Month: March 2012

The Bank of Zambia announced it would set its new monetary policy benchmark interest rate at 9.00%. The move marks a transition in the Bank’s monetary policy, from money supply targeting to an interest rate target system.  The overnight lending facility rate is due to be set at 250 basis points higher than the policy rate.  The new interest rate level represents significant tightening, and compares to previous interest rate levels of around 6 percent.  The Bank of Zambia’s adoption of a monetary policy benchmark interest rate follows similar moves by Uganda and Angola last year.

The Banco Central del Uruguay held its benchmark interest rate unchanged at 8.75%.  The Bank said [translated]: “In the Monetary Policy Committee, the Central Bank of Uruguay noted that the inflation rate has begun to sag, but still holds, as well as agents’ expectations, well above the target range. Therefore, in order to provide a fee structure that preserves the contractionary bias of monetary policy, the Central Bank of Uruguay understood best not to change the monetary policy rate, which remains at 8.75%.”

Previously the Bank increased the interest rate by 75 basis points in December, and 50 basis points in June, and raised reserve requirements for banks on peso deposits by 300 basis points to 15% and 300 basis points on foreign currency deposits to 18% during its May meeting.  The Bank also increased its interest rate by 100 basis points to 7.50% at its March meeting.  Uruguay reported inflation of 8.4% in November, compared to figures earlier in the year of 8.53% in May, up from 8.34% in April, and still above the Bank’s 4%-6% inflation target range (as set by the Macroeconomic Coordination Committee).

The South African Reserve Bank [SARB] kept its monetary policy interest rate, the repo rate, on hold at 5.50%.  The Bank said: “Domestic economic growth is expected to remain below potential. In light of this and the expected medium-term inflation trajectory, the Committee is of the view that at this stage the current stance of monetary policy is appropriate to support the real economy while at the same time maintaining its commitment to achieve the inflation target over the medium term. The Monetary Policy Committee has therefore decided to keep the repurchase rate unchanged at 5,5 per cent per annum.”

Previously the SARB also held the repo rate unchanged at its January meeting this year, the Bank last cut the repo rate by 50bps to 5.50% in November 2010.  South Africa reported annual inflation of 6.1% in December, compared to 5.7% in September, 5.3% in August and July, 5% in June, 4.6% in May, and 4.2% in April this year, compared to its official inflation target range of 3-6%. 

The Ceska Narodni Banka held the two-week repurchase rate at 0.75% as expected, and kept the discount rate unchanged at 0.25% and Lombard rate at 1.75%.  The Bank said: “As regards the reasons for the decision, they are quite obvious. According to the forecast, monetary-policy relevant inflation will be close to the inflation target. Headline inflation is currently rising above 3%, but it should fall later on. Monetary-policy relevant inflation, of course, remains near the target for the whole period up to the horizon we influence.”

The Czech central bank also kept the repurchase rate unchanged at its February meeting this year; its last change was a 25 basis point cut in May 2010.  The Czech Republic reported annual inflation of 3.7% in January this year, up from 1.8% in September, compared to 1.7% in August and July, 1.8% in June, 2% in May, 1.6% in April, and 1.7% in March this year, and within the Bank’s official inflation target of 2%.  

By MoneyMorning.com.au

For years, the United States has feared an energy crisis.

That one day the U.S. would have to import nearly all its oil and gas from overseas.

If there was a disruption to the supply lines, it would lead to rising fuel prices and severe shortages. That would mean higher costs for businesses. And higher prices for consumers.

All of which could push the world’s biggest economy into recession. And cause mass civil unrest.

It would be the 1970s “oil shock” all over again. But this time… it would be much worse…

Energy Crisis Over?

But, despite those fears, the U.S. energy crisis never really happened.

Why?

Well, it may seem counter-intuitive, but it’s thanks to $100 oil.

That’s not something you’ll read anywhere in the mainstream press. But it’s true.

When oil prices were low, it was too expensive for explorers and producers to reach hard-to-get oil reserves. And the harder it is to get, the tighter the supply. And the more the West had to rely on the Middle East.

That was just fine for the Middle East oil cartel. It had plenty of easy-to-get oil.

