TELOZ - Income Bond

TELOZ is a Trust that derives all of it's revenues from CVX, thus the importance of the financial stability of CVX. CVX has a strong balance sheet and solid cashflow. There are reserve issues, but there are always reserve issues with oil stocks. Having said that, they do not seem threatening to the company's solvency.

Think of TELOZ as an Income Bond. TELOZ trades as a common stock, and has a payout ratio of 100%. Currently selling for $10 and with a payout ratio that yields 24%

If you feel that oil will trade in a range of $30-$40, you will accrue a 24% yield as long as you hold the stock. If oil rises, the dividend and yield will rise with the added bonus of possible capital appreciation in the stock.

Imperfect Profits

No Matter What You Do, You're Wrong

If:

You buy on the way down, and it keeps going down (should have waited), or

You sell on the way up and it keeps going up (should have waited), or

You buy on the way up and it keeps going up (you should have bought earlier), or

You sell on the way down to stop losses and it turns around, or

You don't buy at all (opportunity loss), or

You don't sell at all and hold those losses, or...

You can always view whatever action you take (profitable or not) as poor. The perfect is the enemy of the good. Remember that one must somehow escape any inherent negativity as one can't optimize perfectly. Go for profits without perfection.

Gila Girls

PICO - Blue Gold

T. Boone Pickens Invests in Water - Should You?

on Jan 17th, 2007 by Tate Dwinnell

PICO Holdings (PICO) owns 134,130 acre feet of water rights in Nevada and Arizona, plus a small amount in Colorado. The company is constantly looking to acquire new water rights

Nevada and Arizona have among the highest population growth rates in the country and, subsequently, also have among the highest new home construction - both are incredibly bullish for the value of water rights.

Water rights closer to end-users are worth more than water rights that are far away. Also, senior water rights are the most valuable kind. In some cases, there are several water rights on the same water resource. In these cases, the most senior right is the most valuable - because in the event of drought, it’s the last water right to go.


Look for the stock to return closer to $36-$37 before buying.

Rules For Happiness

Exercise regularly.

Give your body the sleep it needs.

Devote time and effort to close relationships.

Have sex (preferably with someone you love).

Take control of your life, set yourself achievable goals.

Pause for reflection, meditate on the good things in life.

Don’t pursue happiness for its own sake, enjoy the moment.

Don’t equate happiness with money.

Gold/XAU Ratio

When the Gold/XAU ratio moves toward 5.0, it’s an excellent time to buy large-cap gold miners. If the ratio gets anywhere near the 3.0 level, it's time to cash out. During the next correction, when the ratio spikes above 5.0 again, get ready to buy back those shares at a lower level.

Caution: When the 50-day moving average of the Gold/XAU ratio cross over the 200-day moving average, the crossing of these moving averages has meant that the ratio has further room to the upside and stocks have further room to run to the downside (relative to gold).

Since 1974, the Gold/XAU ratio has been above 5.0 about 15% of the time. At these levels, the XAU has followed with average annualized gains of 89.6%. When the ratio has been above 4.0, the XAU has obtain average annualized gains of 27.4%. But, when the ratio is below 3.0, the XAU has declined at an annualized rate of -36.6%.

Energy Volatility

There is a stupendous proliferation of trading financial instruments (derivatives and futures) which are based on the actual commodities (oil and natural gas). There are trillions in derivatives being written which carry vast amounts of risk. This financialisation is just in the first inning. The current energy derivative market at $3 trillion could expand up to an $80 trillion market -20 times the market for physical oil and gas. This kind of speculative trading is now heavily influencing the price movements of oil.

To illustrate this, I've marked up a chart of a major energy ETF (XLE). There have only been two crises which had the potential to affect markets: the Iraq War starting in early 2003 and Hurricanes Katrina and Rita in late 2005. The rest of the time, there was a background noise of "geopolitical tensions". Note how oil moved up with modest volatility until 2005, at which point wild swings in price became the norm. Yet other than the hurricanes - which affected perhaps 2% of global oil production - there were no events in the physical world to explain or trigger such wide swings in price.

