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Media Co-op Investor: September

Potash Corporation Gets Discussed

by Gwalgen Geordie Dent

Potash Corp
Potash Corp

Welcome to Media Co-op Investor!

The Media Co-op Investor Series aims to help the general public understand the stock market, how it works and the major companies which benefit from it.  

Every two weeks we examine an element or term in the stock market, how the Toronto Media Co-op has done fake-investing in companies on the Toronto Stock Exchange as well as highlighting specific large Canadian Companies, why their price has gone up and down and what they are all about.

This Week's Term:  Stock Market

What is a stock market?  We hear about the DOW, the NASDAQ, the TSX everyday going up or down; we hear about bull and bear markets, price corrections, rallies, etc.

But what does it all mean?

Stock markets started many centuries ago simply as a means for bankers to buy and sell government debt.  Stock markets, in their essence, are ways for companies  and governments to raise money.  They are also means for investors to get a better interest rate on their money rather than say a bank term deposit or GIC.  

Stock 'markets' can also sometimes be called stock 'exchanges'.  The TSX, Canada's biggest exchange, simply allow buyers and sellers to exchange bonds and stocks.  This exchange can be done on a trading floor, where men and women scream prices to each other.  You've probably seen this type of stock exchange most commonly in movies about the stock market such as Trading Places.  The New York Mercantile Exchange and several exchanges in Chicago still operate in this way.  

However, most stock markets these days are being converted to virtual exchanges, where everything is done via computers, as seen in Canadian drama Traders.

Companies can sell 'shares' to the public to raise money for operations and have the public then share in their profits - or losses.  They can also, like governments sell a 'bond' (AKA debt), which is simply them getting money in exchange for paying a fixed rate of interest over a period of time.

Previous to the 1980's, most people who bought and sold stocks were usually wealthy individual businessmen and investors.  Today, pensions funds, mutual funds, hedge funds, banks and a large number of other actors have linked the public to the Stock Market.

Stock markets don't just allow people to trade a share in a company or a bond.  Futures contracts, currency, commodities, real estate can also be traded.

The amounts of money being moved around are staggering:  According to the Bank for International Settlements, the worldwide bond market was $82.2 trillion in 2009. The  world stock market was estimated at about $36.6 trillion in 2008. And the really scary stuff, the worldwide derivatives market, made up of the financial 'instruments' which are considered to be responsible for the financial crises; it has been estimated to be worth $791 trillion.

What we invested in this week

We theoretically-bought $1000 each worth of close to 50 Canadian stocks ($50000) using a free internet stock game which carried the major TSX stocks.  As a test, we first bought $10000 of 4 companies:  Potash Corp, Bank of Nova Scotia, Suncor and Barrick.

How we did this week

Things went up and down, but in the end we made $18 bucks on our $10000 theoretical dollars or .2%. Our money went as high as 2%, and there were a few points where we could have made big money, mostly when Barrick was up 6%.  

But the markets and companies are all in a state of great uncertainty.  Barrick is facing questions about their debt (but not human rights violations), Scotiabank is facing questions about their earnings (but not their Canadian Bailout money), Suncor is selling off assets to Russia (but not having to pay for environmental damage).  

We did far worse than the S/P 500, a major stock index.

Todays Company: Potash Corporation of Saskatchewan

Potash Corp has been in the news plenty over the past few weeks mainly due to an hostile attempt by Australian company BHP, the world's largest mining company, to take them over.

Potash is used mostly for fertilizer and Canada is the largest producer of Potash and has the largest known reserves.  Potash Corp controls the largest reserve of Potash in Canada and is the world's largest producer of fertilizer minerals.

The government of Saskatchewan heavily financed the Potash industry in the 1950's and 60's and started the Crown Corporation known as Potash Corp. in 1975.  It was privatized completely in 1990.  BHP is attempting to buy the company for $39 Billion.

Not well known, is that PotashCorp is part of the Canpotex cartel of Potash producers.  A Globe and Mail editorial recently pointed out that while Canadian foreign policy lashes out against cartels such as OPEC, Saskatchewan will not support BHP's takeover attempt unless they remain in Canpotex.  If BHP leaves, which they are threatening to do, it could heavily drive down the price of Potash, and tax revenues and royalties with it.

Of course lost in this shuffle is that the Potash being taken out of the ground is on First Nations land subject to treaties.  The Federation of Saskatchewan Indian Nations say the resources and money that came from them actually belong to the treaty nations of treaties 4 and 6.  Neither the Province nor Potash Corp have been sharing royalties with Saskatchewan first nations.

In addition, like many of our favorites on the S/P TSX 60, Potash Corp has been subject to its fair share of controversies.  It has been accused of helping fund the illegal occupation of Western Sahara by Morocco and destroying wetlands in Saskatchewan.

The TMC theoretically-bought Potash Corp shares about a week after BHP's hostile takeover bid.  It's share price shot up almost 30$ a share from $117 to $147 in a day, an almost unheard of rise for a normal day of trading.  The TMC bought for $157 (a really high priced stock) and ended up selling at a loss for $153 a share 2 weeks later.

In the meantime, it was revealed that the share price had been manipulated by insider trading of two Spanish men making trades in Chicago.   One of the men worked as an advisor for BHP.  

Keep following the money and stay tuned...


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Gwalgen Dent (Gwalgen Geordie Dent)
Toronto
Member since August 2008

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1013 words

Comments

how much?

did you buy $1000 or $10000 worth of fake stocks?

also, i believe the tsx group manages the only exchanges in canada.

Nice

Great idea for a new series. I'm looking forward to reading more.

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