Archive for January, 2008
by Anthony Green
Profit you make from your stock investments can be taxed in one of two ways, depending on the type of profit:
Ordinary income
If the profit you make from stock investments is taxed, your profit is taxed at the same rate as wages at your full, regular tax rate. If your tax bracket is 28 percent, then that’s the rate your ordinary income investment profits will be taxed at.
Two types of investment profits get taxed as ordinary income:
• Dividends - When you receive dividends from your stock (either in cash or stock), these dividends get taxed as ordinary income. This is also true if those dividends are in a dividend reinvestment plan. If, however, those dividends occur in a tax-sheltered plan, such as an IRA or 401(k) plan, then they’re exempt from taxes for as long as they’re in the plan. In January, investors receive a 1099-DIV statement from the issuer of the dividends that includes information on the amount of dividends earned the previous year. Check with your tax advisor because the latest tax laws offer tax advantages for dividends.
• Short-term capital gains - If you sell stock for a gain and you’ve owned the stock for just one year or less, the gain is considered ordinary income. If you buy a stock on August 1 and sell it on July 31 of the following year, that’s less than one year. To calculate the time, you use the trade date (or date of execution). This date is the date that you executed the order instead of the settlement date. However, if these gains occur in a tax-sheltered plan, such as a 401(k) or an IRA, no tax is triggered.
Long-term capital gains
Long-term capital gains are usually much better for you as far as taxes are concerned. The tax laws reward patient investors. After you have held the stock for at least a year and a day (what a difference a day makes!), your tax rate will be reduced. Get more information on capital gains in IRS Publication 550 “Investment Income and Expenses”. Because the tax on capital gains is the most relevant tax for stock investors.
Managing the tax burden from your investment profits is something that you can control. Gains are taxable only if a sale actually takes place. (In other words, only if the gain is “realized.”) If your stock in GazillionBucks, Inc., goes from $5 per share to $87, that $82 appreciation isn’t subject to taxation unless you actually sell the stock. Until you sell, that gain is “unrealized.” Time your stock sales carefully hold on to them at least a year to minimize the amount of taxes you have to pay on them.
When you buy stock, record the date of purchase and the cost basis (the purchase price of the stock plus any ancillary charges, such as commissions). This information is very important come tax time should you decide to sell your stock. The date of purchase helps to establish the holding period (how long you’ve owned the stocks) that determines whether your gains are to be considered short-term or long-term.
Say that you buy 100 shares of GazillionBucks, Inc., at $5 and pay a commission of $18. Your cost basis is $518 (100 shares times $5 plus $18 commission). If you sell the stock at $87 per share and pay a $24 commission, the total sale amount is $8,676 (100 shares times $87 less $24 commission). If this sale occurred less than a year after the purchase, it’s a short-term gain. In the 28 percent tax bracket, the short-term gain of $8,158 is also taxed at 28 percent. (Short-term gains are taxed as ordinary income.) Any gain (or loss) from a short sale is considered short-term regardless of how long the position is held open.
Articles on stock market trading, finance, investing
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by Anthony Green
Not all investors want to take on the risk that comes with making a killing. Some people just want to invest
If your purpose for investing
Distinguishing between dividends and interest
Don’t confuse dividends with interest. Most people are familiar with interest, because that’s how you grow your money over the years in the bank. The important difference is that interest is paid to creditors, and dividends are paid to owners (meaning shareholders and if you own stock, you’re a hareholder, because stocks represent shares in a publicly traded company). When you buy stock, you buy a piece of that company. When you put money in a bank (or when you buy bonds), you basically loan your money. You become a creditor, and the bank or bond issuer is the debtor, and as such, it must eventually pay your money back to you with interest.
Recognizing the importance of an income stock’s yield. Investing for income means that you have to consider your investment’s yield. If you want income from a stock investment, you must compare the yield from that particular stock with alternatives. Looking at the yield is a way to compare the income you expect to receive from one investment with the expected income from others.
To understand how to calculate yield, you need the following formula -
Yield = Payout ÷ Investment Amount
Yield enables you to compare how much income you would get for a prospective investment compared with the income you would get from other investments. For the sake of simplicity, this exercise is based on an annual percentage yield basis (compounding would increase the yield). Jones Co. and Smith Co. are both typical dividend-paying stocks, and presume that both companies are similar in most respects except for their differing dividends. How can you tell whether a $50 stock with a $2.50 annual dividend is better (or worse) than a $100 stock with a $4.00 dividend? The yield tells you. Even though Jones Co. pays a higher dividend ($4.00), Smith Co. has a higher yield (5 percent).
Therefore, if you had to choose between those two stocks as an income investor, you would choose Smith Co. Of course, if you truly want to maximize your income and don’t really need your investment to appreciate a lot, you should probably choose Brown Co.’s bond because it offers a yield of 6 percent. Dividend-paying stocks do have the ability to increase in value. They may not have the same growth potential as growth stocks, but, at the very least, they have a greater potential for capital gain than bank CDs or bonds. You may get more than you invest.
Tips to turn $1000 into $1,00,000, articles on stock market trading and investing. To get detail about the stock market and finance visit http://www.2stocktrading.com.
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by Doug Hadfield
Currently ranked sixth in the world in gold production, Russia has total known gold resources of approximately 500 million ounces. During the last few years, Russia’s increase in production has been the one of the highest among all of the major gold producers, and yet this growth represents only a small portion of the country’s potential.
Aton Capital, a major Russian asset management company, has pointed out that Russia’s output of gold still lags far behind other major gold producers.
“The country’s total estimated gold resources are almost 500-mil oz, while output was only 5.9-mil oz in 2004 [and 5.36 million in 2006 — Editor], implying a resource life of 85 years at the current rate of extraction,” the company stated in a report posted on its website. “With the exception of South Africa, resource lives for major producers (US, Canada and Australia) are 15-20 years. This implies there is considerable potential for raising output in Russia, and indeed this is exactly what we have seen.”
And if Russia’s total resource base is considerable, then as a percentage, Russia’s Far East is the place for junior resource companies to be looking for the yellow metal. The Magadan gold region — which is said to be Russia most important area for gold — hosts nearly 2,000 placer gold deposits, 100 gold ore deposits, and 48 silver ore deposits. At last tally, the region had known reserves of 128,000,000 ounces — more than one fifth of Russia’s total.
Russian mining and exploration have had a long road toward real openness since Glasnost and Perestroika were decreed by the then president of the Soviet Union Mikhail Gorbachev. And forefront of juniors making headway in modern day Russia is Golden Reign Resources (TSX.V:GRR).
“We’ve got lots of focus on Russia’s Far East right now,” said Myles. “We’ve taken a lot of effort to lay down roots in the region. I think our most recent sample assays show that we’ve made the right decision in setting up at Dorozhni and Butarni.”
Dorozhni Property
Earlier in the year, Golden Reign completed the first phase of its exploration program at the Dorozhni property, one of two highly-prospective gold properties located in the Magadan Region of Far East Russia. Although historical exploration has focused on high-grade gold bearing quartz veins at or near surface, Golden Reign believes that the property has potential for a low-grade bulk tonnage gold deposit.
Assay results from the initial sampling program originated from two trenches covering an aggregate 1.5 kilometres on the N-NE slope of Dorozhni. Approximately 30 kilograms (over 900 ounces) of gold was historically mined from Vein No. 1, including high-grade pockets grading several kilograms of gold per tonne. Recent assay results from property samples include grades of 1.65 g/t, 2.74 g/t, 4.84 g/t, and 18.69 g/t.
Dipping gently to the northwest, this quartz vein has intense massive sulphide mineralization along the vein selvage containing visible gold. Coarse-grained native gold mineralization is also observed within the vein. Gold grains range in size from 0.5 to 2.0 mm, reportedly reaching a few centimetres in size in some cases.