I also drew some green lines on the chart to show the long-term uptrend in price, and the diverging downtrends in MACD and RSI. This should give us pause about the sustainability of the uptrend.

Matt Simmon - Is The World’s Energy Supply Sustainable?

Beneath all the price swings lies the issue of Peak Oil. Production is peaking, creating the inevitability that supply will not meet demand in the near future, causing massive price increases.

Gold-Shares (1931-1934)

The US does not rule the world - then or now. A free market for gold existed then in OTC dealings in London and on the Continent.

Yes, in 1930 the official price of gold and the free market price of gold was for all practical purposes the same. However, in 1931 (on a yearly average) the free market for gold appreciated. In 1932, the free market average was 4% above the official price. In 1933, the free market average was $26.47 against an official price of $20.66. That was 28% higher, causing a rise in 1934 of the official price from 20.66 to $35. There was not one day between 1931 and 1934 that the official price and free market price was the same.

Today, gold shares are a proxy for inflation which along with geopolitical events impact currency valuations and gold's price.

Valero Energy (VLO)

Crude Oil ($WTIC) will stay in a trading range between 55 and 65 for the near future. A serious recession could take the price below that trading range, but not for more than 1-2 quarters.

The Oil Refiners still look interesting, relatively speaking, particularly when oil trades at the low end of its trading range. One name that Citi likes is Valero Energy (VLO) for reasons of (1) margin dynamics and (2) multiple new projects coming on-stream in 2007.

VLO ($60) hit cycle lows in Sep 2006 and Jan 2007 with RSI-7’s down at 30. But the next cycle low, where the Weekly-Daily RSI-7 is down to about 30 for VLO, be a buyer. VLO might be down to $48.

Citi has 12-month Price Target (PT) of $71 for VLO. If you catch the $48 price, and sell at the PT that would mean a Return (excluding dividends) of +48 pct respectively.

In the previous Bear, XOM dropped from a peak of about $50 to a low of about $30, which is a drop of -40 pct. If, in the next Bear, XOM drops from a high of $79 to $50, that would be a drop of -36.7 pct from peak to trough.

Where do you think the M-W-D RSI-7 values are likely to be when XOM hits a multi-year cycle low of $50? Yes, those RSI-7’s will be under 30 across the board. Buy stocks of sound companies when at attractive prices (ie. Accumulation Zone), and to sell when they are over-bought (ie. Distribution Zone).

Blue Note (BN.V)

Blue Note (BN.V)

Blue Note is a little known near-term producer. It is building a new mill to commence operations in June and will start mining the ore for the mill in April. The metals are zinc, lead, copper and silver.

Blue Note will be a commodity winner due to their choice to develop their mine and cash in on the commodity prices rather than to drill their property. An educated look at the property told them they have these metals at depth. An existing mine in the area has been mining for over 20 years and has mined to incredible depth. The geology of the area is similar.

Blue Note has put the resource to work by building a mine and earning money sooner rather than later and also tying up capital to establish a reserve that won't be used for 20 years.

They are most price sensitive to zinc, then lead, then silver. Copper has little influence on their cash flow as it will only contribute perhaps 2% of the total.

The number get impressive for 2008. They have adjusted their prices way down, $1.17 for Zinc, $0.44 for lead, $2.29 for copper, and $11.65 for silver. The costs also decline, to $0.55 net of by product credit, and it gives them about $58 million in pre-tax cash flow. After taxes I calculate 2008 EPS of about $0.14, exceptionally impressive for stock currently trading at $0.47-$0.48, and those earnings strongly take into consideration the price of commodities coming down. The IRR on the mine is 126.3%.

As a near-term producer, Blue Note is one that will win big time for its investors.

Mining Valuation

Near Term Producers Will Win

Grade is king when it comes to mining. The cost of milling a ton of ore has a fairly fixed cost regardless of the grade of ore, so a higher grade will always mean far more profitable.

