Hudbay Mineral - A $6 stock priced at $18

I first looked at Hudbay Mineral when I contrasted it to Blue Note just over a year ago. I saw nothing but downside to it, although I wasn't overly critical, yet. Blue Note that I liked has yet to perform, and with the retraction of zinc price it is unlikely to perform.

I anticipated a retraction of zinc prices, but simply not to the degree that they have retracted. Zinc was at $1.53/lb and the Canadian US dollar means that was about $$1.80 Canadian. It was $1.18 for the last quarter and it is now down to $0.96.

I made a prediction on Hudbay in the fall, and I specifically said the problems would not show up until this quarter.

Hudbay minerals looked to be valued at about 2-3x the valuation of Blue Note when I looked at them together. Today Hudbay's earning look to me like they are heading to the 50c/share for a full year range, and that won't show up on the next quarter, but Q1 2008 would have earnings in the 10-13c/share range based on today's metal prices and exchange rates. Q4 already has some better metal prices rounded into the quarter. I saw some serious reasons to see earnings declines when I reported on this stock and they have shown up and further declines will likely happen.

I missed on my prediction as they came in at 17c/share. It looks like they did well on their silver, "silver production increased 24.0% owing to higher silver content in the purchased concentrates processed in Q1 2008." That would account for about 2c that I'm out. They also produced 23,000 ounces of gold and an extra say $200/oz is an extra $4.6 million, so the gold and silver holdings off set the reductions I predicted.

So, gold, silver and zinc are all down right now compared to Q1, so expect earnings to go lower. Just to give some reference for how far Hudbay has fallen, news on the 4th quarter showed:

Canada's third-biggest zinc and copper producer earned C$28.5 million, or 22 Canadian cents a share, in the quarter ended Dec. 31, down from C$165.8 million, or C$1.29 a share, a year earlier.

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The Problem With Storage

The enormous problems in the US housing market has an even sadder story about what to do with your stuff while you try to get back on your feet, as featured in this news story.

I put my stuff in storage while I was in university and went to jobs in Ontario and Alberta. What started as a 4 month plan turned into 2 years. It was probably a good learning experience in that I would strongly advise selling and tossing stuff as opposed to storing it.

You pull the stuff out in two years and much of it you didn't miss, so why have it? And then unless your stuff is high quality, just sell it and buy something used to replace it when you need it.

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The Problem With Housing Development Fees

I have previous written about the unfairness of development fees and now many municipalities find themselves in trouble trying to balance budgets because of their gross irresponsibility in leveling fair taxation.

Without going back and pulling actual figures, I know that in my area (and certainly my reading of news from other areas indicates the same problem) the percent of municipal budgets coming from development fees has been increasing. New developments are paying the whole shot to bring a neighbourhood up to a certain standard on those developments at the same time taxes are paying for similar upgrades to other areas. The new developments are essentially being double taxed because these fees are so excessive.

The fees are tacked on the cost of a home. So, in Vancouver developers have claimed up to $60k of a home is development fees. Does this hurt the established home owner? Hardly, the entire stock of homes goes up a proportional amount. New and existing homes are not priced differently based on the older homes didn't have the excessive development fees and costs to build, but rather relative pricing as to what you get. So, new homes get more expensive, but so do existing homes. The established home owner re-coops that increase through the sale of their home.

The first time buyer see the cost of housing up the full cost of development fees. $60k over 30 years a 6% is $129,600. It is an extra $360/month. This is the burden transfer essentially to younger people. It would probably only cost existing home owners an extra $25-50/month to pay their fair share and not transfer this burden to youth.

But hey, youth are going to be able to pay that, their enormous student loans, the increased tax burden due to an aging population, that extra $25-50/month in property taxes that's going to come now anyways, and while we are at it, we can give them a lecture on their social responsibility while they feed their kids Kraft dinner.

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Aging Population, Canada Vs US

I was looking around on this census data site. Canada and the US are fairly similar right?

Well, what I found kind of shocked me. I started by looking at the US data and I found that the ratio of working age (20-64) to retirement age (65+) people was increasing slightly in the US from around 1995 and that in 2007 the percent was essentially the same.

The graph below actually has the US data offset by one year because I don't know how fix that in excel. A one year offset doesn't change the picture that much. With all we constantly hear about an aging population I expected that ratio to be continuously declining in both the US and Canada. It looks very bad for the US that their finances have so grossly declined and they haven't even begun to be hit by an increasing percent of their population in retirement age.


Click on graph for bigger image.

That left me extremely curious about what Canada's projections look like. At first I just looked from 1996 to 2006 and I found that the percent 65+ had increased from 12.47% to 14.6% of the population, a 17% increase. To Canada's credit, not only was this enormous increase to social programs absorbed, but $100 billion of federal debt was repaid.

But, then later I went back to look at the longer term projections. That was cause to feel ill. Canada's declining birth rate is going to be a killer in terms of supporting our aging population. If you look ahead to 2026 or 2025 in the US that ratio of about 2.4 for Canada versus 3.1 for the US means the burden per working age person is about 1/3rd more in Canada than the US.