Additional samples revealed that gold mineralization is not restricted solely to quartz veins but also occurs within the surrounding rock. Others indicated that gold mineralization is likely disseminated through the entire intrusion.
High sulphide mineralization was observed in boulders located in the riverbed of Dorozhni Creek within a stockwork zone roughly 50 metres by 70 metres wide. Golden Reign intends to remove the overburden to allow for proper channel sampling by diamond saw, which should provide a better representation and understanding of this newly discovered zone.
Butarni Property
Golden Reign’s second Russian venture, the Butarni property, covers an area of 9.3 square kilometers and is situated approximately 310 kilometres north of Magadan, the capital city of the province. It is underlain by sediments intruded by a biotite granite stock with dimensions of approximately 3 km x 1.6 km. Golden Reign has established a camp and mobilized exploration equipment in the area. It is trenching 3,500 metres across geochemical and geophysical anomalies in anticipation of 2,500 metres of diamond drilling to test the mineralization at depth.
A technical report on the Butarni Property, filed in August 2007 by qualified person John Kowalchuk, P. Geol., indicated that the discovery of modest to large tonnages of gold mineralized rock could potentially allow for low cost, large-scale, open pit mining of the deposit(s) at Butarni.
“The combination of large tonnages of mineralized rock and the substantial gold grade potential suggests the possibility of a significant discovery of an economic gold deposit,” Kowalchuk reported, recommending that the Butarni property warranted additional evaluation.
Previously, only the northern and western parts of the Butarni region were explored, whereas Golden Reign’s current target is a known gold bearing area in the southwest portion referred to as Zone 1. Golden Reign is currently engaged in detailed mapping and geochemical surveys to test approximately 40% of this area that remains unexplored.
Historical grab and channel sampling of quartz veins within Zone 1 returned values ranging from 1 g/t to 334.4 g/t Au, with an average grade of 21.3 g/t gold from 45 grab samples and 29.6 g/t gold from 22 channel samples. Golden Reign’s recent channel samples yielded grades of 8.63 g/t and 16.11 g/t.
Encouraged by the findings in the Technical Report, Golden Reign excavated an additional 1,000 metres across four trenches, for a total of six trenches approximately 100-150 metres apart. Testing of the newly exposed weathered zone will continue throughout 2008.
Offering low dilution — 25 million shares issued and outstanding and 41 million fully diluted — and a low share price ($0.12 to $0.15 range), Golden Reign has a market cap with plenty of upside potential. The company has taken a slow and steady dive in the markets, first since a tangle with local politics in the region (now resolved) and then due to the market hiccup last August (now resolved). In the meantime, the company has made significant headway in achieving its objectives — “trenching; channel sampling; detailed geological mapping; soil sampling; geophysical surveys; and limited drilling.” With this now complete — the company collected almost 1000 one-metre samples — and with results expected soon, Golden Reign has already begun assessing new targets in mineral-rich Magadan.
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by Doug Hadfield
High oil prices have a habit of creating winners and losers. It’s a complex equation, to be sure, since price hikes are the result of multiple causes, including the fact that “easy” oil reserves are increasingly difficult to come by.
For oilmen with the correct experience and some faith in serendipity, high oil prices indicate the opening — or reopening — of giant swathes of land for drilling and production, and the potential for big profits.
I spoke with Bob Kadane, the president of KFG Resources (TSX.V:KFG) about how oil prices have had an effect on one formation in particular — the Wilcox Oil and Gas Formation — and learned a lot about the true story behind petroleum exploration in the US that every investor should know. It’s a fascinating story.
First off, the stakes are huge. While proponents of the peak oil theory may be correct in stating that oil reserves worldwide are increasingly depleted, there is still room for substantial oil production from the Wilcox Formation.
For example, using a geology-based assessment methodology, the U.S. Geological Survey in 2007 estimated 110 million barrels of undiscovered oil, approximately 3 trillion cubic feet of gas and over 500 million barrels of natural gas liquids throughout the Wilcox Formation. Much of that would be contained in Mississippi and Louisiana, where KFG Resources is will soon be drilling.
The Wilcox Formation is located some 6,500 feet below sea level in Mississippi and Louisiana, inland from the Gulf of Mexico. It is just one of many strata of the earth buried underground by millions of years of erosion and land movement caused by wind, water and tectonic motion.
The last time the sand, silt and clay that comprise the Wilcox Formation were exposed to air was about 50 million years ago, during the early Eocene period, when the earth’s poles were covered by forests and the shoreline of the Gulf of Mexico lay many kilometers inland from where it is found today.
Huge pockets of oil formed by decomposing plant matter from distant epochs populate the Wilcox Formation, which can be harder to find than other oil reserves due to the fact that the oils are not kept in place by thick shale beds or other rock that are relatively easy to spot using seismic. Instead, the formation is up to 2,500 feet thick, and mostly sand. As such, other, more traditional methods are used to find deposits in the oil rich formation.
Just how rich? Well, as mentioned earlier, USGS has reported more than 100 million barrels of oil plus gas and natural gas liquids geologically proven in the area. But what about the standard petroleum measure of “barrels per acre foot”?
According to Kadane, the standard oil reservoir in the Rocky Mountains might yield from 75 to 250 barrels of oil per acre foot — meaning that one foot of sand over one acre of land would yield between 75 and 250 barrels, depending on such factors as porosity and oil content.
I did my own homework, too: A search of other companies producing oil reveals a high of 400 barrels per acre foot in Nevada, 350 in Texas, 300 in Oklahoma and so on. The numbers vary, of course, and in oil rich areas such as Alberta and the Middle East, they are much higher.
But the Wilcox Formation yields an average of 600 barrels per acre foot, Kadane says.
“I have been associated with some reservoirs that have recovered in excess of 1,000 per acre foot — it’s a high porosity sand,” he noted.
Simply put, Kadane says, “It makes the Wilcox Formation — if you can find it — probably the most profitable return on your investment on shore in the United States. It’s elusive but it makes a very lucrative target once you’re able to pin it down and find it.”
Kadane was born and raised in communities that lay on the earth above the Wilcox Formation. Starting in the 1940s, Kadane’s father drilled the same formation to great success. Kadane recalls his father putting dynamite into a well to get the oil flowing in about 1942 — when he opened the valve, a huge geyser of oil shot some 150 feet into the sky. Kadane still has a 16-millimeter film of the event, he says.
The Wilcox Formation lost favor due to its low success ratio and the fact that modern technology, such as seismic, doesn’t help much in finding its reserves. To find Wilcox oil and gas, oilmen like Kadane use traditional methods and wisdom gained through experience to improve chances of success. To profit from them, you have to know everyone working the Wilcox Formation, where they are drilling, and where they have succeeded and failed.
“The last Wilcox well we found that amounted to anything was 1989. We haven’t done a lot there since then, and that field still produces and is part of our main reserve and is almost 20 years old. It’s just three wells and it’s produced about 1.3 million barrels, I think.”
Now that peak oil has emerged to be a law rather than a theory, and with prices up and American supply diminished, the math is right again to make a success of the Wilcox Formation.
“In the Wilcox Formation, the success rate on wildcat drilling — which means no production within a mile or so, or virgin, undrilled land — is between 10 and 15 percent,” explains Kadane. “The success rate of offset is in the 50 percent range in terms of success.” That indicates that in many cases it will be most prudent to drill next to where other teams have already drilled, but failed to find the goods.
“With the price of oil and gas above $70 per barrel, suddenly new exploration companies are down in the Louisiana Salt Basin area. The higher price of oil makes the lower success rate more profitable.
