a) Ecuador is planning on adjusting the base rate to inflation every year and so I should STFU**
b) Ecuador hasn't decided whether to impose a windfall tax anyway and I should STFU.
c) The base reference price could be set at U$2000/oz for all we know so STFU.
d) other stuff, and concluded by saying that the note was alarmist and bad for mining investors and I should STFU (it turns out his interest in the subject is that he's long an Ecuador exposed mining company).
Finally, the whole episode highlighted for me (for about the zillionth time) the blind spot many investors have; they just don't want to hear anything that doesn't fit into their own view about a stock. The wiser player will look at all the pros and all the cons before making a move; the sheep will read a newsletter that say "dude, buy this 'cos it's going up loads..cos look at this piece of crap math i did here...and I'm right.....honest". But once long, the same sheep spits, insults, claws and defames anyone with the audacity to tell them the truth about the stock they own. We're talking about the sheep that laugh at pennypump internet e-mail spammers but fall hook, line and sinker for a scheme only one evolutionary step above it, but we're also talking about the fund manager who takes his names off a mailing list cos they called his fav stock a sell. Highlighting the potential damage of a windfall tax to Ecuador's nascent mining industry wasn't a big thing and is an oblique in the end, but some reactions were just samo samo eejits lashing out from bruised egos cos "their" stock was "under attack". Trying to tell me that all junior miners are little angels and butter no melty in mouthy? PT Barnum knew about investors like these long before the Canadian Venture exchange existed.
However, there was one reply that was worth time and trouble. Jurgen Schuldt (a man who knows economics forwards, backwards and sideways) wrote a five page rebuttal of the simple little paper. It included gems such as;
G = P – t (P – PB) – C = (1 – t)P + tPB – C = (1-t)P + tPB - xP .
Con es evidente, las ganancias de las empresas se incrementan, cuando:
a. Aumenta P;
b. Sube PB;
c. Disminuye t;
d. Cae C (y con ello x).
ceteris paribus. Veamos:
DG/dP = 1 - t – x = 0,
Luego: t 1 – x, garantiza ese principio,
...and it's totally unfair to quote those out of context....but hey...my blog.
The illustrious Dr. Schuldt argues that although gold (by using the same metal as the main thrust of the original argument) may gauge costs well over the long run, the Keynesian "in the long run we're all dead" principle added to unequal short-term price movements and frictions makes it impossible to assert that gold and costs of producing gold will grow at an equal rate. The masterful Schuldt also gives much more theoretical background to the windfall vs. royalty equations and ticks me off for not showing my calculation equations. (Dear reader, if you ever want to irritate an economist, publish a set of results without showing how you got there....drives 'em mental. Thing is, in the world of equities analysis if you published your method for modelling a company's forecast results you'd be plagiarized before you can say Sarbanes-Oxley. )
Or maybe Art Buchwald should have the last word here: "An economist is a man who knows a hundred ways of making love but doesn't know any women."
* Cool, that rhymes and with a nice scan, too. Poetry rocks
** Shut The Hell Up