Month: February 2014

Source: Tracy Salcedo-Chourré of The Life Sciences Report  (2/13/14)

http://www.thelifesciencesreport.com/pub/na/big-pharma-will-find-good-hunting-among-early-stage-biotechs-dhesh-govender

Dhesh Govender, manager of the life sciences portfolio for Cedar Lane Enterprises Inc., has the inside track when it comes to identifying the hottest biotech trends. In this interview with The Life Sciences Report, Govender explains why he thinks plenty of upside remains in the life sciences sector, and reveals trade secrets that every investor should consider when building a successful investment strategy.

The Life Sciences Report: Dhesh, you attended the JPMorgan Healthcare Conference and the Biotech Showcase 2014 in San Francisco in mid-January. What takeaway advice do you have for investors looking into the life sciences sector?

Dhesh Govender: This was the 12th JPMorgan Healthcare Conference that I have been privileged to attend. Attendance was up significantly from previous years. Pharma investors were flocking around the reps of early-stage companies, discussing new product launches and partnership possibilities. Conference chatter revolved mostly around mergers and acquisitions (M&A). The takeaway message is that the valuations of early-stage biotech companies are poised to increase significantly, in tandem with a widely expected surge in M&A activity during 2014.

TLSR: Are the great returns that we saw in 2013 going to continue?

DG: In the early-stage small-cap space, there is significant upside to be realized. However, the upside for many large-cap biopharmas will be capped, especially for firms with product launches. We shall closely monitor the new product trajectories, but companies that enjoyed prelaunch valuation bump-ups will be looking to grow their markets. These firms will continue to concentrate on developing preclinical, phase 1-type assets, as well as on building revolutionary tools to help with clinical trials and patient assessment. On the diagnostic side, for example, companies will employ innovative theranostic (integrated therapeutic and diagnostic) methods to identify the right patients for a drug. I anticipate a small-cap rally to occur early on in the year, with activity leveling off in Q3/14. Then small caps will rally again in Q4/14.

TLSR: In San Francisco, you predicted that 18–20 major life science deals are coming down the pike. What is the catalyst for the life sciences rush?

DG: The books are closed for 2013 and investors have to deploy fresh capital. I know of several large funds that are launching as we speak, and these funds are dedicating more than $500 million ($500M) to the life sciences. Interest in the biotech sector is currently similar to that given to information sector technologies in 2001–2002, when there was an absolute flurry of amazing deals. Last year alone, more than $10 billion ($10B) was raised for life science companies. I expect that number to be surpassed in 2014. The challenge for investors, naturally, is to find well-managed companies with great technology coupled to valuations poised for maximum return.

TLSR: At the San Francisco showcase, presenters talked about different kinds of therapy areas and new technologies, including regenerative medicine. What technologies drew your attention as an investor?

DG: New technologies in the oncology and neurology spaces are especially ready to generate premium pricing power in the marketplace. One reason for the expected windfall is that the regulatory agencies are increasingly amenable to authorizing shorter time horizons for oncologic and neurologic product approvals.

The barometer is the U.S. Food and Drug Administration (FDA), as well as federal funding for the National Institutes of Health and National Cancer Institute. Even though funding levels have diminished, changes in how the FDA regulates the approval of new drugs are giving these biotech spaces a boost. With its new leadership going great guns, the FDA is now very amenable to working with the needs of new technology companies. We expect that to continue.

In fact, the oncology and neurology sectors contain a goodly number of undervalued companies with upcoming catalysts that have not yet appeared on the status quo radars. I expect to see an influx of initial public offerings for new companies in regenerative medicine and with cell-based therapies for oncology, neurology, and immunology. These in-the-wings product ripenings bode well for good hunting by big pharma.

TLSR: Can you talk about any of the companies you are following in these arenas?

DG: In 2013, Novartis AG (NVS:NYSE) made a very lucrative deal with the University of Pennsylvania to support Carl Junes’ work on CD19 for chronic lymphocytic leukemia (CLL). That is a template for the future.Bristol-Myers Squibb Co. (BMY:NYSE) and Merck & Co. Inc. (MRK:NYSE) are taking advantage of the excellent data presented on their PD-1 and PD-L1 antibodies at the American Society for Clinical Oncology in June. Investors in the checkpoint inhibition space will be very well positioned for developments during 2014, I must say.

TLSR: During 2014, will the trend for small life science companies be about solidifying partnerships with big pharma or about positioning for acquisitions?

DG: The opportunities for smaller companies to partner and to make deals is ripe, because big pharma has to enter early to realize substantial value. Smart companies were represented by top management at the Biotech Showcase in San Francisco. Investors want to talk directly to the CEOs and scientists at early-stage companies. I had dinner with a Roche Holding AG (RHHBY:OTCQX) executive during the conference. Roche sent about 150 of its upper-level people to the conference to look at smaller companies and their innovative technologies, and to talk turkey.

TLSR: Is there competition between the juniors for access to the deep pockets of big pharma? What strategies are used to garner such attention?

DG: Data is the currency for early-stage companies. They can demonstrate value as a partner for a large pharma if they have certain proprietary tools and, more important, if they have a target or a product candidate that fits nicely into the large biopharma’s existing pipeline—or that can flow in combination with an already approved drug. For example, new vaccines that can be combined with current therapy are hot.

Remember too that pharma is a global marketplace. U.S.-domiciled firms with attractive intellectual properties are focusing on the global market, and non-U.S. firms are looking toward the U.S. markets.

