Month: May 2012

By Central Bank News
Here's today's Central Bank News link list, click through if you missed the previous central bank news link list.  Remember, if you want to submit links for inclusion in the daily link list, just email them through to us or post them in the comments section below.

By JW Jones – www.OptionsTradingSignals.com

Apple (AAPL) is one of the most actively traded stocks currently. For the trader who trades only stock, there are two major difficulties in executing trades in this stock:

1. It is breathtakingly expensive.

2. It exhibits periods of neck snapping volatility exposing the trader to substantial losses if he gauges the direction wrong and does not act quickly.

For the investor who is willing to learn an option based approach, both these problems can be easily dealt with by using structured option trades to control risk crisply and make efficient use of capital.

Because this underlying is such an actively traded stock, the options are extremely liquid and trade with very tight bid / ask spreads. These are the two essential characteristics for selecting an appropriate vehicle in which to trade options.

I thought it would be interesting to look at a high probability trade that does not depend on accurately predicting the price direction of AAPL.  Let us first consider the price chart below:

The horizontal orange lines represent the price boundaries of the option trade we will consider. The lines have been placed to coincide with areas of recent support and resistance. The lines are obviously placed somewhat subjectively and can be modified to reflect the nuances of the reader’s technical analysis biases.

The point of the thought process I want to lay out here is not to debate the exact placement of these lines, but to demonstrate how a high probability trade can be constructed using whatever technical methods you wish to use to determine areas of support and resistance.

The next point we need to discuss is the concept of a “vertical credit spread”. This is, as implied by the name, an options spread in which a credit is received into the trader’s account. The spread is constructed in either calls or puts, and represents a bearish or bullish trade respectively.

An example of a bullish trade, a vertical put credit spread, would be to sell the AAPL 490 strike put in June and buy the 485 strike. The result of entering this trade would currently be a credit of $60 for each contract and the full value of this contract would be realized if AAPL closed at 490 or above at June expiration. No additional profit is possible for this trade. The position has a maximum potential loss of $440 because we own the long put.

A similar bearish trade can be established using a vertical call spread.  In this example, the June 595 call could be sold and the June 600 call bought for a net credit of $45 per contract. This is the absolute maximum profit that can be made from the position.

The full value of the position would be realized if AAPL closed at 595 or below at June expiration. The position has a maximum defined risk of $455 because we own the long call.

The astute reader will now undoubtedly ask the question:  Why would anyone take a trade where he could make $45 and lose $455?  The answer lies in the probability of realizing the profit. At current prices, each of these credit spreads has an 88% probability of achieving its maximum profitability.

The position I would like to call to the reader’s attention is to do both trades simultaneously. The combination of a bearish call spread and a bullish put spread is termed an “iron condor”. The characteristic P&L curve is presented below:

The illustrated trade has a return of 31% on margin requirements and a probability of being profitable of 72%. Because it is a credit spread, the trade has no direct cost, but does have margin encumbrance requirements to secure the ability to enter the trade.

An important point is that only one side of the trade requires margin since it is clearly not possible to lose on both sides of the position. It is critical to confirm that your broker only requires margin on one side; a few “option unfriendly” brokers require margin on both sides.

If you find your broker is one of these dinosaurs- run, don’t walk away since that illogical requirement halves the potential return on the position.

This is but one example of using options to construct a high probability trade that is profitable over a wide range of price and uses capital efficiently. In addition, risk is crisply defined and accounts cannot be “blown up” by Black Swan events.

The use of options opens a host of potential profit opportunities beyond the simple “going long” or “going short” available to the stock trader. In missives to come we will explore more of these unique opportunities.

Looking for a Simple ONE Trade Per Week Trading Strategy?
www.OptionsTradingSignals.com

Jw Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Article by Investment U

Over the past 10 years, if you bought all of the stocks that lost money but had positive cash flow, you’d beat the market by an average of 46% per year.

When I was young, stupid and chasing girls, good looks were the most important attribute a female could have as far as I was concerned.

A disastrous relationship with an insane model changed my thinking pretty quickly. After splitting up with “Crazy Christine,” as my friends used to call her, I became much more interested in what was beneath the surface.

The same can be said about my approach to stocks.

Most investors look at earnings when evaluating a company. And that’s a great place to start. Typically, a company that’s consistently increasing its earnings has a healthy business, and the stock should emulate that success.

