Month: April 2013

By The Sizemore Letter

“A billion dollars ain’t what  it used to be.”

Bunker Hunt reportedly said those words in the early 1980s after the Hunt brothers lost a large chunk of their family fortune in their ill-fated cornering of the silver market.  But John Paulson must be thinking the same thing.  After Monday’s 9.3% drop, Paulson has personally lost over $1.5 billion over the past two trading days in his gold investments, not to mention the sums he has lost for his clients.

Ouch.

It’s only money…

As much as I would love to, I can’t gloat because even after the recent bloodletting gold bugs can call scoreboard on me. I initially got bearish on gold in 2010 when it crossed $1,200, believing at the time that the gold bubble has reached the euphoria stage.  Well, it got a lot more euphoric from there, rising another 50% from that point…and I had to eat a lot of crow.

Though probably not as much as Paulson right now.

The recent action should finally lay to rest one of the common misconceptions about gold: that it is a stable store of value.

No asset that has risen in value by a factor of six is “stable.”  Gold is a speculative asset like any other whose price is determined by the whims of the market.  As the more “financialized” gold gets via ETFs and mutual funds, the more it behaves like the rest. Gold is not an antidote to stocks or other “paper” assets. It has now become a paper asset.

While gold may, in theory, have value as an inflation hedge, this matters very little in a world where most industrialized countries have inflation rates under 2%.  But most fundamentally, gold fails my test as an investment because it pays no interest or dividends and has no productive purpose.  It is a shiny metal…and nothing more.

But none of this matters in the short-term.  As any good trader knows, in the short-term the only thing that matters is supply and demand.  And this is why I would steer clear of gold for the time being.

As the Dow hits new highs and the 2008 crisis becomes more of a memory, investors are starting, albeit slowly, to return to the stock market.  This is very bad news for someone like John Paulson, who needs a large pool of greater fools on which to unload his massive gold hoard.

At the risk of picking on John Paulson, he’s really gotten himself into a mess.  By GuruFocus estimates, he owns 22 million shares of the SPDR Gold Trust (NYSE:GLD), holding more than 10% of all traded shares.  He also holds stakes in miners and in physical bullion.  When the size of Paulson’s gold bet became known, the New York Times calculated that Paulson owned more gold than the Australian government.

If you were a hedge fund manager or trader and you thought that there was even a slight possibility that Paulson was going to liquidate, you would rush to the front of the line to sell before he did.

I’m not saying that this is exactly what happened on Friday and Monday.  But a technical explanation like this is far more plausible than the explanation given in the media: slower growth from China.

Chinese growth of three tenths of a percent lower than expected does not “cause” gold to lose over 9% of its value in one day.  But a hedge fund stampede most certainly would.

Gold might enjoy a dead-cat bounce today and in the days ahead.  But given the large investors with enormous positions to unwind, I wouldn’t advise trying to bargain hunt here.

Disclosures: Sizemore Capital has no interest in any security mentioned.

SUBSCRIBE to Sizemore Insights via e-mail today.

By www.CentralBankNews.info     Turkey’s central bank cut its main short-term interest rates by 50 basis points, saying that weak global demand and the outlook for commodity prices should “contain the upward pressures on inflation.”
    The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, the one-week repo rate, to 5.0 percent from 5.50 percent along with the top and bottom rates on its daily interest rate corridor.
   The overnight borrowing rate in the corridor was cut by 50 basis points to 4.0 percent and the overnight lending rate to 7.0 percent.
    The rate on borrowing facilities for primary dealers was also cut by 50 basis points to 6.5 percent.
    The CBRT has been steadily narrowing its interest rate corridor since last September, including a 100 basis point cut in the ceiling rate last month. However, it only cut its main policy rate in December, seeking to balance the need to stimulate declining economic activity without boosting credit growth too much and encouraging the inflow of capital that looks to take advantage of the high yield.
    The CBRT said capital inflows had re-accelerated and credit growth was above the bank’s reference rate so “in order to balance the risks to financial stability, the proper policy would be to keep interest rates low while increasing foreign currency reserves via macroprudential measures.”
    In addition to cutting short-term rates, the bank will further raise its reserve options coefficients, a tool that helps the central bank control banks’ foreign exchange reserves and thus liquidity.