Valuation strictly on what is in the ground is the most speculative and risky way to value a stock. Where will the price be in months or years when this property is finally developed? How many share dilutions to finally develop this property? How much will the relative capital cost be to develop the property? Being close power and roads, rail and/or shipping can make an enormous difference in capital costs. What is the value of the metals per ton and how much will that change with price? What would the production costs be?

Commodity prices are high now, but the numbers can change quickly. How can any one possibly predict where those commodity prices will be in 2-5 years when this undervalued property will be a producer? The further out possible production is, the more likely that property will lose.

Near term producers will win as they will have the benefit of cashing in on the commodity boom and paying back those capital costs quickly.

Target Price Analysis

- Estimate the sales in the target year
- Estimate the profit margin
- Calculate the earnings and convert to earnings per share
- Compute target prices based on likely P/E ratios

Can You Profit from a Falling US$
by Buying Resource Shares on Non-US Exchanges?

The key to profiting from exchange rate moves when investing in resource stocks isn't to buy the stocks whose prices are denominated in a strong currency, but, instead, to buy the stocks of mining companies whose COSTS are denominated in a WEAK currency. A company that sells gold in US dollars and incurs most of its costs in terms of a currency that is weakening relative to the US$ will get a dual boost to its profit margins in a rising metal price environment.

The bottom-line is that a stock's performance over the long-term will be determined by its actual and/or projected profits, and not by the performance of the currency in which its shares happen to change hands. When traders feel very optimistic about natural resources most resource-oriented shares will surge, even those hampered by having their costs denominated in a strong currency.

Nanotech Saviour

Nanotech Stocks Outperform In 2007-2008

London-based nanotech analyst company Cientifica has published a report asserting that nanotech is actually just greentech in disguise.

The report specifically points to six major ways in which nanotechnology is contributing to the reduction of carbon emissions. The six technologies discussed are all available now or within the next two years, and some have been making stealthy inroads into global industry for as long as a decade. The six areas mentioned in the report are: aerogels, thin film solar, fuel borne catalysts, fuel cells, supercapacitors, and nanocompsite materials.

I've said many times that nanotech (and genetic engineering) will play an enormous role in our energy future, and obviously that extends to environmental issues. Keep in mind the timing of this: We're approaching peak oil and getting serious about emissions of greenhouse gases, even as we're taking our first tiny steps with nanotechnology. Expect to see some spectacular breakthroughs in the coming years, as well as technology and business failures.

Katrina Deja Vu

Katrina Deja Vu

Pacific is going to be cold and have a La Niña. What we can expect are the winds are going to be ideal for creating hurricanes and aiming them at the East Coast. I wouldn't be surprised if we have at least two hits in the Gulf oil producing area. I'm not saying two hits both in the American area because Mexico has a lot of production in the Gulf, but I expect at least two hurricanes in the Gulf oil production area. La Niña winds are also ideal for aiming hurricanes into North Carolina. So I would say that the gulf and North Carolina are at quite a bit of risk.

This summer, a lot of it depends on when the La Niña occurs. If the La Niña has not appeared during the summer, then we can expect a hot summer. If we have an La Niña starting in the middle of summer, then instead we're going to see that blast of heat throughout the Midwest and the grain belt.

If the heat wave blasts in July when the corn is silking, then it really destroys the quality of the corn crop. If it hits in July, it’s going to really affect our corn production, and that’s bad news because our ethanol demand is very high.

One of the things people don't think of but coal-burning plants, and nuclear plants need water to cool off their equipment, and if the water gets warm; they can't cool off the equipment. And they end up having to cut back electrical production. So you have the heat raising electrical demand, and yet the heat makes it, so they have to cut back production – and that really creates tension.

Hurricane

In May and August, the CPC posts the Hurricane Outlook Discussion, which analyzes climate influences on and expected hurricane activity for the Atlantic and Caribbean basins during June to November.

ECU Silver (ECU.V)

With the inventories of nickel, lead and zinc down to historical lows and the world populace hoarding gold and silver as currency hedges, certain PM equities will certainly benefit.