But I like to dig deeper and really get to know the company. To do that, I look at cash flow.

Cash flow is how much actual cash came into the company versus how much went out. At the end of the year (or quarter) if more cash came in than went out, the company is cash flow positive.

Now, you may be asking, if the company is profitable, shouldn’t it be cash flow positive?

Not always.

Due to complex accounting rules, earnings can be doctored to tell pretty much any story an executive wants.

Here’s an example of how a company can be profitable, but not cash flow positive.

In 2011, InterDigital (Nasdaq: IDCC) made $89 million in earnings. However, its cash flow from operations was negative $34 million. How is it possible the company was profitable, yet saw more money go out the door than came in?

When we look at InterDigital’s statement of cash flows, we see that the company recognized $235 million in deferred revenue, which is subtracted from cash flow. Here’s why…

Deferred revenue is when a company gets money up front, but doesn’t recognize the revenue right away. This is very common among software, technology and services companies. For example, a company will sell a software package that has a $1-million service agreement that’s valid for four years. The company might get paid that $1 million up front, but will only recognize $250,000 per year for four years.

On the cash flow statement, however, that money has to be accounted for, because cash flow represents how much money flowed into or out of the company.

So in InterDigital’s case, the negative $235 million means the company recognized the revenue in calculating net income; however, it doesn’t represent any actual cash that flowed into the company in 2011. That money came into InterDigital in previous years, but is only now being recognized as revenue and contributing to earnings.

To sum up, InterDigital made a profit in 2011 because it recognized revenue on cash that it received prior to 2011. But it didn’t bring in more cash than it spent. Keep in mind, this is actually a conservative strategy, because if the company recognized all of the revenue at once, when it still owes a client four years of service, that could cause problems down the road if its obligations aren’t met.

And it goes both ways…

This earnings and cash flow discrepancy can work the other way, too, where a company is unprofitable. but takes in more cash than it spent.

For example, in 2011 Zynga (Nasdaq: ZNGA) lost $404 million. But when we look at its statement of cash flow, we see that $600 million in expenses was stock-based compensation expense – which is a non-cash item. It still needs to be accounted for on to determine profitability, but it doesn’t represent cash going out the door in the same way paying employees’ salaries does. So that $600 million gets added back to cash flow. After a few other small adjustments, the company’s cash flow from operations was $389 million.

So even though it lost $404 million according to the income statement, the business actually generated $389 million in cash.

I ran a screen to see which companies were unprofitable and cash flow positive and profitable but cash flow negative. Here are some of the largest in terms of market cap. Results are for the full year 2011.

Knowing which companies are getting too much credit for their earnings, or too little for their cash flow, is a good starting point for your investment research.

In fact, over the past 10 years, if you bought all of the stocks that lost money but had positive cash flow, you’d beat the market by an average of 46% per year.

So whether you’re checking out potential dates on Match.com or looking at the fundamentals of a stock, it pays to look beyond what you see on the surface and dig a little deeper. The rewards for doing so are significant.

Fortunately, I realized that a long time ago. I’ve been happily married to my wife, who was previously not my “type,” for 16 years.

Good Investing,

Marc Lichtenfeld

Article by Investment U

London Gold Market Report
from Ben Traynor
BullionVault
Friday 18 May 2012, 09:00 EDT

WHOLESALE MARKET gold prices climbed as high as $1594 an ounce during Monday morning’s London trading, jumping 1.5% in the first two hours, while Eurozone stocks looked to have stemmed four days of losses despite Greece and Spain seeing negative ratings decisions.

A day earlier, Dollar prices to buy gold jumped 2% in two hours during Thursday’s US trading.

“The bulls staged a big counterattack,” says the latest technical analysis note from Scotia Mocatta, a bullion bank.

“In terms of the longer-term technical [though], the picture is still bearish so long as we remain below last week’s high at $1642.”

On the currency markets, the Euro recovered some ground against the Dollar this morning, after sinking to a four-month low in Friday’s Asian session, during which time gold prices held most of the previous day’s gains.

Heading into the weekend, gold prices looked set for a slight weekly gain by Friday lunchtime in London – having risen 4% from Wednesday’s low.

“We’d like the market to hold at $1,550-$1,560,” says Nick Trenethan, Singapore-based senior metals strategist at ANZ .

