A corporate dilemma and a hedge in Canadian stocks
In the U.S., corporations are people under the law and that’s bad, says an analyst who also has Canadian precious metals stocks as a hedge.
A corporation is not a person like you and I.
That would seem to be obvious, but it’s not. In the United States, corporations are people in the eyes of the law.
And one U.S. newsletter publisher doesn’t like this state of affairs one bit. He goes all the way back to the founding fathers of the Republic to make his point.
If corporations lost their legal status as people, they’d be subject to greater control by regulatory authorities, says Mr. William John Kuhn in the Risk Factor Method of Investing. That would have a considerable ripple effect, not only in America but everywhere U.S. multinationals do business.
Before we turn to Mr. Kuhn’s unsparing view of corporations, we will take a brief look at his take on short and long term risk in the market.
And we’ll review the hedge portion of his portfolio, which revolves around several Canadian precious metals stocks.
Hedge in gold and silver
This advisory has a series of measurements for stock market risk, gauging Overall, Long Term, Intermediate and Short Term risk.
At the moment, Mr. Kuhn says, Overall Market Risk is rather low (although he advises conservative investors to have a substantial 40 per cent in cash).
But Short Term Risk is four times above normal, he cautions. Look to gold and silver. “Make sure you have at least 12% to protect against the coming inflation and the possible continuing weakness in the dollar.”
To do so, investors can turn to the hedge portion of this advisory’s portfolio in which there are two Canadian precious metals stocks. Gold producer Agnico-Eagles Mines (TSX/NYSE-AEM) is one. The other is Silver Wheaton Corp. (TSX/NYSE-SLW), which mines no silver but purchases silver “streams” from mines around the world and sells them on to the market.
When we last checked in with this advisory just over four weeks ago, Agnico-Eagle traded at $60.79. Today it is at $61.16 and yields 0.3 per cent on its $0.18 dividend.
Silver Wheaton was at $15.57 and now stands at $17.76. It pays no dividend.
The third stock is giant producer Newmont Mining (NYSE-NEM), whose price has risen from $50.82 to $53.85 in a month. It yields 0.7 per cent on a dividend of $0.40.
The final two hedge positions are ETFs. SPDR Gold Trust Gold Shares (NYSE: GLD) is trading at $113.16 (up $4 in four weeks) and Silver iShares ETF (NYSE-SLV), trades at $18.04 (from $16.81).
As we see, none of these investments has given up any value over the past month.
Artificial persons
Back in 1819, the U.S. Supreme Court ruled that corporations were “artificial persons,” that is, that they have certain rights usually reserved to individual citizens, most pointedly the ability to make contracts. In 1886, another ruling strengthened this notion and declared that a corporation is a person with all the rights that implies.
Mr. Kuhn thinks it is high time the status of corporations as people was struck down. He publishes his advisory in scenic Bend, Oregon in the foothills of the Cascade Mountains and identifies his advisory as a believer in “Environmentally and Socially Responsible Investing.” He has two portions of his portfolio devoted to alternative energy and ecology stocks.
This would certainly help to explain Mr. Kuhn’s distrust of corporations.
We the People
America’s founding fathers did not like corporations, this analyst insists. “The Constitution was written by 55 white colonial gentlemen who just happened to be wealthy enough to take a year off and complain to each other about the English King, corporations and the ‘mob at the gate,’ as Alexander Hamilton wrote.”
The corporations they knew were the Hudson Bay Company, the British East India Company and the Massachusetts Bay Colony, “each of which had the power to pass their own laws, levy their own taxes and even raise armies to manage and control their own property and commerce.”
Next to the king and parliament, corporations represented the next worst danger for the framers of the U.S. Constitution, the analyst states. “They wanted to create a government that would control corporations by keeping them at the mercy of this new government.”
They gave the individual states the right to issue corporate charters and control corporations. This power was undermined by the 1819 ruling and eventually disappeared under Supreme Court rulings.
Mr. Kuhn hinges his rallying cry on the three most prominent words in the Constitution. For 223 years, he says, “We the People have allowed corporations to become distressingly too powerful.” We need to take back our constitutionally mandated control of corporations, he concludes.
It does not seem likely that this will happen any time soon, although if it did, it would certainly send a jolt through American boardrooms and across the world through the giant multinationals.
In the meantime, this analyst sees more than enough risk in the months ahead to suggest you start hedging with some gold and silver.
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