And when oil prices soared from 2001 onwards, it seemed as though it would provide riches to the Middle East, while dooming the West (especially America) to economic depression.

In fact, some have argued the crash in 2008 was partly due to high energy costs. That may be true.

But sometimes it’s hard to look past the short term and focus on the long term. Short term, a high oil price was great for Saudi Arabia, Iran and the rest of OPEC. But it wasn’t great for the U.S. and the West.

But in the long term, the opposite will be true.

In fact, we believe the high oil price of the past 10 years has actually secured America’s energy future. And soon, it could do the same for the rest of the Western world too…

The Energy Future for Investors

You see, while high oil prices have caused short-term pain, long term it means hard-to-get energy reserves became viable.

This is where entrepreneurial and risk-hungry energy companies have started to exploit the high oil price.

In the U.S., this has mostly happened with the exploration of shale oil and shale gas reserves. 20 or 30 years ago, these resources were too expensive to consider.

That’s changed. To the extent that according to global energy giant, BP, the U.S. is set to be energy self-sufficient by 2030. And soon after it will become a net energy exporter.

That’s an amazing shift from where the U.S. was just a few years ago.

And so now, the race is on to sideline Middle Eastern influence in energy markets.

You see, while a high oil price is good news for big producers in the Middle East, it’s also bad news. Simply because a high oil price makes other projects viable.

And that means more price and supply competition. It explains why Saudi Arabian oil minister, Ali al-Naimi is so keen to make sure the market still knows who’s in charge.

As Bloomberg News reports:

“Saudi Arabia said it could potentially raise output capacity to 15 million barrels a day, from 12.5 million barrels a day, using new oil fields if needed.”

That’s all talk.

Saudi Arabia doesn’t really want to knock down the oil price. It just wants to make investors, explorers and producers think it can knock down the price.

Because while lower oil prices are actually better for the Middle East in the long term (because it makes competing oil fields less viable), in the short term, Middle East dictators like high oil prices because they can buy more trinkets (football teams, London and New York property, and so on).

And because they’re afraid of what could happen if prices fall and they can no longer afford the handouts they’ve promised their oppressed citizens.

Under-Explored East Africa

The effect is that explorers are pushing the boundaries of the exploration frontier. For years, when oil was just USD$20 per barrel, certain areas of the world were no-go zones. They were politically unstable…geologically inaccessible… or just plain not worth the risk.

But with oil at USD$100 per barrel, the reward has started to offset the risk. Of course, it’s still risky. Very risky.

But the risk is now worth taking. Norwegian oil company, Statoil is exploring in an almost untouched area – the east coast of Africa. To highlight just how risky it is, Statoil has hired armed security guards to patrol its offshore assets to protect them from pirate attack!

But even machine-gun toting pirates can’t keep the explorers away.

And why would they? The east African coastline is almost completely unexplored when it comes to oil and gas.

That’s highlighted by these amazing numbers from U.K-based explorer and producer, Afren plc…

For every 70 wells drilled in North, West and Central Africa, only one well has been drilled in East Africa.

Oil company, Africa Oil, makes a similar comparison. This time comparing the triangle of Kenya, Somalia and Ethiopia with the North Sea and the Suez Basin:

Fewer than 200 wells drilled, compared to 7,706 for the North Sea and Suez Basin. That’s just 2.5% the number of the wells drilled, in an area 10-times larger!

Despite the risks (including from pirates), exploring this untouched frontier is already starting to pay off. As the Financial Times recently reported:

“Statoil set the oil industry abuzz late last month when it announced it had found large volumes of natural gas off the coast of Tanzania, confirming east Africa’s reputation as one of the energy world’s most promising new frontiers.”

The Biggest Energy Shake-Up in 20 Years

The idea of frontier energy plays (whether it’s a geographical or technological frontier) is something we’ve focused on in Australian Small-Cap Investigator.

The idea that explorers and producers are doing things and going places that could shake up the entire world energy market.

This is attractive, because as a speculative investor, you want to be at the turning point of change. Because if you can identify a change in direction early – or as it happens – that’s where you can potentially make your biggest returns.