“If it does that, then I think there’s a fair chance we could continue higher towards the $1,600 level, perhaps re-establishing the range there…but if the headlines out of Europe continue poorly, we may retest the lows.”

Over in India, the world’s largest source of gold demand in 2011, “demand has come down [from Thursday]” said Ketan Shroff, director at Mumbai-based wholesaler Pushpak Bullion, speaking this morning.

“People were waiting for a correction and all of a sudden prices went up yesterday. If prices go up further then we may see more fall in demand.”

By contrast, the world’s largest gold ETF, the SPDR Gold Trust (GLD), added 2.1 tonnes to its gold bullion holdings Thursday, taking them to their highest level this month at 1278.7 tonnes.

Silver prices meantime rallied as high as $28.66 an ounce this morning – though they remained 2% down on the week by Friday lunchtime.

Here in Europe meantime, the European Commission and European Central Bank are planning for scenarios whereby Greece leaves the Euro, according to European Union trade commissioner Karel De Gucht.

“A year and a half ago there maybe was a risk of a domino effect,” De Gucht tells Belgian Dutch-language newspaper De Standaard.

“[But] a Greek exit [now] does not mean the end of the Euro, as some claim.”

Ratings agency Fitch however cut Greece’s credit rating by a further two notches Thursday evening, reflecting “the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union.”

Fellow ratings agency Moody’s last night downgraded 16 Spanish banks, including the Eurozone’s biggest bank Santander, following its downgrade of 26 Italian banks on Monday.

“Amidst the ongoing Euro area debt crisis, the Spanish government’s rising budget deficit and the renewed recession, sovereign creditworthiness has declined,” said a Moody’s statement.

Despite the downgrades, shares in Spanish banks were among the biggest gainers in Friday morning’s trading, with Bankia – which was partly nationalized last week – seeing its shares bounce by over 30% at one point following losses in recent days.

Spain’s government has hired Goldman Sachs to undertake an independent valuation of Bankia, according to Spanish newspaper Expansion. Spain is also expected to name independent auditors later today to determine how big a bailout the banking sector needs.

Yields on 10-Year Spanish bonds meantime eased slightly this morning, though remained above 6%.

“Volumes are light,” reports one trader, “just bits and pieces on the screens…there’s a [potential] can of worms to be opened [if Greece leaves the Euro]and it can become very messy and people don’t want to be too involved.”

As gold spiked this morning, yields on German 10-year bunds fell to fresh all-time lows below 1.4% at one point, as investors pushed up the price of German government debt.

“To see a return of gold reacting positively to macro stresses is indeed refreshing,” says a note from Swiss investment bank UBS.

“But it is still far too early to make any firm conclusions from here that gold has indeed turned the corner…[gold] will have to consistently exhibit its safe haven properties, and do so for some time to attract strategic buying.”

Gold prices by Friday lunchtime remained 3.3% down from their levels on May 6, when Greek elections failed to produce a government.

European stock markets managed to pare early losses on Friday, with the Euro Stoxx 50 Index – which tracks blue-chip Eurozone stocks – showing a gain on the day by lunchtime following four straight days of losses. Here in London however the FTSE was still showing a 0.8% daily fall as we headed towards US open.

Across the Atlantic, stock market futures trading suggested the S&P 500 would open higher Friday, with Facebook set for its first day’s trading.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By TraderVox.com

Tradervox (Dublin) – The EUR/USD opened the day negative pushing the currency pair to four month lows of 1.2656. The pair opened the day around the 1.269 level but was hammered further into the day as the risk aversion began to grapple the market .This risk aversion saw huge dollar inflows driving the Dollar Index to monthly highs of 81.7.

The political situation in Greece and the fears of financial stability of Italy and Spain were the major drivers of risk aversion. The political picture in Greece has become once again uncertain with fresh elections likely to be around early next month after talks between parties failed early this week. A care taker government has been appointed to take care of Greece for the time being.  Speculations are running wild with Greek exit on the top of the agenda. In the wake of this uncertainty the Fitch rating agency has downgraded Greece to one notch below investment grade.

Europe saw further downgrades in Italy and Spain. Moody's Investor Service downgraded 26 Italian banks and 16 Spanish banks. This has led to a sharp rise in the bond yields of both the countries and is detrimental to the Spanish Prime Minister, Mariano Rajoy’s efforts of to cut the budget deficit and bring it down to the European Union acceptable levels.

