BHP/Potash Corp, Economists, Gold 'Risks'

BHP/Potash Corp, Economists, Gold 'Risks'

BHP/Potash Corp

An article today titled 'China Gets Nervous About U.S. Spending' discusses China's ongoing (and now apparently reduced) purchases of U.S. Treasuries, and goes on to comment on China's likely ongoing use of its massive U.S.$ holdings to purchase 'Resource Assets'.  I commented on this article this morning as follows:

I have commented for some time now that China will use its U.S.$ holdings to purchase resource assets 'around the world' that China considers to be strategic to it - and hence in China's best interest to own. As readers likely know, BHP Billiton has just made an approximate U.S.$40 billion bid for Potash Corp. - from my perspective one of Canada's strategic resource 'jewels'. It will not come as any great surprise to me if a competing bid from a Chinese Government company is made in the next few days. If that happens, I think the Canadian Government's position - and for that matter the U.S. Government's position if it takes one - could prove very interesting. The Potash Corp. Board approved a 'Shareholder Rights Plan' on Tuesday. A Shareholder Rights Plan is something intended to act as a form of 'roadblock' or 'deterrent' to an unsolicited takeover bid - although often proves to be largely ineffective. Readers may find the following newspaper article of interest: www.record.ca/Business....

If you read my e-mails with any regularity, you will know that for at least two years I have intermittently expressed the view that China indeed will (and now is) using its U.S.$ holdings to buy assets it considers strategic to it.  I see China's U.S.$ holdings and its ability to use them in this way to be an ultimate 'world economic power game-changer', and hence of huge importance to my children, my grandchildren, and succeeding generations - and of huge importance to me in my own 'investment thinking'.  I think 'hard' about this as I watch and think about world economic events as they unfold.  I suggest you do likewise in the context of your own investments. 

Importantly, I want all readers to clearly understand that my comment on the possibility of a Chinese company making a competing bid for Potash Corporation is sheer speculation on my part.  That said, as I see it the continued growth in world population combined with the finite amount of agricultural land in the world makes Potash Corporation a particularly strategic asset in a prospective context.  I think it impossible that China is not watching the BHP Billiton bid with great interest, and that it isn't monitoring that bid closely. Comments at info@stockresearchportal.com will be appreciated.

Economists

I think you may find an article yesterday titled 'Professional Double-Dip Guesses Are 'Probably' Wrong' to be a useful read - reading time 3 minutes.  I commented on the article as follows:

While I too believe many economists 'skate alongside the puck' (as a Canadian I particularly appreciate the Wayne Gretzky reference) they do live in a world of constant change and subjectively. Accordingly, my concern with economic forecasts has less to do with the fact that I acknowledge they have to be subjective, and far more to do with what I see as a 'failure' in many economists to believe what they learned in their PhD programs - that history will always repeat itself - simply is a wrong thesis (or so I believe) in the world of the seriously changed economic paradigms that exist in August, 2010 versus those that prevailed from 1950 - 1999.

I will greatly appreciate it if any economist who reads my comment takes the time to write to me at info@stockresearchportal.com telling me (with reasons) whether they agree or disagree with my belief with respect to the current use by economists of 'historic precedent' when currently making economic forecasts and predictions.  I undertake to put forward any views contrary to mine on this point in upcoming e-mails.

Gold 'Risks'

This follows from yesterday's e-mail where I stratified my views on the relative risks attached to five different forms of direct and indirect ownership of gold.  Yesterday I received the following comment and question from a Subscriber:  "Thanks for your article mentioning that buying physical gold is the best way to go.  Any idea where the best place is to buy it?"  I responded to that e-mail earlier this morning as follows:

To be clear, I am not recommending that you buy physical gold.  The message in my e-mail yesterday is that physical gold is the 'investment in gold' whose risk is only that the price will go up, or the price will go down, in either case subject to a lot of complex and ever-changing economic and financial markets considerations.  I consider the other types of gold investments mentioned in my e-mail to be even 'more risky' because they all have their own incremental risk or possible risk factors.  For example, a gold ETF ultimately may prove not to have the physical gold held in trust that it publicly claims to have, or the Depository contracted by the ETF have business difficulties that might add to risk depending on the contractual terms between the ETF and that Depository.  In the same vein (no pun intended) a mining company - either producer or explorer - is subject to the political whims, income tax rate, and currency exchange rate (to name only a few important variables) of the country or countries in which it operates in circumstances where those things may be more or less risky than the country in which you live.  Finally, there is an up or down 'price leverage' factor in gold options that to me makes them the riskiest of all 'gold related investments' - or in the case of gold options perhaps better described as 'speculations'.

With respect to 'where is the best place to purchase physical gold', in Canada my answer is 'one of the large commercial banks, such as the Bank of Nova Scotia'.  That said, I suggest you speak with your investment advisor about 'where is the best place to buy' whether you are in Canada or in another country as individual investor profiles, abilities, and financial needs are all specific to each individual investor.

I thank the Subscriber who wrote to me for taking the time to do that - and hope the foregoing clarifies my commentary yesterday for others who read it.

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Ian R. Campbell

President

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