One of my picks is ECU Silver (ECU.V)
ECU is a "producer" and not just an explorer.
Don't be fooled by the word "Silver" in the name.
They also have quite respectable "gold" assays as well.

Also byproducts of silver are lead, zinc and nickel, all rising in price due to extremely low worldwide inventories.

Western Goldfields

Why do you buy the shares of a goldminer? It's because of (1) the resource (2) management, and (3) the price of gold. Western Goldfields (WGI.TO) is a winner on all counts.

* Projected 9.5 years annual production of 165,000 oz. gold
* Starting full production by April 2008
* Cost of sales of $335/oz, all-in costs of $414/oz
* After-tax IRR +25 pct @600 gold; and +35 pct @$700 gold
* Completed resource estimate of 3.61 million oz gold
* Completed feasibility study for mining 2.36 million oz gold reserves.
* Low $286 million market cap capable of expanding by a factor of three after the expected analyst rating upgrades

Western Goldfields will be a solid producer / profit-maker starting in 2008. But there are 142.5 million shares fully-diluted, so traders looking for a 10-bagger are not going to find it here.

I set a 12-month Price Target (PT) of C$4.
Should gold prices move higher, I will not hesitate to set a higher PT.

Goldcorp Bubble

Gold Rush - Higher Cost, Better EPS Leverage

A company with higher production costs will experience more leverage in the growth of earnings at the beginning of a gold rush.

Gold Bubble - Gold Up, Leverage Falls

The leverage of earnings declines rapidly as the price of gold increases when bubble valuations of 25 times earnings remain constant.

Gold Trouble - Bubble In The Making

Increasing gold costs means that gold price must go up in an amount equal to the increasing costs, or, the level of bubble valuation will increase.

Gold Gone - End Game

Leverage of the growth of earnings is dependent on production costs. The leverage of the growth of earnings gave stellar returns at the beginning of the bull market, but decline rapidly. The leverage of earns can no longer keep up or justify paying bubble valuation prices for gold stocks. Production costs increase during the life cycle of a mine, further reducing profitability. Gold stocks that sell other metals that have dramatically increased in price have had highly leveraged earnings of those metals (eg. copper) hide the declining leverage and profitability of the gold sales.


Over-Valuation of Goldcorp

The fundamentals of the mature gold stocks as a business have so vastly changed, increasing gold price won't save them, and won't have the same effect on profitability as it did in the past. Where bullion underperformed relative to stock in the past, I see a reversal happening because of the changes in market conditions.

All face increasing cost for replacement acquisitions, reduced quality of replacement properties, reduction of leverage of earnings, and indeed, if gold doesn't go up enough to cover those replacement costs, leverage works negatively.

The other key points are:

The leverage of earnings of both copper and gold.
The price elasticity of gold bullion to gold stocks, ie, market cap.
The increasing cost of acquisitions.
The roll of the life of a mine - increasing rates of depletion.
The roll of lower quality gold properties.
The roll of depreciating mines.
The level of reserves to market cap.

Conclusions on Goldcorp:
Gold prices must increase $230/oz to maintain earnings for Goldcorp.
Assets are depleting at a much higher rate than earnings.
Goldcorp is trading at about 3 times its value.
I wouldn't buy Goldcorp at US$10.
I don't see growth potential at that price.


Under Valuation of Northern Orion

The value of what's expected to be sold at half of today's market prices is $17 billion, 22 times the diluted market cap, and using a value of market cap being 10 times bearish price estimates give a today value for Northern Orion of $7.40. Northern Orion is grossly undervalued. It is a strong buy to $7 based of property holdings alone.

Earnings per share can be expected to increase to about $2/share even if copper is US$2/lb. With a target P/E of 10, once production is in full swing, target price can be US$20/share. With a target P/E of 8, target price can be $16.00.

Bearish Price Target: $12.40 (by 2015)
The Middle Road: $18.90 (by 2012)
Today's Prices: $28.60 (by 2011)

Cara Gold-Seer

Following the termination of the present bullish phase in Precious Metals within 1-4 months (Apr-Jul 2007), there ought to be a severe shake-out. The senior and intermediate producers are going to be priced very high. The place to have capital invested is in the small (and riskier) ventures that have well-funded exploration and resource development programs.