And as we see it, one of the biggest changes in direction is happening in energy markets right now. If you’re quick, there’s still time to get involved.

How?

We’re preparing a special report on the subject. So look out for it over the next couple of weeks.

Cheers.

Kris.

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The Guggenheim Frontier Markets ETF (NYSE: FRN) provides an easy and diversified way to capture growth in frontier markets.

Of the 26 countries I’ve visited, one memory in particular stands out in my mind.

I was in China. Not in Shanghai or Beijing, mind you, but far out west in a rural area where I was called “foreigner” as if it were my name.

One day, at the junction of two dirt roads, I saw the usual activity you found all over the Middle Kingdom during the first decade of the twenty-first century. Saws whizzed and hammers banged as laborers walked around a work site on bamboo scaffolding.

But these guys weren’t putting up fancy skyscrapers or even repairing an old house.

They were building the town’s first street corner – just a couple of two-story buildings – and I was witnessing the beginning of a city.

Strangely, the scene was somehow familiar…

My mind immediately flashed to countless western movies I grew up watching. I’m sure you’ve seen them, too.

But this wasn’t “Tombstone” and this wasn’t the Old West. This was a different type of frontier.

I Went Down to the Crossroads…

I know about junctions. My hometown of Kansas City gained importance because it sits where the Kansas and Missouri rivers meet. This new street corner I saw in China was also at a crossroads, and the locals knew that meant a promising future…

As long as they seized the opportunity, that is.

Are you ready to tap into frontier markets? Like the scene I saw, dozens of economies around the world find themselves where two roads meet – it’s the junction of the road to prosperity and the road to stability.

The road to prosperity is paved by entrepreneurs and visionary leaders. They’re folks who have ambition, but aren’t so selfish that they’ll hurt their country’s cause to preserve their own power.

To get on the road to stability, you need leaders with the maturity to lose an election and keep working hard to build the future. You also need the confidence of citizens to not riot in the streets every time bread prices change.

The Guggenheim Frontier Markets ETF (NYSE: FRN) does a nice job of picking countries and companies that allow you to benefit from those key trends.

In the fund we find:

• Kazakhstan – represented by KazMunaiGas, the national natural gas company, and Halyk, a commercial savings bank. Right there we have plays on the central Asian country’s rich resources and its improving business climate.

• Chile – FRN holds shares of Banco Santander Chile (NYSE: SAN), and for an interesting twist, the fund also threw in Vina Concha y Toro (NYSE: VCO), a quiet wine industry giant whose headquarters I’ve visited… after taking a bus through some of the capital city’s seediest suburbs. Chile’s ecological diversity and copper production make it a tourist and business magnet, and key driver of future Latin American growth.

• Colombia – This country used to be synonymous with drugs and violence, but now two of its top companies trade on the New York Stock Exchange. National oil company Ecopetrol (NYSE: EC) and bank Bancolombia (NYSE: CIB) make this nation in transition FRN’s heaviest investment. Colombia totals around 15% of the ETF’s total value.

• Egypt – Well, if you’ve been watching the news, you know Egypt is still dizzy from the wild Arab Spring of 2011. Nevertheless, this country is one of the most promising in the bunch. In fact, part of the reason for Egypt’s turmoil has been its large, young workforce, eager to make an impact and transform the nation. FRN profits from the young, online, energized next generation of Egyptians with investments in Orascom Telecom.

Orascom isn’t just a market force in the Arab world… The company has holdings in Bangladesh, Pakistan, Algeria and Zimbabwe.

Are those far enough off the beaten path for you?

To be frank, there are some countries on this list that I haven’t even thought of visiting! Good news is, I don’t have to go there to get in on the action, and neither do you.

The Frontier Markets ETF gives you a way to plant yourself at the crossroads in these places and reap the rewards of getting there before the crowd.

You may not hammer a nail into the first couple of buildings in town, but with FRN in your portfolio, you can be a pioneer in your own right.

