A Time for Regulators to Own Up to the Truth
  • July 09, 2017 06:40 pm
  • by Bill Cara

As noted in my commentary today and for many months, it is Bankers’ algos, not investors, that are in control of stock market prices. I see it every day in my job as managing natural resource portfolios. Prices in the market differ materially to what the natural resources industries are pricing assets.

This is the point I have been making for a very long time in the energy business.

Look at the recent sell-out of Apache Corp’s Canadian oil assets to various industry players in Canada who know the value of these assets and the cash bind that Apache got into.


Cardinal Energy (TSX.CJ), which is a holding of mine, on June 1 paid Apache CAD330 mil for 5,000 boepd, which is CAD66,000/boepd. I liked the deal. On June 21, the Canadian bankers did a bought deal for their clients for CAD5.50/sh for CAD170 mil. CJ now trades at CAD4.52. My average price is CAD5.67. Obviously I’m not a happy camper.

But let’s take a look at my biggest position in the junior Canadian oil patch, Baytex Energy (TSX and NYSE:BTE). Given that BTE holds about 60% of revenue in their profitable Eagle Ford shale, and 70,000 boepd, using CAD66,000/boepd value, the gross value would be CAD4.62 bil and after deducting CAD1.80 bil debt the net asset would be roughly CAD2.82 bil. With 234 mil shares outstanding, that equates to CAD12.14/share. BTE’s current price is CAD2.92. My cost is roughly CAD4.30.

Again, obviously I’m not a happy camper. But I am investing in assets the same way that oil industry professionals invest. If I take that CAD12.14/share theoretical price and cut it in half to CAD6.07, I should be confident in my long-term position. But the price is less than half that again. The BTE price to book is down to an amazing 0.35. This is ridiculous.

My point is that algorithms don’t understand value. They are simply being used by HB&B to play the public. They have the public lined up like sheep buying intangible assets in so-called high tech that more realistically should be called the stocks of “popular brand” companies. The problem with these traders (and they certainly are not investors because they wouldn’t know a real asset if it was sitting on their nose) is that when the algo turns bearish, they will be reading stuff like “flash crash”. Prices will be hitting the elevator with very few stops on the way down.

Recently, the outstanding Sprott Asset Management Nat Res Fund manager told the BNN-TV audience the same thing when he said his fund is down some 50% because of algos controlling the market. So, it’s a matter of take the hit in the short-term and patiently wait for price to return to a value basis or become a day trader, which is precisely what HB&B want you to do, where they will strip you of your funds because their computers are smarter and faster than you.

The public does not seem to understand the problems that institutional managers have today. Take BTE as an example.  We are facing HB&B algos with HFT tools that front-run our real prices, 100 shares at a time, hundreds of thousands of orders placed by machines, few of which are actually executed, but which serve to control price direction. If I took the time to show you how BTE actually trades, how these algos have traded billions of shares on each side, millions of shares each day by the same broker, Anonymous 01, for pennies, you’d be shocked.

That is not price discovery; it’s manipulation. It’s done by Bankers who get away with it because they are more powerful than the US government and its securities and commodities regulators. If you and I did the wash trading they do we’d be arrested, and they do this every minute every day the market is open.

I have had a lot to say on this. I challenge the regulators to prove me wrong.

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