whatsover.

We also own DUG, which is an ETF that is supposed to move twice the inverse of the price of oil…well crude was down sharply in October, but on extremely volatile trading, and DUG somehow managed to lose 5%, declining more on the days that the price of oil increased sharply that it gained on the days oil declined. We need to keep this one on a short leash as it is evidently poorly designed and not behaving as we expected it to.

Aside from the aforementioned WFC, we were very happy with the performance of our shorts. Our real estate short (BZH) was down 62%! The other financials shorts were all down sharply (BAC -31%, GS -28%, and HBC -27%). All three retail-related shorts were down big (BBY -28%, MA -17% and WMT -7%).

Clearly, the risk of a serious downturn continues to be significant here, and consequently we remain net short.

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Golden Star Resources (GSS) update #9

Posted by intelledgement on Tue, 04 Nov 08

We are beginning to wonder if our red ink-producing gold mining spec play, Golden Star Resources (GSS), might be better off reincorporating as a non-profit charity, in the wake of their 3Q08 results announced today. This comes in the wake of the juxtaposition of last month’s announcement (click here and then on “Golden Star Awarded Nedbank Capital Green Mining Award”) that the company had won the Nedbank Capital Green Mining award—in consideration of the company’s Golden Star Oil Palm Plantation Project (GSOPP), which grants four-hectare farm plots to qualifying farmers—and their seventh consecutive (and worst-yet) money-losing quarter.

Today, the company unveiled 3Q08 losses of $22.4 million (10 cents/share) on sales of $74 million. Not much mystery here; the company sold each ounce of gold for $897, but it cost them $866 to produce each ounce…a gross profit margin that is no where’s near fat enough to cover overhead. $866 is a new record for the highest quarterly cost per ounce, and extends an unhappy trend line:

  • 4Q07 = $602/oz
  • 1Q08 = $652/oz
  • 2Q08 = $757/oz
  • 3Q08 = $866/oz

This vector is unsustainable; if management cannot figure out how to stop the bleeding here, the company—or at least their mining operation in Ghana—is doomed. Fortunately, there is a reasonable expectation for improvement: $60-to-$85 of the 3Q08 cost is attributable to doubled rates for electricity that Ghana imposed on miners (click here and then on “Golden Star Reports Increases in Power Costs in Ghana”) to offset the huge run-up in the price of oil, and the miners are negotiating for some relief, which is likely now that oil prices have retreated from their summer highs. And the mix of gold production this quarter was skewed towards the more expensive Bogoso/Prestea facility as one of the two milling facilities at Wassa was disabled (click here and then on “Golden Star Announces Wassa Mill 2 Repairs Complete”) due to a pinion gear malfunction—and that has now been fixed.

Still, the burden of proof on management to make this operation work economically is getting heavier following what is now seven consecutive quarters of red ink. This is not what we signed up for, and if things don’t improve soon, we will be looking for greener pastures.

Previous GSS-related posts:

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Sep 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Sun, 12 Oct 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 33.24 1,894.68 23.75% 43.09% 4.56% 3.11%
NBIX 22-May-07 158 11.33 1,798.14 4.69 741.02 -9.28% 3.30% -58.79% -47.87%
GSS 19-Jul-07 451 4.19 1,897.69 1.52 685.52 -0.65% -51.90% -63.88% -57.14%
GSS 24-Aug-07 613 3.08 1,896.04 1.52 1,606.06 -0.65% -51.90% -50.86% -47.48%
BZH 24-Mar-08 -214 10.99 -2,343.86 5.98 -1,279.72 14.08% 19.52% 45.40% 105.36%
BAC 8-Sep-08 -69 34.73 -2,388.37 35.00 -2,415.00 n/a -15.17% -1.11% -16.99%
GS 8-Sep-08 -14 169.73 -2,368.22 128.00 -1,792.00 n/a -40.48 24.33% 3617.53%
HBC 8-Sep-08 -30 79.11 -2,365.30 80.83 -2,424.90 n/a -3.44% -2.52% -34.54%
DUG 10-Sep-08 56 42.83 2,406.48 38.85 2,287.71 n/a 7.98% -4.94% -60.32%
BBY 19-Sep-08 -58 41.49 -2,398.42 37.50 -2,175.00 n/a -28.77% 9.32% 1824.79%
MA 19-Sep-08 -11 225.18 -2,468.98 177.33 -1,950.63 n/a -17.60% 20.99% 55900.91%
WMT 19-Sep-08 -40 59.70 -2,380.00 59.89 -2,395.60 n/a 26.00% -0.66% -19.62%
CAB 19-Sep-08 170 14.08 2,401.60 12.08 2,053.60 n/a -19.84% -14.49% -99.45%
cash 14,501.15 28,890.43
ISOP 03-Jan-07 10,000.00 23,051.87 -6.22% 5.52% 130.52% 61.55%
Global HF 03-Jan-07 10,000.00 10,032.13 -5.76% -9.72% 0.32% 0.18%
NASDAQ 03-Jan-07 2,415.29 2,367.52 -11.64% -21.13% -13.39% -7.92%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.1%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 10.1%. Note that for the portfolio, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: Well, following three months of almost no activity transaction-wise, the market has been crazy, with valuations all over the place—but trending down, big time—and consequently we felt constrained to make major adjustments to the portfolio, mostly moving to the short side. First we shorted a bunch of financial company stocks. Then we sold all our oilers and our one mining stock and bought an ETF that goes up when the price of oil declines. Then we shorted a cohort of retail-related stocks, and—partly as a hedge—bought a fourth retailer. Finally, we covered the WB short. Not surprizingly, the month set a new portfolio record for the most transactions ever: fourteen (the previous record was five)!