TLSR: Let’s talk about the pace of innovation, particularly in genomic sequencing, which is accelerating. Is that going to bring down the cost of development for smaller biotech companies and open up access to banking and investment capital?

DG: Innovation in the cost of genomic sequencing is leveling the playing field. For example, the cost of running a trial using the whole genome sequencing services offered by Illumina Inc. (ILMN:NASDAQ) is now less than $1,000. That means smaller biotechs can compete with large pharma in product development and testing. Traditionally, sequencing costs were tens of thousands of dollars per test.

We all know Moore’s law, from the technology sector. That trend will continue; paying even less than $1,000 for genomic sequencing is a sweet spot that can be touched. Lowering these costs means more people will be able to pay for access to these new technologies. That will force large pharma to increasingly collaborate with smaller firms at the edge of innovation.

TLSR: Can you provide specific examples of companies poised to take advantage of M&A, partnerships, or new innovations? Are you adjusting your portfolio to take advantage of these trends?

DG: Without getting into trouble with the compliance department at my firm, Cedar Lane Enterprises, I can suggest that checkpoint inhibition is a very hot topic in mergers and acquisitions. We are a hedge fund, and we are constantly looking at strategies and catalysts on the derivative side, as well as the long-short side, to maximize returns. Traditionally, we have observed that pending deals that have not been done by the end of the year are usually done toward the beginning of the new year. We expect a lot more news flow in this sector in terms of M&A, and we will position our portfolio to take advantage of that, especially on the derivative side, during April, May and, possibly, June.

TLSR: Are there any companies with interesting technologies or catalysts that you’d like to talk about?

DG: Sorrento Therapeutics Inc. (SRNE:NASDAQ) has an antibody drug conjugate platform that is blossoming into a full-fledged pipeline project. The driver of Sorrento’s lead program is a nanoformulated paclitaxel (Taxol). The company will commence its pivotal first patient trials with this therapy in the U.S. any day now.

With a $213M market cap and a potential launch in two years, Sorrento is tremendously undervalued. Sorrento was started up by the team that launched and developed Abraxane, also a nanoformulated paclitaxel, which was acquired by Celgene Corp. (CELG:NASDAQ). At the JPMorgan conference we heard from Celgene’s CEO; Abraxane guided $2B in peak sales in 2013 and should add another $1B in sales this year. Success breeds success!

TLSR: Thanks for your time, Dhesh.

DG: Cheers.

Dhesh S.K. Govender is a portfolio manager for healthcare and life sciences with the Cedar Lane Fund, a division of New York-based Cedar Lane Enterprises.

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DISCLOSURE:
1) Tracy Salcedo-Chourré conducted this interview for The Life Sciences Report and provides services toThe Life Sciences Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Dhesh Govender: I or my family own shares of the following companies mentioned in this interview: Sorrento Therapeutics Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Sorrento Therapeutics Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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USDJPY stays in a downward price channel on 4-hour chart, and remains in downtrend from 105.44, the rise from 100.75 could be treated as consolidation of the downtrend. As long as the channel resistance holds, the downtrend could be expected to resume, and another fall towards 95.00 is still possible. On the upside, a clear break above the channel resistance will indicate that the downtrend from 105.44 had completed at 100.75 already, then the following upward movement could bring price to 110.00 zone.

Daily Forex Forecast

By MoneyMorning.com.au

Picture this. It’s 3am.

You’re in bed and you should be fast asleep. But you’re staring at the ceiling.

What’s playing on your mind?

Is it the mortgage?

Is it that black spider that crawled behind your dresser?

Or is it stocks in your portfolio that keep you up at night?

If that last part sounds familiar, don’t worry. You’re in good company.

I know I’ve suffered the odd sleepless night thanks to the stock market.

But that might not be such a bad thing.

In fact, it could mean your portfolio is primed for success…

One article caught my eye this week as I scanned through the press.

It was a piece written by American finance pundit Chuck Jaffe. Chuck’s note leads with the headline ‘Always Invest In What Scares You‘.

Smart advice, I thought. But once I read Chuck’s article, I realised that he and I don’t see eye to eye.

You see, although that headline immediately drove me to a certain conclusion, Chuck used it to make a different point.

We can summarise Chuck’s argument with this quote from Dan Dorval of Dorval & Chorne Financial Advisors in Maple Grove, Minnesota:

‘A well-diversified portfolio is almost always going to own something that is currently out of favour.‘

Chuck and Dan point out that it’s important to diversify your investments. They’re saying a long term investor shouldn’t react emotionally to a 5% swing in a market or single stock.

The most recent example of that being January’s emerging market storm in a teacup.

These are both valid points.

But for these guys in the mainstream press, ‘scary’ means ‘any asset that underperformed in the last reporting period’.

I don’t call that scary. I call that boring. What’s more, I call it lazy.

Let me explain…

Most people wait for everything to seem perfect before they buy a stock. They wait until a technology is commercialised, until sales contracts are locked in, or in a broader sense, until the market has risen 10% or 20%.

These people will then sit back and wait for the stock to go up.

That doesn’t work.

For the best rewards, you have to buy into companies that face risks…as long as you can foresee a day when those risks go away.

Take for example Slater & Gordon Ltd [ASX: SGH].

Over the course of 2012, the Australian ‘no-win-no-fee’ litigator’s stock price gained a respectable 23%, plus 3-4% in dividends.