Good Investing,

Sam Hopkins

Article by Investment U

By TraderVox.com

Tradervox (Dublin) – European Finance Ministers have capped the firewall kitty at 500 billion Euros after Germany led a coalition to oppose a further expansion of the region’s firewall power.  This comes as a shock to traders who were expecting a consensus in building a larger firewall kitty. However, the 500 billion lending capacity excludes the 300 billion Euros already given to Ireland, Greece, and Portugal.

Therefore the overall size up to 2013 will be 800 billion Euros but after that the kitty will be at 500 billion Euros. The Finance Ministers did not approve the use of the remaining 240 billion Euros in the EFSF but they indicated that the money would be used to add to the ESM kitty to its full amount of 500 billion dollars.

Austrian Finance Minister Maria Fekter was the first to talk to the press at the meeting indicating that the European leaders have now acted as expected by the IMF and as agreed at the G-20 meeting. Maria Fekter was also quick to add that the sum fixed is important and now the EU is expecting the pledges from the IMF to follow. Euro zone is counting on the pledged amount and the 1 trillion Euros injected by the ECB as a stimulus package.

This new development will affect the bullish trend of the euro as it was expected that the European leaders would endorse an expansion of the kitty to 940 billion Euros. Dutch Finance Minister Jan Kees de Jager indicated that incase the 500 billion in fresh capital is not available the region guarantees the availability of the 240 billion Euros in the EFSF. In reality, this is the only amount that is available excluding the 308 billion Euros that have already been committed to Portugal, Ireland and Greece.

The Chairman of the Finance Ministers meeting canceled his press briefing after the Austrian Finance minster talked to the press before him. Traders are looking forward to a formal statement from the Chairman of the Finance Ministers Jean-Claude Juncker.

Disclaimer
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Source: ScienceNews

What you’re about to discover could revolutionize everything from electronics and aerospace to transportation and energy.

It’s the thinnest, strongest material on earth. And in 2010, it won Andre Geim and Konstantin Novoselov, two scientists from the University of Manchester in England, the Nobel Prize in Physics.

This potentially game-changing material is none other than graphene.

The Highlights

In its most basic form, graphene is simply a single layer of graphite. It’s as thin as one atom.

Yet amazingly, The New York Times says, “…a sheet of it stretched over a cup of coffee could support the weight of a truck bearing down on a pencil.”

That’s not all that graphene has to offer, either…

• Graphene is also the world’s first two-dimensional material.

• It’s the lightest material in existence.

• It has the best thermal conductivity of any material, which could lead it to replace copper in computer chips.

• Graphene is the most impermeable material ever discovered.

• It’s a very efficient electrical conductor that could also replace most uses of silicon in addition to copper.

• It carries the highest intrinsic mobility of any other material on earth, which is set to pave the way for faster, more efficient transistors and other various electronic components and devices.

• It’s transparent and completely bendable, potentially creating a brand new slew of tablets, smartphones, computers, printers, chips and much more.

If you’d like to learn even more about graphene, I found the video below well worth the watch.

Despite its promising characteristics though, there are certainly challenges.

The Roadblocks

One issue is that China currently supplies 80% of the world’s graphite supply. This could lead to price fixing on graphite and graphene in the future.

Another issue, and currently the biggest, is figuring out a way to move graphene from the research lab to the marketplace. That’s because no company has figured out a way to really manufacture it on a major scale yet. It’ll definitely be a few years before we can tell how marketable graphene is.

But a handful of companies are preparing to industrialize it. Some of them even trade right on the NYSE. And early-in investors could be in for the ride of a lifetime if graphene becomes the next big thing.

In fact, investment banking firm Jefferies Group (NYSE: JEF) even says one firm in particular is worth checking out at current levels: GrafTech International Ltd. (NYSE: GTI).

A Buying Opportunity?

Based out of Ohio, GrafTech is a company with 125 years of experience in the carbon and graphite industries.

In the late 1800s, it actually supplied arc carbons to Cleveland, Ohio, enabling the city to become the first in the world with electric street lamps.

Today, GrafTech’s products are used in a variety of industries including steel, energy, technology, chemicals, aerospace and transportation.

The company has 19 manufacturing facilities strategically located in over 70 countries spanning four continents. Jefferies expects the stock to pop 50% from current prices of $11.85.

