The Obama Restructuring

The US stimulus is now a reality. Some say it’s good. Some say it’s bad. But most are saying it is absolutely ridiculous.

The $787 billion dollar Obama stimulus package has been met and passed with serious scrutiny. Will the package work? What do business leaders think? What do people in the capital markets think? And most important, what do the markets think? The Dow closed this past Friday at a 6-year low, dipping well below the 7500 mark.

For businesses, investors, and financial consumers, this package appears to be nothing more than a government restructuring program designed to move the Government further into democratic socialism, not stimulate the economy. Despite the fact that much of what many are calling a “pork bill” is going towards tax relief (roughly 34%), the rest of the bill is short on incentives to get consumers spending again. The socialistic approach of this bill has in place long social goals that will most likely not stimulate economic activity.

Sure it will create some jobs in the short term. Sure people will save around $60 per month in taxes. But where is this money coming from? The federal government alone is now borrowing at an annual rate of well over $2 trillion. This does not include state and local government borrowing. For $787 billion worth of spending, how much of that is really stimulating the economy?

With most of the tax cuts given to individuals and not toward businesses and business owners, how can we expect further job creation? Already we are seeing jobs slashed at record rates as spending from consumers weaken. There are no incentives in this bill to further promote businesses or increase spending, both of which will ultimately create more jobs.

In the bill, there is what they call “discretionary spending ‘which equates to around $308 billion. In that, $48 billion goes to the Department of Transportation to repair and expand infrastructure. The remaining $260 billion “discretionary spending “goes to various federal agencies, as well as state and local governments.

Let’s cut a small chunk of this overcooked pork and have a quick taste:

  1. $300 million to buy “green cars” for federal employees and tax credits if you want to go and buy a “Neighbourhood Electric Vehicle” (NEV)
  2. $98 million towards a polar icebreaker
  3. $200 million to “design and furnish” the Department of Homeland Security Headquarters
  4. $3.4 billion to the Fossil Energy Research and Development program to achieve “clean coal.”
  5. $144 billion to state and local governments where spending is undetermined

It’s great to see that so much of what is meant to be part of an economy stimulus bill be thrown into government expansion. How do little golf carts and ice breakers stimulate the economy? What about interior decoration for security buildings? Shouldn’t that be discussed in a bill related to security? Shouldn’t clean coal be discussed in a bill related to energy? Shouldn’t there be some measure of where and how $144 billion is going to be spent to stimulate?

Obama is about to spend close to $1 trillion dollars on a bill meant to stimulate the economy but it is obvious that he chose to expand government and increase the people’s reliance on it, while the private sector, which pays the Bill, continues to shrink.

When Obama said he wanted change, he meant it.

This past week, we had the pleasure of interviewing an American CEO of a Canadian listed gold company regarding his corporation in this market and what he thinks of the recent Obama bill. The video interview will be posted next week so be sure to stay tuned.

Best regards,

Ivan Lo
Equedia Network Corporation
www.equedia.com

The Gold Super Hero

With investors hurdling toward gold as our Government prints more money, I am reminded of a story that many gold enthusiasts may already know. It’s a story about a real life gold super hero whose deviance of conventional wisdom turned a failing corporation into one of the world’s largest gold producers.

Rob McEwen wasn’t a miner. He was a young man following his father’s footsteps into the business world. Like his dad, he had a fascination for gold.

After years growing up hearing stories around the dinner table of miners and prospectors, he finally got his shot.

One day, he stepped into a takeover battle as a white knight and emerged triumphantly as majority owner of a mine in Red Lake, Ontario. Here he stood at the head of the boardroom table filled with a room full of experienced senior geologists, all of whom doubted his ability to lead this company. Who could blame them? He was a mutual fund manager turned CEO of a gold corporation overnight.

But it was hardly a dream come true. The company he had taken over was plagued with negative news and on the brink of failure. The miners were on strike and they were overwhelmed by lingering debts. The gold market was contracting and the mine’s operating costs were exceedingly high, forcing them to cease mining operations. Unless they found evidence of new gold deposits, the fifty-year old mine was about to be shut down along with the company.

McEwen knew that the mine had potential. “The Red Lake gold district had 2 operating gold mines and 13 former mines that had produced more than 18 million ounces combined,” he says. “The mine next door had produced about 10 million ounces. Ours had produced only 3 million.” So he sent his geologists packing with $10 million dollars and a plan to drill in the most remote and deepest parts of the mine.

A few weeks later the geologists returned. With smiles on their faces, they broke the news to McEwen that would save Goldcorp – at least for another few years. They had found results signalling new deposits of gold as much as thirty times the amount they had been mining at the company. But that wasn’t enough.

The senior staff continued years of further exploration in attempts to find a more accurate depiction of the gold’s value and location. Despite the expertise and experience among the staff of senior geologists, they efforts proved stagnant. It had become obvious that something critical needed to change if they were to secure a future for Goldcorp. They needed to act faster.