“You see, when more players are in the field drilling, it helps to eliminate where oil is not, and tells you where it may be. Lot of people do one or two holes where there should be oil. Sometimes, if they come up dry, they give up. You go in there and drill a third or fourth hole, because you know it’s there — and bingo, you hit paydirt. So the other guys have in essence done the work already.
“By going in and completing more holes you know your chances of hitting oil have improved without spending a dime.”
The other players at KFG add the other essential ingredients to the brew that Kadane predicts will see success in 2008. President of Operations Stephen Guido owns a drilling rig good to below 10,000 feet. Geologist Dave Easom has 25 years experience in the area and has worked closely with seismologist Pitman Calhoun, who is said to be one of the best lower Tuscaloosa and Wilcox seismologists in that whole part of the country. Kadane says that Calhoun and Easom have completed three 3D seismology shoots in the Lower Tuscaloosa Formation in the region, all of them successful.
“I’ve got a network of guys who know what they’re doing,” he emphasizes. “They’ve been there and done that here since they were kids. They know every player on the scene and every dip in every field in the state of Louisiana.”
Coming Up: In the next piece, I’ll talk about how KFG Resources plans to use 3D seismic data with subsurface well log data to create a drilling plan to hit both the Wilcox Formation and the Lower Tuscaloosa — simultaneously.
This article is intended for information purposes only, and is not a recommendation to buy or sell the equities of any company mentioned herein. It is based on sources believed to be reliable, but no warranty as to accuracy is expressed or implied. The opinions expressed in the article are those of the author except where statements are attributed to individuals other than the author, in which case the opinions are those of the individual to whom they are attributed.
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by Sam Vaknin
Part I. The Republic of Macedonia - A Case Study (2007)
Ever since its reluctant declaration of independence in 1991, Macedonia occupied the bottom of the list of countries in transition from Communism, as far as absolute dollar figures of FDI go. At 80.6 million USD, FDI in 2003 barely budged from previous years. In 2004, FDI reached 139.5 million USD, only to shrink to 116.2 million USD in 2005. Discounting the sale of ESM, the electricity utility, FDI remained static in 2006 (total FDI was 350.7 million USD or 124.7 million USD, without ESM).
Yet, this is a misleading picture. Macedonia was and is no worse off than other countries in Eastern Europe.
According to UNCTAD’s World Investment Report 2007, FDI in Macedonia, as a percentage of gross fixed capital formation, shot up from 9.7% in the decade of the 1990s to 32.4% in 2006 (compared to 36.4%, the southeast European average; 20.8% the average of all countries in transition; and 12.6% the global average figure).
Macedonia’s FDI stock reached 2.437 billion USD, or 39% of GDP (compared to 42.2% as the southeast European average; 25.3% the average of all countries in transition; and 24.8% the global average figure).
Macedonia’s Inward FDI Performance Index, based on 12 economic and policy variables, climbed from the 86th to the 64th place out of 141 economies surveyed. Its Inward FDI Potential Index also improved from 115 to 106.
Throughout this period, foreign enterprises, profitable overall, consistently hired new employees and wages in the sector stabilized at c. twice the average salaries in local businesses.
Thus, as far as FDI goes, Macedonia’s performance, though far from stellar, was and is above the regional and global averages. The World Bank put it succinctly, as it summarized the period PRIOR to the assumption of power by the new government:
“Macedonia’s rankings either improved or stayed steady for all available scored rankings, and it tracked closely with the regional averages for all rankings. According to the World Economic Forum’s Global Competitiveness Report for 2006-07, the three most problematic factors for doing business are inefficient government bureaucracy, access to financing, and corruption. Macedonia was one of the top 10 Doing Business reformers, jumping up 21 places. The most significant improvements were in the following indicators: Starting a Business (where the paid-in minimum capital requirements were dropped from 111% to 0% of GNI per capita), Dealing with Licenses, and Trading Across Borders.”
Other indicators lead to the same conclusion: while Macedonia’s image and perception as a business destination and the business climate have improved considerably under Gruevski’s government, in reality, not much else has changed.
Consider the following numbers, pertaining to Macedonia:
Control of Corruption Indicator, published by the World Bank: 113 (2006) vs. 111 (2007)
Country Credit Rating, published by Institutional investor: 85 (2006) vs. 84 (2007)
Index of Economic Freedom, published by The Heritage Foundation and the Wall Street Journal: 75 (2006) vs. 71 (2007)
Quality of National Business Environment Ranking, issued by the World Economic Forum in its Global Competitiveness Report: 87 out of 121 countries.
Only the World Bank’s Doing Business Ranking jumped from 96 (2006) to 75 (2007). Yet, even this indicator hides some unpalatable truths: Macedonia has deteriorated in certain respects. It is more difficult and cumbersome to hire workers, to register property, to obtain credit, to protect investor rights, and to enforce contracts. In any case, this indicator has more to do with public relations, expectations, and psychology, rather than with the hard facts on the ground.
And the hard facts are:
Macedonia is not ready to absorb and accommodate foreign investors and their capital. It still has a long way to go. This government has put the cart before the horses;
The youthful, populist, and inexperienced administration is overwhelmed and ill-equipped to deal with its obligations towards and promises to foreign investors. Decision-making bottlenecks (especially in the office of Vice-Premier Zoran Stavreski) conspire with red tape and blatant favoritism to render nightmarish both greenfield and brownfield ventures.
In a long-running arbitration, the country was slapped with multimillion dollar damages payable to the Greek investors in Okta. This did not deter the government from conflicting vocally and publicly with Macedonia’s other large investor, the Austrian EVN, owner of the electricity utility;
To its credit, the government has reformed the tax system, introduced a flat tax, and reduced the tax rates, all laudable. But it is still illegal for foreigners to own land and real estate (as individuals) and all but impossible to trade in the local stock exchange. The government has only now resorted to tackling these archaic limitations;
The country is dysfunctional. No institution works properly: the cadastre, the courts, law enforcement agencies, the civil service are all in chaotic disarray. Even the banking system, despite a decade of FDI, is rudimentary. Infrastructure of all sorts is dismal, though improving. The government’s anti-corruption drive is much lauded but highly politicized and one-sided, aimed as it is exclusively at the hapless politicians of the opposition. Macedonia’s laws are not geared to welcome and assimilate foreign investment, foreigner businessmen, and foreign workers;
Macedonia lacks skilled manpower. The education deficit is pervasive. More than half the adult population has eight years of schooling or less. A multi-generational brain drain saps the country’s vitality and prospects in the global information economy of the 21st century. Contrary to the government’s claims in its “Invest
The country suffers from other problems: a huge informal economy, skyrocketing consumer and enterprise indebtedness, ominous asset bubbles in both the stock exchange and the real estate market, a crippled middle class and crippling poverty and unemployment rates, an unmanageable and increasing trade deficit (c. 20% of GDP), and a whopping current account deficit offset only by remittances from Macedonian workers abroad. The global credit crunch constitutes a major threat to polities with such precarious finances.
Geopolitical instability (in Kosovo) is exacerbated by the current Macedonian regime’s jingoism, its overt and manipulative religiosity, and greenhorn fickleness. Within the last year, Macedonia has considerably retarded its chances to enter NATO and the European Union (EU), having clashed unnecessarily and spectacularly with Greece, Serbia, Bulgaria, and the Albanian minority at home.
Despite a slew of expensive PR and advertising campaigns; the appointments of two ministers and the formation of a special agency to deal with FDI; incessant trips abroad by every functionary, from the prime minister down; and innovative marketing initiatives - FDI figures for 2007, at c. 180 million USD (c. 3% of GDP), are a major disappointment. Moreover, a sizable part of Macedonia’s FDI is in construction, retail, financial services, and trade, economic sectors with minimal contribution to future growth.