The Euro is seeing a relief rally towards the close of the European session. The currency is currently on a corrective bullish move with the EUR/USD pair lurking around the 1.270 level. The slight bullish revival in the EUR/USD can be attributed to two reasons. First is the presence of a large number EUR/USD barrier options around the 1.26 level.

Another is the G8 summit this weekend in the US. This is a high risk event and is likely to cause major fluctuation when the markets open next week. So traders are closing out their positions before the weekend to account for this risk event.

The Euro bullish trend is weak and flat. However, the volatility is in favor of the bulls and this could drive the pair to 1.273 levels where it is likely to meet a strong resistance.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
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By The Sizemore Letter

The first time I set foot on Spanish soil was the spring of 2000, and what a fantastic time it was to visit.  The dollar was near its all-time high versus the Euro, and an American could live like a king on a pauper’s budget.

My, how times have changed.  I most recently visited Spain in the summer of 2009, and a cup of my beloved café con leche in Madrid’s Plaza Mayor had more than doubled in price when translated into dollars.

Of course, I gladly paid it.  Even at an inflated price, there are few pleasures in life like enjoying a hot café con leche in a Madrid café.

Two years and a sovereign debt crisis later, prices in Madrid’s cafes are a little more reasonable.  But prices in Madrid’s stock market are downright extraordinary.

Consider the broad Ibex 35 Index, which tracks Spain’s blue chip companies.  At time of writing, it trades below the crisis levels of 2008; in fact, the index now sits at levels last seen in 2003.

The index sells for just 9.8 times earnings and yields and eye-popping 8.3 percent in dividends.  Remarkably, this is even cheaper than Greece—despite the now almost certain ejection of Greece from the Eurozone and the havoc that that will wreak.

Value investors have a nasty habit of jumping into investments too early, and I am certainly no exception.  I turned bullish on Spain in the first quarter, buying shares of the iShares MSCI Spain ETF (NYSE: $EWP) in my Tactical ETF Model—and taking substantial losses for it in the months that followed.

Value investors also tend to concentrate too heavily on the fundamentals and valuation of a company while ignoring the larger macro picture.  More often than not, macro concerns prove to be noise.  But during times of extreme stress, they have a way of overpowering company fundamentals.  For example, Spanish telecom giant Telefonica’s (NYSE: $TEF) decision to reduce its 2012 dividend had more to do with conserving capital in a tight credit market than it did the company’s financial health.

Still, today most investors would appear to making the opposite mistake: focusing entirely on macro concerns while completely ignoring the incredible value in front of them.

I’ve recommended Telefonica in recent articles, and I’ll spare readers a lengthy rehash of my reasoning.   I’ll reduce it to five  words: big dividend, emerging market exposure.

The same reasoning applies to banking giant Banco Santander (NYSE:$STD), the largest bank in the Eurozone by market cap.   Santander gets roughly half its profits from the emerging markets of Latin America and another quarter split between the United States and United Kingdom.  Only 13 percent comes from the bank’s home market of Spain.

Santander trades for just 60 percent of book value and its dividend is over 13 percent at current prices.  Could that dividend come under pressure in another wave of capital market volatility?  Of course.  But at current prices, it is worth the risk.

Moving on, investors should consider electric utility Iberdrola SA (Pink:$IBDRY).  Like the other Spanish stocks mentioned, Iberdrola gets only about half of its revenues from Spain.  Roughly a quarter comes from Latin America, and the remainder comes from the United States, United Kingdom, and the rest of Europe.  For a globally-diversified utility, Iberdrola is a steal.  It trades for just 0.62 times book value and 0.64 times sales and yields  6.0 percent.

Disclosures: EWP and TEF are holdings of the Sizemore Capital Tactical ETF Portfolio and Sizemore Investment Letter Portfolio.    

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

While the euro remained bearish against its main currency rivals throughout yesterday’s trading session, it avoided falling to a new four-month low against the US dollar. The marketplace was unusually calm, as a bank holiday in Europe resulted in limited movements among the most traded currency pairs. As we close out the week, traders will want to note that another slow news day may result in low liquidity in the marketplace. Typically, low liquidity situations can result in exaggerated movements among currency pairs and commodities for seemingly no reason. Any mention of additional euro-zone worries may result in a significant drop for the euro.

