April 2011
The Canadian government has many responsibilities and in fulfilling these responsibilities, provides a backbone on which society operates. Specifically, the government provides for security (mostly achieved by military and police), transportation (including public transportation as well as roads and highways), water and sewer systems, electricity and phone lines, education, healthcare and hospitals, pollution control, and even libraries.
However, in the Third World, the government often does not fulfill their responsibilities of creating and maintaining this infrastructure and providing these services. This is largely because of their inability to raise revenues that allow them to undertake these tasks. This creates a cycle of failure; because of the lack of these government provisions, salaries are low and poverty is high, which results in an inability to raise revenues and hence an inability to provide the necessary infrastructure and services.
Research indicates the increasing awareness of the scale of failure by Third World governments. The deterioration of public infrastructure and services in many African cities is outlined in a paper by Richard Stern; while Pedro Pirez addresses the failures in Latin America in his work. The statistics from their work indicate that local governments in the Third World operate on an average of one hundredth of the revenue per capita available to most municipal governments in Europe. In some extreme cases governments actually work with only one thousandth of the revenue per capita.
I recently visited a Third World country where the streets are filled with crime and corruption. There I witnessed an example of the government’s inability to meet the needs of its citizens is in regards to security. If citizens are lucky enough to have a home they must pay for security to protect themselves and their belongings (usually including a 24 hour armed security officer. During my time there I had the opportunity to talk with a girl who was frustrated with this cycle. She said to me, “How am I ever supposed to get ahead when I must pay for the things the government should be providing?”
Melissa Leonard
Investologist Prognostication
Jeremy Leonard
“The greatest risk to investors today is not stock volatility but rapidly rising inflation. Whether inflation begins to shoot up this year or is still a few years out, it will reappear with unexpected ferocity.” David Dreman, Forbes, April 11, 2011” Dear Reader, As I write this, April 12, 2011, I continue to sit quietly with mostly Canadian Dollars in my “public markets” portfolio.The CEO of Connacher Oil and Gas, Dick Gusella is still at the helm, (VP Todd just resigned), and I am holding onto 55,000 shares of CLL. Up 10.5% on the year. A little IMO and TD, but not much else other than my Titanstar, which is publicly listed but more like a private with very little, (okay – zero) trading volume.This week I invested fifty thousand dollars in a firm called “Pivot” in the private market. Pivot would call themselves a technology firm because they deal with computers and computer products. I believe they are really a consumer goods and marketing firm, however, intent on taking technology designed by others and marketing it to end users. My involvement is simply to purchase a debenture that has a 12% return with some upside if things go well. I think this is a safe bet because the plan is to take the company public, and the board members have a lot of experience with this strategy. My experience is when a company goes public it receives a valuation at about twelve times expected earnings. A private company it is valued at about four times expected earnings, so there is a growth in value of the stock by three times by going from private to public. That should be enough to leave me with a profitable exit as long as the company managers can follow through.