This time last year, Slater’s stock price looked to have hit a ceiling, limited by the risk and uncertainty around the company’s tentative expansion to the United Kingdom.

The UK consumer law market is four to five times larger than that of Australia. It’s ferociously competitive.

But then again, it’s had a few more centuries to develop. And that’s led to a fragmented market.

It’s safe to say entering the UK was a risky strategy for this Aussie law firm.

Well, in 2013, Slater & Gordon went on to outperform every other company in the S&P/ASX 200. Including dividends, the stock returned a massive 118%.

That’s what happens when a firm takes a risk and a daring expansion pays off with greater market share, revenue and profit.

An Investment Rule of Thumb

Sometimes you have to be willing to look stupid in the short term when you own emerging stocks.

But companies and ideas that took over the world usually started out looking stupid.

It just takes patience and time for these stories to move from the fringe of what seems sensible into the mainstream of the investment world.

That’s always an exciting journey. And the best part is that it usually involves a stock price growing in leaps and bounds.

In short, you have to invest in what seems scary today to reap the strongest long term gains.

That’s the message I get from the headline ‘Always Invest In What Scares You‘.

Here’s an investment rule of thumb. Large blue-chip companies lack the gumption that’s needed to pursue truly revolutionary ideas.

These companies can suffer from risk-averse management or even just too many layers of management. They might suffer from a shareholder base that actively dissuades investment in challenging ideas.

Either way, there’s a lack of daring that puts the handbrake on idea generation.

There’s a much smarter way to capture that entrepreneurial spirit and cash in when ideas move from the fringe to the mainstream.

It’s by investing in carefully chosen small-cap companies, like the ones we research and recommend in Australian Small-Cap Investigator.

Look, I won’t pretend that buying stocks at this end of the market is a low-risk strategy.

You should only invest money in speculative stocks that you can afford to lose.

But in the context of an Australian economy that’s ‘just going’, you’ll never bank outsized profits by investing in stories that everyone agrees look soothing and sensible.

You’ve got to leave your comfort zone if you want to fatten up your share portfolio. Don’t bother looking for perfection in your investments.

If you find perfection, you’ll know you’ve already missed the biggest gains.

Instead, look for the risks that a company faces…and try to determine what the company would be worth if those risks went away.

Embrace the risks – yes, some may keep you up at night, but they’re allowing you to get a good price!

There’s every chance you’ll make more money in that mindset than if you shy away from ‘scary’ investments…it could help keep your mind off that black spider that crawled behind your dresser, too.

Cheers,
Tim Dohrmann
Small-Cap Analyst, Australian Small-Cap Investigator

Ed note: By the way, I hope you’ll join me at World War D, our mega event coming up in March. If you don’t know anything about our 2014 show, click here. There are a handful of tickets left.

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By MoneyMorning.com.au

Watch this quick educational video from an Elliott wave forex expert, Jim Martens

By Elliott Wave International

Last fall, the editor of Elliott Wave International’s Currency Pro Service, Jim Martens, observed a beautiful pattern in the chart of the Japanese yen. This pattern, called a triangle in Elliott wave terms, offers a very clear outlook for the market.

What is a triangle? It’s a corrective pattern, meaning that it moves in the direction opposite the primary trend. And, it’s very easy to spot on a chart. Here’s an idealized diagram of a triangle.

When a triangle ends, the old trend should resume. This allowed Jim to make a very clear forecast for the dollar/yen. Watch this 7-minute video to see the triangle he observed, and the outcome.

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By MoneyMorning.com.au

Google’s recent acquisition of Nest Labs was a bit of a strange one. Why, exactly, did Google spend $3.2 billion on a company which makes smoke alarms and thermostats?

It’s the second biggest deal in Google’s history, and at first glance it seems a bit odd. But you see, Google isn’t just buying smoke alarms. It’s betting big on the next generation of technology.

You’ve read me banging on about cloud computing a lot recently. But today I want to look at the internet’s next step: ‘the internet of things’ (IoT).

Google bought Nest because they do IoT very well. The idea behind IoT is that ordinary devices can be improved by connecting them to the web. So Google is not just buying smoke detectors. It surely plans to move the business into all manner of other types of smart gadgetry.

That’s why I want to talk about IoT today. In the same way that the internet created a whole new industry, and made millionaires of many, I think the internet of things is about to do the same thing all over again.

Bigger Than the Internet Itself

Up until now the internet has essentially been a new mode of person-to-person communication. Just about every webpage in existence is there because somebody’s taken the time to put their thoughts and ideas down on…well, a hard drive…and then publish it to the web.

The internet of things is different to that. In the future, the web will be filled with all manner of smart gadgets publishing their own information. This data can be analysed and used in so many different and exciting ways.

Though the internet is massive, IoT is likely to be even bigger – and by several magnitudes!

We all know about smartphones…in many respects they’re already right up there in the IoT. Now smart TVs are becoming pretty normal too. And soon, it’s going to be everything from electricity meters, to washing machines and maybe even your toaster! To become smart, all the gadget really needs is to have its own internet identity (ie an IP address) and a web connection.

Think about a future where, for instance, you have a smart thermostat in each room of your house. It’s certainly logical. I mean, right now your heating probably comes on at predetermined times, and it probably heats the whole house. But what if nobody’s home? Or what if mum’s at home and she’s only interested in a warm lounge? What if the outside temperature doesn’t really warrant stoking up the heating anyway? Other smart gadgets in the house will help determine what bits of the house are in use and therefore what needs heating. The IoT solution gives you a more comfortable and energy efficient home.