Disaster is an understatement. Fantasy would be a good expression for people's expectation of collecting any thing near what they think they are getting in their pension.

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Where'd the Dock Go?

You know those warning sirens you hear in the movies for warning of a bombing raid? Those kind of sirens were going in town today and I didn't know what they were for. They were going for about 30 minutes. I looked around and didn't see anything.

Well, the ice in the river broke last night and it brought about 7-10 meters thick of ice filling up the river, and it over flowed the banks for a while and flooded the homes right on the river. The sirens were to warn people to get their stuff out of the basement fast. Apparently if they come in three blasts we are supposed to evacuate the town.

I found out earlier in the week that I live in a flood plain and that it can be interesting to watch the river break up. That was amazing to me because I was down by the river looking for a place to climb down to the bank last weekend. The banks were so high I couldn't imagine them ever being filled. Well, now they are filled with ice.

This picture is where there is a driving dock to load boats. I know it is there because I saw it last week.



These are a few other pictures. I kid you not, last week I was wondering if the river was going to go dry, it was so low and still covered with ice. The places I could see I figured the ice was sitting on mud and there didn't appear to be many places that looked like there could be running water.







And, not to be undone, I guess the week before last I told students to get pictures around the school for the year book. You never know what kids will come back with...



UPDATE: One day later, the ice has broken and the river is flowing...

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Super Artists

My students are super artists. We are working on a yearbook and I thought I'd share some of the artwork they've made for putting students heads onto. I am in a very small school. We have 5 graduates this year, and the above picture will hold their mug shots.


Below is a sampling of other art work that will have student mug shots.

The boy who drew this one is in his later teens. He is amazing in the ideas he comes up with.










And we have a third artist who drew this one.

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The Pawn Shop Memories

Mish had a post that hit me hard for how it reminded me of the challenges of my youth.

The post features two links, one about how the pawnshop business is booming as people hand over things to get instant cash.

"We never saw so many people in here 30 and younger," Society Hill associate Damien Robinson said. He spoke as a 22-year-old Neumann College graduate walked out with a $75 loan on her Dell laptop computer. "What are young people going to do for rent now that apartments are so expensive?"

I never got cash for things from a pawn shop in my youth, but I have had to sell furnishing to pay the rent and buy food in the past. The stress of living like that is incredible, and that was happening to me in the later 80s.

Being down on your luck is hard, but the attitude in the economy when I was young was very much to blame young people for the position they found themselves in. The position I found myself in was because my mother had died when I was a child and I held some illiquid assets I had bought with insurance money. It made me ineligible for student loans. After I had sold everything in my home that I could, I was forced to make a choice between quitting university or selling those assets for 40c on the dollar.

Dealing with this kind of thing is hard enough on its own, but it was tied to my mother, who died tragically at age 32. Dealing with it brought all the pain and grief of losing her as if it had been yesterday. It was like she died twice.

But, like I said, there was a lot of blame. I was an emotional wreck. I ended up dropping one class, finding a part-time job, but I was too distraught to manage everything. I let one class slide figuring I could bring it back up when I was better able to handle it. I failed the first test miserably. My professor, Dr. Slessor, had joked with me before class daily until that test. After I was greeted with a coldness that could save the world from global warming.

After about six weeks I was getting through the days without breaking down like you do when you are in the midst of tragic grief. I suppose I'd pulled it together enough to pull an 80 on my next exam with that prof. He'd heard I was having a rough time and he apologized for his abominable behaviour, but getting that kind of kick when you are down, and from a professor that has been a recipient of an award for excellence in teaching, it really didn't undo the damage. What was the apology for, to suggest it would have been OK behaviour had I not been in distress?

And then there was the guy that helped me put my sign up on my property. I heard through someone else that lived in the neighbourhood that he'd been bragging he took my sign down as soon as I drove away as he knew I was in a forced sale position and figured he could squeeze me for an even lower price if I had no interested buyers.

So, for me, reading that post brings back the memories of selling my TV, my early generation computer games - colecovision, and all the pain that goes with it. I supposed I managed to sell enough stuff to pay the bills for about a month, but then it gets to what do you do for the next month? I got the part-time job, I had a credit card and I planned to finish my semester and then wait until I saved enough for each semester.

I've been an advocate for how bad things are for young people since the 97 census. I worked that census and I saw 3 single young people living one bedroom apartments due to under employment and low wages. I always managed to have a home where I had my own room, yet for over 11 years there has been young people who have not managed to do this, and never mind sharing a 1 bedroom unit, there were several with 3 people sharing. There are 11 years of this kind of thing getting worse.

I constantly run into people who talk about how they had to get 2 jobs when they were young to get where they are today and they fail to see the wealth of opportunity they had simply because jobs were abundant. The wages these people are making means you probably need more than 2 jobs to make ends meet.

It is interesting the comment of the woman trading her watch in for $20 for gas. She is not poor, but "middle-class."

I tend to think she grew up middle class, but her standard of living has declined.

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