In comparison, FDI doubled in decrepit, post-bellum Serbia, to 4.5 billion USD in 2006. Croatia garnered 3.6 billion USD (2.7 billion euro) - twice the 2005 figure. Even strife-torn Bosnia-Herzegovina, under a EU peacekeeping mission, attracted 2.9 billion USD (2 billion euros). Bulgaria absorbed 6.5 billion USD. FDI amounted to 10% of Balkan GDP in 2006.
The conclusion is inescapable: Macedonia has failed in its bid to attract FDI. This is not the first time that Macedonian politicians and their downtrodden and destitute people prefer the fantasy of foreign saviors to the hard slog of painful and much-needed reforms at home. The current prime minister, Gruevski, served in the government of Ljubco Georgievski, whose nostrum and panacea to Macedonia’s economic woes was dollops of money, supposed to be funneled via illusive Taiwanese investors. The person most identified with this policy, Vasil Tupurkovski, now faces criminal charges.
Gruevski can learn many lessons from the debacles wrought by his predecessors. It is not too late to get his priorities straight: reforms, education, domestic investment, and employment first, and only then an open invitation to foreigners to come and invest in Macedonia.
II. Foreign Direct Investment FDI 2000-2003 in Eastern and Central Europe
How will the credit crunch of 2007 affect foreign direct investment in Central and Eastern Europe? What if it develops into a full scale recession in the West and especially in the USA?
It is instructive to study the effects on the region of a previous recession at the beginning of the decade (2000-2002).
The brief global recession of the early years of this decade - which was neither prolonged, nor trenchant and all-pervasive, as widely predicted - had little effect on Central and Eastern Europe’s traditional export markets.
The region were spared the first phase of financial gloom which affected mainly mergers, acquisitions and initial public offerings. Few multinationals scrapped projects, scaled back overseas expansion and cancelled long-planned investments.
According to a 2003 report by the Vienna Institute of Economic Studies, FDI flows to the countries of central Europe were halved in the first quarter of 2002, despite their looming membership in the European Union (realized in May 2004). During 1999-2003 export transactions were frequently delayed and privatizations attracted scant interest.Net FDI flows in 2003, says the EBRD, came to a mere 7.2 billion euros, compared to 22.6 billion euros in the preceding year.
The Vienna Institute erroneously predicted a particularly bleak year for Poland and a Czech economy redeemed only by sales of state assets in the energy sector. Yet its statistics failed to cover reinvested profits. These amounted to $1.5-2 billion in Hungary alone - equal to its average annual FDI.
In reality, the picture was mixed. Forecasts prepared in November 2002 by the United Nations Conference for Trade and Development (UNCTAD) showed marked declines in FDI in Moldova, Estonia, Hungary, Poland, Slovakia, Macedonia and Ukraine. Flows rose in Albania, Bulgaria, the Czech Republic, Latvia, Lithuania and Slovenia, and remained unchanged in Bosnia and Herzegovina, Croatia, Romania and Russia, said UNCTAD.
Foreign direct investment (FDI) in Lithuania grew by at least 15 percent in 2003. Its FDI stock - accumulated in its decade of independence - exceeded c. $4 billion, or c. $1000 per capita, as early as end-2002. Pace has picked up dramatically in the past six years in many second-tier investment destinations in central and east Europe, including Slovakia, and formerly war-torn Macedonia and Armenia. Of the latter’s $600 million in post-communist foreign inflows - two thirds have been placed since 1999.
Prime investment locales, like the Czech Republic, or Hungary, are still attracting enthusiastic fund managers, multinationals and bankers from all over the world. In a startling inversion of roles, Russia became a net exporter of FDI. According to official figures - which are thought to under-report the facts by half - Russia invested abroad more than $3 billion every single year since 2000. This is double the figure in 1999 and translates into $300-500 million in annual net outflows of foreign direct investment.
Moreover, the bulk of Russian capital spending abroad is directed at rich, industrialized countries. The republics of the former Soviet Union see very little of it, though Russian stakes there have been growing by 25 percent annually ever since the 1998 meltdown. Russia’s energy behemoths compete, for instance, with western mineral and oil extraction companies in Kazakhstan and Azerbaijan.
Levels of worldwide FDI declined by more than 50 percent - to c. $730 billion - between 2000 and 2001. Yet, astoundingly, the major downturn in emerging markets’ FDI in 1999-2002 had largely bypassed the region. Net private capital flows - both FDI and portfolio investment - shot up six-fold from $1 billion in 2000 to $6 billion a year later. Most of the surge occurred in the Balkans and the Commonwealth of Independent States (CIS).
According to the European Bank for Reconstruction and Development (EBRD) in its Transition Report Updates, the region grew by 4.3 percent in 2001 and by 3.3 percent p.a. the years after. In 2006 alone, eastern Europe’s GDP shot up by 6.2% and FDI flows amounted to $50 billion. This performance as projected to have been repeated in 2007. This is way more than most developed and emerging markets managed. Eight countries in central and east Europe drew rating upgrades, only two (Moldova and Poland) were downgraded.
Some countries fared better than others. Slovakia sold, in March 2002, 49 percent of its gas transport company for $2.7 billion. Slovenia booked yet another record year in 2002 due to the long-deferred privatization of its banking sector and to the sale to foreign investors of assets originally privatized to cronies, insiders and communist-era managers. The Slovenian Business Weekly correctly expected the country to draw in more than $600 million in 2002 - up 50 percent on 2001.
In the western Balkans, only Croatia stood out as an inviting and modernization-bent prospect. Yugoslavia (Serbia and Montenegro) reawakened, too. It has privatized cement companies and rationalized the banking sector with a view to becoming a preferred FDI destination. In the first 6 months of 2002, it garnered $100 million in realized deals and another $60 million in commitments.
Ironically, during the brief global recession, Romania and Bulgaria (both of which joined the European Union - EU - in 2007) were laggards, though intermittent privatization in both countries was counterbalanced by cheap and skilled workforces in their growing and labor-intensive economies. Macedonia spent those years futilely reviewing, with a view to annulling, at least 30 suspect privatization deals. This did not endear its kleptocracy to anyhow reluctant multinationals.
Per capita, FDI stock is highest in the Czech Republic ($3000), Estonia ($2600) and Hungary ($2400). These are followed by Slovenia ($2000), Slovakia ($1800), Croatia ($1700) and Poland ($1200). All, with the curious exception of Croatia, have joined the EU in 2004.
The total realized FDI in 2000-2002 in central Europe amounted to more than $50 billion, with Poland and the much smaller Czech Republic attracting the most ($14 billion each), followed by the Slovak Republic ($7 billion) and Hungary ($5 billion). The regional FDI stock comes to a respectable $100 billion.
Southeastern Europe (the politically correct name for the Balkans), excluding Greece and Turkey, attracted rather less - c. $12 billion in realized FDI in 2000-2. Croatia topped the list with $3.8 billion, followed by Romania ($3.3 billion), Bulgaria ($2.3 billion), Macedonia ($1.1 billion), Yugoslavia ($0.7 billion) and Albania and Bosnia-Herzegovina ($0.5 billion each).
Yet, the Balkans, impoverished and war-scarred as it is, accumulated a surprising $22 billion in FDI stock. According to the 2003 Investment Guide for Southeast Europe, published by the Bulgarian Industrial Forum, the share of FDI per GDP is much higher in the Balkans than it is, for example, in Russia. In 2001, the ratio was c. 5 percent in Bulgaria, 7.5 percent in Croatia and about 12 percent in Macedonia.
The former USSR as a whole enjoyed $57 billion in FDI between 1991-2002. The bulk of it went to Russia ($23 billion) and the Baltic states ($8 billion). In 1999-2002, Ukraine absorbed $1.9 billion in FDI flows - one half the receipts of the puny Baltic trio: Lithuania, Latvia and Estonia. Belarus and Moldova scarcely registered, each of them with barely above three fifths the FDI in Albania, or ravaged and precariously balanced Bosnia-Herzegovina.
