via Jesse's Crossroads Café

How easy is it to create an equity swap against shares in a company like GBN.V? Its as simple as pressing 'F9' on a computer keyboard. With one keystroke, you create the swap, plus it will give you the available hedging strategy. (You trade via algorithmic trades incremental price changes in the asset against treasury futures using Black-Scholes models.) All of it automated by via computer.

Just watch the following video about derivatives used in the banking sector:

http://jessescrossroadscafe.blogspot.ca/2012/07/pbs-frontline-money-power-and-wall.html

What that means is, in a sense the market is a bucket shop where money coming in to all asset classes serve as a vehicle for swaps that anyone can write with commercial trading access. And nobody else. Plus, there is no requirement to list these positions as they're off balance sheet.

Monthly $USB

Its no mystery that GBN.V shares trade strongly inversely correlated with the long dated U.S. treasury bond price. Its just a basic fact. That is, GBN.V share prices are fixed according to mathematical calculations against U.S. treasury bond futures. The facts are quite certain at this point, since GBN.V shares trade at -0.86 correlation with $USB.

The sum-total of shares held short, which are not required to be reported, are held in what's called an equity swap. I believe Bloomberg had it correct, that 65% of the float is held short, or has been sold into the market first without owning any shares, in order to raise capital to parry against rising treasury futures.

This would calamitously depress share prices, since there are more shares out there than actually exist. Should the fundamentals move against the equity swap, such as declines in the treasury bond price, or GBN.V fundamentals improve markedly, then there is reason to assume that the equity swap will collapse.

One thing I might add is that shareholders be paid dividends, because the options pricing model must necessarily change.

• 1. Treasuries are at their extreme in price and can only move so much further.
• 2. Fundamentals are improving for GBN.V, such as a steady gold price much higher than anyone antcipated, and profitable operations. You can only sell so many shares short without first owning any, since the number will exceed publicly traded shares.
• 3. A complete lack of buyers coming into the stock makes selling shares short a very problematic task for equity swap traders. This is because you cannot continue to make immediate returns on the swap any longer and your performance will dwindle.

supersize: http://www.flickr.com/photos/11747277@N07/7514063134/sizes/l/in/photostream/

stockcharts.com

Comparable

A good comparable in financial terms with GBN.V would be KGI.TO. They have the same end of fiscal year(April 30) and have already converted to IFRS accounting standards.

Their shares are performing remarkably well, and their development is similar to GBN.V. They have the advantage of not having diluted their shares and having early market recognition.

One disadvantage is that their mines don't start at the outcrop and have been in service for decades. The advantage with GBN.V is they have yet to lay their cards on the table as regards discoveries.

A second disadvantage is they cannot simply add mines to their project. GBN.V has lots of room to grow and develop on its properties.

Reading their end of fiscal year report will help you to understand GBN.V financials better.

Globe

-F6