     Turkey’s inflation rate rose to 7.29 percent in March, slightly up from 7.03 percent in February. The CBRT targets annual inflation of 5.0 percent this year, the same as in 2012 when inflation averaged 6.2 percent.
    The central bank said demand was developing in line with expectations, with domestic demand healthy, but exports were lower. The current account deficit had increased in light of a revival in domestic demand but it expects to contain a further widening of the deficit.
    Turkey’s Gross Domestic Product stagnated in the fourth quarter from the third quarter for annual growth of 1.4 percent, down from a 1.6 percent annual rate in the third quarter.

Top 3 Technical Tools Part 1: Japanese Candlesticks

EWI senior analyst Jeffrey Kennedy shows you how to identify quality trade setups with supporting technical indicators.

By Elliott Wave International

“I always will be an Elliottician, but other technical tools have merit and are indeed worthwhile: they allow me to build a case, build a more confident reason for making a forecast and for taking a trade; making a trading decision.”

-Jeffrey Kennedy

I recently asked Elliott Wave International analyst Jeffrey Kennedy to name his 3 favorite technical tools (besides the Wave Principle). He told me that Japanese candlesticks, RSI, and MACD Indicators are currently his top methods to support trade setups.

In this 3-part series, we will share examples of how to use these 3 tools to “build a case” in the markets you trade. These practical lessons allow you to preview how Jeffrey applies techniques with proven reliability to support his analysis.

We begin this first lesson with a basic candlestick-style price chart.

This is excerpted from Jeffrey Kennedy’s teachings. Follow this link to learn more about Jeffrey Kennedy’s educational trading service, Elliott Wave Junctures.

You may be familiar with an Open-High-Low-Close (OHLC) chart: comprised of vertical lines with small horizontal lines on each side. The top of each vertical line is the high and the bottom is the low. The small horizontal lines on either side represent the open and close for that period.

Here’s an example of a Japanese Candlestick chart:

Japanese candlestick charts employ the same data that OHLC price charts do except that the data is expressed differently. The real body is the range between the open and close, and appears as a small block. Shadows are the lines that extend upward and downward from this block, and represent the highs and lows.

Next, take a look at the chart below.

Two bearish candlestick reversal patterns that Jeffrey finds highly reliable are the Evening Star and the Bearish Engulfing Patterns. This weekly continuation chart for the Canadian Dollar combines a 20-period moving average to show that the trend is down — allowing you to focus on bearish reversal candlestick patterns to spot trading opportunities.

Jeffrey notes that “combining these reversal patterns with moving averages makes them even more dynamic because they focus your attention in the direction of the larger trend.”

Japanese Candlesticks begin our spotlight on Kennedy’s top 3 ancillary tools for trading with the Wave Principle. We’ll share parts two and three via how Kennedy uses RSI and MACD indicators to support his Elliott wave interpretation in coming weeks.

To learn more about these tools now, access our FREE 10-Lesson Trading Series, “How to Apply Some of the Most Powerful Technical Methods to Your Trading.”You will gain access to an archive of lessons that includes a wealth of information: in-depth guidance and insight on the Elliott Wave Principle and other technical approaches. You’ll learn some of the best technical indicators for analyzing chart patterns, anticipating price action, and spotting high-confidence trade setups. Learn how you can access your free lessons now >>

The U.S. Dollar Increases at the End of the Day

EURUSD – The EURUSD Supported by Level 1.3021

The EURUSD is slowly fluctuating between the 1.3052 and 1.3107 levels, having initially tested the low, and then – the high level. Therefore, yesterday turned out to be a boring and monotonous day. During the U.S. session, speculators somewhat came to life, the pair broke the support and dropped to a more serious support at 1.3021, reinforced by the running 50-day MA. What is important for the pair bulls that this level has attracted buyers, and the pair returned to 1.3081. This proves the continued demand for the EURUSD pair, as well as its potential to develop the upward momentum. The breakthrough of this support would worsen the pair’s outlook.