Exhausted and uncertain about Goldcorp’s future, McEwen decided to take a break for some personal development. He attended a MIT conference in 1999, where corporate presidents from around the world had come to learn about advances in information technology. Perched up in his chair, he listened as the lecturer talked about how Linus Torvalds built a masterpiece computer operating system by revealing his code to anonymous programmers all around the world on the internet. Without the help of thousands of anonymous participants, the Linux system would have cost millions of dollars to produce and would have taken years. But it didn’t.

Then it hit him. If his senior geologists couldn’t find the gold in Red Lake, maybe someone else could.

McEwen wasn’t a miner. He didn’t think like one either. But that was his strength. So he rushed back to his corporate head office in Toronto to share his idea of “open sourced” mining.

McEwen wanted to take all of the data the company has spent creating in the last fifty years and he wanted to share it openly with the world by posting it on the internet: “Then we’ll ask the world to tell us where we’re going to find the next six million ounces of gold.”

At first, Goldcorp’s geologists were appalled at the idea of exposing their fifty years of secret data to the world. And they had good reasons to be. The mining industry is an intensely guarded business and geological data is to miners what treasure is to pirates. Giving this sort of data away could not only subject you to takeover risks, but can also imply that your company no longer has the ability to move forward on its own.

Despite the inherent risks, McEwen decided to push forward and in March 2000, he launched the “Goldcorp Challenge.” They posted every bit of information they could on their 55,000-acre property through their website and setup a contest offering $575,000 worth of prize money to the participants that could show Goldcorp the best methods and estimates on their property.

McEwen knew this strategy entailed big risks. But the risks of continuing to do things the old way were even greater. “Mining is one of humanity’s oldest industrial pursuits,” McEwen says. “This is old economy. But a mineral discovery is like a technological discovery. There’s the same rapid creation of wealth as rising expectations improve profitability. If we could find gold faster, we could really improve the value of the company.”

And improve the value they did. Within weeks, submissions from over one thousand virtual prospectors in over fifty countries crunched the data. But geologists weren’t the only participants. Mathematicians, graduate students, consultants, and military officers all submitted entries. They had, “applied math, advanced physics, intelligent systems, computer graphics, and organic solutions to inorganic problems.”

Not only had the contestants identified new targets on the Red Lake property, they introduced Goldcorpto state-of-the-art technologies and exploration methodologies, including new drilling techniques and data-collection procedures, and more advance approaches to geological modeling. McEwen had harnessed a technological trend that most in the industry would have shunned. As a result, he turned his destined-for-failure $100 million company into a company today worth over $27 billion – even in our currently depressed market.

In our last newsletter, we talked about Jim and his unwillingness to change by accepting current and future movements in technology and communications. This led to a ninety percent haircut of his company’s share value versus the average thirty percent haircut his peers experienced in the same year. McEwen’s courage to challenge the mining industry’s safe-keeping of geological data reveals to us that change can lead to astonishing results.

Despite our market climate, corporations need to advance. They must have the backing of their investors. No longer should a corporation’s marketing and communications expenditures be focused solely on attracting new shareholders. An emphasis and strategy for retention must be put into place for all corporations, big and small. Over the course of this year, Equedia will bring you deep inside the minds of the companies you invest in. This will allow you to truly gauge the sentiment of your investments and their management’s ability to conquer. As we work with corporations on deploying these methods, I hope that others will take part in these strategies.

When our economy picks itself up from under the dirt and begins to re-root its foundation, corporations willing to embrace change now will become the future. Investors will not forget the efforts of the corporations that held their hands through this crisis. They will not forget the corporations who cared.

Its not the strongest that survive

It’s hard to find an industry that’s not experiencing dramatic change. Charles Darwin once said, “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” As part of our current economic conditions and as financial consumers, we must be responsive to change.

Change begins with the evolving dynamics of our investment world. The internet has become one of the most important tools for public corporations, impacting and expanding the methods for communicating a company’s investment story. With the onset of Sedar’s electronic filing and the ability for news releases to land through news wires instantly, the world of news dissemination now moves at the blink of an eye. Access to information is easier than ever. Conversely, this makes it that much more difficult to share it with the right audience.

Our generation has changed. Along with that, comes the change in our efforts to pursue further opportunities. America now has a new President, a new administration, and a new SEC Chair and is in the process of a complete an overhaul of its policies. The biggest change in our last decade has come. President Barrack Obama is leading this change.

Many say that President Obama’s campaign was won in part by how he interacted with change. He embraced today’s current trends and technologies through his use of social networking tools such as Twitter and video presentation tools such as Google’s YouTube.

The use of these online tools allowed President Obama to communicate and present his ideas to everyone, at anytime. No longer did American citizens have to rush home from work to watch his speeches to determine if he should lead their country. They could now, at anytime, know what he was doing with Twitter and more importantly, see what he was doing through his consistent video uploads on YouTube.

If America’s newest president is embracing change, shouldn’t we?

I recently spoke with the VP of Communications for a Canadian resource company (let’s pretend his name is Jim) regarding this change and my goals to help public companies embrace it. We started to talk about the use of our “on-going” online video solutions and online strategic methods for corporate communications. The moment we began speaking about better presentation and giving their investors (and potential investors) the ability to access information and up-to-date video interviews online, Jim interrupted me.