The weight of FDI in the local economies cannot be overstated. Two fifths of the exports of countries as disparate as the Czech Republic and Romania are produced by foreign affiliates. In some countries - like Romania - 40 percent of all sales are generated by foreign-owned subsidiaries. The banking sectors of many - including Bulgaria, Croatia, the Czech Republic and Macedonia - are mostly owned by outside financial institutions.
Foreigners bring access to global markets, knowledge and management skills and techniques. They often transfer technology and train a cadre of local executives to take over once the expats are gone. And, of course, they provide capital - their own, or gleaned from foreign banks and investors, both private and through the capital markets in the west.
Initially, foreign investors provoked paranoid xenophobia almost everywhere in these formerly hermetically sealed polities. Deficient legal and regulatory frameworks, rapacious insiders, venal politicians, militant workers, opaque and politically compromised institutions, disadvantageous tax regimes and a hostile press obstructed their work during the first half of the 1990s.
Yet, gradually, the denizens of these countries came to realize the advantages of FDI. Workers noticed the higher wages paid by foreign-owned plants and offices. The emergent class of shareholders, invariably members of the powerful nomenclature, having sucked their firms dry, sought to pass the carcasses to willing overseas investors. Currently - with a few notable exceptions, such as Belarus - multinationals and money managers are actively courted by eager governments and keen indigenous firms.
Proofs of this grassroots turnaround in sentiment and priorities abound.
FDI is a good proxy for a country’s integration with the global economy. It is an important component in A.T. Kearney and Foreign Policy Magazine’s Globalization Index. The Czech Republic made it in 2002 to the 15th place (of 62 countries), higher than New Zealand, Germany, Malaysia, Israel and Spain, for instance.
Croatia in 22nd rung and Hungary in the 23rd slot compare to Australia (21) and outflanked the likes of Italy (24), Greece (26) and Korea (28). Slovenia was not far behind (25), followed by Slovakia (27), Poland (32) and Romania (40). Even hidebound Ukraine made it to the 42nd place, ahead of Sri Lanka (44), Thailand (47), Argentina (48) and Mexico (49). Russia lagged the rest at the 45th location.
A.T. Kearney’s Global Business Policy Council - a select group of corporate leaders from the world’s largest 1000 corporations - publishes the FDI Confidence Index. It tracks FDI intentions and preferences. Its September 2002 edition ranked 60 countries which, together, account for nine tenths of global FDI flows. The companies interviewed were responsible for $18 trillion in sales and seven out of every ten FDI dollars.
Revealingly, central and east European countries made it to the first 25 places. Poland, right after Australia, preceded Japan, Brazil, India and Hong-Kong, for instance. The Czech Republic, Hungary and Russia - closely grouped together - were found more alluring than Hong-Kong, the Netherlands, Thailand, South Korea, Singapore, Belgium, Taiwan and Austria. Russia - whose economy improved dramatically since 1998 - leaped from beyond the pale (i.e., below the top 25) to 17th place. Hungary moved from 21 to 16.
The report concludes with these incredible projections:
“Russia … could well be a target for almost as many first-time investments as the United States … China, Russia, Mexico and Poland combined … are expected to accumulate about one quarter of all proposed new investment commitments.”
This is part of a more comprehensive trend:
“Europe has become the most attractive destination for first time investments. More than one third of global executives are expected to commit investments for the first time in Europe over the next three years 2003-6 (especially in) Russia, Poland and the Czech Republic.”
A relatively new phenomenon is cross-border investments by one country in transition in another’s economy and enterprises. At four percent of Slovene FDI stock, the Czech Republic has invested in Slovenia as much as the United States, or the United Kingdom. Slovenes and Bulgarians have ploughed capital into the banking, industrial and food processing sectors in Macedonia. Hungarians in Serbia, Czechs in Romania, Croats in Slovenia - are common sights.
Traditional FDI destinations feel threatened by the surging reputation of central and, to a lesser extent, east Europe. In a series of articles he published on radio Free Europe/Radio Liberty prior to the EU’s enlargement eastwards, Breffni O’Rourke summed up Irish anxieties expressed by his interviewees thus:
“There’s a certain unease developing in Ireland as the 10 Central and Eastern European candidate countries move toward full membership in the European Union. The Irish are not unaware that the Czechs are heirs to a fine tradition of precision manufacturing; that the Poles are considered quick-thinking and innovative; that Bulgarians have a way with computers; that the Baltic nations have powerful Scandinavian supporters; and that Romania has extraordinarily low costs to offer investors. In fact, rising costs - in comparison to the Eastern candidate nations - are one of Ireland’s main worries. The question troubling the Irish is: Could incoming Eastern member states prove so attractive for foreign investment that the country would find itself eclipsed?”
According to UNCTAD, global FDI flows amounted to a record 1.5 trillion USD in 2007. Southeast Europe and the CIS (Commonwealth of Independent States) enjoyed robust, record-setting inflows, the seventh year in a row (up 41% on 2006 to a new record of 98 billion USD), emanating mainly from transnational corporations. Capital went to both extraction industries and privatization deals.
But 2007 appears to have been the swan song of FDI. Cross-border M&A (Mergers and Acquisitions) activity - the locomotive of FDI - virtually collapsed in the last quarter of 2007. Increasing risk aversion throughout the global financial system may result in the drying up of credit. Inflation - or, rather, stagflation - is again rearing its ugly head. Wildly fluctuating exchange rate won’t help, either.
Nikola Gruevski’s Way Out
Title of Book: The Way Out: Foreign Direct Investment, Economic Development, and Employment
Author: Nikola Gruevski
Publisher: Evropa 92 Kochani
Month, Year of publication: October 2007
# of pages: 210
Nikola Gruevski, the youthful and dynamic Prime Minister of Macedonia, has just published his Master’s Thesis in the form of a book, titled “The Way Out”. In an earlier book, co-authored with the author of this review and titled “Macedonia at a Crossroads” (1998), Gruevski expounded on the same themes and suggested very much the same remedies. Though, surprisingly, his earlier book is not mentioned anywhere in his new tome, it is instructive to study it and to discover that Gruevski had the same vision for Macedonia in 1998 as he does in 2007. And this is precisely the source of my disagreement with some of his work: in the intervening 10 years, the world has changed and economic research has advanced.
Macedonia is not known as a bastion of economic studies. Most of its professors were educated and trained under Tito’s socialist regime and find the transition to capitalism baffling. Many of them don’t even know English. It is, therefore, to Gruevski’s great credit that he succeeded to produce a comprehensive, erudite, and thought-provoking review of issues tackled in his thesis. As an introduction to the topic of foreign direct investment and its role in emerging, developing, and transition economies, Gruevski’s book is more than adequate. It measures up to many textbooks on the topic that it so aptly covers.
Alas, the two pillars of his proposed way out for Macedonia’s economy are somewhat shaky. Macedonia cannot be compared to Ireland, Singapore, or even Romania and Poland. These countries have advantages that Macedonia can only dream of: proximity to mega-markets, knowledge of foreign languages, or a huge domestic population. Their experience is inapplicable to Macedonia: a landlocked, tiny polity with a xenophobic and poorly-educated population.
More importantly: the role of foreign direct investment (FDI) in promoting growth and sustainable development has never been substantiated. There isn’t even an agreed definition of the beast. In most developing countries, other capital flows - such as remittances - are larger and more predictable than FDI and ODA (Official Development Assistance).
Several studies indicate that domestic investment projects have more beneficial trickle-down effects on local economies. Be that as it may, close to two-thirds of FDI is among rich countries and in the form of mergers and acquisitions (M&A). All said and done, FDI constitutes a mere 2% of global GDP.