Big Brother, or Handy Harry?

I know that a lot of readers have reservations about the sort of newfangled world I’m describing.

But I guess the only reason people will yield personal data is because they get something in return.

It’s a symbiotic relationship. Just take Google Maps. Installing this app on a smartphone offers all manner of advantages to the user: from sat nav to what is effectively a Yellow Pages right there in your pocket. And in return, Google gets data…lots of it!

I sometimes find myself using Google Maps while on the occasional ramble. The mapping facility includes paths and tracks I didn’t even know existed – I find the whole experience utterly fascinating. But what does Google get in return from me? Well, Google now knows I’ve walked across a field. It even knows that it was raining at the time (I got soaked!). Next time I’m browsing the internet, maybe there’ll be an ad in the corner for a brand new pair of weatherproof walking boots – or perhaps a specialised rambler’s umbrella – who knows?

Are these targeted ads useful to me, or an invasion of privacy? That’s for you to decide. But all this data collection definitely has its benefits. And these could be serious benefits. How about a monitor on your watch that could forewarn of an imminent heart attack…and may even call an ambulance for you! Useful?

And whether or not you’re on board with a benevolent Californian corporation tracking you on your ramble across the South Downs, the upside for investors is pretty clear. A few ambitious companies, like Nest, are driving this whole IoT story forward.

Songdo, South Korea

Songdo is a brand new city built on reclaimed land along waterfront 40 miles southwest of Seoul. Songdo is the world’s first ‘Smart City’ where homes, gadgets and people are all interconnected. Vacuum tubes carry rubbish straight from the home to its point of recycling. Everything from energy needs to security is monitored. Here’s a nice little five minute video courtesy of the BBC if you’re interested. Utopia? Or dystopia? However you feel about it, it’s a reality.

Last year, Google acquired seven robotics companies. Recently, it’s been making acquisitions in the artificial intelligence space too. Combining hardware, software, analytics, robotics and AI tells us a lot about Google’s plans, particularly in the area of IoT.

Industrial behemoths IBM and GE are investing too, with the aim of bringing businesses into this futuristic world.

Like it or not, the revolution is coming.

Bengt Saelensminde,
Contributing Editor, Money Morning

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By MoneyMorning.com.au

Source: Karen Roche of The Energy Report  (2/13/14)

http://www.theenergyreport.com/pub/na/food-water-and-fuel-are-necessary-to-life-and-investors-bob-moriarty

Likening central banks to “your crackhead cousin” running loose with your American Express platinum card, Bob Moriarty sees serious economic threats in the future. This leads the owner of 321energy to look at resources like food, water and energy for protection and profit. He tells The Energy Report where energy opportunities exist, and why Chinese demand for everything will set prices in the future.

The Energy Report: In your Gold Report interviewlast fall, you said that the two biggest reasons for the erosion of the middle class are peoples’ inability to save money due to low interest rates or low wages, and higher taxes, especially the hidden taxes we end up paying.

Bob Moriarty: Yes. I think there are 37 taxes on a loaf of bread. Taxes have increased dramatically over the last 20 years, including what are called the “unclaimed taxes.”

In an article James Gruber wrote on peak oil last month, he made the point that debt is actually a future call on energy. Under the General Agreement on Tariffs and Trade, when you owe money, you’ve already spent the energy. He argues that the economy is an energy system, not a monetary system. He’s absolutely correct, in my view.

The enormous increase in wealth we’ve seen worldwide over the last 150 years has stopped. There will be no more growth. From a mathematical point of view, you cannot increase growth. Energy consumption per capita has to go down, and that means wealth goes down. All the debt we’ve accumulated is a noose around the neck of society.

TER: Gruber also wrote, “Deflation is winning the battle over inflation.” His argument is that excessive debt has to be deleveraged and in that deleveraging process, asset values will plummet. Central banks are doing whatever it takes to create inflation in an environment where deflation is really the underlying tide. What do you have to say about that?

BM: Deflation is actually good for society. As consumers, we know this. Think about what you paid for a computer 20 years ago. Today, computers are much, much cheaper. That’s deflation, and that’s a good thing.

But for central banks working under a fractional reserve system, deflation is a ticking time bomb. They can’t cope with it.

With $694 trillion ($694T) in derivatives outstanding, I’m hard pressed to see how you can have inflation over the long term, because you have to get rid of debt. The only way that will happen is for it to blow sky high. What we’re seeing in Argentina, Egypt, the Ukraine, Venezuela, Thailand and Turkey is all related to the global debt level.

TER: One of Gruber’s scenarios, citing the example of 2008, is global deflationary shock in which all asset prices fall hard. As they begin to fall, the central banks will print even more money. Quantitative easing (QE) on a grander scale will put us at the risk of not inflation, but hyperinflation.

BM: I believe that’s true. Late last month, Fed Chair Janet Yellen announced $10 billion of QE tapering, as promised. Eventually, the risk is that the Fed will decide to increase QE to respond to a deflation scare. When that happens, the system will blow sky high. The Fed painted itself into a corner and can’t get out.

We need to get rid of the debt, of the $694T in derivatives. Every government has to recognize there are limits to how much money it can spend.

