Author: Petros

Do contracts mean anything in Africa? II

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My earlier post on contracts (originally at Palabre) resulted in quite a level of defensiveness on the part of respondents. However, I am not alone in my assessment that the frequency in the violation of contracts is a significant factor in sub-Saharan poverty. Yesterday’s Wall Street Journal offered a column entitled, “Why Africa Is Poor: Ghana beats up on its biggest foreign investors“, which is republished at Ghana’s The Statesman. The article cites the treatment of Texas-based Kosmos Energy, which has arranged a sale of part of its oil field in Ghana to Exxon. The Ghanaian government threatens to buy back oil fields at a cut rate; this would then give them the ability to sell the field to a third party at a huge profit. But it is a violation of their contract with Kosmos:

When Kosmos began its project under the then-ruling New Patriotic Party, the business environment seemed relatively stable with adequate protections for foreign investors. Under Ghana law, consent for a deal such as the one between Kosmos and Exxon can’t be unreasonably withheld, delayed or denied. Such contract protection began to dissolve in January 2009, with the election of the leftist National Democratic Congress.

Other foreign investors are also getting the Kosmos treatment.

The WSJ concludes:

Attracting foreign investment has been a pillar of Ghana’s development strategy, with the government pitching itself as the “Gateway to West Africa.” Spooking new investors by repudiating contracts will rapidly ruin the country’s prospects for long-term development.

The following comment to the WSJ article was made at the Statesman (sic):

Kwadwo mpiani the former chief of staff awarded contractas on humanitarian grounds and out of sympathy to foreign nationals and the NPP dont think these people needed to be probed. If any invester has a problem with following due process then we dont want him in our country. I think the writer of this article is so foolish that he would rather defend a foreign invester instead of his own country. The writer of this article is just as stupid as an ASS. James Bell , Accra , 18/02/2010 5:10:59 P

Unfortunately, Mr. Bell, corrupt practices like these create risk factors which are out of control, and no investor should ever be interested.

C. Edmond Wright, shrugging entrepreneur

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C. Edmond Wright has become one of my favorite writers at the American Thinker.  He is an entrepreneur who closed his business on the day that President Obama was elected.  He explains today why he considers that to have been the right choice.  In his article today, “Dear Mr. President: Why We Are Not Hiring” he trys to explain to Mr. Obama about risk [italics his]:

And since you clearly do not understand business at all, let me give you a short primer:

Any business idea, from the first day it is hatched, is nothing more than a series of cost-benefit analyses that the idea-holder either acts on or passes on. Sometimes the first decision is to forget the idea. Sometimes the first decision is to move ahead and invest some cash.

Perhaps a few million cost-benefit analyses later, you might have Microsoft or Home Depot or ESPN. Or you might have Bill’s Plumbing or Johnson’s Quality Homes or a café or an electrical wholesaler, and so on. And those businesses still operate on a constant stream of risk-reward decisions. In the business world, there is no neutral gear.

(There: Now you have more useful information than Jamie Gorelick or Franklin Raines got from Harvard.)

Thus, each time a risk factor is changed, the small business man has to determine whether he is going to hire, retain or layoff employees.  One huge risk factor in the US is the promise to raise tax on people making over 250K (or was it 100K? the number keeps changing).  Many limited partnerships and sole proprietorships are thus exposed to the full brunt of such taxes. Thus, the risk response will be to lower the number of employees and make less than that threshold where the extraordinary taxes kick in.  It is a promise based upon class envy and populism, and it is a real job killer.  The small business owner will not risk great amounts of capital unless the reward is also great.  Therefore, most will simply downsize their businesses to the point where they have few or no employees, or they will just simply shut their business down completely.  Now, the Bush tax cuts are expiring and there will be across the board tax increases on everyone.  This will obviously not help the employment situation in the US either.

Mr. Wright also mentioned how the environmental movement has sabotaged energy production in the USA and has increased the risk to business by raising the cost of energy.  Yet much of the current environmental pressure is focused on AGW (anthropogenic global warming), which is a hoax and based on counterfeit science.

Well, Mr. Wright, I for one have greatly benefited from this energy crisis because I’ve invested in Canada’s mid-cap (e.g., cpg, erf, nae.un) and junior oil and gas companies (mel, cta, psx, mox).  Now that Obama has announced further plans to remove tax cuts from oil drilling in the US, we can expect the whole Canadian oil industry to take off, as long as nothing stupid is done on the levels of our provincial or federal governments here in Canada, such as cap and trade or carbon tax.  (Perhaps the Luddites of the environmental movement want us to live as poor primitive peoples–but I’ve been to place where people live like that and I don’t know a single sane person who would ever choose to live like that.)

This is my comment on Mr. Wrights article at American Thinker:

Posted by: pwdunn Feb 12, 06:52 AM

Mr Wright: I found your article riveting; I too have decided to shrug for 12 years now for two reasons: (1) Taxes in Canada are so high that my wife already works for all levels of government until June 11th  or something like that [**actually June 17], and so why would I want to work for 6 months of the year for government as well? (2) I could teach at University level but I am neither black nor a woman, nor any other under-represented minority (actually I belong to an over-represented minority)–thought about changing my name to something Yupik, and I’d get a job in minute–but then who wants to be involved in higher education when the profs are hired on the basis of their gender or skin color. Not me.

More articles like this from business people would be greatly appreciate. Thank you American Thinker!