FDI does not automatically translate to net foreign exchange inflows. To start with, many multinational and transnational “investors” borrow money locally at favorable interest rates and thus finance their projects. This constitutes unfair competition with local firms and crowds the domestic private sector out of the credit markets, displacing its investments in the process.
Many transnational corporations are net consumers of savings, draining the local pool and leaving other entrepreneurs high and dry. Foreign banks tend to collude in this reallocation of financial wherewithal by exclusively catering to the needs of the less risky segments of the business scene (read: foreign investors).
Additionally, the more profitable the project, the smaller the net inflow of foreign funds. In some developing countries, profits repatriated by multinationals exceed total FDI. This untoward outcome is exacerbated by principal and interest repayments where investments are financed with debt and by the outflow of royalties, dividends, and fees. This is not to mention the sucking sound produced by quasi-legal and outright illegal practices such as transfer pricing and other mutations of creative accounting.
Moreover, most developing countries are no longer in need of foreign exchange. “Third and fourth world” countries control three quarters of the global pool of foreign exchange reserves. The “poor” (the South) now lend to the rich (the North) and are in the enviable position of net creditors. The West drains the bulk of the savings of the South and East, mostly in order to finance the insatiable consumption of its denizens and to prop up a variety of indigenous asset bubbles.
Still, as any first year student of orthodox economics would tell you, FDI is not about foreign exchange. FDI encourages the transfer of management skills, intellectual property, and technology. It creates jobs and improves the quality of goods and services produced in the economy. Above all, it gives a boost to the export sector.
All more or less true. Yet, the proponents of FDI get their causes and effects in a tangle. FDI does not foster growth and stability. It follows both. Foreign investors are attracted to success stories, they are drawn to countries already growing, politically stable, and with a sizable purchasing power.
Foreign investors of all stripes jump ship with the first sign of contagion, unrest, and declining fortunes. In this respect, FDI and portfolio investment are equally unreliable. Studies have demonstrated how multinationals hurry to repatriate earnings and repay inter-firm loans with the early harbingers of trouble. FDI is, therefore, partly pro-cyclical.
What about employment? Is FDI the panacea it is made out to be?
Far from it. Foreign-owned projects are capital-intensive and labor-efficient. They invest in machinery and intellectual property, not in wages. Skilled workers get paid well above the local norm, all others languish. Most multinationals employ subcontractors and these, to do their job, frequently haul entire workforces across continents. The natives rarely benefit and when they do find employment it is short-term and badly paid. M&A, which, as you may recall, constitute 60-70% of all FDI are notorious for inexorably generating job losses.
FDI buttresses the government’s budgetary bottom line but developing countries invariably being governed by kleptocracies, most of the money tends to vanish in deep pockets, greased palms, and Swiss or Cypriot bank accounts. Such “contributions” to the hitherto impoverished economy tend to inflate asset bubbles (mainly in real estate) and prolong unsustainable and pernicious consumption booms followed by painful busts.
Alphabetical Bibliography
Austria’s Foreign Direct Investment in Central and Eastern Europe:’Supply-Based’or ‘Market Driven’? - W Altzinger - thInternational Atlantic Economic Conference, Vienna, 1999
Blessing Or Curse?: Domestic Plants’ Survival and Employment Prospects After Foreign Acquisition - S Girma, H Görg - 2001 - opus.zbw-kiel.de
Competition for Foreign Direct Investment: a study of competition among governments to attract FDI - CP Oman - 2000 - books.google.com
(The) Contribution of FDI to Poverty Alleviation - C Aaron - Report from the Foreign Investment Advisory Service - 1999 - ifc.org
Corruption and Foreign Direct Investment - M Habib, L Zurawicki - Journal of International Business Studies, 2002
Determinants Of, and the Relation Between, Foreign Direct Investment and Growth - EG Lim, International Monetary Fund - 2001 - papers.ssrn.com
Direct Investment in Economies in Transition - K Meyer - Cheltenham and Northampton (1998), 1998
(The) disappearing tax base: is foreign direct investment (FDI) eroding corporate income taxes? - R Gropp, K Kostial - papers.ssrn.com
Does Foreign Direct Investment Accelerate Economic Growth? - M Carkovic, R Levine - University of Minnesota, Working Paper, 2002
Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship? - K De Backer, L Sleuwaegen - Review of Industrial Organization, 2003
Does Foreign Direct Investment Increase the Productivity of Domestic Firms? - BS Javorcik - American Economic Review, 2004
Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America - K Zhang - Contemporary Economic Policy, 2001
The Economics of Foreign Direct Investment Incentives - M Blomstrom, A Kokko - 2003 - NBER
The effects of foreign direct investment on domestic firms Evidence from firm-level panel data - J Konings - The Economics of Transition, 2001
Effects of foreign direct investment on the performance of local labour markets-The case of Hungary - K Fazekas - RSA International Conference, Pisa, 2003
(The) Effects of Real Wages and Labor Productivity on Foreign Direct Investment - DO Cushman - Southern Economic Journal, 1987
Employment and Foreign Investment: Policy Options for Developing Countries - S Lall - International Labour Review, 1995
Export Performance and the Role of Foreign Direct Investment - N Pain, K Wakelin - The Manchester School, 1998
Exports, Foreign Direct Investment and Employment: The Case of China - X Fu, VN Balasubramanyam - The World Economy, 2005
Facts and Fallacies about Foreign Direct Investment - RC Feenstra - 1998 - econ.ucdavis.edu
FDI and the labour market: a review of the evidence and policy implications - N Driffield, K Taylor - Oxford Review of Economic Policy, 2000
Foreign Direct Investment and Capital Flight - C Kant - 1996 - princeton.edu
Foreign Direct Investment and Economic Development - T Ozawa - Transnational Corporations, 1992 - unctad.org
Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden - M Blomstrom, G Fors, RE Lipsey - The Economic Journal, 1997
Foreign Direct Investment and Income Inequality: Further Evidence - C our FAQ, R Zone - World Development, 1995
Foreign Direct Investment and Poverty Reduction - M Klein, C Aaron, B Hadjimichael, World Bank - 2001 - oecd.org
Foreign Direct Investment as a Catalyst for Industrial Development - JR Markusen, A Venables - 1997 - NBER
Foreign Direct Investment as an Engine of Growth - VN Balasubramanyam, M Salisu, D Sapsford - Journal of International Trade and Economic Development, 1999
Foreign Direct Investment, Employment Volatility and Cyclical Dumping - J Aizenman - 1994 - NBER
Foreign Direct Investment in Central and Eastern Europe: Employment Effects in the EU - H Braconier, K Ekholm - 2001 - snee.org
Foreign Direct Investment in Central Europe since 1990: An Econometric Study - M Lansbury, N Pain, K Smidkova - National Institute Economic Review, 1996
Foreign Direct Investment in Developing Countries: A Selective Survey - Luiz R. de Mello Jr. - NBER
Foreign Investment, Labor Immobility and the Quality of Employment - D Campbell - International Labour Review, 1994
Foreign direct investment-led growth: evidence from time series and panel data - L de Mello - Oxford Economic Papers, 1999
Home and Host Country Effects of FDI - RE Lipsey - 2002 - NBER
How Does Foreign Direct Investment Affect Economic Growth? - E Borensztein, J De Gregorio, JW Lee - Journal of International Economics, 1998
The Impact of Foreign Direct Investment Inflows on Regional Labour Markets in Hungary - K Fazekas - SOCO Project Paper 77c, 2000
(The) Impact of Foreign Direct Investment on Wages and Employment - L Zhao - Oxford Economic Papers, 1998
(The) link between tax rates and foreign direct investment - SP Cassou - Applied Economics, 1997
Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals - SO Becker, K Ekholm, R Jäckle, MA Muendler - Review of World Economics, 2005
Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment? - H Gorg - The World Bank Research Observer, 2004
Should Countries Promote Foreign Direct Investment? - GH Hanson - 2001 - r0.unctad.org
Taxation and Foreign Direct Investment: A Synthesis of Empirical Research - RA de Mooij, S Ederveen - International Tax and Public Finance, 2003
Trade, Foreign Direct Investment, and International Technology Transfer: A Survey - K Saggi - The World Bank Research Observer, 2002
Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit - MW Klein, J Peek, ES Rosengren - The American Economic Review, 2002
Vertical foreign direct investment, welfare, and employment - W Elberfeld, G Gotz, F Stahler - Topics in Economic Analysis and Policy, 2005
Volatility, employment and the patterns of FDI in emerging markets - J Aizenman - 2002 - NBER
Who Benefits from Foreign Direct Investment in the UK? - S Girma, D Greenaway, K Wakelin - Scottish Journal of Political Economy, 2001
Why Investment Matters: The Political Economy of International Investments - Singh, Kavaljit - FERN (UK and Belgium)
Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East.He served as a columnist for Central Europe Review, Global Politician, PopMatters, eBookWeb , and Bellaonline, and as a United Press International (UPI) Senior Business Correspondent. He was the editor of mental health and Central East Europe categories in The Open Directory and Suite101.Visit Sam’s Web site at http://samvak.tripod.com
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by Anthony Green
Liabilities are simply the bills that you’re obligated to pay. Whether it’s a credit card bill or a mortgage payment, a liability is an amount of money you have to pay back eventually (with interest). If you don’t keep track of your liabilities, you may end up thinking that you have more money than you really do.