But with the emergence of a potentially disruptive material such as graphene, this could be just the beginning of a massive run higher.

That’s because GrafTech is also the twelfth-largest patent holder for applications in the field of graphene. It currently holds even more patents for graphene applications than big name companies like General Electric (NYSE: GE), Bayer AG (ETR: BAYN) (FRA: BAYN) and Canon (NYSE: CAJ).

In 2011, sales hit a record high of $1.3 billion. The company is also in its eighth straight year of positive cash flow. And the future looks very bright.

It expects double-digit growth in the next three to five years in a number of key markets including…

• Electronics… 30%
• Aviation and transportation… 15%
• Lubricants, coatings and additives… 10%
• Lighting… 30%
• High-temp furnaces… 20%
• Energy storage… 20%

You can bet graphene is going to play more and more of a role in these markets, too. Those who produce graphite and graphene, like GrafTech, will see demand increase for their products as more and more people discover the extraordinary potential of graphene.

Good Investing,

Mike Kapsch

Article by Investment U

By The Sizemore Letter

It can be a lonely life as a contrarian value investor.  By definition, you constantly find yourself in the minority.  And by betting against the herd, you are subtly (or not so subtly) sending the message that you are smarter than everyone else.

This is not the sort of thing that makes your popular at a cocktail party.  When you are right, your acquaintances are by definition wrong and you look like an insufferable know-it-all.   And when you’re wrong?  Don’t expect any sympathy.

Still, taking a contrarian mindset and, in the words of the great Warren Buffett, being greedy when others are fearful, is the only way to score outsized returns over time.  To paraphrase another great investor, the late Sir John Templeton, you can’t outperform the market if you buy the market.

Of course, once in a while, the herd is actually right, and a cheap stock continues to get cheaper until the bitter end.

So, which is the case with Research in Motion (Nasdaq:$RIMM)?  Is the former tech darling the contrarian buy of the decade?  Or is it a value trap, luring hapless investors with its siren song of cheap earnings multiples?

RIMM released its quarterly earnings yesterday after the market closed, and the news was mixed. The number of subscribers rose to 77 million, and RIMM’s cash balance continues to rise, up by $610 million to $2.1 billion. Yet revenue fell 19% for the quarter to $4.2 billion, and the company posted a net loss of $125 million.  Adjusting for good-will impairment and other one-time charges, the company saw earnings-per-share of 80 cents a share, a penny shy of analyst expectations.

Investors have gotten used to disappointing earnings announcements from RIMM, so none of this should come as a shock.  But this is where it gets interesting.  RIMM finally appears to be taking its problems seriously, and major management changes are in the works.  Jim Balsillie, former co-CEO and the man perhaps most blamed for the company’s recent turn of fortune, is resigning from board.  He will certainly not be missed by RIMM’s beleaguered shareholders.

Additionally, two other high-level executives, chief technology officer David Yach and chief operating officer for global operations Jim Rowan, will be leaving the company.  CEO Thorsten Heins is cleaning house; it’s a shame it wasn’t done sooner.

Surprisingly little was said about BlackBerry Mobile Fusion, which I continue to believe is the company’s best (and perhaps only) chance at staying relevant over the long haul (see prior article for a longer discussion of Mobile Fusion).  However, Heins did make it very clear in the post-announcement conference call that the company would be looking to refocus on its strengths in the enterprise market and look to new partnerships to address its weaknesses.

Some analysts took this to mean that the company is looking to eventually exit the handset business and focus instead on its core services business.   I, for one, would encourage such a move.  IBM (NYSE: $IBM) made the painful decision to largely exit the hardware business a generation ago, and it certainly proved to be the right one.

Heins also refused to rule out an outright sale of the company, and given the RIMM’s price I view a sale as a real possibility and a potential floor on the stock price.

RIMM is one of the cheapest companies in the world.  It trades for 5 times forward earnings (which are, admittedly a bit of a moving target) and just 0.36 times sales.  Value investors should take note that RIMM trades for substantially less than book value.  At just 0.69 times book, RIMM could be sold off for spare parts and be worth more than its current market price.