Economic News

USD – Manufacturing Data Causes USD to Tumble

The US dollar tumbled vs. the Japanese yen during the afternoon session yesterday, following a significantly worse than expected Philly Fed Manufacturing Index. The manufacturing index came in at -5.8, well below the forecasted level of 10.3. Following the news, the USD/JPY fell close to 50 pips before finding support around the 79.75 level. Against the Swiss franc, the dollar saw gains during early morning trading before reversing later in the day. After reaching as high as 0.9480, the USD/CHF began falling, eventually dropping to the 0.9445 level.

As we begin to close out the week, dollar traders will want to note that a slow news day may result in exaggerated movements in the marketplace for seemingly no reason. Additionally, attention should be given to any announcements out of the euro-zone, especially with regards to the possible effects the current Greek political crisis may have on other indebted countries in the region, including Italy and Spain. Negative announcements could weigh heavily on riskier currencies, which may result in dollar gains throughout the European session.

EUR – Euro Limits Losses in Slow Trading Day

After dropping as low as 1.2666 during the morning session, the euro was able to recoup some of its losses against the US dollar, reaching as high as 1.2736. The currency was able to benefit from poor US manufacturing data which turned the USD bearish. Analysts were quick to warn that fears that Greece will be forced to exit the euro-zone is weighing down on the euro and that any gains could turn out to be temporary. Risk aversion in the marketplace following the disappointing US news caused the euro to fall against the Japanese yen. The EUR/JPY dropped over 60 pips during mid-day trading, eventually hitting the 101.32 level.

Turning to today, the euro may be able to hold onto its gains vs. the greenback if investors determine that the poor US news will lead the Fed to initiate a new round of quantitative easing to help boost the US economic recovery. At the same time, traders will want to remember that euro-zone fundamentals remain extremely poor. Any additional negative announcements today, especially with regards to the economic and political situation in Greece, could lead to further losses for the euro against the JPY.

AUD – Aussie Benefits From Positive Asian Data

The Australian dollar was able to move up vs. the USD following positive Japanese news during morning trading yesterday. Additionally, disappointing manufacturing data out of the US caused the AUD/USD to move up further. Overall, the pair was up almost 60 pips during European trading, reaching as high as 0.9951 during the afternoon session. The aussie was not as fortunate against the safe-haven Japanese yen. The AUD/JPY fell close to 100 pips over the course of the day, reaching as low as 79.04.

Turning to today, the recent disappointing news out of the US may help the aussie extend yesterday’s gains before markets close for the week. That being said, euro-zone political fears are keeping investors from shifting their funds to riskier assets. With market sentiment currently bearish toward higher yielding currencies, the AUD could drop further against the yen.

Crude Oil – Crude Oil Sees Mild Bullish Movement

The price of crude oil saw steady gains throughout the morning session yesterday, climbing as high as $93.84 a barrel before dropping during mid-day trading. Analysts attributed the bullish movement to better than forecasted economic growth in several Asian countries. That being said, poor news out of the euro-zone and US eventually brought the commodity as low as $92.79.

Turning to today, market sentiment toward the euro-zone is likely to dictate the direction oil takes. Fears that Greece will be forced to exit the euro-zone have led to significant risk aversion in the marketplace. Any announcements today that would indicate this trend will continue may weigh down on the price of oil.

Technical News

EUR/USD

Most long-term technical indicators place this pair in oversold territory, indicating that upward movement could occur in the near future. The Williams Percent Range on the weekly chart is currently at -90, while the daily chart’s Slow Stochastic has formed a bullish cross. Traders may want to go long in their positions.

GBP/USD

While the daily chart’s Slow Stochastic has formed a bullish cross, most other technical indicators place this pair in neutral territory. This includes the weekly chart’s Relative Strength Index and MACD/OsMA. Taking a wait and see approach may be the wise choice for this pair.

USD/JPY

The Williams Percent Range on the daily chart has drifted into overbought territory, indicating that this pair could see downward movement in the near future. Additionally, a bearish cross on the weekly chart’s MACD/OsMA has formed. Traders may want to go short in their positions.