All of this goes back to central banks. The Bank of England, the world’s oldest continuously operating central bank, was formed in 1594 as a way for kings to finance their wars. Central banks make it possible for governments to spend unlimited amounts of money. It’s like you giving your Platinum American Express card to your crackhead cousin.

TER: How do investors prepare for the moment when the piper gets paid? How do they plan for hyperinflation, inflation, deflation?

BM: I can make a very convincing argument for deflation and very convincing arguments for inflation or hyperinflation. I’m not sure which will happen.

People should be extremely conservative. Looking at investments as a way to make money is foolish right now. I consider gold, silver, rhodium, platinum and palladium as insurance policies against total financial chaos. I would put money into resources, and I would expand resources to include food, fuel and water. Resources will have some value when other assets have none.

TER: Let’s talk more about your expanded definition of resources: fuel, food and water. How do you define fuel?

BM: Fuel is everything from coal to nuclear energy. I am very bullish on all forms of fuel, except nuclear energy. I am biased against nuclear energy. The industry doesn’t have nuclear power under control. Nuclear disasters like Fukushima have the potential to be extinction events. I would only be in favor of nuclear power if the industry gets safety under control.

Tim Morgan’s book, Life After Growth?, presents a brilliant way of looking at energy and monetary systems in a new way. He makes a very convincing argument that everyone’s standard of living is going to decrease over the next 10 years. He predicts socioeconomic crises for the next 10 years, one after another. There have been half a dozen brushfires in Africa alone—Somalia, Mali, Libya, Kenya. Everybody acts like they’re different brushfires, but they’re all the same thing; they’re all connected.

TER: Your definition of fuel is broad, but the energy sector seems to be focused on oil. Is that the total sum of the sector? And how do you play oil producers versus explorers?

BM: The U.S. is almost at the point where it’s self-sustaining in terms of energy because of the Bakken. But the Bakken field has become an economic disaster. We put $1.6T into exploration, and we’re not going to get $1.6T out of it.

Morgan’s book makes a very good point: In 1914, if it cost you the equivalent of 1 barrel (1 bbl) oil to drill a well, you got 100 bbl out of it. If you drill a well today, it costs you 1 bbl to drill it, and you get 20 bbl oil out of it. In the Bakken, you put 1 bbl oil into it, and you get 5 bbl out of it. That simply will not work from an economic point of view.

Natural gas has doubled in the last year. In the new normal, the oil price is $90–100/bbl. Any form of oil is worth looking at: producers, explorers and refiners.

Solar and wind power also play a role, although I see them as 3% of the solution, at best.

TER: I recently interviewed Porter Stansberry, who expands his energy investment viewpoint to include drilling, liquefied natural gas (LNG) plants, pipelines, infrastructure, even tankers. Is your view that broad?

BM: He’s absolutely correct. There are enormous amounts of natural gas in Indonesia, both in coal bed methane (CBM) and conventional natural gas. But you have to liquefy it before shipping. You need LNG plants, shipping facilities and ports.

TER: What are some opportunities related to food as a resource?

BM: When the food crisis comes, all fertilizers will double, triple or quadruple in real dollar terms. We have to get more food out of the ground in the future, and we need fertilizer to do that.

Arianne Phosphate Inc. (DAN:TSX.V; DRRSF:OTCBB; JE9N:FSE) in Canada has the largest, undeveloped phosphate project in the world. Its market cap is 5% of net present value (NPV). In this space, takeovers are generally done at 35–50% of NPV. This is a stock that could go up seven to tenfold, based on today’s prices.

TER: It seems to me that agriculture in North America is maximized in terms of using fertilizers. Are you saying that when the food crisis occurs, even North America will need to use more fertilizer than today?

BM: Everybody will. Besides, phosphate can be moved easily by ship. A lot of land in South America, Russia and Eastern Europe is underutilized for agriculture. I would look very closely at any potash or any phosphate.

TER: Arianne Phosphate has a number of warrants due Feb. 1. Are the warrants affecting the stock price?

BM: I just wrote an article on that. At that time, the stock was $1.26. The warrants are at $1.24. Management was hoping it could get the price up. I added about 1.5 million (1.5M) shares in the last week or 10 days. I suspect the company will get about $5M in cash from the warrants. When those warrants expire, I see the stock going back to its recent highs of $1.68–1.70.

TER: Back to oil and gas and natural gas. Which companies in those sectors interest you?

BM: Marauder Resources East Coast Inc. (MES:TSX.V) is a total crapshoot. It’s on the north island of New Zealand, where it is surrounded by TAG Oil Ltd. (TAO:TSX.V). Marauder is letting TAG carry the burden. TAG has drilled a well, and while the company has been very quiet about the results, they appear to be exceptional. Marauder has a $5M market cap. It will either go to $0 or to $500M. Only time will tell.

TER: What timeframe would you put on that $0 to $500M scenario?

BM: Over the next year or two.

TER: Any others?

BM: There’s a company in Indonesia called CBM Asia Development Corp. (TCF:TSX.V) that I’ve covered many times. The company has outlined 1 trillion cubic feet (1 Tcf) of coal bed methane. Unfortunately, every time the company raised money, its brain-dead president spent 150% of what it took in. Finally, it blew up in his face and he was fired. The last placement was done at $0.18, and then $0.10. Now, it has a $0.04 stock, and it’s all due to really exceptionally poor management. This is an asset that somebody will make a lot of money on. I just don’t think it will be CBM Asia.

TER: Is CBM Asia a takeover target?

