Black Swan Insights
Health Emergency--Will Be Back To Normal Posting Shortly
Black Swan Insights
Good News From Stans Energy
Position Sold 2/5/2011
As you know, I have owned Stans Energy since June 2010, and so far the investment has done well. Today we got some more good news from the company. Stans announced that it has optioned the chemical processing facility for $5,500,000. This represents a critical step for the company because the hardest part of mining rare earth elements is extracting the minerals from the ore. It can take a company years to solve all of the problems and refine the technique. Furthermore, the company also acquired a rail terminal which will allow it to ship the finished products to Asia. Stans made a point in the press release of mentioning South Korea and Japan as potential destinations for the final product.
As you know, I have owned Stans Energy since June 2010, and so far the investment has done well. Today we got some more good news from the company. Stans announced that it has optioned the chemical processing facility for $5,500,000. This represents a critical step for the company because the hardest part of mining rare earth elements is extracting the minerals from the ore. It can take a company years to solve all of the problems and refine the technique. Furthermore, the company also acquired a rail terminal which will allow it to ship the finished products to Asia. Stans made a point in the press release of mentioning South Korea and Japan as potential destinations for the final product.
This follows recent news reports that South Korea is interested looking to invest in rare earth mines in Kyrgyzstan. I expect news of a financing agreement to be announced in the next few months, which should elevate Stans Energy into the top-tier of rare earth companies. No other company (except Molycorp) can boast having a past producing mine and a rare earth processing facility where the metallurgy has already been solved. More importantly, Stans Energy is a HREE play compared to Molycorp, which is heavily reliant on LREEs (low value). If you look at the pricing of rare earth elements you will know that HREEs is where the big money will be made.
Regarding the processing facility, it was used previously to process output from Stans' Kutessay II mine back in the days when the Soviets were still around. According to a independent study, most of the equipment (97%) is in either good or satisfactory condition. This means that Stans should be able to keep capital expenditures relatively low (always good for shareholders). However, Stans will need additional capital to get the processing facility ready for operations, especially because they intend to increase capacity.
The only knock against Stans Energy right now is that it still trades on the American pink sheets, which keeps US institutions away from the stock. I would encourage the company to try to get a listing on a US exchange such as the American stock exchange. In fact, I have looked at the listing requirements, and Stans is eligible, so it definitely could be done. This is the only way to open up Stans Energy to large US investors, which would further support the stock price. Currently, US investors only consider Molycorp, Rare earth elements, and Avalon. No one outside of Canada has even heard of Stans Energy, and this needs to change, considering the company's attractive fundamentals and promising future. The cost of listing on an exchange would be minimal compared to the increase in market cap achieved through greater exposure to the investment community. A higher market cap will also allow the company to finance operations while minimizing dilution to shareholders.
Overall, I still like Stans Energy and have no intention of selling my shares.
Black Swan Insights
Related Articles:
My Investment in Stans Energy
Full Disclosure: I own stock in Stans Energy and am naturally talking my book.
Legal Disclaimer:
I am not an investment advisor and nothing on this site should be interpreted as investment advice. Please consult with your own financial advisor before investing in the stock market or any financial asset. This blog and its author are not responsible or liable for any misstatements and/or losses you might sustain from the content provided. (I know this is a stupid statement, but for legal purposes I have to say it. Thanks)
Bailout Near for Portugal?
The EU elite are patting themselves on the back right now after Portugal was able to sell some debt. They all follow the party line that all is well and that Portugal is financially healthy. Portugal is certainly not Greece or Ireland. To anyone with a brain, these are, of course, preposterous notions similar to Hank Paulson's statements back in early 2008 promising that the US economy was still sound or Bernanke's comment that sub-prime was contained. Whenever you get these kinds of false assurances by politicians, the smart money knows something big is going to happen. In this case, it is almost a guarantee that Portugal will soon be feeding on the EU bailout fund in order to survive.
But don't listen to me. Take a look at what the markets are saying. After today's "successful" debt auction, Portuguese 5 - year CDS is currently trading at 513 bps. Yes, it was down 4 percent for the day, but the number is telling us the market does not believe Portugal is going to make it without EU assistance. If you remember, back before Ireland collapsed, I mentioned that when you see sovereign CDS rise above 400 bps, bankruptcy is not far off. Portugal is well above this critical threshold, which already means the die has been cast---the only question is:When will Portugal be forced to beg for financial aid from the EU? Personally, I think it will occur within the next 3 months despite Portugal's recent bond offering.