GBPUSD – The GBPUSD Under Pressure Again

The GBPUSD attempt to increase failed at the level of 1.5385. Having tested this level, the pair dropped to the support at 1.5308 which managed to constrain the bears for some time. But the recovery was limited by the level of 1.5344, and during the U.S. session, the support failed to resist, having caused the rate to drop to 1.5270. During the Asian session, the pound managed to recover to the level of 1.5308 – the resistance level this time, where it is trading at the moment. The drop below 1.5308 weakens the pair bulls’ position, but as long as the GBPUSD is trading above the 100-day MA, running near 1.5240, the pair’ outlook remains positive. The decreases below would lead the pound down the slippery slope.

USDCHF – The USDCHF Fluctuates Within Descending Range

Yesterday’s fluctuations in the USDCHF pair were limited by the narrow range again. The pair first dropped to 0.9267, then increased to 0.9327, and then dropped to 0.9288. There is not much pabulum for reflection regarding the future dynamics of the pair. However, the pair moves downwards within the range that could easily be broken in a southerly direction. In this case, it is wise to expect testing of the 92nd figure.

USDJPY – The USDJPY Dropped to 95.80

The USDJPY was gradually slipping lower and lower, then it turned into a landslide movement, in which the pair dropped to 95.80. The pair’s demand remained strong and it returned to the level near 97.70 – the resistance level this time. Though, the bears’ further attempts to continue their downward correction are not ruled out, the 96th figure looks quite attractive for purchases, since the 100-day MA runs near it. The nearest support level can be the level of 96.70.

Provided by IAFT

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 16 April 2013, 07:00 EST

SPOT MARKET gold prices fell to a fresh two-year low in Tuesday’s Asian trading, dropping to $1322 per ounce, before rallying back above $1386, as stock markets extended yesterday’s losses.

Silver dropped to its lowest level since September 2010 at $22.10 an ounce before it too recovered some ground. Oil was down on the day by lunchtime in London, while copper ticked slightly higher.

Since Friday morning, the value of total above-ground stocks of gold bullion, estimated by metals consultancy Thomson Reuters GFMS at around 174,000 tonnes, has fallen by more than $1 trillion.

Based on PM London Fix prices in Dollars, gold on Monday was down 9% from the Friday afternoon fixing, the biggest one-day drop since February 28 1983, when gold dropped 12% in a day. That in turn was the biggest single day drop since January 1980, when gold fell more than 13% one day after hitting its then all-time high of $850 an ounce.

On a two trading day basis, gold was down almost 11% by Monday afternoon’s fixing, with 1983 again being the last time gold saw steeper two-day drop. By comparison, gold fell more than 18% in the two days following the January 1980 high.

“The aftershock of the previous two trading days will likely continue today with investors caught off guard and now ready to press sell buttons in any renewed weakness,” said one London-based trader this morning.

The CME Group, which runs the Comex exchange in New York on which gold and silver futures are traded, raised its margin requirements Monday, following a similar announcement by the Shanghai Gold Exchange. The gold margin, which determines the amount of collateral that must be posted to cover potential losses, was raised by 19%, while silver margins went up 18%.

“At some stage [the selling] will start to dissipate,” adds David Govett at brokerage Marex Spectron.

“I am sure we will see a rally at some stage this week. But given the current mood, this will no doubt be sold into as soon as it runs out of steam… A major part of this fall has been the snowball effect of people attempting to pick lows and being forced out of positions in quick order. This will discourage any bargain hunting and gold’s only hope rests with physical demand.”

“We continue to see the potential for lower prices,” says Tyler Broda at Nomura.

“The lack of investment demand so far in 2013 has pushed gold out of equilibrium and a price as low as $1050 an ounce is possible should we see significant disinvestment occur. We are now on this path, in our view.”

The world’s largest gold exchange traded fund SPDR Gold Trust (ticker: GLD) continued to see outflows Monday, though at a slower rate than on Friday, with holdings falling by 4.1 tonnes to 1154 tonnes, their lowest level since April 2010.

Since the start of 2013 the GLD has seen the amount of gold held to back its shares fall by nearly 15%.

The GLD’s biggest holder, hedge fund boss John Paulson, has lost around $1 billion of his personal wealth since Friday morning as a result of gold’s price drop, according to news agency Bloomberg.

“While gold can be volatile in the short term and is going through one of its periodic adjustments, we believe the long-term trend of increasing demand for gold in lieu of paper is intact,” says an emailed statement from Paulson & Co. partner John Reade.

“Federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency for individual and institutional savers and central banks alike.”