Buying precious metals today is the biggest no-brainer trade for the next two years. Every time there is a dip, buy it. And when the daily RSI-7 gets over 70-75, sell some (say half), and after the next Fed intervention, buy even more.

Buy the shares of the small miners and development companies that are expected to commission new mines within 3 years. Western Goldfields is my value choice. For the senior miners, on the basis of resource expansion in 2007 and 2008, Kinross. Silver Wheaton (SLW) is the best pure silver play.

Guyana Goldfields (GUY.TO) is developing a world-class ore-body in Guyana. Sprott has a C$16 12-month Price Target. Buy the dips.

Plan the trade and trade the plan. Think in If-Then terms (add to a position, take profits, cut loss). Define your investment time frame and accept the gyrations within the price/time range.

It is in our DNA to associate gold and silver with stores of value. Fund managers are human beings too with the same DNA, so we can expect their speculative spirits to work into gold in a huge scale that will drive gold into 4-digits since the gold market is so small.

We are in a Secular Bull market for commodities, including metals and precious metals. The spike top in gold within 1-4 months (Apr-Jul 2007) is more than an intermediate-term cycle. After the break, it will take another 2-3 years to recover to this cycle's highs. In the interim (after the break), the better place for capital would be in the technology and telecom companies, and in the rapid growth small and mid-caps.

So, if gold does attract a world of interest as it reaches $700-750 and possibly $800, traders ought to take profits and seek long-term opportunities in small and mid-cap tech companies.

If gold ran higher than $800-$900 in 2007, there would be an avalanche of recovered supply and new small mines coming on-stream, and the major miners would be selling forward again. All that opposition would be sufficient to terminate the gold Bull.

Gold Wave-Cycle

Precious Metals Timing (14 March 2007)

Gold completed its Major Wave One at $728 in May 2006.
Gold needs one more leg down in order to complete this correction.
A 50% correction of the entire move up would bottom at $492.
However, if the [C] leg equals the [A] leg, the bottom may be $526.

The [A] leg down was $166.50
The [B] leg high was $692.50
$692.50 minus $166.50 equals $526

The [A] leg down bottomed at $563.50
The bottom should appear somewhere between $492 and $526.
When the bottom is reached, that will complete Major Wave Two.

Silver is in a position similar to gold.
The [A] leg gave back 50% of the entire bull move.
The [C] leg will most likely bottom lower than the [A] leg.
There is a good probability that silver will bottom in $9.11

If wave [C] equals wave [A], $9.11 will be the target.
The high was $15.20. The wave [A] low was $9.60
That represents a $5.60 decline. The wave [B] high was $14.71
$14.71 minus $5.60 equals the bottom of $9.11


HUI correction will NOT go lower than the 270 low.

Ami Tokito

Eye Candy

Most Honest Money

Gold Is Honest Money

Gold itself is honest money. It's just that we are so brainwashed by paper money that we think that paper money is money. It is not... they are just paper backed by nothing.

Sound money is an asset. Something physical that you can exchange for something else. When you receive it, you know you’re receiving a tangible good. So it isn’t scraps of paper. In the absence of it being convertible to something physical, paper is merely an unbacked promise on the part of the government. Promises can be broken.


The Real Silver Deficit

1. Silver is not rarer than Gold.

2. The gold to silver rarity ratio is about 1 to 5, not 5 to 1.

3. There is nothing factual about the statement that silver is rarer than gold, unless you qualify it with the condition that you are only referring to market accessible silver in the form of bullion. But this is an unfair comparison, because you are including all gold in jewelry form while excluding all silver.


Silver Versus Gold

One of the most reliable relationships in the financial world since the early 1970s can be expressed as follows: silver outperforms gold when confidence in financial assets is rising and under-performs gold when confidence in financial assets is falling.