Below is a chart of Portuguese CDS. How can you tell me everything is okay?
One thing to keep in mind is the news from the WSJ that Portugal was forced to initiate a 1.1 billion Euro private placement of debt with China last week. Does this sound like a economically viable and strong country? A private placement of government debt is what soon-to-be bankrupt countries do when the market loses confidence in their ability to repay their debts. Instead of holding an auction where people bid for your debt, in a private placement, the government goes out (with the help of a few investment banks) and actively looks for gullible fools to purchase their debt. The insinuation is that the Portuguese government had to take this action because they feared a failed bond auction.
So even though Portugal was able to see 1.25 billion Euros worth of debt today, it is more of a temporary stop-gap measure because it is a slap in the bucket to the 20 or so billion Euros that Portugal needs to finance itself in 2011. And don't forget there is 2012,2013, and so on. It is true that Portugal has a little more breathing room than the perennial basket case Greece because it starts with a lower debt-to-GDP ratio of around 80%. The problem for Portugal is an uncompetitive economy which lacks any real catalysts for growth. About the only hope for Portugal is to grow its way out of its problems (along with ECB induced inflation). But this is next to impossible for a country that is implementing harsh austerity measures to placate EU demands. This, along with a inefficient labor market and over regulation, leaves the Portuguese economy with no hope of strong growth. The Central Bank of Portugal was forced recently to cut its 2011 growth forecast from 0% to -1.3%, as a result of the austerity measures. Considering that this number comes from a government, we can expect it to be overly optimistic. The real number is likely to be much worse. So we have an economy, which is contracting, and yet at the same time continues to run chronic budget deficits (9% in 2009, and somewhere around 7% for 2010). It is a recipe for disaster as Greece and Ireland have already discovered. More, importantly for Portugal, 2011 does not look very promising either, with current forecasts predicting a 4.6% budget deficit. So much for Portugal taking tough measures.
The combination of a permanently weakened economy with rising debts is exactly like what happened to Greece. Oh, the game continues as long as the country is able to constantly roll over its debts and issue new debt. But when the day comes when the bond market wakes up and pulls back the punch bowl, it is lights out for that insolvent country. The only question is: How long can the bond market continue to finance Portugal? In reality, the market has already abandoned Portugal and rates on Portuguese debt confirm this fact. 10-year government debt is trading around 7%, hardly a vote of confidence by the market--and this is with continual ECB monetization! Imagine if the ECB stepped away and let the market function freely. Do you think rates would be lower or higher? So as long as the ECB keeps up its purchases of EU peripheral debt, the ponzi game can continue indefinitely, saving Portugal from officially tapping the EU stabilization fund. But is this a real victory when it is predicated on an ECB stealth bailout financed with money printing? I don't think so.
Black Swan Insights
Related Articles:
Which Country's Banking System Is At Most Risk?
Irish Bailout Only The Beginning--Endgame is EU Collapse
Irish Crisis Nears Endgame--5 Year CDS Surges To 495 bps
The Housing Double Dip Intensifies---Altos Research
December 2010 HighlightsAbout the only positive from the report was the slight decrease in housing inventory. Thought that does not seem to be helping prices at the moment. But don't expect this trend to continue according to Altos. Home sellers usually wait to list a property in the spring because that is the best time from a seasonal perspective. Altos anticipates that the level of housing inventory will increase as sellers try to capitalize on the most active period for the housing market. The only question left if how much farther do prices fall during the double-dip. The major banks better pray the answer is not too much more because that would trigger more write downs of already insolvent institutions (here's looking at you BAC).
The Altos 10-City Composite is now at $448,996, off 1.63% from last November 2010.
All 27 of the major markets tracked by the report showed seasonal price decreases. Most were relatively minor, with the steepest declines seen in San Francisco (down 4.77%), San Diego (down 3.71%), and Minneapolis (down 3.16%), respectively.
Housing inventory is off by 5.89% nationwide, with dramatic decreases in several major markets, including Boston, San Francisco, and Seattle.
The declines shown reflect expected seasonal downturns.