I wasn’t upset that I was interrupted. I wasn’t upset that he didn’t like my ideas nor shared my views on change. I was shocked at what he said:

“People don’t have time for this. They don’t have time for the internet. Investors don’t want to see and waste their time with online videos and interviews. Don’t quit your day job.”

I knew I couldn’t win that argument because Jim just seemed so stuck in the past. Yet I couldn’t help but think if there was some truth to what he said.

Driving to my next meeting, I was stopped at a red light in horrible downtown Vancouver traffic. I reached into my warm left overcoat pocket and anxiously pulled out my glitchy Blackberry Storm to do a little research. After fidgeting with the touch-screen display, I finally managed to pull up information on Jim’s company:

  • Record-breaking annual cash flow, significant new discoveries on its properties, and decent dividend payouts
  • Share value 8 months ago….$ 3.00 dollars
  • Share value today….less than $0.30 cents

No videos, no interviews, a presentation from a year and half ago, and the last updated document was uploaded back in Q1 of 2006

The TSX endured one of its worst years on record in 2008, losing 35 per cent of its value. Despite record-breaking annual cash flows, significant new discoveries on its properties, and decent dividend payouts, Jim’s company on the TSX took a 90 per cent haircut. Then it hit me:

No videos, no interviews, a presentation from a year and half ago, and the last updated document was uploaded back in Q1 of 2006

The red light had turned green now and traffic began to move. I drove to my next meeting, selfishly more confident about my goals.

Employees of public companies visit our website everyday and ask for information and interviews about the companies they work for. If a corporation’s employees are asking for this, I think it’s a pretty obvious sign that there needs to be a better way of distributing and presenting corporate information.

As a corporation, ask yourself if you are truly happy with your IR campaign, investor management and the way your company is being presented?

As an investor, are you happy with the way public companies present themselves and communicate with you? At the end of the day, these are your investments and corporations depend on you to keep it living, dynamic and vibrant.

“Change is the law of life. And those who look only to the past or present are certain to miss the future.” – John F. Kennedy

P.S. If you agree with me that corporations need to embrace change, the way President Obama has, please forward this email to the leaders of public corporations. Just don’t forward it to Jim.

If you build it, they WONT come

If you run your company well, build a good management team, hit your milestone marks, make some discoveries, and make some profits, investors and financial consumers will come knocking at your door to throw their money at you. After all, they want to be part of the winning team and could care less if you care about them…right?

Buy Warren Buffett. I am.

“Be fearful when others are greedy, and be greedy when others are fearful.”

Yes, I know, you have heard that phrase a million times over. And yes, I know, it is a phrase coined by one of the most successful – no – THEE most successful investor of all time: Mr. Warren Buffett

As a kid growing up that phrase has always echoed in my head. So has the Oracle of Omaha. There is no doubt that he is the best and why so many investors think of him when they think of successful investors.

So why are we not all rich and successful like him? You would assume that if we think of him as “the best of the best”, we should all follow his advice. We should all invest in what he invests in. But we haven’t.

Why? Because we’re not like him.

He is old. He is traditional. He is the past.

We are the new age investors. We are the investors who are shaping and changing our future. We are the investors who promote change and aggressive progress in order to become the best. We want to improve our technologies and explore the unexplored. We are the next generation.

Mr. Warren Buffett, you are old.

We are much more complex than you.

But that is our problem.

In our quest to move forward, we have forgotten the single most important rule that can be applied to practically every situation: KISS (Keep It Simple Stupid)

Throughout Mr. Buffett’s career, he has always had a very few simple rules of investing that has taken him to where he is today, one of the richest men in the world. I encourage everyone to read his works (such as “The Essays of Warren Buffett : Lessons for Corporate America” and “The Intelligent Investor”) and you will see (and agree) with me that his mantra all equates to simplicity.

There are arguments that he could have invested in some of the tech companies during the boom and potentially made millions more than he already has. But guess what? He is still on top.

It’s scary to see how accurately Mr. Buffett has predicted the outcome of our historical financial events. Back in 1999, when the tech boom was booming, he wrote yet another rare article, which you should all read here:

In that article, he says:

“Let’s start by defining “investing.” The definition is simple but often forgotten: Investing is laying out money now to get more money back in the future–more money in real terms, after taking inflation into account.

He also makes a comment that strikes a profound note by saying, “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

He was referring to the airline boom.

And boy was he right.

Applying that to the dot.com explosion, which I discussed here (http://equedia.com/blog/view.php/Financial-Crisis-Not-So-Bad), and Mr. Buffett was right – again. How many companies of the tech boom came out alive? Yes, there are your Googles, Amazons and Ebays but much more failed than those who succeeded.

Simplicity wins again.

I think it’s about time to listen.

Below, I have pasted Mr. Buffett’s recent article (October 16, 2008), “Buy American. I Am.”

(Please note that the article “Buy American. I Am.” was published in the New York Times and in no way is work of my own. You can find the article link here: http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&partner=rssuserland&emc=rss&pagewanted=all&oref=slogin

Financial Crisis Not So Bad

Comparing the Tech crash to our current financial crisis