Coal as Growth

Today is the last day you can get an early-bird discount for next month’s Gold Symposium in Sydney. The first day of the show features a whole slew of Aussie gold exploration and production companies. Days two and three have speakers from Australia and beyond talking about where gold goes from here. Remember, we’ve arranged for a discount from the full three-day price of $962 for Markets and Money readers. You can have a look at the full program for days two and three here.

But why would you want to buy gold now anyway? Or just gold? Why not buy copper? And bonds? And vodka? And cigarettes? Why not trade your paper money for virtually anything else? That’s what you do when paper money slides in value against real things.

With markets pricing in more Quantitative Easing from the Federal Reserve, pretty much everything is going up, up, and away! For example, the Dow Jones Industrials closed up over 11,000 in Friday’s New York trading. And this was despite a jobs report from the U.S. Labour Department which showed the economy had “lost” another 95,000 jobs in September.

You don’t find “lost” jobs in your sofa cushions the way you find “lost” spare change. It’s beginning to dawn on angry French workers and American voters that the rise of emerging markets has led to a shift of certain jobs overseas, probably for good. The great sofa of globalisation has many deep crevices. Now, there aren’t enough good paying jobs to pay the taxes that fund the pensions are retirement plans of public and private sector workers.

But such is the fraudulent and deceptive nature of money printing that you can get higher asset prices even as the “fundamentals” in the underlying economy are horrible. That’s what makes this experiment in global quantitative easing so potentially wealth destructive: it could lure investors into buying shares from insiders right before they bail.

In fact, a cynical person might say this is the largest organised exercise in “pump and dump” ever perpetuated on the investing public. The bankers and money shufflers on the inside are using the hijacked monetary system to pump the value of their investments before they bail (selling into the rally) and buy gold and real estate.

Speaking of which, gold and silver were both up last week, two percent and five percent respectively. But you know that the great reflationary melt up is upon us when people start stealing copper again. A Florida paper reports that thieves busted into an idle processing plant and stole $45,000 worth of copper coils by stripping them from several 40-tonne commercial air conditioning units.

It would have been easier for them to just buy copper stocks in Shanghai. Chinese investors came back from the National Day holiday and went limit up on shares of Jiangxi Copper and Yunan Copper. Maybe this is why Alex loaded up on copper stocks a few months ago in Diggers and Drillers. Hmm.

Stocks are probably a much better bet than bonds in a QE melt up. Right now, investors are anticipating bigger asset buys by central banks. There’s always the chance that if those buys don’t come, or aren’t convincing in their size and scope, the current rally in everything will correct. But that is also the time you’d look to add to your precious metals positions.

But what about coal and coal stocks? The prospectus for QR was revealed over the weekend. WE haven’t dug into it yet. But some eye-catching numbers are the expected 75% increase in earnings from $628 million this year to $1.1 billion in two year’s time. That’s why the directors are pitching the share as a growth stock.

In fact, the stock would trade at 21.1 times expected earnings given the lowest retail share price you could pay of $2.50. The more you pay in the initial offer, the higher the P/E goes. And all of that without much of a dividend yield for what is traditionally a conservative business that needs to pay dividends to attract shareholders.

But hey, when you’re hitching a ride on the great coal boom and the even greater commodities boom, do you really need income? It’s all about growth baby! Of course, it’s also possible the float of QR is a kind of high-water market for the post March 2009 reflationary melt-up. More on the share this week. Until then!

Dan Denning
for Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to