Black Swan Insights
NAAIM Survey: Step Away From the Punch Bowl
The National Association of Active Investment Managers released its weekly sentiment survey. The number reflects total equity exposure of participating investment managers. This week the average equity exposure fell slightly to 78.51%, down from 80.21% previously. If you look at the chart below you will see that market corrections generally coincide with a NAAIM reading of 80 or above. So we may be very near to a short-term market peak. Also, we are currently at the same level reached back in late April/early May 2010 right before the big market decline. As a contrary indicator, the NAAIM survey is signaling caution. This number fits nicely with the overly bullish sentiment number we saw in the AAII survey. It may be time for prudent investors to step away from Zimbabwe Ben's punch bowl before the market experiences a major hangover. Good luck trading!
Here is the chart.
Click chart for larger image
Black Swan Insights
Read more >>
Here is the chart.
Click chart for larger image
Black Swan Insights
AAII Sentiment Survey: Retailers Still Drunk on Zimbabwe Ben's Kool-Aid
The American Association of Independent Investors released its weekly sentiment survey. This week bullish sentiment increased to 55.88%, up from 51.6%, while bearish sentiment fell 1.8 points to 18.25%. Neutral investors fell slightly to 25.86%.
As has been the case for quite some time, AAII bullish sentiment has remained elevated as investors continue to consume Zimbabwe Ben's QE elixir. If you remember, the extremely high bullish sentiment is one reason Marc Faber thinks a correction is just around the corner. While I generally agree, we have to remember that traditional trading signals seem to be almost useless when you have the Fed openly pumping stocks and explicitly saying the goal is a rising stock market. These truly are unprecedented times where you cannot rely on the usual trading signals. So while bullish sentiment is very high, it does not necessarily mean we will have a correction. One thing I like to keep track of is AAII bearish sentiment, which I have found to be a little more accurate in predicting market movements. Currently, it stands at only 18.25% and clearly indicates widespread complacency, thanks to the Fed's actions. I took a look at what happens when AAII bearish sentiment falls below 18.50%. Over the last 6 years, there have been 13 occasions, which makes it very rare indeed. Over the next three weeks the market fell 7 times and rose 6 times. It should be noted that the decline was not terribly steep, only a few percentage points. You certainly would not want to bet the farm either way based on the numbers. However, it suggests that if you are thinking about establishing new long positions, then you should probably wait for a correction, instead of jumping on the bullish bandwagon.
Here is a short-term chart of AAII sentiment.
click charts for larger image
Here is a long-term chart which compares AAII bullish sentiment to the SP 500
Finally, here is a a chart which compares AAII bearish sentiment to the SP 500.
Black Swan Insights
Read more >>
As has been the case for quite some time, AAII bullish sentiment has remained elevated as investors continue to consume Zimbabwe Ben's QE elixir. If you remember, the extremely high bullish sentiment is one reason Marc Faber thinks a correction is just around the corner. While I generally agree, we have to remember that traditional trading signals seem to be almost useless when you have the Fed openly pumping stocks and explicitly saying the goal is a rising stock market. These truly are unprecedented times where you cannot rely on the usual trading signals. So while bullish sentiment is very high, it does not necessarily mean we will have a correction. One thing I like to keep track of is AAII bearish sentiment, which I have found to be a little more accurate in predicting market movements. Currently, it stands at only 18.25% and clearly indicates widespread complacency, thanks to the Fed's actions. I took a look at what happens when AAII bearish sentiment falls below 18.50%. Over the last 6 years, there have been 13 occasions, which makes it very rare indeed. Over the next three weeks the market fell 7 times and rose 6 times. It should be noted that the decline was not terribly steep, only a few percentage points. You certainly would not want to bet the farm either way based on the numbers. However, it suggests that if you are thinking about establishing new long positions, then you should probably wait for a correction, instead of jumping on the bullish bandwagon.
Here is a short-term chart of AAII sentiment.
click charts for larger image
Here is a long-term chart which compares AAII bullish sentiment to the SP 500
Finally, here is a a chart which compares AAII bearish sentiment to the SP 500.
Black Swan Insights
Can We Trust The Improvement in Initial Jobless Claims?
One of the major divergences in data recently has been between the SA initial claims and NSA initial claims. According the government's doctored SA number, initial claims have fallen off a cliff, signaling a pick up in the job market. The number of new initial claims has declined from 438,000 to 388,000 in just 5 weeks. Generally, a sustained drop below 400,000 has been consistent with a recovery in the economy, which, of course, means further gains in the stock market. Some in the blogosphere have questioned the validity of these numbers noting that while the SA number has improved, the NSA number has surged from 413,000 to over 521,000. So who is correct?