Along with gold and silver, industrial commodity prices fell Monday, while stock markets also traded lower.

“Weaker-than-forecast data releases in China and the US weighed heavily on market sentiment,” says a note from Credit Agricole, “supporting the theory that the global economy is repeating the pattern of first-quarter strength followed by weakness over the remainder of the year.”

Here in the UK, inflation remained steady at 2.8% last month, according to figures published Tuesday, while Eurozone core consumer price inflation ticked higher to 1.5%, up from 1.3% in February.

Economic sentiment in Germany and across the Eurozone as a whole meantime has fallen this month, according to the ZEW survey.

Italy should look to use some of its gold reserves to recapitalize its banking system, Il Sole 24 Ore reports. The report cites proposals to use the gold to back a so-called EuroUnionBond rather than selling it.

Gold market development organization the World Gold Council has argued that governments should consider using gold to back bond issues, and last month commissioned a poll that found 91% of Italian business leaders and 85% of citizens agree that the country’s gold reserves should play a part in economic recovery.

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. Ben can be found on Google+

(c) BullionVault 2013

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 www.CentralBankNews.info

By www.CentralBankNews.info     Sri Lanka’s central bank held its benchmark repurchase rate steady at 7.50 percent, as expected, saying a further decline in inflation would allow it to cut rates again.
    The Central Bank of Sri Lanka, which cut rates by 25 basis points in December 2012 after raising them twice earlier in the year, said inflation “fell significantly” as expected in March due to the base effect and lower food prices and inflation should remain at this “benign” level.
   However, a proposed revision to administered prices is likely to exert some upward pressure on price levels, the central bank added.
    In March the headline inflation rate fell to 7.5 percent from an average 9.4 percent for the previous nine months while core inflation eased to 6.8 percent from 7.4 percent in February. Both inflation measures have been in single digits for 50 consecutive months.
    After raising rates in early 2012 to rein in credit growth, the central bank cut rates in December and removed a ceiling on credit growth, and said these measures are “providing reasonable stimulus for a higher economic growth.”
    “At the same time, further depreciation of demand driven inflation on a sustainable basis would provide space for further easing of monetary policy,” the central bank said.
    In 2012 Sri Lanka’s economy expanded by 6.4 percent for average growth of 7.5 percent over the last two years, based on resilient agriculture during adverse weather and sustained industry activity. Although tourism and finance grew rapidly, its growth was moderate due to low external trade.
    The central bank has forecast growth of 7.5 percent this year, down from 2011’s 8.3 percent.
    Credit extended to the private sector rose by an annual 13.3 percent in February and with the public sector relying less on bank financing in coming months, this should help provide the necessary stimulus to strengthen private sector activity, the bank said
     Sri Lanka’s balance of payments, which recorded a surplus of US$ 151 million at the end of 2012, remains in surplus so far this year and is expected to improve further. Gross official reserves have risen to $6.9 billion, enough for 4.5 months of imports.

    www.CentralBankNews.info

By MoneyMorning.com.au

Shell shocked?

You’re not alone.

Gold has tanked by 13.4% in just two sessions.

The drop in gold yesterday alone was the biggest fall in more than three decades…

You expect some twists and turns in this game…but come on…what the hell?

The whole industry is reeling. From small investors to bigwig fund managers and everyone in between — the smashing you’re seeing in gold has everyone’s heads spinning.

This has the hallmarks of a full-blooded, class A, DEFCON 1, capitulation.

But far from being time to panic, this is time for cool heads to prevail. You may never see another opportunity again like it.

Let’s first back up, and put this move in context with a chart. This move even dwarves the shellacking we saw in September 2011.

Gold…Going Cheap — if You Can Get It

It’s a breath-taking chart.

But don’t expect it to stay here long.

You see, a gold price at $1350 is totally unsustainable.

The reason being that gold is now trading very close to the total cost of production for the world’s biggest producers.

This Gold Price Cannot Last

Once you factor in the corporate costs, sustaining capital, royalties, exploration costs and the rest of it, the real costs are often double what they advertise.

The result is that the all-in costs for gold production at the world’s majors — not just the C1 costs they’d like you to believe — are closer to $1250 / ounce.