You should list the liabilities according to how soon you need to pay them. Credit card balances tend to be short-term obligations, while mortgages are long-term.
Don’t forget to include student loans and auto loans. Never avoid listing a liability because you’re embarrassed to see how much you really owe. Be honest with yourself doing so helps you improve your financial health. List the most current balance to see where you stand with your creditors.
Check how much interest you’re paying for carrying that debt. This information is an important reminder about how debt can be a wealth zapper. Credit card debt can have an interest rate of 18 percent or more, and to add insult to injury, it isn’t even tax deductible. Using a credit card to make even a small purchase costs you if you maintain a balance. Within a year, a $50 sweater at 18 percent costs $59 when you add in the potential interest you pay.
If you compare your liabilities and your personal assets, you may find opportunities to reduce the amount you pay for interest. Say, for example, that you pay 15 percent on a credit card balance of $4,000 but also have a personal asset of $5,000 in a bank savings account that’s earning 2 percent in interest. In that case, you may want to consider taking $4,000 out of the savings account to pay off the credit card balance. Doing so saves you $520; the $4,000 in the bank was earning only $80 (2 percent of $4,000), while you were paying $600 on the credit card balance (15 percent of $4,000). If you can’t pay off high-interest debt, at least look for ways to minimize the cost of carrying the debt.
The most obvious ways include the following:
- Replacing high-interest cards with low-interest cards. Many companies offer incentives to consumers, including signing up for cards with favorable rates that can be used to pay off high-interest cards.
- Replacing unsecured debt with secured debt. Credit cards and personal loans are unsecured (you haven’t put up any collateral or other asset to secure the debt); therefore, they have higher interest rates because this type of debt is considered riskier for the creditor. Sources of secured debt (such as home equity line accounts and brokerage accounts) provide you with a means to replace your high-interest debt with lowerinterest debt. You get lower interest rates with secured debt because it’s less risky for the creditor the debt is backed up by collateral (your home or your stocks).
The year 2004 was the eighth consecutive year that personal bankruptcies surpassed the million mark in the United States. Corporate bankruptcies were also at record levels. Make a diligent effort to control and reduce your debt, or the debt can become too burdensome. If you don’t, you may have to sell your stocks just to stay liquid. Remember, Murphy’s Law states that you will sell your stock at the worst possible moment! Don’t go there.
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by Doug Hadfield
The foremost exploration outfit operating in the famed Hedley Gold Basin in BC has announced the best assays the region has seen since the Nickel Plate Mine stopped producing gold over a decade ago.
Goldcliff Resource Corp’s (TSX.V:GCN) share price doubled at the end of December after reporting surprising assays from the Bonanza Trench on Panorama Ridge that included one metre grading 525 grams per tonne (15.311 oz per short ton), one metre grading 168 g/t (4.899 oz per short ton) and 1.5 metres grading 6.16 g/t (0.180 oz per short ton).
The company reported that the five metre sample interval had a weighted average of over four ounces gold per short ton — or 140.21 grams gold per tonne.
These results are significant to investors because they indicate that the successful lower grade deposit the company has been busy defining since 2000 also has some accompanying high-grade components.
According to Goldcliff’s President George Sanders, this model is also backed up by historical data from other past producers. The Nickel Plate mine is located just four kilometres from Panorama Ridge. Between 1904 and 1996, the mine yielded 2.5 million ounces of gold.
“We’ve always thought that there would be and should be Nickel Plate high-grade someplace on the property,” said Sanders. “We’ve now found that high-grade. And the significance of it is a couple points — the first demonstrates that Panorama Ridge is the same geological beast as Nickel Plate Mountain which produced 2.5 million ounces.”
Another important factor about this newly discovered high-grade area is that it occurs with continuity — not just in high-grade veins, but in widely disseminated strata bound gold bodies with “dip continuity”.
Goldcliff had already proved this in 2006, with positive assays throughout the York-Viking Zone. At the time, the company reported, “Of all the 2006 holes, holes 26072 and 26073 are the highlights of the York-Viking zone. Hole 26073 is the farthest hole drilled to the southwest and contains an intersection of 1.49 grams per tonne (g/t) gold over 26.70 metres. Hole 26072 is the farthest hole drilled to the northeast and contains 2.04 g/t gold over 20.10 metres, with a high-grade intersection of 6.73 g/t gold over 4.10 metres.”
Sanders makes another important observation about the deposit. “What we also know from Nickel Plate which is important for Panorama Ridge is they didn’t just have one high-grade bed — they had several. So these things are not singular, they do repeat themselves and sometimes fault offset or have other mineralized beds within the 200 meter sequence.”
The Hedley Basin is a major regional geological feature and is — considering the importance and size of the now exhausted Nickel Plate deposit — relatively underexplored. The Hedley Basin covers some 1,000 square kilometres and is composed of Late Triassic Nicola Group sedimentary and volcanic rocks. According to the authors of Goldcliff’s 43-101 on the Panorama Ridge property, “The basin area, which is relatively under explored, contains rock units with world-class gold deposit potential.”
One of those authors is Goldcliff’s Chairman, Leonard Saleken, who like the rest of Goldcliff’s team, has a history of involvement in Hedley gold exploration and production.
Saleken was exploration manager for a private exploration group in the mid-1980s. As a part of the team doing due diligence for a reverse takeover for Mascot Gold, they analysed the old Nickel Plate Mine data and examined all the stopes (areas from which ore has been extracted), and the high-grade beds that had been mined. They also observed the drilling and drifting that had been done, as well as the gold in the drill holes and drifts which — if they were near surface — would, as Sanders puts it, “make one heck of an open pit mine.”
What they determined was that the mineralized sequence did indeed outcrop on top of Nickel Plate Mountain. Consequently, Mascot Gold went on to open the Mascot open pit mine, which produced approximately one million ounces gold — all this occurred four kilometres and in the same geological setting as is found at Panorama Ridge.
Director Paul Saxton was the Mascot Mine’s VP of Operations and was partly responsible for putting the mine in production , and Director Edwin Rockel worked for Saleken on the geological team — it was Rockel who was responsible for the geophysics in that part of the Hedley Basin.
