Responsibility for market pricing and liquidity

Whose responsibility is market pricing? Whether you consider ASIC, the legislature or the Australian Stock Exchange to be responsible for market regulation, you would have to wonder why a company is able to persist with a 'market pricing regime' which undermines the capacity of shareholders to sell stock. I am talking of course of the situation in which Non-Liability companies (N.L.) are able to raise capital below their  par value infinitum, to the point of amassing issued capital in Australia in the billions, whilst retaining just 3,000-10,000 shareholders; often with just 100s of units after years of depreciation, and no incentive to sell because the value of the stock is less than the brokerage fee to sell them (i.e. $30). This problem is overcome by the provisions for companies to buy back small 'unmarketable' parcels of stock.

What is lacking however is an assurance that the company, ASIC or the ASX will ensure that there is a 'real market' in the stock. Consider the situation for two mining stocks that come to mind:

1. Republic Gold (RAU.ASX) - stock quotes as of 12th July

Buyers   11 83288497 0.1c

Sellers

Price         Quantity         Number

0.002 186536704 113

0.003 44261847 27

0.004 11897500 13

0.005 17970861 16

0.006 10167149 6

0.007 4831500         3

0.008 1300001         2

0.009 11740000 3

0.010 1750000         2

0.012 176338

Its fair to say that there is no real market in this stock. It is also fair to say that shareholders should not have to raise their price 100% in order to buy some stock, nor lower their price 100% in order to sell. The implication is that there is no 'liquidity' in this market, and no effort has been made by all concerned to ensure that liquidity. I personally know this stock, and I suggest there is no reason to expect a turnaround that is likely to lift it 500%, which might otherwise justify 'patience'. Irrespective, the current context justifies a recapitalisation of the stock. No director wants to do this because its a concession that you have failed to retain shareholder value. In fact however, exploration is risky, and some directors are better than others at finding good projects. 

Here is another example....

2. RAM Resources (RMR.ASX) - stock quotes as of 12th July

Buyers

14 13864126 0.002

52 117649338 0.001

Sellers

Price         Quantity         Number

0.003 6083332         13

0.004 17417700 7

0.005 2672000         4

0.006 4330423         3

0.007 5445163         2

0.008 80000         1

0.009 4000000         2

0.010 6266301         5

0.011 1608933         3

This stock is actually one of merit; but again, it is ridiculous that a stock is able to rise 50% in one day simply because there is no effective liquidity, or interim increments of unit price to justify the price rise. The simply solution is for this company's 955mil shares to be recapitalised from 0.2c with a 10x consolidation to 95.5mil shares around 2-3c. This is still a very cheap stock price, but at least it offers some liquidity. 

RAM Resources actually has an appealing project in Greenland for rare earths. This is a pristine natural landscape so you might wonder whether this project will be developed; though its mineral composition differs from the equally significant rare earth deposits of Greenland Minerals & Energy (GGG.ASX). China produces 80% of the world's rare earths; and yet industrial countries are being challenged to find new sources because China has adopted quotas to ensure security of supplies. It intends to cut output by 15% per annum. 

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Andrew Sheldon www.sheldonthinks.com

Gold close to $1220/oz previous high after $40/oz gain

The gold price has rallied to the $1200 level, very close to the $1220/oz level we anticipated about a week ago. We await the next moved, as the gold price approaches its previous high.

In the wake of the Rudd governments taxation announcement it could be expected that the gold stocks with overseas exposure will perform better than those with local exposure. I would also expect established producers to do better than those companies which are more than a year away from production. We also would like to avoid hedged producers. Most gold producers are actually unhedged.

The reality however is that gold might not yet break out to higher levels, so I would be looking for confirmation of that. I think the Greece financial crisis is not so significant in the grand scheme of things. I think its more significant in highlighting the fact that governments are inept, that they cannot be trusted, that they have a gross conflict of interest; that they have as much integrity as a murderer on death row. No, for those who might err, there are no good politicians. They are dishonest by necessity, otherwise they would not participate in a system which dispenses with integrity, honesty and objectivity. They are unthinking sheep which ought not be listened to. Why do you give them moral standing? Oh that's right, there is a 'metaphorical gun' pointing at your head.

I retain my belief that it will be some action related to Iran which will really get the price of gold moving. That will of course raise fears of inflation. Western governments will of course attribute all the impending ruinous inflation upon the Iranians, just like they blamed the financial crisis on banking CEOs. Makes you wonder why the banking CEOs are not more outspoken. Evidence of collusion? Hmmm...maybe, or maybe they are just scared.

Financial booms and resulting crises in the modern era are created by governments, particularly in the larger markets, where they are destined to have greater impact. Banking CEOs benefit from this, but they also benefit from governments not legislating to prevent 'inflated' profit growth prospects as a basis for remuneration. Of course bankers ought to have their 'sustainable' performance compared to other bankers, just as they compare their salary package to other CEOs. i.e. A CEO ought to get a base salary plus 2 x the % gain of the 200-day moving average of his bank share price relative to a nationwide bank index. If the bank has more than 50% of its business overseas, maybe he ought to be compared to an international index.

For more thoughts on the ethics of 'mixed economies' refer to my politics blog - where I have been very busy of late.

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Andrew Sheldon www.sheldonthinks.com

Dubious disclosure record by regulators

It was just last night I was discussing with someone why we shouldn't have taxation. Taxation = coercion = no accountability. More surprisingly still is when a journalist does some critical thinking, so my hat goes for to Michael West at the Sydney Morning Herald. If only they gave his looser deadlines so he could do some investigative journalism, so he might have exposed this story before the failure of yet another financial services company. See ASX & ASIC Disclosure.

I am well versed with the ASX's lack of interest in disclosure rules or guidelines, so it does not surprise me that they should have slipped up. I have just one experience dealing with ASIC. I registered a complaint against a company CEO for misleading the market in an attempt to raise capital. ASIC said there was no case to answer. I suggest because the evidence was not conclusive enough. The problem is that few resources are going to regulating compliance because it all goes on welfare statism which includes corporate subsidies as well. So in this case the best I could do was make this CEO hyperventilate at the company AGM. I doubt that will slow him down. He struck me as the type of guy with friends in the right place.

What a turgid, fascist world we live in....never mind the rhetoric that we have never been freer. The animal has just changed its chamouflage.
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Andrew Sheldon www.sheldonthinks.com