And for many of the smaller producers, costs are now IN EXCESS of the current cost of gold. In other words, they’re losing money on the gold they sell now.

A year 10 economics student will tell you that this situation can’t last for long. Gold miners will have to slow production to reduce losses, and in some cases will have to shut up shop altogether. Supply will slow, causing the gold price to rise again. Gold is likely to bounce just on the expectation of this happening.

This is much like the situation we saw in iron ore last year, when iron ore crashed below the marginal cost of production briefly, before whip-sawing back up again.

This fall in gold has been even more extreme than even Goldman Sachs dared imagine. Last week they told clients to short gold, aiming for $1450 by year’s end.

It took a few days to happen…but then gold kept going.

Talk of Cyprus selling gold to pay for the bailout sent ripples out. However their 13 tonnes was immaterial to the market: China eats 13 tonnes for breakfast.

The concern was that maybe this would set a precedent for European nations facing similar situations. Investors are thinking: what if Italy had to sell their gold?

It seems unlikely given the tiny difference it would make to their debt levels. At current prices it wouldn’t even make a 5% dent in Italy’s balance sheet. The same goes for the rest of Europe.

Panic set in all the same, and soon you had technical selling as gold went through support level after support level.

Then matters got worse. Last night those helpful blokes at CME, who got their job on the basis that they didn’t have enough personality to get a job at a ratings agency, decided to hike margins on trading gold futures…

This put the squeeze on speculators, and caused another big fall in the price. There is a danger we see the same in China today. I’ll be watching.

But like I say, a gold price down here is totally unsustainable. Expect a bounce soon.

A very dirty game, to shake gold out of weak hands, is being played by some desperate players.

Savvy buyers are taking the opportunity to load up. And load up on physical gold – not the paper version. In the same vein, we have seen some mysterious moves of physical gold out of Comex in recent weeks from the big players. The big banks have been withdrawing their physical at the fastest rate in history.

You wonder what they know. Lifting our head out of the trenches briefly, we see that the US congressional deadline to raise the US debt level is on Thursday…

An Opportunity Amongst the Carnage

Existing gold investors are in pain right now, but this situation simply can’t last for long. Here’s a snippet of a note I sent Diggers and Drillers readers last night:

‘First The RSI is now down to levels last seen in 1999. When that happened, gold jumped 30% within a few months in the wake of the Washington Agreement.

‘Second, the current structure now has all the hallmarks of the 2008 structure: an exuberant rally followed by a drawn out 25%+ correction, concluding with a pull-back towards the 200 week moving average. After this happened in 2008, gold then commenced a three-year, 170% rally.

‘So is this latest move a precursor to something similar happening again?

‘First, we need to ask ourselves if the factors that drove gold up between 2008 and 2011 are still in place today.

‘Do we not still have continuing expansions in collective central bank balance sheets, with Japan just the latest entrant to the global money printing party?

‘And are the world’s major economies not still mired in low to negative real interest rates?

‘Also, is demand not still strong from key players like China, India, Central banks, and private investors?

‘In short — everything is still in place to support higher prices.

‘You may assume this painful price action would scare some off, but the reality is that it is a buying frenzy out there.

‘At shop level, retail investors are buying very rapidly. The guys at GoldStackers told me on the phone this morning they are insanely busy, and have only seen one seller in a week. I’ve heard many reports of the international mints seeing their busiest trade in years. And on the Shanghai exchange, phenomenal amounts are moving, with 120 tonnes settling already so far this month.

‘Here’s the thing — those that know the market are using this move to load up.

‘There are also increasing reports that despite this body blow to the gold price, supply is still tight. Certain products are getting harder to source. And after rising to 0.24% at the end of March, The GOFO (Gold forward offered rate), is trending back down again and is now at 0.17%. This is a good sign that the physical market is drying up again. 

‘So if the physical demand is so robust, and the market is getting tight, then what caused this move?

‘It’s hard to believe that a 24 hour, near 10% move in any commodity could ever be natural. Who ever really knows what goes on behind the scenes of this incredibly opaque market! But this move in gold has the fingerprints of the big banks all over it. It seems like dirty tactics from an anxious player.

‘We also had Goldman telling clients to short gold, with a $1450 target. Job done in record time! Now it’s time to cover your position and buy.