BM: I think someone is going to steal CBM Asia. The total market cap is $7M, and the company recently lost a lawsuit that will cost it $1.4M.

TER: Indonesia, New Zealand and Texas also have nice shale deposits. Tell us more about opportunities in those locations.

BM: Torchlight Energy Resources Inc. (TRCH:NASDAQ) has a bunch of projects in Texas. It plans to drill 90 exploitation wells this year. It has a ton of money in the bank and will be cash flow positive in September 2014. This is a $5 stock that could easily go to $10 or $15.

TER: How long can Torchlight exploit its 90 wells?

BM: They’re relatively shallow wells, and they’re long-life wells. Conventional wells range anywhere from 2–100 years. The payoff is probably 20:1.

Shale has about a 40% decline in the first year, so they are 1.5–2-year wells; you have to make your money right away.

Pan Orient Energy Corp. (POE:TSX.V) is a company that has protected itself by being in three totally different environments—Canada, Thailand and Indonesia. It’s all conventional, heavy oil in Thailand and Canada.

TER: If a worldwide recession occurs, I can see North America continuing as a consumer market for oil, but will Thailand and Indonesia continue to consume?

BM: When I went to Papua New Guinea in December 2013, we flew from Port Moresby to Misima Island. From the plane we saw 17 ships. Those going north were carrying coal to China and coming back south empty. Our field of view was probably 50 miles. If you extrapolate that to cover the 2,000–3,000 mile leg from Australia to China, there are probably 200, 300 or 400 coal ships doing nothing but taking coal to China from Australia.

In the U.S., we consume 33 bbl oil per person per year. In China, they use 2 bbl oil per person per year. If we decrease our use to 20–25 bbl per person, it will make a dramatic change in our standard of living. But the Chinese are going to go from 2 to 5 or 10 bbl per person. The Chinese are going to demand energy regardless of their economic situation.

TER: But China is one of the world’s largest coal producers. To what extent is oil part of the energy mix there?

BM: The Chinese are voracious consumers of energy in all forms, including oil. That’s good for New Zealand shale oil and gas. It’s good for CBM and conventional gas from Indonesia. It’s good for coal from Australia and Indonesia. The Chinese actually control pricing for all commodities. This is true of everything from coal to gold.

TER: Why do you say all commodities? China is not yet the world’s largest consumer.

BM: It doesn’t have to be. Do you understand the concept of a swing producer?

TER: No, please explain it.

BM: A swing producer in any commodity has control of its price structure. It can make money at $15/ton or at $5/ton. When it wants to expand the market, it charges $15/ton, allowing everybody to come in underneath its umbrella. When it wants to put people out of business, it charges $5/ton. If a competitor can’t produce at less than that, it goes out of business.

Less well known is the swing consumer. The Chinese are the swing consumers of everything in the world. If the Chinese had not consumed record amounts of gold in 2013, gold would be $800/oz, not $1,250/oz. Chinese demand for everything sets the price.

TER: So Pan Orient is well positioned in two hotbeds of oil consumption in the Chinese South Seas area and in North America. What is the lifespan on its wells?

BM: Pan Orient has an extremely expansive program this year. It will announce new partners on its fields in Indonesia. It is advancing its deal in the North American oil sands. It will be financing more drilling in Thailand.

Pan Orient is going to remake itself in the next two years. In the oil business, a $100M company is tiny company; the equivalent of a $2–3M gold company. Decent-sized oil companies are worth $1–2B. I think Pan Orient is an easy tenbagger.

TER: Any other suggestions for investment in the broader resource definition you gave us—food, energy and water?

BM: There are obvious investments in food, but I hope to see more work in the next 10 years on water and agriculture. Food, energy and water are, today, where gold was in the summer of 2001. All of them will increase more than anything else that I know of, including gold and silver, which are more fully priced even today. No matter what happens to the stock market, food, energy and water are going to be a lot more valuable in the future.

TER: Bob, thank you for your time and your insights.

Bob and Barb Moriarty brought 321gold.com to the Internet over 10 years ago. They later added321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Bob was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.

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DISCLOSURE:
1) Karen Roche conducted this interview for The Energy Report and provides services to The Energy Report as an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Pan Orient Energy Corp., Torchlight Energy Resources Inc. and Arianne Phosphate Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Bob Moriarty: I or my family own shares of the following companies mentioned in this interview: Marauder Resources East Coast Inc. and CBM Asia Development Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Marauder Resources East Coast Inc. and Arianne Phosphate Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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Article by Investazor.com

Did you know how important it is to know your market and how it reacts when an indicator or a piece of news is being reported? As an example from my experience as a trader, OIL WTI in over 50% of the situations when the crude oil stocks are being published for the first 15 fifteen minutes after the report being made public, the price will go rather in the opposite direction compared to what it would be expected from a fundamental point of view. I mean, if the supplies will come bigger than the expectations, this would mean that the price should decrease as the supply is bigger, but you would be surprised to see that the first reaction for the price it is to go higher and only after 10-15 minutes to reverse to expected course of action.

One of the most important macro indicator that influence the markets, but especially the FX markets is the GDP, which is the broadest measure of economic activity and the first one that signals how “healthy” an economy really is.  The value of the GDP practically points to the ECB if the Eurozone recovered and managed to get out of the recession and every time Mario Draghi pronounces it in his speeches about the state of the economy the markets reacts instantaneously.