Gold's proven ability to out-perform silver when confidence is in a downward trend has a logical basis in that gold's price is almost totally driven by changes in investment demand whereas industrial demand is a very important factor in the silver market. When confidence is falling, there will be a flight toward money that should logically benefit the more monetary metal relative to the more industrial one.

Silver will out-perform gold over the long-term precious metals bull market, mainly because the US is not the global growth engine it once was and the long-term outlook for non-US economic growth remains bullish. However, silver is much riskier than gold because there are more things that could go wrong with a silver investment than with a gold investment. Gold-related exposure should have a significantly greater weighting than silver-related exposure in an investment portfolio.


Portfolio Diversification With Precious Metals

Ibbotson Associates did a comprehensive study regarding the effects of portfolio diversification with Gold, Silver and Platinum bullion.

“The three metals were chosen because gold and silver are often viewed as a safe harbor in times of crisis. Conversely, during economic expansion demand for silver and platinum is thought to increase.”

Precious metals performed best when they were needed the most by providing positive returns during the years that traditional asset classes had negative returns. Ibbotson determined that investors can potentially improve the risk-to-reward ratio in conservative, moderate and aggressive portfolios by including precious metals bullion with allocations of 7.1%, 12.5% and 15.7% respectively.

Gold Determinants

Long-Run Determinants of the Price of Gold

Whether investors in any particular country gain or lose by holding gold depends on the start date when gold is purchased and the length of the holding period. More specifically, it is far more likely to be profitable to invest in gold when the nominal price of gold is below its inflation hedge price. Conversely, it more likely to be unprofitable to invest in gold when the nominal gold price is above its inflation hedge price.

The dollar depreciation will lower the price of gold to investors outside of the USA, and this will raise their demand for gold and raise the US dollar price of gold. That is in addition to the long-run relationship between the US price level and the price of gold. The dollar depreciation will likely raise US inflation rates, and gold would act as an inflation hedge during this period.”

While gold is/will be an important anti-inflation hedge and against US-dollar devaluation, if the investor is from a country whose currency is expected to appreciated strongly against the dollar than gold may not be that great a buy.

Storm Watch

Predicting a major correction is actually very simple. Just watch the aunties, uncles and students. Once they start discussing them with deep interest, or boasting of sure win stock picks or big earnings in the market, its a sure sign the storm is around the corner. The question is when you want to find shelter before the rain starts falling.

Just look around the news. There are still talk that this is just a small blip and recovery will be soon. People just don't get it. As long there are still such talk, market will continue to tank. Wait until such talk has disappear and people have resigned to the fact that this correction will be here for quite awhile, only then the market will recover.

In doing TA, we cannot use our belief to forecast on where it is going. Just because there is a support somewhere does not mean it must be heading there. So need to establish the evidence first that it has to either head up or head down, and then use support and resistance to forecast where it might be reaching.

Rebounce is expected. Nothing will go down in a straight line. With so many down days, rebounce is just a natural event. Market always open based on the perceptions of amateurs. Market always close based on the perceptions of professionals. It pays more to follow the professionals. People need to remember that the professional managers trade against the retail investors. If they are trading against you, do you think they will tell you exactly what they are doing?

On the bounce that often occurs following a drop: after the bounce, the market drops again, making those who bought the bounce unhappy, and those who got left out happy. Then a counter-rally ensues, which often exceeds the high of the first bounce. This succeeds in bringing in buyers on the sidelines, and followed by a resumption of the downtrend.

In 1929, the Dow peaked around 380. On week 2, there was a chance to cash out at 370 (before a drop to about 325). On week 6, the average had rebounded to 355, before a huge drop to 235 and ultimately about 50! In 1987, the Dow reached just over 2700. On week 3, it reached about 2600. On week 6, it bounced up to about 2650. After that, it was bombs away to around 1750.

Is the Bear fair... YES. It always gives you a second and sometimes a third chance to exit at reasonable levels. If the top has been reached, then the 50 day M.A. should be our first chance. The 50MA seems like a good exit point.

Do a proper asset allocation plan and just do your DCA. That's the best I can recommend without knowing exactly the profile and strategy of each investor.