News:

Comments: Sheesh…this month required an awful lot of work to produce a 6% loss! The silver lining was that the hedgies also lost 6% and the NASDAQ was down 12%, so it could have been worse. Overall after 21 months of operations, the ISOP is now +131% compared with ±0% for the hedgies and -13% for the NASDAQ.

So we did have a lot of company-specific news this month, but it was pretty much overshadowed by the macro-level proverbial excrement hitting the fan. We had the government takeover of Fannie Mae (FNM) and Freddie Mac (FRE) on 7 Sep. A week later we had the bankruptcy of Lehman Brothers (LEH) and the acquisition of Merrill Lynch (MER) by BAC. Then we had a run on the money market funds ($140 billion withdrawn in one week), and the emergency $85 billion loan by the Fed to AIG to avoid a bankruptcy there. To close out the month, you have the spectacle of Republican Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke begging the GOP-controlled House for a $700 billion emergency bailout fund to be used to purchase so-called “toxic” assets that have plummeted in value and threaten multiple financial institutions who own them with insolvency…and being turned down! (Oh, and we almost forgot, the arrangement for Citibank (C) to buy our own troubled asset, WB.)

Clearly chickens are coming home to roost here. As we keep saying, this economy has serious fundamental flaws—too much debt and entitlement obligations, too much energy devoted to unproductive-to-fraudulent financial transactions, an unsound currency, underfunding of infrastructure investment—and the cultural focus on taking the path of least resistance and maximizing the immediate return on investment is impeding us from addressing these long-term flaws. While it would be painful, a collapse of the current Ponzi-based financial system would clear the decks for the creation of a healthier, sounder approach, and the resultant crisis would be resolved a lot faster than is likely to be the case if we just kick the can down the road again here. So we were cheering when the House voted down the Troubled Assets Relief Program, even though the markets tanked on the news. (Of course, by then we were mostly short. LOL)

Speaking of which, the market was extremely volatile this month—it was ±3% on two days, ±4% on three days, ±5% on three days, and -9% on 29 Sep (the day the House voted down the $700 billion bailout bill). Ofttimes the market does not move as much as 9% in an entire year! In that light, it is not a shocker that we felt constrained to make a few moves…such as closing more than half the positions we started the month with and then opening up even more new ones. Among the few holdovers were our two biotech companies (VRTX up 24% and NBIX down 9%), our gold miner (GSS down 1%), and our housing industry short (BZH -14% by virtue of which we gained). As for the newcomers, two of our three financials short were up (BAC +1% and HBC +3%) but GS was down 24% in only three weeks. Two of our three retail-related shorts were down big (BBY -9% and MA -21%) in only two weeks while the other gained a point (WMT +1%). Our oil short ETF (DUG) was down 5% and the retailer we went long on (CAB) manifestly should have been a short as it was down 14%. You can help both yourself and the ISOP by going to their website and stocking up on ammo and fishhooks as insurance against a potential collapse of the system.

Clearly, the risk of a serious downturn is now greater than a month ago, and we are about as short as we are going to get. Fasten your seat belts; it’s going to be a bumpy night.

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