Basically, the GDP measures the change that occurs in the most recent quarter in the inflation-adjusted value of all goods and services produced by the economy. Important to know is also the fact that are three versions of GDP released about 20 days apart. There is Flash, Revised and Final. The Flash release is the earliest and this is why tends to have the biggest impact. Because after the markets have seen the Flash release they already know which could be the range in which the Revised and Final reports could be as the difference between them cannot too large.

Another aspect you should bear in mind is that the Eurozone Flash GDP has to be correlated with the ones of Germany and France, which are reported earlier, because these two countries represent almost half of the Eurozone’s economy. Your trading strategies should follow the following fundamental logic and I will take as an example EURUSD as it is the most tradable instrument in the world with a 24.1% of the global trading volume in 2013.

First of all, you have to focus on the forecasted value and the actual value. If the actual will be above the expected, then the Eurozone economy has a healthier economy than the markets have expected.  The effect will be that investors will jump in to buy EUR because is more appealing and sell USD, which means that EURUSD quotation will appreciate. On the contrary, if the actual value is below the expectations, the economy is doing poorly and it has no advantage anymore to own that currency. So, the investors are disappointed and they will rapidly sell EUR and buy USD, which means that EURUSD will depreciate.

It is crucial to understand and apply this kind of trading strategies because in time it will give you a “feel” of the markets. Acquiring this skill will give you the ability to use the swings of the markets in your favor and turn profitable on a more frequently basis. I am ending this article telling you to watch closely the Eurozone Flash GDP release of tomorrow and beware of the markets mood.

The post News Trading Strategy On EURUSD – GDP Release appeared first on investazor.com.

By Doug French, Contributing Editor, Casey Research

For the first time ever, the majority of Americans are scared of their own federal government. A Pew Research poll found that 53% of Americans think the government threatens their personal rights and freedoms.

Americans aren’t wild about the government’s currency either. Instead of holding dollars and other financial assets, investors are storing wealth in art, wine, and antique cars. The Economist reported in November, “This buying binge… is growing distrust of financial assets.”

But while the big money is setting art market records and pumping up high-end real estate prices, the distrust-in-government script has not pushed the suspicious into the barbarous relic. The lowly dollar has soared versus gold since September 2011.

Every central banker on earth has sworn an oath to Keynesian money creation, yet the yellow metal has retraced nearly $700 from its $1,895 high. The only limits to fiat money creation are the imagination of central bankers and the willingness of commercial bankers to lend. That being the case, the main culprit for gold’s lackluster performance over the past two years is something else, Tocqueville Asset Management Portfolio Manager and Senior Managing Director John Hathaway explained in his brilliant report “Let’s Get Physical.

Hathaway points out that the wind is clearly in the face of gold production. It currently costs as much or more to produce an ounce than you can sell it for. Mining gold is expensive; gone are the days of fishing large nuggets from California or Alaska streams. Millions of tonnes of ore must be moved and processed for just tiny bits of metal, and few large deposits have been found in recent years.

“Production post-2015 seems set to decline and perhaps sharply,” says Hathaway.

Satoshi Nakamoto created a kind of digital gold in 2009 that, too, is limited in supply. No more than 21 million bitcoins will be “mined,” and there are currently fewer than 12 million in existence. Satoshi made the cyber version of gold easy to mine in the early going. But like the gold mining business, mining bitcoins becomes ever more difficult. Today, you need a souped-up supercomputer to solve the equations that verify bitcoin transactions—which is the process that creates the cyber currency.

The value of this cyber-dollar alternative has exploded versus the government’s currency, rising from less than $25 per bitcoin in May 2011 to nearly $1,000 recently. One reason is surely its portability. Business is conducted globally today, in contrast to the ancient world where most everyone lived their lives inside a 25-mile radius. Thus, carrying bitcoins weightlessly in your phone is preferable to hauling around Krugerrands.

No Paper Bitcoins

But while being the portable new kid on the currency block may account for some of Bitcoin’s popularity, it doesn’t explain why Bitcoin has soared while gold has declined at the same time.

Hathaway puts his finger on the difference between the price action of the ancient versus the modern. “The Bitcoin-gold incongruity is explained by the fact that financial engineers have not yet discovered a way to collateralize bitcoins for leveraged trades,” he writes. “There is (as yet) no Bitcoin futures exchange, no Bitcoin derivatives, no Bitcoin hypothecation or rehypothecation.”

So, anyone wanting to speculate in Bitcoin has to actually buy some of the very limited supply of the cyber currency, which pushes up its price.

In contrast, the shinier but less-than-cyber currency, gold, has a mature and extensive financial infrastructure that inflates its supply—on paper—exponentially. The man from Tocqueville quotes gold expert Jeff Christian of the CPM Group who wrote in 2000 that “an ounce of gold is now involved in half a dozen transactions.” And while “the physical volume has not changed, the turnover has multiplied.”

The general process begins when a gold producer mines and processes the gold. Then the refiners sell it to bullion banks, primarily in London. Some is sold to jewelers and mints.

“The physical gold that remains in London as unallocated bars is the foundation for leveraged paper-gold trades. This chain of events is perfectly ordinary and in keeping with time-honored custom,” explains Hathaway.

He estimates the equivalent of 9,000 metric tons of gold is traded daily, while only 2,800 metric tons is mined annually.

