Follow-up on yesterday’s post – SDR and Gold

On SDR:

After writing on the spectacular fall of WHX, I thought should address one of my recent recommendations which lost substantial value recently:  SDR.

Sandridge Energy has a website with a link to an investor website specifically for SDR.  In the S-1/A under SEC filings, the trust was set to last 21 years from its inception in January 2012.  See it at:  http://sandridgesdr.investorhq.businesswire.com/sec-filings

Specifically:  “The trust will dissolve and begin to liquidate on the Termination Date, which is December 31, 2031, and will soon thereafter wind up its affairs and terminate.”

This year is definitely part of the ramping up period, as it’s first 3 payments have been the following:

March 31, 2012   $0.27 per unit

May 31, 2012     $0.497 per unit

September 30, 2012   $.599 per unit

I’m not going to put the entire calculation down – but its the same one as yesterday going 77 lines.  A 9% yield is fair for this type of asset, so that’s what I used.  At $0.5 per quarter, the NPV came out to $18.59 per share.  Assuming a lasting payment of $0.6 per quarter, like the recent payment, the NPV came out to $22.31

That means if you bought the shares at $22.31 and held to maturity, you would earn a 9% yield on that investment if it paid $0.6 per quarter going forward.  Admittedly, I have been selling some GLD to buy SDR on its way down.  I didn’t want my lack of cash to make me miss out.  I did see the recent article by the way about the excessive compensation at Sandridge and large hedge fund owners fighting to change management by the way – I just don’t think that the fight in the parent company will stop the payouts in the trust.  Plus I think the dividends will more likely increase rather than decrease.  I don’t think oil will plummet, as I’m convinced that the central banks will do all they can to prevent (commodity) deflation.

On Gold: 

Speaking of central banks, I thought that the articles I quoted yesterday were fascinating.  Keep in mind, however, that I don’t necessarily see China’s hoarding of the yellow metal as detrimental to the west.  It may gain or lose value like any currency, but I believe that wealth is derived from productivity (like GDP is supposed to measure) rather than wealth (which old time mercantilists associate with Gold).  North America will soon be energy independent with the breakthroughs in shale oil and gas and the abundance of it in the US and Canada.  The US is also a major food producer for the world – a critical area for China, which is heavily dependent on food imports.  Commerce will continue, and I will still lose interest in gold when the ZIRP (zero interest rate policy) eventually concludes (several years down the road I think).

As far as western central banks demanding their gold back in a form of bank run … I just don’t think that’s politically feasible.  I don’t think the central banks in Western Europe were any more prudent with gold reserves than the Fed, but I do think they’re just as likely to see value in the multiplier effect that bank lending can have on currencies – and how that applies to gold “reserves.”

That’s it for now,

John Taylor

 

 

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About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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