‘Goldman’s gold trade was yet another aspect of today’s gold market that reminds me of 2008. Back in 2008 they called for gold to pull back to $745. Gold actually went through that, in fact dipping briefly under $700. Once this was done, gold didn’t look back for the next three years, by which time it had increased by a cool $1200/ounce.

I’ve been following the gold story for months, and managed to get a meeting with Eric Sprott last month to run my ideas past him. We agreed that the opportunity was good when gold was at $1600.

And far from being time to cut and run, with gold crashing to the $1300’s the opportunity we saw last month just got much, much better.

Dr Alex Cowie
Editor, Diggers & Drillers
Join me on Google+

Ed Note from Kris Sayce: The gold price and gold stocks took a hammering yesterday. But does that mean it’s a good time to start buying? In today’s Money Morning Premium  , I reveal Doc Cowie’s secret gold stock buying formula that reveals whether you should buy or stay away…click here to upgrade now.   

From the Port Phillip Publishing Library

Special Report: TORRENT SIGNAL 3 

Daily Reckoning: Why China’s ‘Population Pagoda’ Could Mean Slower Growth for Australia

Money Morning: Beware the ‘Safety Bubble’, But Don’t Sell Dividend Stocks Yet

Pursuit of Happiness: Why the NBN is Dead Before it’s Begun

Diggers and Drillers:
Why You Should Invest in Junior Mining Stocks

By MoneyMorning.com.au

Do you remember the 1970’s?

Sure, it was the era of questionable sartorial choices. Men wore very unnatural colours, showing up on dance floors as they tried to boogie until they couldn’t boogie no more.

In an energy sense, though, it was also the time of the dreaded mile-long gas lines.

Oil was in short supply at gasoline stations. It was an era of conflict. The nations that produced much of what the US consumed were none too happy and cut the nation off from their petrol spigots.

In those days, oil was a weapon. It was being utilized by the Organization of Petroleum Exporting Countries (OPEC) to punish the US for its support of the State of Israel as it was under attack by both Egypt and Syria.

This ‘oil war’ spurred the US government into action. Rationing began, whereby certain markets had restrictions on gasoline sales to private and commercial vehicles.

In addition, Congress passed, and President Richard Nixon signed, The Emergency Petroleum Allocation Act of 1973.

The act set into motion price controls on crude oil produced in the US — with existing known fields and reserves becoming price restricted, while new production was allowed to trade at market rates.

One of the interesting developments by Hess and Occidental Petroleum was to use a newer technology of pumping CO-2 (Carbon Dioxide) into older oil fields that were no longer productive to release crude oil in rock formations.

This would not only be considered ‘new’ supplies of needed domestic oil — but those supplies would be able to trade at market rates. It was the semi-free market at work!

The projects were set aside by both companies due to challenges in the resulting crude oil. The trouble then was that the crude came up — but it was heavily mixed with water which made it prohibitive to use in what was then existing production and refining processes.

That Was Then — This is Now

Flash forward 40 years and crude oil production in the US is expanding. Over the last several years newer technologies have made it easier to release additional crude from oil fields — it’s the ‘shale boom’ you’ve read about.

Conventional crude, as opposed to shale, is typically produced by drilling wells, pumping oil to the surface and then sending it onward to storage and processing facilities. This ‘conventional’ process gets the easy oil but leaves a lot of crude still in the fields.

‘Fracking’ takes the additional step of using higher pressure water and chemicals to break up rock formations and forcing crude oil to the surface. The rock formations that they are breaking up are called the ‘source rock.’

Over millions of years conventional oil leaked upward from this source rock. That’s what created pools of oil that sit under Texas and California. But today oil producers are heading lower for the source rock — and that requires new technology like fracking, where the source rock is fractured to release oil.

And while fracking has become one of the more exciting parts of the market for new oil — both traditional drilling and fracking still leave as much as 75 percent of the oil still in the ground.

Today we’re skipping the frack wagon.

1970’s Tech, 2013 Profit…

Injecting CO-2 into oil fields is what is referred to as Enhanced Oil Recovery or EOR. The process doesn’t break up shale rock — but rather acts as a sort of lubricant for crude oil to slip up and out rock formations which allows it to be pumped to the surface.

This process is quickly being adapted in the Permian Basin fields in Texas and New Mexico — but should be expanding nationwide in the coming months and years.

