Musings on Investing

China’s One Belt One Road Project

US Cobalt Inc.

President Xi Jinping of China is increasingly centralizing power in his hands. For a long time, I have been a bull on China, which I consider to be the only emerging market. The rest of the Third World will not only stay the Third World but will get worse with time. So, the question is if centralization of power in the hands of Xi changes my opinion about China.

It is extremely difficult for us to change our views once we have made up our minds. Alas, an investor does not have the luxury not to change his mind when new information emerges, for an inability to change his mind hurts his wallet and often his reputation.

Most of the hue and cry about Xi has emerged after he started positioning himself as the lifetime President of China. What the international media is failing to account for is that the post of the President is ceremonial. The politically correct media fails to understand that China is not sub-Saharan Africa or South Asia. China is unlikely to become a tinpot dictatorship.

But isn’t China moving away from becoming more democratic? Of course, it is. And that is wonderful. The worst system to chose a leader is democracy. In the last century the societies that did the best were those that were not democratic: Lee Kuan Yew’s Singapore, British and now Chinese Hong Kong, Park Chung-hee’s South Korea, Pinochet’s Chile, and Chiang’s Taiwan.

What I am certainly worried about is the rapid increase of surveillance systems in China. But for now, China continues to grow:

I am keen to understand what is happening with the revival of the Silk road that China is undertaking, about which I talk with Cory Flick here.

On investments…

I have spoken and written a lot about making money from arbitrage. US Cobalt (USCO; C$1.13) is being acquired for 1.5 shares of First Cobalt. The arbitrage math is extremely simple… If First Cobalt is trading at C$1, the value of USCO would be C$1.50. If I buy USCO at C$1.13, I position myself to make >30% arbitrage profit.

There is hardly a reason to chase stocks in the junior mining space. A patient bid often gets filled.

There are of course risks related with the deal not going through and regarding the underlying values of the two companies.

Finally, linked here is my talk with Cory Fleck about Justin Trudeau’s recent, disastrous visit to India. A question for Canadians: What were you thinking when you voted for Trudeau?

Warm regards,

Jayant Bhandari

Associate: Rajni Bala


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