A large chunk of RIMM’s book value is its cash in the bank.  RIMM has more than $4 per share in cash and investments.  At its current price of $13.40, that amounts to nearly 30% of the value of the company.

RIMM’s portfolio of technology patents—which have real value and can be sold—are estimated to be worth anywhere from $2 to $7 billion.  To be conservative, we’ll assume they are worth no more than $2 billion.  At that value, $4 billion of RIMM’s $7 billion market cap is in cash and patents.  That means that everything else—the property, plant and equipment, the inventory, the receivables and the going-concern value of the business—is being valued at just $3 billion, or $5.72 per share.

For a company that still has 77 million subscribers, a dominant position in the enterprise market, and over a billion dollars per quarter in cash flow from operations, that is crazy cheap.

I continue to recommend RIMM as a contrarian buy.  At current prices, it is simply too cheap for me to ignore.

A word of caution is warranted, however.  You have to have thick skin to own this stock.  Take a look at some of the banter in the Tweetosphere, and you’ll see what I mean: RIMM StockTwits feed.

You also have to have faith that management won’t erode the value of the company’s assets before RIMM either turns it around or sells out to a larger buyer.  Given the company’s recent track record, there are no promises on that count.

Still, you’re not going to score quick triple-digit gains by buying what everyone else is buying.  And at current prices, I believe that RIMM presents a fantastic opportunity for returns of 100-200% over the next year.

Disclosures: RIMM is a current recommendation of the Sizemore Investment Letter

Avoid bond funds in 2012. These investors are about to get slaughtered.

At our 14th Annual Investment U Conference at the beautiful Grand Del Mar in San Diego last week, I discussed a number of attractive investment opportunities available right now.

But I also warned them about one of the worst investments you can make. Take a minute now to make sure you don’t have it in your portfolio right now.

As I mentioned in a recent Investment U column, we’re at the tail end of the biggest 30-year rally in bonds the nation has ever seen. Three decades ago, Fed Chairman Paul Volcker pushed the prime rate up to 21.5% to squelch inflation. Long-term Treasury yields reached 16%. From that pinnacle, long-term yields have plummeted to 3.1% today. Bond prices have soared accordingly.

But the financial crisis is over and the economy is beginning to show a pulse. Higher inflation may be just around the curve. And as yields move up, bond prices move down. And perhaps way down.

Just about the worst thing you can own when interest rates are moving up is a leveraged bond fund. When a fund manager borrows short term at low rates in order to buy additional long-term fixed-income investments for his fund, it’s the equivalent of buying stocks on margin. It works fine while bond prices are flat or rising. But when bond prices fall – as they will when interest rates rise – these shareholders take a shellacking. If you’re not sure whether the bond funds you own are leveraged, don’t guess. Call the funds and ask.

And if you owned a leveraged closed-end fund, don’t even call. Just get out, especially if the fund is trading at a premium to its net asset value (NAV).

Recall that closed-end funds are not like Fidelity or Vanguard mutual funds. Like ETFs, they trade on an exchange and can be bought and sold throughout the day (not simply redeemed at the closing price like open-end mutual funds).

However, closed-end funds can see their prices fluctuate well above or below their net asset values (NAV). When a fund trades above its NAV, it is said to be trading at a premium. And when it trades below the NAV, it is trading at a discount.

There is no easier (or more obvious) buy or sell signal than to buy these funds when they trade at big discounts and sell them when they go to a premium.

If those premiums are huge – as many are in the fixed-income sector right now – they are ticking time bombs that you definitely don’t want in your portfolio. Here are just a few that are particularly dangerous right now:

And then there is the biggest stink bomb of them all: PIMCO High Income Fund (NYSE: PHK), currently trading at a 60.4% premium to its net asset value. Over 60%! That is completely nuts. These shareholders are clearly asleep – and overdue for a rude awakening.

Even if your closed-end funds aren’t on this list, don’t be complacent. Call your mutual fund and ask if the manager is using leverage. Or visit a free website like www.cefconnect.com and check out the relationship of your closed-end funds to their net asset values.

It may well be the most important three minutes you spend on your portfolio this year.

Good Investing,

Alexander Green

Article by Investment U