Long-time readers will remember that I have been ribbing Borealis (BOREF), ‘the stock that must surely go to zero’ for some years now. It must go to zero for a lot of reasons, but the two most obvious are that it is simply too good to be true and that I own a ton of it. If it were true, and because by now I own a ton of it, I would make some really serious money, and, well, I am a truly fortunate man, but not a truly lucky man of the type who makes really serious money by buying a crazy stock like Borealis.
And yet. And yet. (As always: PLEASE don’t put even a nickel into this thing that you can’t afford to lose, because by far the most likely scenario must be that you will lose it.)
Borealis owns patents on technologies that would change the world – not one, but at least three separate ones. Oh, and it owns $1 billion of rich iron ore deposits, well located to supply Europe. And the whole company, 5 million shares at $4 each, is valued at $20 million.
So, I mean: come on. If any of this were going to pan out, tech types who have the skill to evaluate such claims would have mortgaged their homes and their parents’ homes to buy every share they could, driving the price sky-high . . . and yet, in all these years I’ve been writing about it, the stock just sits at $3 or $4; trading, if at all, just a few hundred or at most a few thousand, shares a day.
The world-changing technologies it owns have been split off into separate subsidiaries, one of which, Cool Chips (COLCF), is itself publicly traded. (Both these tiny stocks are quoted in what are called the Pink Sheets, which actually used to be printed pink.)
One of you writes: ‘Cool Chips closed at $10.50, and Borealis at $3.75. Borealis is advertising that they will trade 1 share of Cool Chips for every 2 Borealis shares. Why isn’t everyone in the world buying up Borealis shares at the current price and trading them in for Cool Chip shares and selling them at a profit? Is there something I’m missing?’
The short answer is: Look . . . this is all very weird, and not like normal stuff.
Theoretically, you should be able to make money that way – buy two $4 BOREF shares for $8 and trade them for one $10.50 COLCF share, and then sell that share.
But if you tried to do this in any volume, your buying would drive up the price of BOREF and your selling would drive down the price of COLCF . . . and by the time you actually got your COLCF shares, who knows where it would be trading.
Indeed, because each BOREF share represents ownership of slightly more than one COLCF share, the even more enticing profit to be had – at least theoretically – would come from shorting COLCF at $10, say, and buying an equal number of BOREF shares at $4, and then just waiting.
Either the whole thing collapses and both stocks go to zero, giving you a $6 profit on each share (you lose $4 owning BOREF but make $10 shorting COLCF) . . . or else sooner or later, one would think, however much or little COLCF sells for, BOREF will sell for more. (Right? If each share of BOREF owns slightly more than one share of its subsidiary COLCF, then shouldn’t BOREF be worth more than COLCF? The easiest money ever!)
Except that (a) it would be very hard to find a broker who would let you short COLCF, and (b) in markets this incredibly thin and goofy (these companies are headquartered in Gibraltar), who KNOWS what nutty thing could happen in the short run?
In the long run, I assume either both stocks go to zero or, if Cool Chips is real, BOREF is worth a fortune (and you would be nuts to trade 2 BOREF for 1 COLCF).
For more on all this, check out the Borealis annual report. You’ll see that BOREF is divided into 5 million shares, and thus, at yesterday’s $4 closing price, was valued at the aforementioned $20 million. COLCF was divided into 8 million shares (of which BOREF owned 5.2 million) and closed recently at $10.50. So its market cap was $84 million.
It’s totally goofy, as I say. But I live in hope.
FROM LAST WEEK:
Diane Anderson: ‘Molly Ivins is wrong on Pipes. His position is that negotiations are useless until the Palestinians and the surrounding Arab countries clearly accept Israel’s right to exist. You can see all of Pipes’ articles at his website, danielpipes.org.’
Bob Daniels: ‘Following up on your recent column: The leading case on the taxability of found money is Cesarini v. US, 296 F. Supp. 3 (N.D. Ohio, 1969), aff’d 6th Cir., 1970. Ermenegildo and Mary Cesarini found $4,467 in old currency while cleaning a second-hand piano they had bought for $15 at an auction seven years earlier. They initially reported their find as income, but then sued for a refund of the $836.51 in income tax they had paid on their windfall. The Court denied the refund, citing tax regulation 1.61-14(a): ‘Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession.’ The Court also rejected the Cesarini’s claims that the income occurred in the year they bought the piano (a year blocked from additional tax by the statute of limitations) and that the found money should be taxed at capital gain rates.’
Robert Neinast: ‘Regarding the redistricting in Texas, the Columbus Dispatch had a story last week that the national Republican leadership wanted to do the same thing in Ohio. So, it appears to be a national strategy for consolidating power. Fortunately, the (moderate Republican) Governor Bob Taft pretty quickly put the kibosh on the plan.’
Coming Soon: Maybe John Adams wasn’t half the hero he’s lately come to be?
Happy Labor Day!
Quote of the Day
Governments are necessarily continuing concerns. They have to keep going in good times and bad. They therefore need a wide margin of safety. If taxes and debt are made all the people can bear when times are good, there will be certain disaster when times are bad.~Calvin Coolidge
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