Let's take a look at a chart which plots initial jobless claims on both a SA and NSA basis.
You can clearly see from the chart above that the NSA data is much more erratic than the seasonally adjusted data. But you will note that the large divergences seem to follow a pattern towards the end of the year and quickly fall back into line. Based on the chart, it looks like the pick up in the job market is for real despite the consensus for another sluggish year for employment. It is hard to say what in particular is the catalyst for the dramatic improvement. The only real thing that comes to mind is Zimbabwe Ben's signature brand of kool-aid, which has gotten everyone back into the Goldilocks stupor that the market can never decline, despite Europe being on the verge of collapse. Once the Fed induced liquidity party is over, there is going to be one hell of a hangover. That is why the Fed will almost certainly never again implement positive real interest rates--it would ruin the party of dollar debasement and speculative bubbles, which according to our Beloved Chairman boosts the "wealth effect" and helps keep the ponzi economy going.
Black Swan Insights
Read more >>
Let's take a look at a chart which plots initial jobless claims on both a SA and NSA basis.
You can clearly see from the chart above that the NSA data is much more erratic than the seasonally adjusted data. But you will note that the large divergences seem to follow a pattern towards the end of the year and quickly fall back into line. Based on the chart, it looks like the pick up in the job market is for real despite the consensus for another sluggish year for employment. It is hard to say what in particular is the catalyst for the dramatic improvement. The only real thing that comes to mind is Zimbabwe Ben's signature brand of kool-aid, which has gotten everyone back into the Goldilocks stupor that the market can never decline, despite Europe being on the verge of collapse. Once the Fed induced liquidity party is over, there is going to be one hell of a hangover. That is why the Fed will almost certainly never again implement positive real interest rates--it would ruin the party of dollar debasement and speculative bubbles, which according to our Beloved Chairman boosts the "wealth effect" and helps keep the ponzi economy going.
Black Swan Insights
Marc Faber's January 2011 Outlook---Correction Imminent
1. Equity Markets--Faber believes a correction is imminent for the stock market as bullish sentiment (AAII sentiment) nears record levels and mutual fund cash positions remain very low. Furthermore, the latest upward move in stocks has occurred on declining volume, which is usually bearish from a technical point of view. The correction should occur in January. That being said, you should be buying into the correction as it represents a good buying opportunity. Faber prefers energy companies and speculative stocks such as home builders and even AIG. He goes on to say that the third year of a Presidential cycle is very good for speculative stocks versus traditional blue chip value plays.
2. Gold and Silver--Reiterates his favorable opinion on gold and silver. Doubts they are currently in a bubble as some analysts postulate. Faber notes that investor exposure is very low when you look you compare it to the world's financial wealth, meaning that gold and silver are still under-owned and have room to run.
3. Emerging Markets--While he is very bullish long-term on emerging markets, investors should avoid (or at least lighten up on) emerging market stocks right now. They should only be bought on corrections which would represent favorable entry levels. Overall, Faber thinks the SP 500 will outperform emerging markets in 2011. The only emerging market that looks attractive right now is Vietnam (VNM).
4. Commodities--On a correction, Faber likes energy companies since the long-term trend in oil is up, as supply fails to keep up with surging demand from emerging markets. Notes that emerging markets have surpassed the developed world in oil consumption and that this trend should keep demand strong for the foreseeable future. Faber likes the majors like Exxon, Hess, and even Chesapeake as natural gas is too cheap on an inflation adjusted basis. Continuing the energy theme, coal and uranium stocks should be gradually accumulated on weakness as the world looks for alternative sources of reliable energy. Peabody on the coal side and Cameco for uranium should outperform over the next few years.
5. Bond Market--Reiterates his bearish long-term view on US Treasuries, but notes that they are currently oversold and could be a good trade at this point (TLT). But this would only be a short-term bounce as rates have likely bottomed and higher inflation will erode future returns.
6. Japan Equities--While everyone is still bearish on Japan, Faber likes Japanese equities and thinks they have the potential for more upside. In particular, he likes Japanese financials such as Nomura and Mizuho Financial.
Overall, Marc Faber is pretty bullish on equities despite his prediction of a short-term pullback in January.
Happy New Year!
Black Swan Insights
Subscribe to:
Posts (Atom)