EOR is going to be big. Right now — fracking is producing around three million barrels per day (Mbpd) in the US — while EOR is seen to be ready to produce four Mbpd and many more to come.

The difference from the failed attempts in the 1970’s and now is that oil companies have new and increasingly common technology known as de-watering to not only make water-logged oil workable — but also makes the water available for other uses.

This EOR revolution will be adding a substantial amount of overall proven crude oil reserves in the US, which currently stand at around 222 billion barrels. EOR could increase that number to 323 billion barrels, or more — giving the US the 5th largest crude reserves in the world.

Neil George
Contributing Editor, Money Morning

Join Money Morning on Google+

From the Archives…

Australia: The Home of World Beating Dividend Stocks
12-04-2013 – Kris Sayce

Investors: Ignore Japan’s Yen Devaluation Game
11-04-2013 – Murray Dawes

What Japan’s Economic Disaster Means for Australia
10-04-2013 – Dr. Alex Cowie

Gold Bulls About to Win the War
9-04-2013 – Dr. Alex Cowie

A Better Inflation Bet Than Gold…Stock Market Investing
8-04-2013 – Kris Sayce

By MoneyMorning.com.au

The shift from computers to mobile devices and tablets is a work in progress. But it’s one that’s gone far already…from how you communicate with family and friends, to how you digest publicly traded content. Compared to decades ago, we really have it made.

Consider the following facts in the words of Peter Diamandis:

‘Right now, a Masai warrior on a mobile phone in the middle of Kenya has better mobile communications than the president did 25 years ago. If he’s on a smart phone using Google, he has access to more information than the U.S. president did just 15 years ago. If present growth rates continue, by the end of 2013, more than 70% of humanity will have access to instantaneous, low-cost communications and information.’

The next wave of innovation, however, is a new line of products that could succeed smart phone technology. In fact, it’s already shaping up to be the next battleground for the patent wars between the world’s big tech companies.

So What Comes After Cell Phones?

The answer is: Wearable technology.

Wearable technology aims to interweave personal computing and mobile capabilities into everyday life, in a way that is natural and intuitive.

We saw the first attempts in the 1980s, during the days of the calculator watch.

But Moore’s Law has allowed devices to get smaller and more powerful, giving designers more wiggle room to create more interactive products.

Recently, for example, Apple quietly issued a patent for what is speculated to be iWatch. And both Microsoft and Samsung are developing something similar.

Google is doubling down on its Google Glass, teaming up with venture capital companies to draw in professional designers in order to hack and churn out new iterations of it. Their goal is to turn smart glasses into the next major computing platform.

But in addition to watches and glasses, there’s also tech that’s embedded into clothing.

No…I’m not just talking about the electroluminescent shirts you may have seen at a Deadmau5 or Coldplay concert.

I’m talking about wearable technology with applications in real time monitoring feedback for athletes: Fitbit, Nike’s Fuelband, Garmin’s Forerunner, or UnderArmour’s Armour 39.

The best plays that are ‘patent war proof’ are investing in the chipmakers. Every computer, big or small, uses microchips.

Some Plays on This Idea

Qualcomm in recent years has had microchips incorporated into Apple, Samsung, Sony, and Google products like those smart phones and tablets you’ve seen hitting the shelves.

Competition with Broadcom recently caused the company to expand its portfolio of mobile chipsets in order to target low-end smartphones in emerging markets.

ARM Holdings is the designer behind many of the most popular energy-efficient chipsets made by companies like Qualcomm and Broadcom.

Intel, however, is one step ahead of the game, and is about to be two steps. As of last year, it’s been producing chipsets about one-half the size (in surface area) of Qualcomm or Broadcom’s chips, meaning Intel can produce chips for about half the cost…and costs will drop further when it transitions to the even smaller ones it has planned.

Aside from cost advantages, smaller chips are also more power efficient. That’s ideal for an iWatch.

Let’s not forget Taiwan Semiconductor Manufacturing. The company owned nearly half of the chip foundry market in 2011, with a virtual monopoly on some larger sized chip fabrications.

Finally, if you like a broader approach, you can invest in semiconductor technology ETFs.

Josh Grasmick
Contributing Editor, Money Morning 

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