USD/CHF

A bearish cross on the daily chart’s Slow Stochastic indicates that this pair could see downward movement in the near future. Additionally, the Relative Strength Index on the same chart is currently in the overbought zone. Opening short positions may be the wise choice for this pair.

The Wild Card

GBP/NZD

The daily chart’s Relative Strength Index is currently in overbought territory, indicating that downward movement could occur in the near future. Additionally, a bearish cross has formed on the same chart’s Slow Stochastic. Forex traders may want to go short in their positions before markets close for the week.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

After consolidation, USDJPY breaks below 79.43 previous low support, and continues its downward movement from 84.17 (Mar 15 high). Further decline could be expected over the next several days, and next target would be at 78.00 area. Resistance is at 79.70, only break above this level could indicate that lengthier consolidation of the downtrend is underway, then another rise to test 80.61 resistance could be seen.

Daily Forex Forecast

By MoneyMorning.com.au

We know it’s an odd thing to say, but right now, we like Europe.

Sure, Greece is on the verge of leaving the euro.

The European Union has only narrowly avoided falling into recession.

And Moody’s Investors Service is set to downgrade several Spanish banks.

Only a fool would exchange ‘safe’ Aussie dollars for ‘risky’ euros. But that’s exactly what we’re asking you to consider today.

Because, as we’ll explain in a moment, this could be the most profitable trade you make in 2012…

Europe is in a bind.

On one hand it’s battling a big debt problem and slow economic growth.

On the other hand, it needs to invest to ensure Europe doesn’t fall back into the dark ages.

As you may know, most of Europe’s natural gas comes from Russia. A supply that has more than once been disrupted due to political arguments.

Also remember that last year Germany vowed to close down the last of its nuclear reactors by 2022.

Nuclear power accounts for nearly one quarter of Germany’s electricity generation. That’s a big hole to plug.

Of course, the spin at the time was that Germany would be a ‘trailblazer’ for renewable energy sources (RES). That’s not likely.

Renewable sources (wind and solar) generate just 4.83% of electricity across Europe.

And in Germany renewable energy sources produce just 6.5% of the nation’s energy.

So, what’s the answer?

A clue is in a couple of headlines we’ve seen during the past two days:

‘Macquarie in $4b deal for European gas grid’ – The Age

‘Ukraine sees 2017 for commercial shale gas output’ – Reuters

In our view, these two stories support our position that Euro-Energy is the next big opportunity for investors.

Eastern Europe Leading the Way for Natural Gas Energy

To stress the point, big energy players Royal Dutch Shell and Chevron are backing what could be Europe’s biggest shale gas play – the Ukraine.

Nothing is certain. But Shell and Chevron clearly see the chance to make a buck or two.

According to the Reuters report:

‘The former Soviet republic has Europe’s third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres), according to the U.S. Energy Information Administration, behind France and Norway.’

Bearing in mind the EIA says Europe could have as much as 639 trillion cubic feet of shale gas in the ground. So, if Europe is smart enough to exploit this resource, it could put them in the same position as the US. And that is energy independence.

Europe would no longer need to rely on Russia or the volatile Middle East.

Remember, the main reason the Brent Crude oil price is USD$16 higher than US crude oil is due to the fear of supply problems from the Middle East.

In short, Europe is paying a higher risk premium for energy than the US. All the more reason to develop a domestic natural gas supply.

Or you’d think so.

The Halt On Shale Gas That Europe Can’t Afford

In what we can only describe as a ‘typically French’ reaction, France has put a halt on shale gas exploration.

Despite having the largest shale gas resource in Europe, no one can produce it because, as usual, politicians have fallen under the spell of the green lobby.

In time this will change. But it goes to show that European unconventional natural gas development is still at a very early stage.

But in the end, even the green fanatics will have to face the facts. Europe can’t survive as an economic powerhouse without having a domestic energy supply.

Our bet is that Europe will have to develop shale gas. Not because it wants to, but because it’s the only option.

And that’s why we’re taking a punt on European natural gas stocks. It’s early and high risk, but if we’re right, the payoff will be immense.

Cheers,
Kris.

P.S. We first wrote about Euro-Energy stocks in the April issue of Australian Small-Cap Investigator. We’ve picked three Aussie stocks we believe are best placed to gain if Europe embraces shale gas. To find out what they are, take out an obligation-free trial of Australian Small-Cap Investigator and check out the latest issue. Click here for details…

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