One-child policy favors the rich

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A couple of days ago, Diane Francis of Canada’s National Post wrote a disgusting column in which she advocated the world-wide application of China’s one-child policy. She of course is completely ignorant of the consequences that this policy has had on the psychology of China. One such consequence is as follows:

One of my very best friends is Chinese. A young man studying engineering in a Canadian university, he has informed me that no girl would ever be interested in a poor man. Apparently, this notion is widespread amongst young men in China. Why? There are now many more young men in China than women, because if you are allowed only one child, you will abort a baby girl. This has led to an imbalance in the Chinese population. What this means is that girls can be extremely selective in whom they will marry. So when there is parity in the population, a girl would choose sometimes a poor person, because she would otherwise be left a spinster. But now, if every girl has two or three boys from which to choose, she will naturally pick one who is better off financially. The result is that poor young men have much less chance of finding a suitable partner.

Another reason that one-child favors the rich is that the poor depend on their children in their old age, not upon a retirement portfolio.  Poor people with one child are in great danger of complete abandonment in old age because their one child may die or rebel against them, and they will be left destitute.  But also, upon a single married couple falls the burden of four elderly parents (in 60s), and potentially eight elderly grandparents if they survive into their 80-100s.  This is more than any couple can handle, unless they are wealthy.  One child favors the rich.

The worst investment decision Warren Buffet ever made

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Or: On Outperforming Warren Buffet

Warren Buffet is hailed as the best investor in the world. His net worth as an investor is generally regarded as proof.  I started 100% DIY investing in March 2006 when we transferred our remaining holdings from our full-service investment adviser to our discount brokerage. We are currently standing at 31% over book value. In the same period, BRK-A, Buffet’s holding company has gone from trading at US $90,625 to yesterday’s close at $103,000. That is a 14% gain. Does that make me twice as good an investor as Warren Buffet?

An article in Canada’s Globe and Mail recommends that individuals invest like Buffet. There are many articles of this kind floating around; Buffet is considered a prophet of investing, the Oracle of Omaha. I’ve also shared here some of my tips of investing and there is some overlap between the way the Buffet invests and my style.  Yet in the commentary section of the Globe and Mail article I wrote:

I cannot invest like Warren Buffet. He breathes and the market reacts. It is harder for him to buy shares on the open market too, since if he were to let it be known that he wanted a billion dollars of shares of something, the price would go up uncontrollably. That’s why he often buys preferred shares which aren’t available to guys like me. He can’t invest like me either. Unlike Buffet, whenever I buy something the price seems to go down immediately. I buy very small stakes in companies that I think have promise or which have good yield. But it’s too small for anyone to pay much attention. I like it that way.

So perhaps comparing myself to Warren Buffet is a bit of bravado on my part, a testosterone-filled pissing match. It’s not comparable at all because Buffet is investing billions and I’m like an ant crawling around the big toe of an elephant. And to be fair, there have been times when Buffet’s done much better. I’ve been lucky during this recession, I’ll admit it.

But there is a fundamental difference between Buffet style and mine. He is buying America whereas I’m shorting the US dollar and buying Canada–a strategy that may back fire according to Roubini; but I don’t think it will because all the trends in the US government until the 2010 election are inflationary. Ken Boessenkool in the Globe and Mail writes about Canada’s dollar, the loonie:

… perceptions of future investment returns on a country-to-country basis are often affected by large shifts in fiscal policy. Bad fiscal policy – in the form of unsustainable deficits and debts – will cause investors to expect increases in future taxes and lower rates of return. In that case, the relative attractiveness of that country as a place to work and invest will fall, driving down economic growth. In response to poor fiscal policy, a falling currency can provide the automatic stabilizer to lower growth rates resulting from rising deficits and unsustainable debts.

And this is exactly the picture we are seeing south of the border. Barack Obama has put the United States on a debt and deficit path that is far worse than Canada experienced in the early 1990s, when The Wall Street Journal called Canada an “honorary member of the Third World” and our dollar was flirting with historic lows.

Moveover, our world-view is informed by biblical conservatism. The Bible is a good guide to investing; it affirms risk taking, generosity, unselfishness and not allowing money take hold of you (I am of the opinion that selfish people make bad investors).  It also warns about indebtedness. In my view, the US government’s profligate debt-based spending is a path towards poverty that is immoral and self-destructive. This kind of behavior is not affirmed in the Bible at all.

Warren Buffet knows it is bad in the US. But perhaps he is in denial about the single worst investment decision that he ever made:  his ill-informed endorsement of Barack Obama for President. Ill-informed because had he paid attention to Obama, he would have known that he was a radical leftist–perhaps it is not too far to say that BHO is a Marxist given his background. He would have known also that BHO knows nothing about economics and has never been an executive of a company or any other entity which would have qualified him for becoming the CEO of the United States. The man who is famous for researching companies before risking billions failed to do his research into BHO and it is literally costing Berkshire Hathaway billions in market capitalization.

Righteous Investor

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What does the Bible have to say about economics and investing?  How should a Christian approach the question of business, investing and money making?

Jesus warned against serving two master’s, God and money.  But then some of his parable praise the wise investor (e.g., the Parable of the Talents) or the shrewd steward.  Jesus said that the poor were blessed, but then the Bible also recognizes the blessing of wealth.

This blog will explore these biblical issues, in the context of contemporary events.  The authors are Christians and they are investors; they strive to be righteous investors.