Gold is loaned, leased, hypothecated, and rehypothecated, over and over. That’s the reason, for instance, why it will take so much time for the Germans to repatriate their 700 tonnes of gold currently stored in New York and Paris. While a couple of planes could haul the entire stash to Germany in no time, only 37 tonnes have been delivered a year after the request. The 700 tonnes are scheduled to be delivered by 2020. However, it appears there is not enough free and unencumbered physical gold to meet even that generous schedule. The Germans have been told they can come look at their gold, they just can’t have it yet.

Leveraging Up in London

The City of London provides a loose regulatory environment for the mega-banks to leverage up. Jon Corzine used London rules to rehypothecate customer deposits for MF Global to make a $6.2 billion Eurozone repo bet. MF’s customer agreements allowed for such a thing.

After MF’s collapse, Christopher Elias wrote in Thomson Reuters, “Like Wall Street cocaine, leveraging amplifies the ups and downs of an investment; increasing the returns but also amplifying the costs. With MF Global’s leverage reaching 40 to 1 by the time of its collapse, it didn’t need a Eurozone default to trigger its downfall—all it needed was for these amplified costs to outstrip its asset base.”

Hathaway’s work makes a solid case that the gold market is every bit as leveraged as MF Global, that it’s a mountain of paper transactions teetering on a comparatively tiny bit of physical gold.

“Unlike the physical gold market,” writes Hathaway, “which is not amenable to absorbing large capital flows, the paper market, through nearly infinite rehypothecation, is ideal for hyperactive trading activity, especially in conjunction with related bets on FX, equity indices, and interest rates.”

This hyper-leveraging is reminiscent of America’s housing debt boom of the last decade. Wall Street securitization cleared the way for mortgages to be bought, sold, and transferred electronically. As long as home prices were rising and homeowners were making payments, everything was copasetic. However, once buyers quit paying, the scramble to determine which lenders encumbered which homes led to market chaos. In many states, the backlog of foreclosures still has not cleared.

The failure of a handful of counterparties in the paper-gold market would be many times worse. In many cases, five to ten or more lenders claim ownership of the same physical gold. Gold markets would seize up for months, if not years, during bankruptcy proceedings, effectively removing millions of ounces from the market. It would take the mining industry decades to replace that supply.

Further, Hathaway believes that increased regulation “could lead, among other things, to tighter standards for collateral, rules on rehypothecation, etc. This could well lead to a scramble for physical.” And if regulators don’t tighten up these arrangements, the ETFs, LBMA, and Comex may do it themselves for the sake of customer trust.

What Hathaway calls the “murky pool” of unallocated London gold has supported paper-gold trading way beyond the amount of physical gold available. This pool is drying up and is setting up the mother of all short squeezes.

In that scenario, people with gold ETFs and other paper claims to gold will be devastated, warns Hathaway. They’ll receive “polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market.”

It won’t be inflation that drives up the gold price but the unwinding of massive amounts of leverage.

Americans are right to fear their government, but they should fear their financial system as well. Governments have always rendered their paper currencies worthless. Paper entitling you to gold may give you more comfort than fiat dollars.

However, in a panic, paper gold won’t cut it. You’ll want to hold the real thing.

There’s one form of paper gold, though, you should take a closer look at right now: junior mining stocks. These are the small-cap companies exploring for new gold deposits, and the ones that make great discoveries are historically being richly rewarded… as are their shareholders.

However, even the best junior mining companies—those with top managements, proven world-class gold deposits, and cash in the bank—have been dragged down with the overall gold market and are now on sale at cheaper-than-dirt prices. Watch eight investment gurus and resource pros tell you how to become an “Upturn Millionaire” taking advantage of this anomaly in the market—click here.

Jyske Bank is publishing a new interest rate forecast and it maintains a forecast of rising interest rates, but now with a more tentative view of the shorter term rates.

Legal information

Video courtesy of en.jyskebank.tv

By CentralBankNews.info
    Serbia’s central bank maintained its policy rate at 9.5 percent, underlining the “need for a cautious monetary policy, particularly in light of the developments and expected liquidity strains in international financial markets.”
     The Bank of Serbia, which cut its rate by a net 175 basis points in 2013 as inflation slowed, said the need for external financial persists, despite a significant narrowing of external balances due to rising exports, an called for a consistent implementation of fiscal cuts to help increase the country’s resilience to risks from the international environment.
    Last week foreign exchange market dealers said the central bank intervened repeatedly to curb losses of the dinar by selling euros and on Wednesday the central bank sold 20 million euros for total intervention this year of 350 million euros, up from 330 million in January “to ease excessive daily volatility of the exchange rate.” Foreign exchange reserves were 11.126 billion euros end-January.
    Serbia’s dinar weakened sharply in May 2013 and has continued to ease since then. Today it was trading at 115.81 to the euro, down 3 percent since the end of 2012, but only down 1.1 percent since the beginning of this year.

    Serbia’s inflation rate, which tumbled in the second half of last year, rose slightly to 2.2 percent in December from November’s 1.6 percent, but the bank said “demand-side and cost-push inflationary pressures have lessened significantly.”
    The central bank, whose board will present its latest inflation report on Feb. 20, has said it expects inflation to rise moderately in coming months due to higher administered prices and a one-off impact of higher value-added-tax on some goods in January.
    The central bank targets inflation in a range of 2.5-5.5 percent around a 4.0 percent midpoint.
    Serbia’s economy has been improving in recent months after two years of recession, with Gross Domestic Product up by an annual 2.6 percent in the fourth quarter. The bank has forecast growth of 1.5 percent in 2014.

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