“When it comes to the work we’ve done on Panorama Ridge — our guys were already there and what we were looking for and continue to be looking for and drilling with success is this thicker sequence of lower grade near surface open pitable material.”
The Nickel Plate Mine’s high-grade underground production produced approximately 1.5 million ounces of gold with recovered grades averaging 13.94 g/t gold, at the Mascot open pit mine, another one million ounces of gold were mined with recovered grades averaging 1.98 g/t gold. Over the coming months, with a 10,000 metre drill program added to the 7,800 metres already completed, Goldcliff expects to prove up a new deposit of comparable size and grade to these two past producers.
This article is intended for information purposes only, and is not a recommendation to buy or sell the equities of any company mentioned herein. It is based on sources believed to be reliable, but no warranty as to accuracy is expressed or implied. The opinions expressed in the article are those of the author except where statements are attributed to individuals other than the author, in which case the opinions are those of the individual to whom they are attributed.
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by
Individual investors are increasingly losing their voices (via proxy or in person) in crucial shareholder voting matters. The reason for this under-representation has nothing to do with anything as exciting as deceptive business practices or secret votes. It’s just that fewer individual shareholders are choosing to return their proxies.
This lack of return creates many dilemmas for companies that wish to proceed with the voting process. After all, for voting to take place it is necessary to reach a quorum, which is the number of shareholder and/or proxy votes that are required to conduct business (typically a majority of the shareholders). If a quorum cannot be reached due to lack of votes then many times the Ten-Day Rule can be utilized.
The Ten-Day Rule allows brokers to vote proxies for shareholders who have not turned in their votes ten days prior to a meeting at which voting will take place. This rule can only be applied to routine matters, which provides an ambiguity that is quickly being defined and amended.
Non-routine issues such as equity compensation plans must be voted on by shareholders. Soon there may be Election Contest Rules enacted that would require shareholders, not brokers to vote in controversial director elections or when there is a recommendation for an Election Contest as well.
Serious problems for companies are caused when individual proxies are not returned and the Ten-Day Rule is not applicable. Individual investors and brokers both tend to vote on behalf of the company management, but institutional investors don’t always have the management’s best interest in mind. They do however always return their proxies. This can give them over-representation in the voting processes and unfair control of the companies.
Why the Indifference to Voting among Individual Investors?
There are many possible reasons why individual investors are not returning their proxies in the numbers that they used to. These investors may not realize the importance of their votes. They may be too bogged down by paper work and short on time to bother with it. They may be concerned that their votes could effect their standing in the company or they may harbor other privacy worries.
Many could find the wording of the ballots filled with industry jargon and hard to understand. Some may believe that others would do the job for them. The reasons for not sending in proxies are as unique as the individual shareholders themselves.
How to Improve Proxy Returns
What can be done to encourage individual investors to vote on their behalf? Well thought-out communication and educational campaigns designed to call shareholders to action can help.
Battle plans must be devised to educate company shareholders on the importance of and the value of their votes. Companies need to communicate this message to individual investors in an inviting format that is filled with language that is to the point and easy to comprehend.
Getting individual investors to want to read and learn about the value of their vote is the crucial element in getting them involved the voting process.
Finding Help
Thankfully, there are resources available to assist in educating and informing individual investors of company goings-on. Both shareholder services agents and transfer agent companies, such as First American Stock, serve to strengthen the communication and understanding between shareholders and the public companies that they are investing
After all, communication lines between shareholders and companies must be open and comprehensible on both ends in order for proxy solicitations to be successful. That’s where the help of a good transfer agent can be crucial. Transfer agents that listen to a company’s unique challenges and concerns will likely be able to better communicate issues to their investors and to yield a superior response from them.
That’s why it is so important to select a transfer agent that will pay full attention to the details of a company’s requests and see that they are addressed promptly and professionally. This kind of friendly and personalized service works well for the company, and it will translate to its shareholders as well.
Transfer agents will work for companies to maintain records of shareholder ownership and assist them with their annual proxy solicitations. Ensuring that ballot issues, upcoming management elections and other concerns are well communicated and understood by shareholders will reinforce the value of their votes.
This matter is of course crucial to the future of companies because when individual investor votes aren’t returned, their voices are lost and others are heard in their place.
By Amy Vincent, sponsored by First American Stock Transfer, Inc., registered with the Securities & Exchange Commission as a Registrar and Stock Transfer Agent - http://www.firstamericanstock.com. Please link to this site when using article.
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by Keith Lau
Compared to saving up your money and earning meager interests through bank deposits, investing
Investments can broadly be categorized into 3 main areas, financial investments (stocks, bonds, treasury bills and debentures), tangible investments (gold, gems, art objects and antiques) and real estate investments (property redevelopment, buying land and residential units).
Here are four compelling reasons why real estate investments remain a very attractive option in achieving financial goals and retirement:
(1) Financial Leverage
- Properties can be acquired with a small investment, sometimes just a fraction of the actual property value. As such, investors can include real estate investment in their investment portfolio without too much commitment of capital.
(2) Regular Income Source
- If the investment does well and the monthly rental income more than pays off the mortgage repayment and operating expenses, the property becomes a positive cash flow asset.
(3) Increased In Value
- Few investments can benefit as much as real estate when expert management of the property is provided. In getting a poorly maintained property at a bargain, smart investors will get a quick return on investment by simply sprucing up the place.
(4) Inflation Hedge
- Studies have shown that general property value increase at a faster pace than inflation. Therefore, real estate investment gives investors certain protection against loss of purchasing power in the face of continual rising prices of goods and services.
Many have invested in real estate and earned attractive returns for their investments. You can be one of them.
Keith is a licensed realtor and investor from Singapore. Check his website, www.singaporeprimedistricts.com
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by Anthony Green
Your investing
Conservative investing
Conservative investing means that you put your money in something proven, tried, and true. You invest your money in safe and secure places, such as banks and government-backed securities. But how does that apply to stocks?
Conservative stock investors want to place their money in companies that have exhibited some of the following qualities:
- Proven performance: You want companies that have shown increasing sales and earnings year after year. You don’t demand anything spectacular, just a strong and steady performance.
- Market size: Companies should be large-cap (short for large capitalization). In other words, they should have a market value exceeding $10 billion. Conservative investors surmise that bigger is safer.
- Market leadership: Companies should be leaders in their industries.
- Perceived staying power: You want companies with the financial clout and market position to weather uncertain market and economic conditions. It shouldn’t matter what happens in the economy or who gets elected.
As a conservative investor, you don’t mind if the companies’ share prices jump (who would?), but you’re more concerned with steady growth over the long term.
Aggressive investing
Aggressive investors can plan long term or look only over the intermediate term, but in any case, they want stocks that resemble jack rabbits they show the potential to break out of the pack.
Aggressive stock investors want to invest their money in companies that have exhibited some of the following qualities:
- Great potential: The company must have superior goods, services, ideas, or ways of doing business compared to the competition.
- Capital gains possibility: You don’t even consider dividends. If anything, you dislike dividends. You feel that the money that would’ve been dispensed in dividend form is better reinvested in the company. This, in turn, can spur greater growth.
- Innovation: Companies should have technologies, ideas, or innovative methods that make them stand apart from other companies.
Aggressive investors usually seek out small capitalization stocks, known as small-caps, because they have plenty of potential for growth. Take the tree example, for instance: A giant redwood may be strong, but it may not grow much more, whereas a brand-new sapling has plenty of growth to look forward to. Why invest in stodgy, big companies when you can invest in smaller enterprises that may become the leaders of tomorrow? Aggressive investors have no problem investing in obscure companies because they hope that such companies will become another IBM or McDonald’s.
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